Chapter 20: Q15RQ (page 1119)
What are the three approaches to calculating the sales required to achieve the breakeven point? Give the formula for each one.
Answer
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What is sensitivity analysis? How do managers use this tool?
Determining cost behavior
Identify each cost below as variable (V), fixed (F), or mixed (M), relative to units sold. Explain your reason.
Units Sold 25 50 75 100
a. Total phone cost \( 150 \) 200 \( 250 \) 300
b. Materials cost per unit 35 35 35 35
c. Manager’s salary 3,000 3,000 3,000 3,000
d. Depreciation cost per unit 60 30 20 15
e. Total utility cost 400 650 900 1,150
f. Total cost of goods sold 3,125 6,250 9,375 12,500
The Circle Clock Company sells a particular clock for \(25. The variable costs are \)13 per clock and the breakeven point is 250 clocks. The company expects to sell 300 clocks this year. If the company actually sells 400 clocks, what effect would the sale of additional 100 clocks have on operating income? Explain your answer.
What is a fixed cost? Give an example.
What is the relevant range?
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