Quiz 6

Given the following cost and activity observations for Bounty Company's utilities, use the high-low method to determine Bounty's variable utilities cost per machine hour. Round to the nearest cent. Cost Machine Hours March $3,100 15,000 April 2,700 10,000 May 2,900 12,000 June 3,600 18,000

$0.11 Difference in Total Cost = Total Cost (Highest Level) - Total Cost (Lowest Level) = $3,600 - $2,700 = $900 Variable Cost per Machine Hour = Difference in Total Cost ÷ Difference in Machine Hours = $900 ÷ (18,000 - 10,000) = $0.11

Lee Industry's sales are $525,000, variable costs are 53% of sales, and income from operations is $19,000. What is the contribution margin ratio?

47% Contribution Margin Ratio = (Sales - Variable Costs) ÷ Sales = [$525,000 - (53% × $525,000)] ÷ $525,000 = $246,750 ÷ $525,000 = 47%

The graph of a variable cost when plotted against its related activity base appears as a

straight line

Given the following cost data, what type of cost is shown? Cost per Unit Number of Units $6,000 1 3,000 2 2,000 3 1,500 4

fixed cost

Costs that remain constant in total dollar amount as the level of activity changes are called

fixed costs

The manufacturing costs of Calico Industries for 3 months of the year are as follows: Total Cost Production (units) April $120,000 280,000 May 74,000 165,000 June 90,900 230,000 Using the high-low method, the variable cost per unit and the total fixed costs are

$0.40 per unit and $8,000, respectively Difference in Total Cost = Total Cost (Highest Level) - Total Cost (Lowest Level) = $120,000 - $74,000 = $46,000 Variable Cost per Unit = Difference in Total Cost ÷ Difference in Units Produced = $46,000 ÷ (280,000 - 165,000) = $0.40 Total Fixed Costs (Highest Level) = Total Costs - (Variable Cost per Unit × Units Produced) = $120,000 - ($0.40 × 280,000) = $8,000

Question Content Area If fixed costs are $750,000 and variable costs are 60% of sales, what is the break-even point in sales dollars?

$1,875,000 Contribution Margin Ratio = Sales % - Variable Cost % = 100% - 60% = 40% Break-Even Sales ($) = Fixed Costs ÷ Contribution Margin Ratio = $750,000 ÷ 40% = $1,875,000

A firm operated at 90% of capacity for the past year, during which fixed costs were $420,000, variable costs were 40% of sales, and sales were $1,000,000. Income from operations was

$180,000 Variable Costs = $1,000,000 × 40% = $400,000 Contribution Margin = Sales - Variable Costs = $1,000,000 - $400,000 = $600,000 Income from Operations = Contribution Margin - Fixed Costs = $600,000 - $420,000 = $180,000

Reynold's Grocery has fixed costs of $350,000, the unit selling price is $29, and the unit variable costs are $20. What is the break-even point in sales units (rounded to a whole number) if the unit variable costs are decreased by $4?

26,923 units Break-Even Sales (units) = Fixed Costs ÷ Unit Contribution Margin = $350,000 ÷ [$29 - ($20 - $4)] = $350,000 ÷ $13 = 26,923 units

Payton Industries has fixed costs of $490,000, the unit selling price is $35, and the unit variable costs are $20. What is the break-even point in sales units if fixed costs are reduced by $40,000?

30,000 units Break-Even Sales (units) = Fixed Costs ÷ Unit Contribution Margin = ($490,000 − $40,000) ÷ ($35 − $20) = $450,000 ÷ $15 = 30,000 units