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Solutions%20to%20ch%2018%20and%2019%20demonstration%20problems[1]

# Accounting: Tools for Business Decision Making

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BRIEF EXERCISE 18-1 Indirect labor is a variable cost because it increases in total directly and proportionately with the change in the activity level, and the cost per unit remains constant at \$5. Supervisory salaries is a fixed cost because it remains the same in total regardless of changes in the activity level, and the cost per unit decreases with increases in activity. Maintenance is a mixed cost because it increases in total but not proportionately with changes in the activity level, and the cost per unit decreases with increases in activity. BRIEF EXERCISE 18-5 High Low Differen ce \$65,0 00 \$32,0 00 = \$33,000 40,00 0 18,00 0 = 22,000 \$33,000 ˜ 22,000 = \$1.50 per unit. Activity Level High Low Total cost Less: Variable costs 40,000 X \$1.50 18,000 X \$1.50 Total fixed costs \$65,0 00 60,00 0 000,0 00 \$5,00 0 \$32,0 00 27,00 0 \$5,00 0

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BRIEF EXERCISE 18-6 1. (a) \$100 (\$260 – \$160) (b) 38.5% (\$100 ˜ \$260) 2. (c) \$360 (\$500 – \$140) (d) 28% (\$140 ˜ \$500) 3. (e) \$1,200 (\$360 ˜ 30%) (f) \$840 (\$1,200 – \$360) BRIEF EXERCISE 18-7 FONTILLAS MANUFACTURING INC. CVP Income Statement For the Quarter Ended March 31, 2007 Sales ......................................................................... \$1,800,000 Variable costs (\$750,000 + \$95,000 + \$79,000) .... 924,000 Contribution margin ............................................... 876,000 Fixed costs (\$540,000 + \$60,000 + \$70,000) ......... 670,000 Net income ............................................................... \$ 206,000
EXERCISE 18-6 (a) Contribution margin in dollars: Sales = 3,500 X \$30 =\$105,000 Variable costs = \$105,000 X .8 = 84,000 Contribution margin \$ 21,000 Contribution margin per unit: \$30 – \$24 (\$30 X 80%) = \$6.

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Solutions%20to%20ch%2018%20and%2019%20demonstration%20problems[1]

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