ch05 - SOLUTIONS TO EXERCISESSET B EXERCISE 5-1 B (a) (b)...

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SOLUTIONS TO EXERCISES—SET B EXERCISE 5-1 B (a) (b) The relevant range is 4,000 – 9,000 units of output since a straight-line relationship exists for both direct materials and rent within this range. (c) Variable cost per unit Within the relevant range = Cost Units (4,000 – 9,000 units) = $15,000 * 5,000* = $3 per unit *Any costs and units within the relevant range could have been used to calculate the same unit cost of $3. (d) Fixed cost within the relevant range = $7,000 (4,000 – 9,000 units) © 2008 For Instructor Use Only 5-1
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EXERCISE 5-2B (a) Maintenance Costs : $4,400 – $2, 900 800 – 300 = $1,500 500 = $3 variable cost per machine hour 800 Machine Hours 300 Machine Hours Total costs Less: Variable costs 800 X $3 300 X $3 Total fixed costs $4,400 2,400 $2,000 $2,900 900 $2,000 Thus, maintenance costs are $2,000 per month plus $3 per machine hour. (b) $5,000 COSTS Total Cost Line $4,400 $4,000 $3,000 Variable Cost Element $2,000 Fixed Cost Element $1,000 0 200 400 600 800 Machine Hours © 2008 For Instructor Use Only 5-2
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EXERCISE 5-3B (a) Maintenance Costs : $5,000 - $2,500 8,000 - 3,000 = $2,500 5,000 = $.50 variable cost per machine hour Activity Level High Low Total cost Less: Variable costs 8,000 X $.50 3,000 X $.50 Total fixed costs $5,000 4,000 00,000 $1,000 $2,500 1,500 $1,000 Thus, maintenance costs are $1,000 per month plus $.50 per machine hour. (b) $5,000 COSTS Total Cost Line $4,000 $3,000 Variable Cost Element $2,000 $1,000 Fixed Cost Element 0 2,000 4,000 6,000 8,000 Machine Hours © 2008 For Instructor Use Only 5-3
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EXERCISE 5-4B (a) Cost Fixed Variable Mixed Direct materials X Direct labor X Utilities X Property taxes X Indirect labor X Supervisory salaries X Maintenance X Depreciation X (b) Fixed costs = $1,000 + $1,800 + $2,400 = $5,200 Variable costs to produce 3,000 units = $7,500 + $15,000 + $4,500 = $27,000 Variable cost per unit = $27,000/3,000 units = $9 per unit Variable cost portion of mixed cost = Total cost – Fixed portion Utilities: Variable cost to produce 3,000 units = $2,100 – $300 = $1,800 Variable cost per unit = $1,800/3,000 units = $.60 per unit Maintenance: Variable cost to produce 3,000 units = $1,400 – $200 = $1,200 Variable cost per unit = $1,200/3,000 units = $.40 per unit Cost to produce 4,000 units = (Variable costs per + Fixed cost unit X 4,000 units) = (($9 + $.60 + $.40) X 4,000) + ($5,200 + $300 + $200) = $40,000 + $5,700 © 2008 For Instructor Use Only 5-4
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= $45,700 © 2008 For Instructor Use Only 5-5
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EXERCISE 5-5B (a) Contribution margin per lawn Contribution margin per lawn Contribution margin ratio = = = $60 – ($18 + $12 + $3) $27 $27 ÷ $60 = 45% Fixed costs = $1,500 + $550 + $2,000 = $4,050 Break-even point in lawns = $4,050 ÷ $27 = 150 (b) Break-even point in dollars = 150 lawns X $60 per lawn = $9,000 per month OR Fixed costs ÷ Contribution margin ratio = $4,050 ÷ .45 = $9,000 per month EXERCISE 5-6B (1) Contribution margin per room Contribution margin per room Contribution margin ratio
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ch05 - SOLUTIONS TO EXERCISESSET B EXERCISE 5-1 B (a) (b)...

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