Total cost 15 units of production fixed cost 61500

This preview shows 16 out of 30 pages.

Total cost = ($15 × Units of Production) + Fixed Cost $61,500 2,100 units) Production Total (Units) Cost June 1,000 $45,550 July 1,500 52,000 August 2,100 61,500 September 1,800 57,500 October 750 41,250 Total Cost = (Variable Cost per Unit × Units of Production) + Fixed Cost 1
Image of page 16

Subscribe to view the full document.

11-17 19-17 $61,500 = ($15 × 2,100 units) + Fixed cost $61,500 = $31,500 + Fixed cost $61,500 – $31,500 = Fixed cost $30,000 = Fixed cost If the lowest level had been chosen, the results of the formula would provide the same fixed cost of $30,000. 1
Image of page 17
11-18 19-18 With fixed costs and variable costs estimated at $30,000 and $15 per unit, a formula is in place to estimate production at any level. If the company is expected to produce 950 units in November, the estimated total overhead would be calculated as follows: Total Cost = (Variable Cost per Unit × Units of Production) + Fixed cost Total Cost = $15 (950) + $30,000 Total Cost = $44,250 1
Image of page 18

Subscribe to view the full document.

11-19 19-19 2 Compute the contribution margin, the contribution margin ratio, and the unit contribution margin.
Image of page 19
11-20 19-20 Cost-Volume-Profit Relationships Cost-volume-profit analysis is the examination of the relationships among selling prices, sales and production volume, costs, expenses, and profits. 2
Image of page 20

Subscribe to view the full document.

11-21 19-21 The contribution margin is the excess of sales revenues over variable costs. It is especially useful because it provides insight into the profit potential of a company. Contribution Margin 2
Image of page 21
11-22 19-22 Contribution Margin Ratio (in dollars) The contribution margin ratio is most useful when the increase or decrease in sales volume is measured in sales dollars . In this case, the following formula is used to determine change in income from operations. Change in Income from Operations Change in Sales Dollars × Contribution Margin Ratio = 2
Image of page 22

Subscribe to view the full document.

11-23 19-23 Contribution Margin Ratio 100% 60 % Contribution Margin Ratio = 40% Contribution Margin Ratio = Sales – Variable Costs Sales $1,000,000 – $600,000 $1,000,000 Contribution Margin Ratio = 40% 30 % 10% 2
Image of page 23
11-24 19-24 Using Contribution Margin per Unit as a Shortcut Lambert Inc.’s sales could be increased by 15,000 units from 50,000 to 65,000 units. Lambert’s income from operations would increase by $120,000 (15,000 × $8) as shown below. Change in Income from Operations Changes in Sales Units × Unit Contribution Margin = Change in Income from Operations 15,000 × $8 = Change in Income from Operations $120,000 = 2
Image of page 24

Subscribe to view the full document.

11-25 19-25 3 Determine the break- even point and sales necessary to achieve a target profit.
Image of page 25
11-26 19-26 Baker Corporation’s fixed costs are estimated to be $90,000. The unit contribution margin is calculated as follows: Unit selling price $25 Unit variable cost 15 Unit contribution margin $10 3
Image of page 26

Subscribe to view the full document.

11-27 19-27 The break-even point (in units) is calculated using the following equation: Break-Even Sales (units) = Fixed Costs Unit Contribution Margin Break-Even Sales (units) = $90,000 $10 Break-Even Sales (units) = 9,000 units 3
Image of page 27
11-28 19-28 The break-even point (in dollars) is calculated using the following equation: Break-Even Sales (dollars) = Fixed Costs Contribution Margin Ratio Break-Even Sales (dollars) = $225,000 $90,000 .40 Break-Even Sales (dollars) = Unit Contribution Margin Unit Selling Price $10 $25 3
Image of page 28

Subscribe to view the full document.

11-29 19-29 Park Co. is evaluating a proposal to pay an additional 2% commission on sales to its salespeople (a variable cost) as an incentive to increase sales. Fixed costs are estimated at
Image of page 29
Image of page 30
You've reached the end of this preview.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern