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Question: Determining fixed cost per unit

For each total fixed cost listed below, determine the fixed cost per unit when sales are 50, 100, and 200 units.

Store rent $ 5,000

Manager’s salary 3,000

Equipment lease 500

Depreciation on fixtures 250

Short Answer

Expert verified

Answer

The fixed cost per unit for 50 units is $175 per unit, for 100 units is $87.5, for 200 units is $43.75

Step by step solution

01

Calculation of total fixed cost

Particulars

Amount

Store rent

$5000

Manager’s salary

$3000

Equipment lease

$500

Depreciation on fixtures

$250

Total fixed cost

$8,750

02

Calculation of fixed cost per unit           

50

100

200

Total fixed cost

$8,750

$8,750

$8,750

÷ No. of units sold

50

100

20

Fixed cost per unit

$175

$87.5

$43.75

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Most popular questions from this chapter

Question: Computing contribution margin in total, per unit, and as a ratio

Complete the table below for contribution margin per unit, total contribution margin, and contribution margin ratio:

A B C Number of units 1,720 units 14,920 units 4,620 units

Sales price per unit \( 1,800 \) 4,500 $ 5,550

Variable costs per unit 720 3,600 1,665

Calculate:                  

Contribution margin per unit                      

Total contribution margin                        

Contribution margin ratio

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.

The Jacksonville Shirt Company makes two types of T-shirts: basic and custom. Basic shirts are plain shirts without any screen printing on them. Custom shirts are created using the basic shirts and then adding a custom screen printing design.

The company buys cloth in various colors and then makes the basic shirts in two departments, Cutting and Sewing. The company uses a process costing system (weighted-average method) to determine the production cost of the basic shirts. In the Cutting Department, direct materials (cloth) are added at the beginning of the process and conversion costs are added evenly through the process. In the Sewing Department, no direct materials are added. The only additional material, thread, is considered an indirect material because it cannot be easily traced to the finished product. Conversion costs are added evenly throughout the process in the Sewing Department. The finished basic shirts are sold to retail stores or are sent to the Custom Design Department for custom screen printing.

The Custom Design Department creates custom shirts by adding screen printing to the basic shirt. The department creates a design based on the customer’s request and then prints the design using up to four colors. Because these shirts have the custom printing added, which is unique for each order, the additional cost incurred is determined using job order costing, with each custom order considered a separate job.

For March 2018, the Jacksonville Shirt Company compiled the following data for the Cutting and Sewing Departments:

Department Item Amount Units

Cutting Beginning balance \( 0 0 shirts

Started in March 1,200 shirts

Direct materials added in March 1,920

Conversion costs 1,320

Completed and transferred to Sewing ??? 1,200 shirts

Ending balance 0 0 shirts

Sewing Beginning balance, transferred in, \)1,350;

conversion costs, \(650 \) 2,000 500 shirts

Transferred in from Cutting ??? ???

Conversion costs added in March 1,196

Completed and transferred to Finished Goods ??? 1,000 shirts

Ending balance, 60% complete ??? ???

For the same time period, the Jacksonville Shirt Company compiled the following data for the Custom Design Department:

Job Quantity Design Fee Printing Status

367 400 Yes 3 colors Complete

368 150 No 2 colors Complete

369 100 Yes 5 colors Complete

370 500 Yes 4 colors Complete

The Jacksonville Shirt Company has previously determined that creating and programming the design cost \(80 per design. This is a one-time charge. If a customer places another order with the same design, the customer is not charged a second time. Additionally, the cost to print is \)0.20 per color per shirt.

Requirements

1. Complete a production cost report for the Cutting Department and the Sewing Department. What is the cost of one basic shirt?

2. Determine the total cost and the average cost per shirt for jobs 367, 368, 369, and 370. If the company set the sales price at 200% of the total cost, determine the total sales price of each job.

3. In addition to the custom jobs, the Jacksonville Shirt Company sold 1,000 basic shirts (assume the beginning balance in Finished Goods Inventory is sufficient to make these sales, and the unit cost of the basic shirts in Finished Goods Inventory is the same as the unit cost incurred this month). If the company set the sales price at 125% of the cost, determine the sales price per unit, total sales revenue, total cost of goods sold, and total gross profit for the basic shirts.

4. Calculate the total revenue, total cost of goods sold, and total gross profit for all sales, basic and custom.

5. Assume the company sold only basic shirts (no custom designs) and incurred fixed costs of \(700 per month.

a. Calculate the contribution margin per unit, contribution margin ratio, required sales in units to break even, and required sales in dollars to break even.

b. Determine the margin of safety in units and dollars.

c. Graph Jacksonville Shirt Company’s CVP relationships. Show the breakeven point, the sales revenue line, the fixed cost line, the total cost line, the operating loss area, and the operating income area.

d. Suppose the Jacksonville Shirt Company wants to earn an operating income of \)1,000 per month. Compute the required sales in units and dollars to achieve this profit goal.

6. The Jacksonville Shirt Company is considering adding a new product line, a cloth shopping bag with custom screen printing that will be sold to grocery stores. If the current market price of cloth shopping bags is \(2.25 and the company desires a net profit of 60%, what is the target cost? The company estimates the full product cost of the cloth bags will be \)0.80. Should the company manufacture the cloth bags? Why or why not?

Use the following information to complete Short Exercises S20-16 and S20-17.

Wild Waters Swim Park sells individual and family tickets. With a ticket, each person receives a meal, three beverages, and unlimited use of the swimming pools. Wild Waters has the following ticket prices and variable costs for 2018:

Individual Family Sales price per ticket \( 50 \) 150 Variable cost per ticket 35 140

Wild Waters expects to sell one individual ticket for every four family tickets. Wild Waters’s total fixed costs are $27,500.

S20-17 Calculating breakeven point for two products

For 2019, Wild Waters expects a sales mix of four individual tickets for every one family ticket.

Requirements

1. Compute the new weighted-average contribution margin per ticket.

2. Calculate the total number of tickets Wild Waters must sell to break even.

3. Calculate the number of individual tickets and the number of family tickets the company must sell to break even.

On the CVP graph, where is the breakeven point shown? Why?

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