Question

1.Hudson CO. predicts fixed costs of $400,000 for 2019. It’s one product sells for $170 per unit and it incurs variable costs of $150 per unit. The company predicts annual total sales of 25,000 units.

1. Compute the contribution margin per unit
2. Compute the break-even point in units using formula method
3. Prepare a contribution margin income statement at the break-even point

2. Using the information below apply the high-low method to determine the total fixed costs plus variable costs per unit.

Highest volume 4,000 units with Total cost $17,000

Lowest volume 1,600 units with Total cost of $9,800

3. Determine whether each of the following is best described as a fixed, variable, mixed, step-wise or curvilinear cost as the number of product units changes:
4. Rubber used to manufacture tennis balls
5. Depreciation
6. Electricity usage
7. Supervisory salaries
8. Sales person’s commissions 7% for sales up to $100,000 and 10% for sales above $100,000

Answer 1

Question No (1) Selling Price Per Unit Less : Variable Cost Per Unit Contribution margin per Unit $ $ $ 170.00 (150.00) 20.00 Break Even Point in Units : Fixed Cost / Contribution Margin Per unit 400000/20 20000 Units Hudson Co. Contribution Margin Income Statement Total Per Unit Sales Revenue $ 3,400,000 $ 170 Less : Variable Cost $ 3,000,000 $ 150 Contribution Margin $ 400,000 $ 20 Less :Fixed Cost $ 400,000 Net operating Income $ Question No (2) High Level Activity Low Level Activity Total Cost $ 17,000.00 $ 9,800.00 Units 4000 1600 Variable Cost Per Unit : Change in Total Cost / Change in Level of units (17000-9800)/(4000-1600) $ 3.00 Per Unit Fixed Cost : 17000-(4000*3) $ 5,000.00 Y = $5000 + $3.00 (X) Question No (3) Rubber Used to manufacture tennis balls Variable Cost Depreciation Fixed Cost Electricity usage Mixed Cost Supervisory Salaries Step Wise Cost Sales person's commissions 7% for sales up to $100,000 and 10% for sales above $100,000 Curvilinear Cost Note : Do Comment for any issue