Application Problems Week 4
Page 209: Brief Exercises 5-1,
5-2, 5-4
BE5-1 Monthly production costs in
Dilts Company for two levels of production are as
follows.
Cost 2,000 Units4,000 Units
Indirect labor $10,000 $20,000
Supervisory salaries 5,000 5,000
Maintenance 4,000 6,000
Indicate which costs are
variable, fixed, and mixed, and give the reason for each answer.
BE5-2 For Lodes Company, the
relevant range of production is 40–80% of capacity. At 40% of capacity, a
variable cost is $4,000 and a fixed cost is $6,000. Diagram the behavior of
each cost within the relevant range assuming the behavior is linear.
BE5-4 Bruno Company accumulates
the following data concerning a mixed cost, using miles as the activity level.
Miles Total Miles
Total
Driven Cost Driven Cost
January 8,000
$14,150 March 8,500 $15,000
February 7,500
13,500 April 8,200 14,490
Compute the variable- and
fixed-cost elements using the high-low method.
Pages 260-261: Exercises 6-2,
6-5, 6-7
E6-2 In the month of June, Jose
Hebert’s Beauty Salon gave 4,000 haircuts, shampoos, and permanents at an
average price of $30. During the month, fixed costs were $16,800 and variable
costs were 75% of sales.
Instructions
(a) Determine the contribution
margin in dollars, per unit and as a ratio.
(b) Using the contribution margin
technique, compute the break-even point in dollars and in units.
(c) Compute the margin of safety
in dollars and as a ratio.
E6-5 Carey Company had sales in
2016 of $1,560,000 on 60,000 units. Variable costs totaled $900,000, and fixed
costs totaled $500,000.
A new raw material is available that will
decrease the variable costs per unit by 20% (or $3). However, to process the
new raw material, fixed operating costs will increase by $100,000. Management
feels that one-half of the decline in the variable costs per unit should be
passed on to customers in the form of a sales price reduction. The marketing department
expects that this sales price reduction will result in a 5% increase in the
number of units sold.
Instructions
Prepare a projected CVP income
statement for 2017 (a) assuming the changes have not been made, and (b)
assuming that changes are made as described.
E6-7 PDQ Repairs has 200
auto-maintenance service outlets nationwide. It performs primarily two lines of
service: oil changes and brake repair. Oil change–related services represent
70% of its sales and provide a contribution margin ratio of 20%. Brake repair represents
30% of its sales and provides a 40% contribution margin ratio. The company’s fixed
costs are $15,600,000 (that is, $78,000 per service outlet).
Instructions
(a) Calculate the dollar amount
of each type of service that the company must provide in order to break even.
(b) The company has a desired net
income of $52,000 per service outlet. What is the dollar amount of each type of
service that must be performed by each service outlet to meet its target net
income per outlet?
TUTORIAL PREVIEW
|
Cost
|
2,000 Units
|
4,000 Units
|
Reason
|
|
Indirect labor
|
$10,000
|
$20,000
|
Variable cost as the cost increases proportionately with increase
in output.
|
|
Supervisory salaries
|
5,000
|
5,000
|
Fixed cost as the cost does not change with change in output.
|
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