5 Ch. & 6 Textbook Exercises
Exercise
E5-1, E5-9, E6-7, E6-10
University of Phoenix
ACC/349
Instructor: Leona Seto-Mook
By Scott Ward
Ch. 5 Exercises E5-1
(a) Define the terms variable costs, fixed costs, and mixed costs.
Variable costs are costs that vary in total directly and proportionately with changes in the
activity level. Fixed costs are costs that remain the same in total regardless of changes in
the activity level. Mixed costs are costs that contain both a variable element and a fixed
element.
(b) Classify each cost above as either variable, fixed, or mixed.
Variable costs Direct Material, Direct Labor
Fixed costs Rent, Supervisory Salaries
Mixed costs Utilities, Maintenance
Ch. 5 Exercises E5-9
(a) Calculate the break-even point in (1) dollars and (2) number of fares.
1) (20,250/27,000) x 45,000 = $33,750
2) 33,750/(45,000/300) = 225 fares
(b) Without calculations, determine the contribution margin at the break-even point.
Contribution margin at Break-even point must be equal to fixed costs.
(c) If fares were decreased by 10%, an additional 100 fares could be generated. costs However,
variable would increase by 35%. Should the fare decrease be adopted?
No, I do not think that the fare decrease should be adopted. The variable amount increase
does not favor them with only a 10% decrease and 100 additional fares.
Ch. 6 Exercises E6-7
Determine whether each of the three joint products should be sold as is, or processed
further.
SARCO - Sell as is.
Sell as is: $200,000
Process further: $300,000 - $120,000 = $180,000
Incremental loss: $20,000
BARCO - Process further.
Sell as is: $300,000
Process further: $400,000 - $89,000 = $311,000
Incremental profit: $11,000
LARCO - Process further.
Sell as is: $400,000
Process further: $800,000 - $250,000 = $550,000
Incremental profit: $150,000
Ch. 6 Exercises E6-10
Is Maggie right about eliminating the Erie Division? Prepare a schedule to support your
answer.
I do not see how eliminating 100,000 in sales while still having to pay $38,500 in fixed costs
after the department is no longer operational. It seems that there will be an increase of
$14,000 in debt without the $100,000 in sales received from Eire Division.