problem 1: High-Low Method Campus Copy and Printing wants to predict copy machine repair expense at different levels of copying activity (number of copies made). The given data have been gathered:
Month Repair Expense Copies Made Copy Machine
May $ 8,500 300,000
June 12,500 500,000
July 20,500 900,000
August 16,500 700,000
September 10,500 400,000
Find out the fixed and variable components of repair expense by using the high-low method. Use copies made as the measure of activity.
problem 2: CVP Analysis Gabby’s Wedding Cakes creates elaborate wedding cakes. Each cake sells for $600. The variable cost of making the cakes is $250, and the fixed cost per month is $7,700.
a) Compute the break-even point for a month in units.
b) How many cakes should be sold to earn a monthly profit of $10,000?
problem 3: CVP Analysis, Profit Equation Clyde’s Marina has estimated that fixed costs per month are $300,000 and variable cost per dollar of sales is $0.40.
a) Determine the break-even point per month in sales dollars?
b) What level of sales dollars is needed for a monthly profit of $60,000?
c) For the month of July, the marina anticipates sales of $1,000,000. Find out the expected level of profit?
problem 4: Contribution Margin Rhetorix, Inc. produces stereo speakers. The selling price per pair of speakers is $900. The variable cost of production is $300 and the fixed cost per month is $60,000.
a) Compute the contribution margin related with a pair of speakers.
b) In August, the company sold six more pairs of speakers than planned. Determine the expected effect on profit of selling the additional speakers?
c) Compute the contribution margin ratio for Rhetorix related with a pair of speakers. (Round to 2 decimal places.)
d) In October, the company had sales that were $7,000 more than planned. What is the expected effect on profit related to the additional sales?
problem 5: Margin of Safety Rhetorix, Inc. produces stereo speakers. The selling price per pair of speakers is $900. The variable cost of production is $300 and the fixed cost per month is $60,000. For November, the company predicts to sell 130 pairs of speakers.
a) Compute expected profit.
b) Compute the margin of safety in dollars.
problem 6: “What If” Analysis Rhetorix, Inc. produces stereo speakers. The selling price per pair of speakers is $900. The variable cost of production is $300 and the fixed cost per month is $60,000.
Compute the expected profit for November supposing the company sells 130 pairs of speakers as planned, however the selling price changes to $1,200.
problem 7: High-Low, Break-Even Lancer Audio produces a high-end DVD player which sells for $1,300. Total operating expenses for the past 12 months are as shown:
a) Use the high-low method to estimate fixed and variable costs.
b) Based on such estimates, compute the break-even level of sales in units. (Round to the near whole unit.)
c) Compute the margin of safety for the coming August supposing estimated sales of 165 units.
d) Estimate total profit supposing production and sales of 165 units.
e) Comment on the limitations of the high-low technique in estimating costs for Lancer Audio.
problem 8: Throughout the year, Xenoc produces 1,200 pairs of speakers and sells 1,000 pairs.
a) Find out the value of ending inventory by using full costing?
b) Find out the value of ending inventory by using variable costing?
c) Find out the cost of goods sold by using full costing?
d) What is the variable cost of goods sold?
e) Determine net income by using full costing?
f) Find out the net income by using variable costing?
problem 9: Variable and Full Costing: Income Effect of Clearing Excess Inventory. The given information is available for Dunworth Canoes, a company which builds inexpensive aluminum canoes:
2011 2012 Total
Units Produced 18,000 14,000 32,000
Units sold 16,000 16,000 32,000
Selling price per unit $ 500 $ 500
Variable production costs per unit $ 200 $ 200
Direct material per unit $ 80 $ 80
Direct labor per unit $ 50 $ 50
Variable manufacturing overhead per unit $ 70 $ 70
Fixed manufacturing overhead per year $630,000 $630,000
Fixed selling and administrative expense per year $200,000 $200,000
In its first year of operation, the company generated 18,000 units however were able to sell only 16,000 units. In its second year, the company required to get rid of excess inventory (the extra 2,000 units produced but not sold in 2011) so it cut back production to 14,000 units.
a) Compute profit for both years by using full costing.
b) Note that profit has declined in the year 2012. Is company performance actually worse in 2012 compared to 2011?
c) Compute profit for both years by using variable costing.
d) Does variable costing profit present a more realistic view of firm performance in the two years? Describe.