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Contribution margin, fixed costs, break even, ratios

BE18- 1 Monthly production costs in Ogden Company for two levels of production are as follows.

Cost 2,000 units 4,000 units
Indirect labor $ 10,000 $ 20,000
Supervisory salaries 5,000 5,000
Maintenance 2,500 4,000
Indicate which costs are variable, fixed, and mixed, and give the reason for each answer.

BE18- 2 For Leahy Company, the relevant range of production is 40- 80% of capacity. At 40% of capacity, a variable cost is $ 2,000 and a fixed cost is $ 5,000. Diagram the be-havior of each cost within the relevant range assuming the behavior is linear.

BE18- 5 Westerville Corp. has collected the following data concerning its maintenance costs for the past 6 months.
Units produced Total cost
July 18,000 $ 32,000
August 32,000 48,000
September 36,000 55,000
October 22,000 38,000
November 40,000 65,000
December 38,000 62,000

Compute the variable and fixed cost elements using the high- low method.

BE18- 6 Determine the missing amounts.

Unit Selling Unit Variable Contribution Contribution
Price Costs Margin per Unit Margin Ratio
1.$ 260 $160 ( a) ( b)
2.$ 500 ( c) $ 140 ( d)
3. ( e) ( f) $ 360 30%

BE18- 7 Fontillas Manufacturing Inc. has sales of $ 1,800,000 for the first quarter of 2007. In making the sales, the company incurred the following costs and expenses.

Variable Fixed
Cost of goods sold $ 750,000 $ 540,000
Selling expenses 95,000 60,000
Administrative expenses 79,000 70,000
Prepare a CVP income statement for the quarter ended March 31, 2007.

BE18- 8 Lehi Company has a unit selling price of $ 400, variable costs per unit of $ 250, and fixed costs of $ 150,000. Compute the break- even point in units using ( a) the mathematical equation and (b) contribution margin per unit.

BE18- 9 Wesland Corp. had total variable costs of $ 170,000, total fixed costs of $ 120,000, and total revenues of $ 250,000. Compute the required sales in dollars to break even.

BE18- 10 For Biswell Company, variable costs are 75% of sales, and fixed costs are $ 180,000. Management's net income goal is $ 60,000. Compute the required sales in dol-lars needed to achieve management's target net income of $ 60,000. ( Use the contribution margin approach.)

BE18- 11 For Korb Company actual sales are $ 1,200,000 and break- even sales are $ 840,000. Compute ( a) the margin of safety in dollars and ( b) the margin of safety ratio.

BE18- 12 PCB Corporation has fixed costs of $ 480,000. It has a unit selling price of $ 6, unit variable cost of $ 4.50, and a target net income of $ 1,500,000. Compute the required sales in units to achieve its target net income.

P18- 2A Tyson Company bottles and distributes LO- KAL, a fruit drink. The beverage is sold for 50 cents per 16-ounce bottle to retailers, who charge customers 70 cents per bot-tle. Management estimates the following revenues and costs.

Net sales $ 2,500,000 Selling expenses? variable $ 90,000
Direct materials 360,000 Selling expenses? fixed 200,000
Direct labor 650,000 Administrative expenses?
Manufacturing overhead? variable 30,000
variable 370,000 Administrative expenses?
Manufacturing overhead? fixed 140,000
fixed 260,000

Instructions

( a) Compute (1) the contribution margin and (2) the fixed costs.
( b) Compute the break-even point in (1) units and (2) dollars.
( c) Compute the contribution margin ratio and the margin of safety ratio.
( d) Determine the sales dollars required to earn net income of $ 240,000.

Question 2

Which of the following indicates how efficiently a company uses its assets to generate sales?

Option 1: Asset turnover ratio
Option 2: Profit Margin Ratio

Question 3

Consider the following statements.

Statement A: Intangible assets are rights, privileges, and competitive advantages that result from ownership of long-lived assets that do not possess physical substance.
Statement B: Cost is measured by the cash paid in a cash transaction or by the cash equivalent price paid.

Option 1: Statement A is true and Statement B is false
Option 2: Statement A is false and Statement B is true
Option 3: Both Statements A and B are true
Option 4: Both Statements A and B are false

Question 4

_________ is a technique for evaluating a series of financial statement data over a period of time.

Identify the option you will choose to fill in the given blank.

Option 1: Horizontal Analysis
Option 2: Vertical Analysis
Option 3: Ratio Analysis

Question 5

Which of the following analysis expresses the relationship among selected items of financial statement data?

Option 1: Ratio Analysis
Option 2: Horizontal Analysis
Option 3: Vertical Analysis

Question 6

Which of the following options measures short-term ability of the company to pay its maturing obligations and to meet unexpected needs for cash?

Option 1: Liquidity
Option 2: Solvency
Option 3: Profitability

Question 7

_________ measures the ability of the company to survive over a long period of time.

Identify the correct option to fill in the given blank.

Option 1: Liquidity
Option 2: Solvency
Option 3: Profitability

Question 8

Consider the following statements.

Statement A: Gross Profit Rate indicates a company's ability to maintain an adequate selling price above its cost of goods sold.
Statement B: Price-Earnings (P-E) Ratio reflects investors' assessments of a company's future earnings.

Option 1: Statement A is true and Statement B is false
Option 2: Statement A is false and Statement B is true
Option 3: Both Statements A and B are true
Option 4: Both Statements A and B are false

Question 9

_____________ are costs that remain the same in total regardless of changes in the activity level.

Identify the correct option to fill in the given blank.

Option 1: Fixed costs
Option 2: Variable costs
Option 3: Mixed Costs

Question 10
Consider the following statements.

Statement A: Mixed costs remain the same per unit at every level of activity.
Statement B: Variable costs change in total but not proportionately with changes in activity level.

Option 1: Statement A is true and Statement B is false
Option 2: Statement A is false and Statement B is true
Option 3: Both Statements A and B are true
Option 4: Both Statements A and B are false

Solution Preview

Answer:
BE18-1: Given that,
Cost 2,000 units 4,000 units
Indirect labor $10,000 $20,000
Supervisory Salaries $5,000 $5,000
Maintenance $2,500 $4,000

Here,
Variable cost is indirect labor because the cost of indirect labor changes with number of units. As we can see the cost of 2,000 units is $10,000 and when the number of units double the cost of indirect labor also doubles. So the indirect labor cost per unit is $5.
Fixed cost is the supervisory salaries because the cost of supervisory salaries ($5,000) does not change with the number of units produced.
Maintenance cost is the mixed cost because it has a component of fixed cost as well as variable cost. We can see $1,000 is the fixed cost and $1,500 is the variable cost and changes to $3,000 as the number of units changes from 2,000 to 4,000.
BE18-2: Given that,
Relevant range of production is 40-80% range of capacity. At 405 range of capacity:
Variable cost=$2,000
Fixed cost=$5,000
So, the cost ...

Solution Summary

Contribution margins, fixed costs, break even and ratios are examined.

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