Question

riable Calculate the expected production costs if 9,000 units a E20-2 The controller of Norton Industries has the cost behaviour of maintenance costs. LIUIl cost listed as variable, fixed, or mixed. n costs if 9,000 units are produced. per of Norton Industries has collected the following monthly expense data for use in a for use in analyting ph. Total Total Month Maintenance Costs Machine Hours January $2,700 300 February 3,000 350 March 3,600 500 April 4,500 690 May 3,200 400 June 5,500 700 Instructions (a) Determine the fixed- and variable-cost components using the high-low method. (b) Prepare a graph showing the behaviour of maintenance costs, and identify the fixed- and variable-cost ele- ments. Use 100-hour increments and $1,000 cost increments. E20-3 In the month of June, André's Beauty Salon gave 2,700 haircuts, shampoos, permanents, and colourings at an average price of $30. During the month, fixed costs were $18,000, and variable costs were 75% of sales. Instructions (a) Determine the contribution margin in dollars, per unit, and as a ratio. (b) Calculate the break-even point in dollars and in units. (c) How much will profit increase if sales increase by $18,000? 2014 In 2017, Argos Inc. had a break-even point of $350,000 based on a selling price of $5 per unit and low costs of $112,000. In 2018, the selling price and the variable cost per unit did not change, but the break-even po increased to $420,000. er med

Answer 1

E20-2:

(a): Variable cost = highest activity cost - lowest activity cost/highest activity units - lowest activity units

= 5500-2700/700-300

= 2800/400

= $7 per machine hour

Fixed cost = highest activity cost - (variable cost as computed above * highest activity units) = 5500 - (7*700) = 600

Thus fixed cost = $600 and variable cost = $7 per machine hour

(b): The graph is provided below:

8000 7000 6000 4000 Total cost Fixed cost Variable cost 3000 2000 1000 04 0 200 400 600 800 1000 1200

In the above graph machine hours is shown in the x axis and costs in the y axis.

E20-3:

(a): Variable costs = 75% of sales = 75% of 30 = 22.5. Thus contribution margin in dollars per unit = 30-22.5 = $7.5

CM ratio = 7.5/30 = 25%

(b): Break even point in dollars = Total fixed costs/CM ratio = $18,000/25% = $72,000

Break even point in units = fixed costs/selling price per unit - varible cost per unit = 18,000/30-22.5 = 2,400

(c): Current profits at 2,700 sale units = 2700*(30-22.5) - 18,000 = $2,250

Value of sales = 2700*30 = 81,000. Thus new sales = 81,000+18,000 = 99,000 and so units = 99,000/30 = 3300 units.

New profit = 3300*(30-22.5) - 18,000 = $6,750

Thus profit will increase by 6750-2250

= $4,500