Chapter 18: Q5DQ (page 832)
How do step-wise costs and curvilinear costs differ?
The step-wise cost increases due to an increase in the output level at a constant rate, but the curvilinear cost does not increase at a constant rate.
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Use the following information about unit sales and total cost of sales to prepare a scatter diagram. Draw a cost line that reflects the behavior displayed by this cost. Determine whether the cost is variable, step-wise, fixed, mixed, or curvilinear.
Period | Unit sales | Cost of sales | Period | Unit sales | Cost of sales |
1 | 760 | \(590 | 9 | 580 | \)390 |
2 | 800 | 560 | 10 | 320 | 240 |
3 | 200 | 230 | 11 | 240 | 230 |
4 | 400 | 400 | 12 | 720 | 550 |
5 | 480 | 390 | 13 | 280 | 260 |
6 | 620 | 550 | 14 | 440 | 410 |
7 | 680 | 590 | 15 | 380 | 260 |
8 | 540 | 430 |
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.
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 per unit and (2) break-even point in units.
A recent income statement for BMW reports the following (in € millions). Assume 75 percent of the cost of sales and 75 percent of the selling and administrative costs are variable costs, and the remaining 25 percent of each is fixed. Compute the contribution margin (in € millions). (Round computations using percentages to the nearest whole eur)
| BMW Automobile Group | |
| Sales | €92,175 |
| Cost of sales | 74,043 |
| Selling and administrative expenses | 8,633 |
R&R Tax Service offers tax and consulting services to individuals and small businesses. Data for fees and costs of three types of tax returns follow. R&R provides services in the ratio of 5:3:2 (easy, moderate, business). Fixed costs total \(18,000 for the tax season. Use this information to determine the (1) selling price per composite unit, (2) variable costs per composite unit, (3) break-even point in composite units, and (4) number of units of each product that will be sold at the break-even point.
Types of return | Fee charged | Variable cost per return |
Easy (Form 1040EZ) | \)50 | $30 |
Moderate (Form 1040) | 125 | 75 |
Business | 275 | 100 |
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