ACCOUNTING

W4 Assignment “Application Problems 4”

Application Problems Week 4

· Page 209: Brief Exercises 5-1, 5-2, 5-4

BE5-1 Monthly production costs in Dilts Company for two levels of production are as

follows.

Cost 2,000 Units 4,000 Units

Indirect labor $10,000 $20,000

Supervisory salaries 5,000 5,000

Maintenance 4,000 6,000

Indicate which costs are variable, fixed, and mixed, and give the reason for each answer.

BE5-2 For Lodes Company, the relevant range of production is 40–80% of capacity. At

40% of capacity, a variable cost is $4,000 and a fixed cost is $6,000. Diagram the behavior of each cost within the relevant range assuming the behavior is linear.

BE5-4 Bruno Company accumulates the following data concerning a mixed cost, using

miles as the activity level.

Miles Total Miles Total

Driven Cost Driven Cost

January 8,000 $14,150 March 8,500 $15,000

February 7,500 13,500 April 8,200 14,490

Compute the variable- and fixed-cost elements using the high-low method.

· Pages 260-261: Exercises 6-2, 6-5, 6-7

E6-2 In the month of June, Jose Hebert’s Beauty Salon gave 4,000 haircuts, shampoos,

and permanents at an average price of $30. During the month, fixed costs were $16,800 and variable costs were 75% of sales.

Instructions

(a) Determine the contribution margin in dollars, per unit and as a ratio.

(b) Using the contribution margin technique, compute the break-even point in dollars and

in units.

(c) Compute the margin of safety in dollars and as a ratio.

E6-5 Carey Company had sales in 2016 of $1,560,000 on 60,000 units. Variable costs

totaled $900,000, and fixed costs totaled $500,000.

A new raw material is available that will decrease the variable costs per unit by 20%

(or $3). However, to process the new raw material, fixed operating costs will increase by $100,000. Management feels that one-half of the decline in the variable costs per unit should be passed on to customers in the form of a sales price reduction. The marketing department expects that this sales price reduction will result in a 5% increase in the number of units sold.

Instructions

Prepare a projected CVP income statement for 2017 (a) assuming the changes have not

been made, and (b) assuming that changes are made as described.

E6-7 PDQ Repairs has 200 auto-maintenance service outlets nationwide. It performs

primarily two lines of service: oil changes and brake repair. Oil change–related services

represent 70% of its sales and provide a contribution margin ratio of 20%. Brake repair

represents 30% of its sales and provides a 40% contribution margin ratio. The company’s fixed costs are $15,600,000 (that is, $78,000 per service outlet).

Instructions

(a) Calculate the dollar amount of each type of service that the company must provide in order to break even.

(b) The company has a desired net income of $52,000 per service outlet. What is the dollar amount of each type of service that must be performed by each service outlet to meet its target net income per outlet?

W4

As

signment “Application Problems 4

Application Problems Week 4

·

Page 209: Brief Exercises 5

1, 5

2, 5

4

BE5

1

Monthly production costs in Dilts Company for two levels of production are as

follows.

Cost

2,000 Units

4,000 Units

Indirect labor

$10,000

$20,000

Supervisory salaries

5,000

5,000

Maintenance

4,000

6,000

Indicate which costs are variable, fixed,

and mixed, and give the reason for each

answer.

BE5

2

For Lodes Company, the rele

vant range of production is 40

80% of capacity. At

40% of capacity, a variable cost is $4,000 and a fixed cost i

s $6,000. Diagram the

behavior

of each cost within the relevant range assuming the behavior is linear.

BE5

4

Bruno Company accumulates the following data concerning a mixed cost, using

miles as the activity level.

Miles

Total

Miles

Total

Driven

Cost

Driven

Cost

January

8,000

$14,150

March

8,500

$15,000

February

7,500

13,500

April

8,200

14,490

Compute the variable

and fixed

cost elements using the high

low method.

·

Pages 260

261: Exercises 6

2, 6

5, 6

7

E6

2

In the month of June, Jose Hebert’s Beauty Salon gave 4,000 haircuts, shampoos,

and permanents at an average price of $30. During the m

onth, fixed costs were

$16,800

and variable costs were 75% of sal

es.

Instructions

(a) Determine the contribution margin in dollars, per unit and as a ratio.

(b) Using the contribution margin technique, compute the break

even point in dollars

and

in units.

W4 Assignment “Application Problems 4”

Application Problems Week 4

 Page 209: Brief Exercises 5-1, 5-2, 5-4

BE5-1 Monthly production costs in Dilts Company for two levels of production are as

follows.

Cost 2,000 Units 4,000 Units

Indirect labor $10,000 $20,000

Supervisory salaries 5,000 5,000

Maintenance 4,000 6,000

Indicate which costs are variable, fixed, and mixed, and give the reason for each

answer.

BE5-2 For Lodes Company, the relevant range of production is 40–80% of capacity. At

40% of capacity, a variable cost is $4,000 and a fixed cost is $6,000. Diagram the

behavior of each cost within the relevant range assuming the behavior is linear.

BE5-4 Bruno Company accumulates the following data concerning a mixed cost, using

miles as the activity level.

Miles Total Miles Total

Driven Cost Driven Cost

January 8,000 $14,150 March 8,500 $15,000

February 7,500 13,500 April 8,200 14,490

Compute the variable- and fixed-cost elements using the high-low method.

 Pages 260-261: Exercises 6-2, 6-5, 6-7

E6-2 In the month of June, Jose Hebert’s Beauty Salon gave 4,000 haircuts, shampoos,

and permanents at an average price of $30. During the month, fixed costs were

$16,800 and variable costs were 75% of sales.

Instructions

(a) Determine the contribution margin in dollars, per unit and as a ratio.

(b) Using the contribution margin technique, compute the break-even point in dollars

and

in units.

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