Chapter 18: 1DQ (page 832)
What is a variable cost? Identify two variable costs.
Answer
The cost that will increase or decrease as per the production level is known as a variable cost.
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
Use the amounts shown on the contribution margin income statement below to compute the missing amounts denoted by letters a through n.
| Company A | Company B | |||
| Number of units sold | a | 1,975 | ||
Total | Per unit | Total | Per unit | |
Sales | \(208,400 | \)65 | h | i |
Variable cost | 150,000 | b | \(39,500 | j |
Contribution margin | c | d | 43,450 | k |
Fixed cost | e | f | 19,750 | l |
Net income | \)46,400 | g | m | n |
Vijay Company reports the following information regarding its production costs. Compute its product cost per unit under absorption costing.
Direct material | \(10 per unit |
Direct labor | \)20 per unit |
Overhead cost for the year | |
Variable overhead | \(10 per unit |
Fixed overhead | \)160,000 |
Unit produced | 20,000 units |
Singh Co. reports a contribution margin of \(960,000 and fixed costs of \)720,000. (1) Compute the company’s degree of operating leverage. (2) If sales increase by 15%, what amount of income will Singh Co. report?
US-Mobile manufactures and sells two products, tablet computers and smartphones, in the ratio of 5:3. Fixed costs are \(105,000, and the contribution margin per composite unit is \)125. What number of each type of product is sold at the break-even point?
Praveen Co. manufactures and markets a number of rope products. Management is considering the future of Product XT, a special rope for hang gliding, that has not been as profitable as planned. Since Product XT is manufactured and marketed independently of the other products, its total costs can be precisely measured. Next year’s plans call for a \(200 selling price per 100 yards of XT rope. Its fixed costs for the year are expected to be \)270,000, up to a maximum capacity of 700,000 yards of rope. Forecasted variable costs are \(140 per 100 yards of XT rope.
Required
1. Estimate Product XT’s break-even point in terms of (a) sales units and (b) sales dollars.
2. Prepare a CVP chart for Product XT like that in Exhibit 18.14. Use 7,000 units (700,000 yards/100 yards) as the maximum number of sales units on the horizontal axis of the graph, and \)1,400,000 as the maximum dollar amount on the vertical axis.
3. Prepare a contribution margin income statement showing sales, variable costs, and fixed costs for Product XT at the break-even point.
What do you think about this solution?
We value your feedback to improve our textbook solutions.
