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Chapter 20: Q1TI (page 1095)

Following is a list of costs for a furniture manufacturer that specializes in wood tables. Classify each cost as variable, fixed, or mixed relative to the number of tables produced and sold.

1. Wood used to build tables

2. Depreciation on saws and other manufacturing equipment

3. Compensation for sales representatives paid on a salary plus commission basis

4. Supervisor’s salary

5. Wages of production workers

Short Answer

Expert verified
  1. variable cost
  2. Fixed cost
  3. Mixed cost
  4. Fixed cost
  5. Variable cost

Step by step solution

01

Meaning of variable, fixed, and mixed cost

The cost that consistent persistently per unit is known as a variable cost and the cost that remains consistent in total is known as a fixed cost. A cost that is fixed to an extent and variable above that is known as mixed cost.

02

Classification of cost

S. No.

Costs

Type of cost

1

Wood used to build tables

Variable

2

Depreciation on saws and other manufacturing equipment

Fixed

3

Compensation for sales representatives paid on a salary plus commission basis

Mixed

4

Supervisor’s salary

Fixed

5

Wages of production workers

Variable

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Most popular questions from this chapter

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?

What are the three approaches to calculating the sales required to achieve the breakeven point? Give the formula for each one.

Calculating contribution margin ratio, preparing contribution margin income statements For its top managers, Worldwide Travel formats its income statement as follows:

Worldwide’s relevant range is between sales of \(253,000 and \)368,000. Requirements

1. Calculate the contribution margin ratio.

2. Prepare two contribution margin income statements: one at the \(253,000 sales level and one at the \)368,000 sales level. (Hint: The proportion of each sales dollar that goes toward variable costs is constant within the relevant range.)

Question: Computing contribution margin, units and required sales to break even, and units to achieve target profit

Compute the missing amounts for the following table.

A B C Sales price per unit \( 200 \) 4,000 $ 5,220 Variable costs per unit 80 1,000 2,088 Total fixed costs 73,200 660,000 3,758,400 Target profit 266,760 3,000,000 3,132,000 Calculate:                          

Contribution margin per unit                          

Contribution margin ratio                          

Required units to break even                          

Required sales dollars to break even

Required units to achieve target profit

National Investor Group is opening an office in Portland, Oregon. Fixed monthly costs are office rent (\(8,100), depreciation on office furniture (\)1,700), utilities (\(2,000), special telephone lines (\)1,500), a connection with an online brokerage service (\(2,500), and the salary of a financial planner (\)5,200). Variable costs include payments to the financial planner (9% of revenue), advertising (11% of revenue), supplies and postage (4% of revenue), and usage fees for the telephone lines and computerized brokerage service (6% of revenue).

Requirements

  1. Use the contribution margin ratio approach to compute National’s breakeven revenue in dollars. If the average trade leads to \(1,000 in revenue for National, how many trades must be made to break even?
  2. Use the equation approach to compute the dollar revenues needed to earn a monthly target profit of \)12,600.
  3. Graph National’s CVP relationships. Assume that an average trade leads to \(1,000 in revenue for National. Show the breakeven point, the sales revenue line, the fixed cost line, the total cost line, the operating loss area, the operating income area, and the sales in units (trades) and dollars when monthly operating income of \)12,600 is earned.
  4. Suppose that the average revenue National earns increases to $1,500 per trade. Compute the new breakeven point in trades. How does this affect the breakeven point?
See all solutions

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