Accounting Principles - Chapter 18

The following information is available for a company's cost of sales over the last four months. Month Units Sold Total Costs January 490 $ 34,600 February 890 $ 41,500 March 2,050 $ 53,500 April 2,850 $ 65,500 Using the high-low method, the estimated variable cost of sales per unit sold is:

$13.09

A firm expects to sell 26,200 units of its product at $16 per unit. Income is predicted to be $61,200. If the variable costs per unit are $8, total fixed costs must be:

$148,400 (Income = Contribution margin − Fixed costs $61,200 = (26,200 × $8) − Fixed costs $61,200 = $209,600 − Fixed costs Fixed costs = $209,600 − $61,200 Fixed costs = $148,400)

W&W Tax Service offers tax and consulting services to individuals and small businesses. Data for fees and costs for three types of tax returns is presented in the table below. Fixed costs total $67,500. Type of Return Sales Mix Fee Charged Variable Cost per Return Easy 50% $ 160 $ 90 Moderate 30% 310 180 Business 20% 610 230 The weighted-average contribution margin is:

$150 (Weighted-average CM = ($160 − $90)(50%) + ($310 − $180)(30%) + ($610 − $230)(20%) = $150)

Raven Company has a target income of $71,500. The contribution margin ratio is 40%. What amount of dollar sales must be achieved to reach the goal if fixed costs are $38,900?

$276,000 (Dollar sales at target income = ($38,900 + $71,500)/0.40 = $276,000)

During its most recent fiscal year, Raphael Enterprises sold 340,000 electric screwdrivers at a price of $19.20 each. Fixed costs amounted to $1,156,000 and income was $1,496,000. What amount should have been reported as variable costs in the company's contribution margin income statement for the year in question?

$3,867,000 (Contribution margin = sales - fixed costs (340000 * 19.2) - 1156000 = 5372000 Variable costs = contribution margin - income 5372000 - 1496000 = 3867000

A firm expects to sell 25,400 units of its product at $11.40 per unit and to incur variable costs per unit of $6.40. Total fixed costs are $74,000. The firm's net income is:

$53,000 (Income = Sales − Variable costs − fixed costs)

If a firm's expected sales are $252,000 and its break-even sales are $191,000, the margin of safety in dollars is:

$61,000

During March, a firm expects its total sales to be $167,000, its total variable costs to be $95,700, and its total fixed costs to be $25,700. The contribution margin for March is:

$71,300 (Contribution margin = Sales − Variable costs $167,000 − $95,700 = $71,300)

Henderson Company has fixed costs of $33,000 and a contribution margin ratio of 25%. If expected sales are $176,000, what is the margin of safety as a percent of sales?

25% (Break even sales = 33,000/25% = 132,000 Margin of sales in % = (sales - break even sales) / sales (176,000 - 132,000) / 176,000

Use the following information to determine the break-even point in units: Unit sales 44,000 Units Unit selling price $ 15.30 Unit variable cost $ 9.10 Fixed costs $ 180,000

29,932 (Break-even point in units = Fixed costs/Contribution margin per unit $180,000/($15.30 − $9.10) = 29,032 units)

Wang Company manufactures and sells a single product that sells for $250 per unit; variable costs are $145 per unit. Annual fixed costs are $873,600. Current sales volume is $4,280,000. Compute the contribution margin ratio.

42.0% (Contribution margin ratio = $250 − $145 = $105/$250 = 42.0%)

Viva sells its waterproof phone case for $98 per unit. Fixed costs total $182,000, and variable costs are $44 per unit.

6,800 units

Zhao Company has fixed costs of $455,600. Its single product sells for $191 per unit, and variable costs are $124 per unit. Compute the units that must be sold to achieve a target income of $134,000.

8,800

Zhao Company has fixed costs of $469,200. Its single product sells for $193 per unit, and variable costs are $125 per unit. If the company expects sales of 10,000 units, compute its margin of safety (a) in dollars and (b) as a percent of expected sales.

A. $598,300 (expected sales - break even sales) B. 31% ((total sales-break even sales)/total sales)

Coors Company expects sales of $817,000 (8,600 units at $95 per unit). The company's total fixed costs are $408,000 and its variable costs are $35 per unit. Compute (a) break-even in units and (b) the margin of safety in dollars.

A. 6,800 B. $171,000 (A. Break-even point in units = $408,000 / ($95 − $35) = 6,800 unit B. Margin of safety = $817,000 − (6,800 × $95) = $171,000)

Select cost information for Klondike Corporation is as follows: 1,000 units of output 2,000 units of output Total Cost/Unit Total Cost/Unit Direct materials $ 4,000 $ 4.00 $ 8,000 $ 4.00 Rent expense $ 2,000 $ 2.00 $ 2,000 $ 1.00 Based on this information:

Direct materials is a variable cost and rent expense is a fixed cost.

Following are costs for eight different items. Costs are shown for three different levels of units produced and sold. Classify each of the eight cost items as either variable, fixed, or mixed.

Director labor - Variable Depreciation on factory equipment - Fixed Director materials - Variable Rent on factory building - Fixed Salesperson compensation - Mixed Factory supervisory salary - Fixed Factory utilities - Mixed Insurance on factory building - Fixed

The margin of safety is the excess of:

Expected sales over break-even sales.

Zulu sells its waterproof phone case for $122 per unit. Fixed costs total $212,000, and variable costs are $47 per unit. Compute the units that must be sold to get a target income of $235,000.

Fixed cost plus target income / Contribution margin per unit = units to achieve target $447,000 / 75 = 5,960 units

Identify whether each of the following is best described as a fixed, variable, or mixed cost with respect to product units.

Insurance on factory building - Fixed Factory rent - Fixed Packaging expense - Variable Peanuts used in making trail mix - Variable Rubber used in making tennis balls - Variable Real estate tax - Fixed Rubber used to manufacture athletic shoes - Variable

Which one of the following statements is false? Total variable costs decrease as the volume increases. Fixed costs per unit increase as the volume decreases. Total fixed costs remain the same regardless of volume within the relevant range. Total variable costs change with volume. Variable costs per unit remain the same regardless of the volume.

Total variable costs decrease as the volume increases.

Which of the following costs is most likely to be classified as a fixed cost?

property taxes