Chapter 20: Q2021RQ (page 1120)
What effect does an increase in sales price have on contribution margin? An increase in fixed costs? An increase in variable costs?
Answer
There is an inverse relationship between variable cost and contribution margin.
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Question: Determining total variable cost
For each variable cost per unit listed below, determine the total variable cost when units produced and sold are 25, 50, and 100 units.
Direct materials $ 40
Direct labor 80
Variable overhead 9
Sales commission 12
The budgets of four companies yield the following information:
Company
Beach Lake Mountain Valley
Net Sales Revenue \( 1,615,000 \)(d) \( 1,050,000 \)(j)
Variable Costs (a) 60,000 525,000 100,800
Fixed Costs (b) 232,000 260,000 (k)
Operating Income (Loss) 285,600 (e) (g) 31,500
Units Sold 170,000 10,000 (h) (l)
Contribution Margin per Unit \( 3.80 \) (f) \( 75.00 \) 9.00
Contribution Margin Ratio (c) 80% (i) 30%
Requirements
1. Fill in the blanks for each missing value. (Round the contribution margin per unit to the nearest cent.)
2. Which company has the lowest breakeven point in sales dollars?
3. What causes the low breakeven point?
Question: Use the following information to complete Short Exercises S20-10 through S20-15.
Funday Park competes with Cool World by providing a variety of rides. Funday Park sells tickets at \(70 per person as a one-day entrance fee. Variable costs are \)42 per person, and fixed costs are \(170,800 per month.
Using the Funday Park information presented, do the following tasks.
Requirements
1. Suppose Funday Park cuts its ticket price from \)70 to \(56 to increase the number of tickets sold. Compute the new breakeven point in tickets and in sales dollars.
2. Ignore the information in Requirement 1. Instead, assume that Funday Park increases the variable cost from \)42 to $56 per ticket. Compute the new breakeven point in tickets and in sales dollars.
Determining mixed costs—the high-low method
The manager of Trusty Car Inspection reviewed the monthly operating costs for the past year. The costs ranged from \(4,300 for 1,300 inspections to \)3,900 for 900 inspections.
Requirements
1. Use the high-low method to calculate the variable cost per inspection.
2. Calculate the total fixed costs.
3. Write the equation and calculate the operating costs for 1,000 inspections.
4. Draw a graph illustrating the total cost under this plan. Label the axes, and show the costs at 900, 1,000, and 1,300 inspections.
What is the relevant range?
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