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# Excel-16 - Exercise 2 6 High-Low Method of Analyzing Mixed...

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Exercise 2 - 6 High-Low Method of Analyzing Mixed Costs 1. Computations Units Produced Costs High 900,000 \$63,000 (\$0.07 * 900,000) Low 600,000 54,000 (\$0.09 * 600,000) Difference 300,000 9,000 Change in total costs = \$9,000 = \$0.03 variable cost rate Change in volume 300,000 Total costs = Fixed costs + Variable costs \$54,000 = X + 600,000 * (\$0.03) \$54,000 = X + 18,000 \$36,000 = X Therefore, Total fixed costs = \$36,000 Total variable costs = \$18,000 at 600,000 copies 2. (800,000 * \$0.03) + \$36,000 = \$60,000 total cost

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Exercise 16 - 8 Contribution Margin Income Statement 1. Contribution margin income statement Gordon Company Contribution Margin Income Statement For the Year Ended December 31, 2006 Sales revenue (10 units) \$250 Less variable expenses: Direct materials \$60 Direct labor 50 Manufacturing overhead 3 Selling expenses 45 Administrative expenses 25 183 Contribution margin \$67 Less fixed expenses Manufacturing overhead \$5 Selling expenses 30 Administrative expenses 15 \$50 Profit \$17 2. The contribution margin per unit is \$6.70 (\$67 / 10 units). If only 5 units had been sold the company would have lost \$16.50 [\$50 - (5 * \$6.70)], because total fixed costs would not have been covered. Alternative calculation: Sales revenue (\$25 * 5) \$125.00 Variable costs (\$18.30 * 5) 91.50 Contribution margin \$33.50 Less fixed expenses 50.00 Loss \$(16.50)

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Exercise 16-11 Contribution Margin Analysis Case I Case II Case III Sales volume (units) 24,000 (5) 40,000 16,000 Sales price per unit \$10 \$8 (9) \$10
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