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    Contribution margin, fixed costs, break even, ratios

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    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

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    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.

    $2.49

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