RIEF EXERCISES

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

Costs                                                     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 mile as the activity level.

Miles Driven                     Total Cost                            Mile Driven                        Total Cost

January                                8.000                                     \$14,000                 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.

E6-2 In the month of June, Jose Herbert’s Beauty Salon gave 4,000 haircuts, shampoos, and permanents at an average of \$30. During the month, fixed costs were \$16,800 and variable coasts were 75% of sales.

Instructions

1. Determine the contribution margin in dollars, per unit and as a ratio.
2. Using the contribution margin technique, compute the break-even point in dollars and units.
3. Compute the margin of safety in dollars and as a ratio.

E6-5 Carey Company had sales in 2016 0f \$1,560,000 on 60,000 units. Variable costs totaled \$900,000, and fixed costs totaled \$500,000.

A new raw material is available the will decrease the variable cost per unit by 20% (or \$3). However to process the new raw material, fixed operating cost will increase by \$100,000. Management feels that one-half  of the decline in the variable cost per unit should be pasted on to customers in the form of sales price reduction. The marketing department expects that this sales price reduction will result in a 5% increase in the numbers of units sold.

Instructions

Prepare a projected CVP income statement for 2017 (a) assuming the changes have not been made, and (b) assuming the changes are made as described.

E6-7 PDQ has 200 auto-maintenance service outlets nationwide. It performs primarily two lines of service: oil changes and break 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 ration ratio. The company’s fixed cost are \$15,6000,000 (that is \$78,000 per service outlet).

Instructions

1. Calculate the dollar amount of each type of service that the company must provide in order to break even.
2. 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.

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