Chapter 18: Q7DQ (page 832)
Define and explain the contribution margin ratio.
Thecontribution margin ratio is calculated as:
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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.)
This scatter diagram reflects past maintenance hours and their corresponding maintenance costs.
1. Draw an estimated line of cost behavior.
2. Estimate the fixed and variable components of maintenance costs.
A company reports the following information about its unit sales and its cost of sales. Each unit sells for \(500. Use these data to prepare a scatter diagram. Draw an estimated line of cost behavior and determine whether the cost appears to be variable, fixed, or mixed.
Period | Unit sales | Cost of sales | Period | Unit sales | Cost of sales |
1 | 22,500 | \)15,150 | 4 | 11,250 | \(8,250 |
2 | 17,250 | 11,250 | 5 | 13,500 | \)9,000 |
3 | 15,750 | 10,500 | 6 | 18,750 | $14,250 |
Following are five series of costs A through E measured at various volume levels. Identify each series as either fixed, variable, mixed, step-wise, or curvilinear.
Volume (units) | Series A | Series B | Series C | Series D | Series E |
0 | \(0 | \)2,500 | \(0 | \)1,000 | \(5,000 |
400 | \)3,600 | 3,100 | 6,000 | 1,000 | 5,000 |
800 | \(7,200 | 3,700 | 6,600 | 2,000 | 5,000 |
1,200 | \)10,800 | 4,300 | 7,200 | 2,000 | 5,000 |
1,600 | \(14,400 | 4,900 | 8,200 | 3,000 | 5,000 |
2,000 | \)18,000 | 5,500 | 9,600 | 3,000 | 5,000 |
2,400 | $21,600 | 6,100 | 13,500 | 4,000 | 5,000 |
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?
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