Chapter 18: 16DQ (page 832)
Google has both fixed and variable costs. Why are fixed costs depicted as a horizontal line on a CVP chart?
Answer
The fixed cost of the business entity remains the same at every level of production under the relevant range; therefore, it is reflected as a horizontal line on the CVP chart.
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Zhao Co. has fixed costs of \(354,000. Its single product sells for \)175 per unit, and variable costs are $116 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.
Blanchard Company manufactures a single product that sells for \(180 per unit and whose total variable costs are \)135 per unit. The company’s annual fixed costs are \(562,500. The sales manager predicts that annual sales of the company’s product will soon reach 40,000 units and its price will increase to \)200 per unit. According to the production manager, variable costs are expected to increase to \(140 per unit, but fixed costs will remain at \)562,500. The income tax rate is 20%. What amounts of pretax and after-tax income can the company expect to earn from these predicted changes? (Hint: Prepare a forecasted contribution margin income statement as in Exhibit 18.21.)
SBD Phone Company sells its waterproof phone case for \(90 per unit. Fixed costs total \)162,000, and variable costs are $36 per unit. Determine the (1) contribution margin ratio and (2) break-even point in dollars.
_____ of _____ reflects expected sales in excess of the level of break-even sales.
Both Apple and Google sell electronic devices, and each of these companies has a different product mix.
Required
1. Assume the following data are available for both companies. Compute each company’s break-even point in unit sales. (Each company sells many devices at many different selling prices, and each has its variable costs. This assignment assumes an average selling price per unit and an average cost per item.)
Apple | ||
Average selling price per unit sold | \(550 per unit | \)470 per unit |
Average variable cost per unit sold | \(250 per unit | \)270 per unit |
Total fixed cost (\( in million) | \)36,000 | $10,000 |
2. If unit sales were to decline, which company would experience the larger decline in operating profit? Explain.
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