Chapter 20: Q20-13RQ (page 1119)
What are the CVP assumptions?
Answer
When the volume of a product changes, the price per unit does not change.
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What is the relevant range?
Using the high-low method
Mark owns a machine shop. In reviewing the shop’s utility bills for the past 12 months, he found that the highest bill of
Requirements
1. Use the high-low method to calculate the variable cost per machine hour and the total fixed utility cost.
2. Show the equation for determining the total utility cost for the machine shop.
3. If Mark anticipates using 800 machine hours in January, predict the shop’s total utility bill using the equation from Requirement 2.
Determine how each change effects the elements of the cost-volume-profit graph by placing an X in the appropriate column(s).
| EFFECT | ||||||||
| Sales Line | Fixed Cost Line | Total cost line | Breakeven point | |||||
Change | Slope Increases | Slope decreases | Shifts up | Shifts Down | Slope Increases | Slope Decreases | Increases | Decreases |
Sales price per unit Increases | ||||||||
Sales price per unit Decreases | ||||||||
Variable cost per unit Increases | ||||||||
Variable cost per unit decreases | ||||||||
Total fixed cost increases | ||||||||
Total fixed cost decreases | ||||||||
Identifying variable, fixed, and mixed costs
Philadelphia Acoustics builds innovative speakers for music and home theater systems. Identify each cost as variable (V), fixed (F), or mixed (M), relative to number of speakers produced and sold.
1. Units of production depreciation on routers used to cut wood enclosures.
2. Wood for speaker enclosures.
3. Patents on crossover relays.
4. Total compensation to salesperson who receives a salary plus a commission based on meeting sales goals.
5. Crossover relays.
6. Straight-line depreciation on manufacturing plant.
7. Grill cloth.
8. Insurance on the corporate office.
9. Glue.
10. Quality inspector’s salary.
What effect does an increase in sales price have on contribution margin? An increase in fixed costs? An increase in variable costs?
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