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Chapter 20: Q3RQ (page 1119)
What is a mixed cost? Give an example.
Mixed cost is also known as semi-variable it includes both cost like variable and fixed cost.
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How can CVP analysis be used by companies with multiple products?
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 \(6,000 in fixed costs per month. Expected sales are 200 tables per month.
17. Calculate the margin of safety in units.
18. Determine the degree of operating leverage. Use expected sales.
19. The company begins manufacturing wood chairs to match the tables. Chairs sell for \)50 each and have variable costs of \(30. The new production process increases fixed costs to \)7,000 per month. The expected sales mix is one table for every four chairs. Calculate the breakeven point in units for each product.
Calculating breakeven point for two products, margin of safety, andoperating leverage
The contribution margin income statement of Delectable Donuts for May 2018follows:
DELECTABLE DONUTS Contribution Margin Income Statement Month Ended May 31, 2018 |
Net Sales Revenue | \(125,000 | |
Variable cost | ||
Cost of goods sold | \)32,100 | |
Selling cost | 17,400 | |
Administrative cost | 500 | \(50,000 |
Contribution Margin | \)75,000 | |
Fixed cost | ||
Selling cost | \(37,800 | |
Administrative cost | 12,600 | \)50,400 |
Operating income | \(24,600 |
Delectable sells five dozen plain donuts for every dozen custard-filled donuts. A dozenplain donuts sells for \)4.00, with a variable cost of \(1.60 per dozen. A dozen custardfilled donuts sells for \)8.00, with a variable cost of $3.20 per dozen.
Requirements
1. Calculate the weighted-average contribution margin.
2. Determine Delectable鈥檚 monthly breakeven point in dozens of plain donuts and custard-filled donuts. Prove your answer by preparing a summary contribution nmargin income statement at the breakeven level of sales. Show only two categories of costs: variable and fixed.
3. Compute Delectable鈥檚 margin of safety in dollars for May 2018.
4. Compute the degree of operating leverage for Delectable Donuts. Estimate thenew operating income if total sales increase by 20%. (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 marginincome statement with a 20% increase in total sales. (The sales mix remainsunchanged.)
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.)
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.)
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