Chapter 20: Q5RQ (page 1119)
Describe the three steps of the high-low method.
Step 1: Calculation of variable cost per unit
Step 2: Calculation of fixed cost
Step 3: Creation and use of equation
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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.
S20-10 Computing contribution margin per unit, breakeven point in sales units
Compute the contribution margin per unit and the number of tickets Funday Park must sell to break even. Perform a numerical proof to show that your answer is correct.
Question: Gilbert’s Steel Parts produces parts for the automobile industry. Thecompany has monthly fixed costs of \(640,220 and a contribution margin of85% of revenues.
Requirements
1. Compute Gilbert’s monthly breakeven sales in dollars. Use the contributionmargin ratio approach.
2. Use contribution margin income statements to compute Gilbert’s monthlyoperating income or operating loss if revenues are \)500,000 and if they are$1,050,000.
3. Do the results in Requirement 2 make sense given the breakeven sales youcomputed in Requirement 1? Explain.
What are the three approaches to calculating the sales required to achieve the breakeven point? Give the formula for each one.
S20-9 Computing contribution margin, units and required sales to break even, units to achieve target profit
Compute the missing amounts for the following table:
A chain of convenience stores has one manager per store who is paid a monthly salary. Relative to Store #36 located in Atlanta, Georgia, is the manager’s salary fixed or variable? Why?
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