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Chapter 20: Q19E (page 1124)

Determining cost behavior

Identify each cost below as variable (V), fixed (F), or mixed (M), relative to units sold. Explain your reason.

Units Sold 25 50 75 100

a. Total phone cost \( 150 \) 200 \( 250 \) 300

b. Materials cost per unit 35 35 35 35

c. Manager鈥檚 salary 3,000 3,000 3,000 3,000

d. Depreciation cost per unit 60 30 20 15

e. Total utility cost 400 650 900 1,150

f. Total cost of goods sold 3,125 6,250 9,375 12,500

Short Answer

Expert verified

Answer

  1. Mixed (M)

  2. Variable (V)

  3. Fixed (F)

  4. Mixed (M)

  5. Mixed (M)

  6. Mixed (M)

Step by step solution

01

Meaning of variable, fixed, and mixed cost.

Variable costs are the costs that remain constant in per unit basis but keeps on changing in total amount with the change in level of sales.

Fixed costs are the costs that remain constant in total amount. It does not change with the change in sales level. It is also known as sunk cost.

Mixed costs are the costs that include variable and fixed components in it. These costs are also specified as Semi-variable costs.

02

Determining cost behavior

a. Total phone cost
Mixed (M)
b. Material cost per unit
Variable (V)
c. Manager鈥檚 salary
Fixed (F)
d. Depreciation cost per unit
Mixed (M)
e. Total utility cost
Mixed (M)
f. Total cost of goods sold
Mixed (M)

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Most popular questions from this chapter

The contribution margin income statement of Sugar Lips Donuts for August 2018 follows:

Sugar Lips sells three dozen plain donuts for every dozen custard-filled donuts. A dozen plain donuts sells for \(4.00, with total variable cost of \)1.80 per dozen. A dozen custard-filled donuts sells for \(8.00, with total variable cost of \)3.60 per dozen.

Requirements

1. Calculate the weighted-average contribution margin.

2. Determine Sugar Lips鈥檚 monthly breakeven point in dozens of plain donuts and custard-filled donuts. Prove your answer by preparing a summary contribution margin income statement at the breakeven level of sales. Show only two categories of costs: variable and fixed.

3. Compute Sugar Lips鈥檚 margin of safety in dollars for August 2018.

4. Compute the degree of operating leverage for Sugar Lips Donuts. Estimate the new operating income if total sales increase by 30%. (Round the degree of operating leverage to four decimal places and the final answer to the nearest dollar. Assume the sales mix remains unchanged.)

5. Prove your answer to Requirement 4 by preparing a contribution margin income statement with a 30% increase in total sales. (The sales mix remains unchanged.)

Following is the income statement for Marrow Mufflers for the month of June 2018:

MARROW MUFFLERS

Contribution Margin Income Statement

Month Ended June 30, 2018

Net Sales Revenue (140 units _ \(250) \) 35,000

Variable Costs (140 units _ \(50) 7,000

Contribution Margin 28,000

Fixed Costs 11,500

Operating Income \) 16,500

Requirements

1. Calculate the degree of operating leverage. (Round to four decimal places.)

2. Use the degree of operating leverage calculated in Requirement 1 to estimate the change in operating income if total sales increase by 40% (assuming no change in sales price per unit). (Round interim calculations to four decimal places and final answer to the nearest dollar.)

3. Verify your answer in Requirement 2 by preparing a contribution margin income statement with the total sales increase of 40%.

Scotty鈥檚 Scooters plans to sell a standard scooter for \(55 and a chrome scooter for \)70. Scotty鈥檚 purchases the standard scooter for \(30 and the chrome scooter for \)40. Scotty鈥檚 expects to sell one standard scooter for every three chrome scooters. Scotty鈥檚 monthly fixed costs are \(23,000.

Requirements

1. How many of each type of scooter must Scotty鈥檚 Scooters sell each month to break even?

2. How many of each type of scooter must Scotty鈥檚 Scooters sell each month to earn \)25,300?

3. Suppose Scotty鈥檚 expectation to sell one standard scooter for every three chrome scooters was incorrect and for every four scooters sold two are standard scooters and two are chrome scooters. Will the breakeven point of total scooters increase or decrease? Why? (Calculation not required.)

Identifying variable, fixed, and mixed costs

Philadelphia Acoustics builds innovative speakers for music and home theater systems. Identify each cost as variable (V), fixed (F), or mixed (M), relative to number of speakers produced and sold.

1. Units of production depreciation on routers used to cut wood enclosures.

2. Wood for speaker enclosures.

3. Patents on crossover relays.

4. Total compensation to salesperson who receives a salary plus a commission based on meeting sales goals.

5. Crossover relays.

6. Straight-line depreciation on manufacturing plant.

7. Grill cloth.

8. Insurance on the corporate office.

9. Glue.

10. Quality inspector鈥檚 salary.

A furniture manufacturer specializes in wood tables. The tables sell for \(100 per unit and incur \)40 per unit in variable costs. The company has $6,000 in fixed costs per month.

6. Prepare a contribution margin income statement for one month if the company sells 200 tables.

7. What is the total contribution margin for the month when the company sells 200 tables?

8. What is the unit contribution margin?

9. What is the contribution margin ratio?
See all solutions

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