Review 181
Helena Company reports the following total costs at two levels of production.
Classify each cost as variable, fixed, or mixed.
5,000 Units 
10,000 Units 

Indirect labor 
$ 3,000 
$ 6,000 

Property taxes 
7,000 
7,000 

Direct labor 
28,000 
56,000 

Direct materials 
22,000 
44,000 

Depreciation 
4,000 
4,000 

Utilities 
5,000 
7,000 

Maintenance 
9,000 
11,000 
Exercise 184
Your answer is correct. 
Family Furniture Corporation incurred the following costs.
Identify the costs as variable, fixed, or mixed.
1. 
Wood used in the production of furniture. 

2. 
Fuel used in delivery trucks. 

3. 
Straightline depreciation on factory building. 

4. 
Screws used in the production of furniture. 

5. 
Sales staff salaries. 

6. 
Sales commissions. 

7. 
Property taxes. 

8. 
Insurance on buildings. 

9. 
Hourly wages of furniture craftsmen. 

10. 
Salaries of factory supervisors. 

11. 
Utilities expense. 

12. 
Telephone bill. 
Exercise 186
PCB Corporation manufactures a single product. Monthly production costs incurred in the manufacturing process are shown below for the production of 3,000 units. The utilities and maintenance costs are mixed costs. The fixed portions of these costs are $300 and $200, respectively.

Identify the above costs as variable, fixed, or mixed.

Calculate variable costs per unit, variable cost per unit for utilities and variable cost per unit for maintenance.

Calculate the expected costs when production is 5,000 units.

Do It! Review 182
Westerville Company accumulates the following data concerning a mixed cost, using units produced as the activity level.

Compute the variable cost per unit using the highlow method.

Compute the fixed cost elements using the highlow method.

Estimate the total cost if the company produces 9,200 units.

Exercise 183
The controller of Furgee Industries has collected the following monthly expense data for use in analyzing the cost behavior of maintenance costs.

Determine the variable cost components using the highlow method.

Determine the fixed components using the highlow method.

Exercise 1813
Cannes Company has the following information available for September 2014.

Do It! Review 183
Your answer is correct. 
Larissa Company has a unit selling price of $250, variable cost per unit of $170, and fixed costs of $140,000.
Compute the breakeven point in units using (a) the mathematical equation and (b) contribution margin per unit.
(a) Mathematical Equation 
(b) Contribution margin per unit 

Breakeven point 
units 
units 


Exercise 188
Your answer is correct. 
All That Blooms provides environmentally friendly lawn services for homeowners. Its operating costs are as follows.
Depreciation 
$1,400 
per month 

Advertising 
$200 
per month 

Insurance 
$2,000 
per month 

Weed and feed materials 
$12 
per lawn 

Direct labor 
$10 
per lawn 

Fuel 
$2 
per lawn 
All That Blooms charges $60 per treatment for the average singlefamily lawn.
Determine the company’s breakeven point in (a) number of lawns serviced per month and (b) dollars.
(a) 
Breakeven point 

(b) 
Breakeven point 
Exercise 189
Your answer is correct. 
The Green Acres Inn is trying to determine its breakeven point. The inn has 50 rooms that it rents at $60 a night. Operating costs are as follows.
Salaries 
$6,200 
per month 

Utilities 
$1,100 
per month 

Depreciation 
$1,000 
per month 

Maintenance 
$100 
per month 

Maid service 
$11 
per room 

Other costs 
$28 
per room 
Determine the inn’s breakeven point in (1) number of rented rooms per month and (2) dollars.
(1) 
Breakeven point 

(2) 
Breakeven point 
Exercise 1810
In the month of March, Style Salon services 560 clients at an average price of $120. During the month, fixed costs were $21,024 and variable costs were 60% of sales.

Exercise 1811
Your answer is correct. 
Kare Kars provides shuttle service between four hotels near a medical center and an international airport. Kare Kars uses two 10passenger vans to offer 12 round trips per day. A recent month’s activity in the form of a costvolumeprofit income statement is shown below.
Fare revenues (1,440 fares) 
$36,000 

Variable costs 

Fuel 
$5,040 

Tolls and parking 
3,100 

Maintenance 
860 
9,000 

Contribution margin 
27,000 

Fixed costs 

Salaries 
12,700 

Depreciation 
1,300 

Insurance 
1,000 
15,000 

Net income 
$12,000 
(a) Calculate the breakeven point in (1) dollars and (2) number of fares.
(1) 
Breakeven point 

(2) 
Breakeven point 
(b) Without calculations, determine the contribution margin at the breakeven point.
Contribution margin at the breakeven point 
Exercise 1812
In 2013, Manhoff Company had a breakeven point of $350,000 based on a selling price of $5 per unit and fixed costs of $112,000. In 2014, the selling price and the variable cost per unit did not change, but the breakeven point increased to $420,000. 
Compute the variable cost per unit and the contribution margin ratio for 2013.

Compute the increase in fixed costs for 2014.

Exercise 1814
Naylor Company had $210,000 of net income in 2013 when the selling price per unit was $150, the variable costs per unit were $90, and the fixed costs were $570,000. Management expects per unit data and total fixed costs to remain the same in 2014. The president of Naylor Company is under pressure from stockholders to increase net income by $52,000 in 2014. 
Compute the number of units sold in 2013. 
Compute the number of units that would have to be sold in 2014 to reach the stockholders’ desired profit level. 
Assume that Naylor Company sells the same number of units in 2014 as it did in 2013. What would the selling price have to be in order to reach the stockholders’ desired profit level?

Exercise 1815
Your answer is correct. 
Cottonwood Company reports the following operating results for the month of August: sales $400,000 (units 5,000); variable costs $210,000; and fixed costs $90,000. Management is considering the following independent courses of action to increase net income.
1. 
Increase selling price by 10% with no change in total variable costs or units sold. 

2. 
Reduce variable costs to 45% of sales. 
Compute the net income to be earned under each alternative.
1. 
Net Income 

2. 
Net Income 
Which course of action will produce the highest net income?
Do It! Review 184
Your answer is correct. 
Presto Company makes radios that sell for $30 each. For the coming year, management expects fixed costs to total $220,000 and variable costs to be $18 per unit.
(a) Compute the breakeven point in dollars using the contribution margin (CM) ratio.
Breakeven point 
(b) Compute the margin of safety ratio assuming actual sales are $800,000.
Margin of safety 
(c) Compute the sales dollars required to earn net income of $140,000.
Required sales 
Exercise 1817
Oak Bucket Co., a manufacturer of wood buckets, had the following data for 2013.

What is the contribution margin ratio?

What is the breakeven point in dollars?

What is the margin of safety in dollars and as a ratio?

If the company wishes to increase its total dollar contribution margin by 30% in 2013, by how much will it need to increase its sales if all other factors remain constant?

Problem 182A
Jorge Company bottles and distributes BLite, a diet soft drink. The beverage is sold for 50 cents per 16ounce bottle to retailers, who charge customers 75 cents per bottle. For the year 2014, management estimates the following revenues and costs.

Prepare a CVP income statement for 2014 based on management’s estimates.

Calculate variable cost per bottle.

Compute the breakeven point in (1) units and (2) dollars.

Compute the contribution margin ratio and the margin of safety ratio.

Determine the sales dollars required to earn net income of $ 180,000 .

Problem 183A
Your answer is correct. 
Dousmann Corp.’s sales slumped badly in 2014. For the first time in its history, it operated at a loss. The company’s income statement showed the following results from selling 500,000 units of product: sales $2,500,000; total costs and expenses $2,600,000; and net loss $100,000. Costs and expenses consisted of the amounts shown below.
Total 
Variable 
Fixed 

Cost of goods sold 
$2,140,000 
$1,540,000 
$600,000 

Selling expenses 
250,000 
92,000 
158,000 

Administrative expenses 
210,000 
68,000 
142,000 

$2,600,000 
$1,700,000 
$900,000 
Management is considering the following independent alternatives for 2015.
1. 
Increase unit selling price 20% with no change in costs, expenses, and sales volume. 

2. 
Change the compensation of salespersons from fixed annual salaries totaling $150,000 to total salaries of $60,000 plus a 5% commission on sales. 
(a) Compute the breakeven point in dollars for 2014.
Breakeven point 
(b) Compute the contribution margin under each of the alternative courses of action.
Contribution margin for alternative 1 

Contribution margin for alternative 2 
Compute the breakeven point in dollars under each of the alternative courses of action.
Breakeven point for alternative 1 

Breakeven point for alternative 2 
Which course of action do you recommend?
Problem 184A
Your answer is correct. 
Mary Willis is the advertising manager for Bargain Shoe Store. She is currently working on a major promotional campaign. Her ideas include the installation of a new lighting system and increased display space that will add $24,000 in fixed costs to the $270,000 currently spent. In addition, Mary is proposing that a 5% price decrease ($40 to $38) will produce a 20% increase in sales volume (20,000 to 24,000). Variable costs will remain at $24 per pair of shoes. Management is impressed with Mary’s ideas but concerned about the effects that these changes will have on the breakeven point and the margin of safety.
(a) Compute the current breakeven point in units, and compare it to the breakeven point in units if Mary’s ideas are used]
Current breakeven point 
pairs of shoes 

New breakeven point 

pairs of shoes 
(b) Compute the margin of safety ratio for current operations and after Mary’s changes are introduced.
Current margin of safety ratio 
% 

New margin of safety ratio 

% 
(c) Prepare a CVP income statement for current operations and after Mary’s changes are introduced.
Would you make the changes suggested? 
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