Homework Answers
Solution 1:
| Identification of cost as variable, fixed and mixed | |
| Cost description | Nature of cost |
| Deliver Trucks | Variable |
| Depreciation | Fixed |
| Direct Labor | Variable |
| Building Rent | Fixed |
| Manufacturing machine maintenance | Mixed |
| Sales Commission | Variable |
| Real estate taxes | Variable |
| Raw Materials | Variable |
Solution 2 a:
Highest level of activity = 10500 units, mixed cost = $18,580
Lowest level of activity = 8800 units, mixed cost = $16,200
Variable cost = (Cost at high level - cost at low level) / (Highest activity level - Lowest actvity level)
= ($18,580 - $16,200) / (10500 - 8800) = $1.40 per unit
Fixed cost = $18580 - (10500*$1.40) = $3,880
Mixed cost equation = $3,880 + $1.40X, where x is number of unit produced
Solution 2 b:
Estimated mixed cost at 9200 units = $3,880 + 9200*$1.40 = $16,760
Solution 3:
| Income statement | ||
| Particulars | Per unit | Amount |
| Sales | $400.00 | $800,000.00 |
| Variable cost | $125.00 | $250,000.00 |
| Contribution | $275.00 | $550,000.00 |
| Fixed cost | $150,000.00 | |
| Net operating income | $400,000.00 | |
Breakeven units = Fixed cost / contribution per unit = $150,000 / $275 = 545 units
Target net income = $600,000
Target contribution = $600,000 + $150,000 = $750,000
Nos of units to be sold = $750,000 / $275 = 2727 units
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