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

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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
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
= \$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
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