Homework Answers
Ans :
a. High low method
Variable cost = (C1-C2) / (X1-X2)
C1 = Total cost at high activity level = $ 412,600
C2 = Total cost at Low activity level = $ 382,900
X1 = high activity level = 36,400 units
X2 = Low activity level = 33,100 units
(a) Variable cost = ($ 412,600 - $ 382,900) / (36,400 - 33,100)
= $ 29,700 / 3,300 units
= $ 9 per unit.
(b) Fixed cost = Total cost - variable cost at particular units
= 412,600 - $ 9 per unit * 36,400
= $ 412,600 - $ 327,600
= $ 85,000
(c) Contribution margin = Selling price per unit - variable cost per unit
= $ 22 - $ 9
= $ 13
(d) contribution margin = contribution per unit / Selling price per unit
= $ 13 / $ 22
= 59.1 %
(e) Break even units = Fixed cost / contribution margin
= $ 85,000 / 13
= 6538.46 units
(f) Number of units for target profit of $ 350,000 = (Target profit + fixed cost) / contribution margin
= ($ 350,000 + $ 85,000) / $ 13
= $ 435,000 / $ 13
= 33,461.54 units
(g) Contribution margin when variable cost increase by 10% = selling price - variable cost after 10% increase
= $ 22 - $ 9 * 110%
= $ 22 - $ 9.9
= $ 12.1
(h) Break even units = Fixed cost / new contribution margin
= $ 85,000 / $ 12.1
= 7,024.79 units
(i) Contribution margin = $ 9.9 ( no change in contribution margin because of fixed cost)
(j) Break even units = New fixed cost / contribution margin
= $ 85,0000 + $ 10,000 / $ 12.1
= $ 95,000 / $12.1
= 7,851.24 units
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