Chapter 20: Q6RQ (page 1119)
What is the relevant range?
The range where the variable cost per unit and fixed cost remains constant is known as the relevant range.
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Question: Why is the calculation to determine the target profit considered a variation of the breakeven calculation?
No Slip Co. produces sports socks. The company has fixed costs of\(91,080 and variable costs of \)0.81 per package. Each package sells for $1.80.
Requirements
1. Compute the contribution margin per package and the contribution marginratio. (Round your answers to two decimal places.)
2. Find the breakeven point in units and in dollars using the contributionmargin approach.
Calculating breakeven point for two products, margin of safety, andoperating leverage
The contribution margin income statement of Delectable Donuts for May 2018follows:
DELECTABLE DONUTS Contribution Margin Income Statement Month Ended May 31, 2018 |
Net Sales Revenue | \(125,000 | |
Variable cost | ||
Cost of goods sold | \)32,100 | |
Selling cost | 17,400 | |
Administrative cost | 500 | \(50,000 |
Contribution Margin | \)75,000 | |
Fixed cost | ||
Selling cost | \(37,800 | |
Administrative cost | 12,600 | \)50,400 |
Operating income | \(24,600 |
Delectable sells five dozen plain donuts for every dozen custard-filled donuts. A dozenplain donuts sells for \)4.00, with a variable cost of \(1.60 per dozen. A dozen custardfilled donuts sells for \)8.00, with a variable cost of $3.20 per dozen.
Requirements
1. Calculate the weighted-average contribution margin.
2. Determine Delectable’s monthly breakeven point in dozens of plain donuts and custard-filled donuts. Prove your answer by preparing a summary contribution nmargin income statement at the breakeven level of sales. Show only two categories of costs: variable and fixed.
3. Compute Delectable’s margin of safety in dollars for May 2018.
4. Compute the degree of operating leverage for Delectable Donuts. Estimate thenew operating income if total sales increase by 20%. (Round the degree of operating leverage to four decimal places and the final answer to the nearest dollar.Assume the sales mix remains unchanged.)
5. Prove your answer to Requirement 4 by preparing a contribution marginincome statement with a 20% increase in total sales. (The sales mix remainsunchanged.)
Question: Determining total mixed cost
John Street Barber Shop pays \(25 per month for water for the first 8,000 gallons and \)3.50 per thousand gallons above 8,000 gallons. Calculate the total water cost when the barber shop uses 7,000 gallons, 10,000 gallons, and 13,000 gallons.
Scotty’s Scooters plans to sell a standard scooter for \(55 and a chrome scooter for \)70. Scotty’s purchases the standard scooter for \(30 and the chrome scooter for \)40. Scotty’s expects to sell one standard scooter for every three chrome scooters. Scotty’s monthly fixed costs are \(23,000.
Requirements
1. How many of each type of scooter must Scotty’s Scooters sell each month to break even?
2. How many of each type of scooter must Scotty’s Scooters sell each month to earn \)25,300?
3. Suppose Scotty’s expectation to sell one standard scooter for every three chrome scooters was incorrect and for every four scooters sold two are standard scooters and two are chrome scooters. Will the breakeven point of total scooters increase or decrease? Why? (Calculation not required.)
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