Chapter 20: Q7RQ (page 1119)
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?
The manager’s salary is a fixed cost.
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What are the CVP assumptions?
Calculating breakeven point in units, contribution margin given Mackler, Inc. sells a product with a contribution margin of \(50 per unit. Fixed costs are \)8000 per month. How many units must Mackler sell to break even?
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 \(2,600 occurred in August when the machines worked 1,200 machine hours. The lowest utility bill of \)2,300 occurred in December when the machines worked 600 machine hours.
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.
What are the three approaches to calculating the sales required to achieve the breakeven point? Give the formula for each one.
What is operating leverage? What does it mean if a company has a degree of operating leverage of 3?
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