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Chapter_2HWKSol - Exercise 2-1A Requirement a b c d e f...

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Exercise 2-1A Requirement Fixed Variable Mixed a. x b. x c. x d. x e. x f. x Exercise 2-6A Number of Units 10,000 11,000 12,000 13,000 Total costs incurred Fixed $ 60,000 $ 60,000 $ 60,000 $ 60,000 Variable 50,000 55,000 60,000 65,000 Total costs $110,000 $115,000 $120,000 $125,000 Cost per unit Fixed $ 6.00 $5.45 $5.00 $4.62 Variable 5.00 5.00 5.00 5.00 Total cost per unit $11.00 $10.45 $10.00 $9.62 b. The total cost per unit declines as volume increases because the same amount of fixed cost is spread over an increasingly larger number of units of product. Exercise 2-13A Income Statement Sales Revenue (4,000 units x $150) $600,000 Less: Variable Costs Cost of Goods Sold (4,000 units x $80) (320,000) Sales Commissions (10% of Sales) (60,000) Shipping and Handling Expenses (4,000 units x $1) (4,000) Contribution Margin 216,000 a. a.
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Less: Fixed Costs Administrative Salaries (90,000) Advertising Expense (40,000) Depreciation Expense (50,000) Net Income $ 36,000 b. Contribution margin Operating leverage = ———————————— Net income $216,000 Operating leverage = ——————— = 6 times $36,000 c. A 10 percent increase in sales revenue will produce a 60 percent increase in net income (i.e., 10 percent x 6 = 60 percent). Accordingly, net income would increase to $57,600 [i.e., $36,000 + ($36,000 x .6)].
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