224 5 Cost-Volume-Profit Determine fed and variable costs using the high-low ‘method and prepare graph. (01,3), Determine fixed, variable, and mised cost. (001,30 Explain assumptions underlying CVP analysis. Wo4,« Compute break-even point in units and dollars 05,6), ‘ = 3. Straight-line depreciation on factory building. 4. Screws used in the production of furniture. 5. Sales staff salaries. 6. Sales commissions, 7. Property taxes. 8, Insurance on buildings, 9. Hourly wages of fu 10, Salaries of factory supervisors. 11. Utilities expense. 12, Telephone bill. re craftsmen. Instructions Identify the costs above as variable, fixed, or mixed. ES-5 The controller of Dousmann Industries has collected the following monthly expense data for use in analyzing the cost behavior of maintenance costs. Total Total Month Maintenance Costs. Machine Hours January $2,750 3,500 February 3,000 4,000 March 3,600 6,000 April 4,500 7,900 May 3,200 5,000 June 5,000 8,000 Instructions (a) Determine the fixed- and variable-cost components using the high-low method. (b) Prepare a graph showing the behavior of maintenance costs, and identify the fixed- and variable-cost elements, Use 2,000-hour increments and $1,000 cost increments, E5-6 PCB Corporation manufacturesa single product. Monthly production costs incurred in the manufacturing process are shown below for the production of 3,000 units. The wtli- ties and maintenance costs are mixed costs. The fixed portions of these costs are $300 and $200, respectively Production in Units _ 3,000 Production Coste Direct materials $7,500 Direct labor 18,000 Utilities 2,100 Property taxes 1,000 Indirect labor 4,500 Supervisory salaries 1,900 Maintenance 1.100 Depreciation 2,400 Instructions (a) Identify the above costs as variable, fixed, or mixed. (b) Calculate the expected costs when production is §,000 units. 5-7 Jim Taylor wants Taylor Company to use CVP analysis o study the effects of changes in costs and volume on the company. Taylor has heard that certain assumptions must be valid in order for CVP analysis to be useful Instructions {GES Preparea memo to Jim Taylor concerning the assumptions that underlie CVP analysis. 5-8 All That Blooms provides environmentally friendly lawn services for homeowners. Its operating costs are as follows. Depreciation $1,400 per month Advertising, $200 per month Insurance $2,000 per monthWeed and feed materials $12 per lawn, Direct labor $10 per lawn Fuel $2 per lawn All That Blooms charges $60 per treatment for the average single-family lawn. Instructions Determine the company's break-even point in (a) number of lawns serviced per month and (b) dollars. 5.9 The Green Acres Inn ig trying to determine its break-even point. The inn has 50 rooms that it rents at $60 a night. Operating costs are as follows. Salaries $6,200 per month Utilities $1,100 per month Depreciation $1,000 per month Maintenance $100 per month Maid service ‘$11 per room, Other costs $28 per room Instructions Determine the innis break-even point in (a) number of rented rooms per month and (b) dollars. 5-10 In the month of March, Style Salon services 560 clients at an average price of $120. During the month, fixed costs were §21,024 and variable costs were 60% of sales Instructions (@) Determine the contribution margin in dollars, per unit, and as a ratio. () Using the contribution margin technique, compute the break-even point in dollars and in units 5-11 Kare Kars provides shuttle service between four hotels near a medical center and fan international airport. Kare Kars uses two 10.passenger vans to offer 12 round trips per day. A recent month's activity in the form of a cost-volume-profit income statement is shown below. Fare revenues (1,440 fares) $36,000 Variable costs Fuel $ 5,040 Tolls and parking 3,100 Maintenance 860 Contribution margin 27,000 Fixed costs Salaries 12,700 Depreciation 1,300 Insurance 1,000 15,000 Net income Instructions (a) Calculate the break-even point in (1) dollars and (2) number of fares. (b) Without calculations, determine the contribution margin at the break-even point. 5-12 In 2013, Manhoff Company had a break-even point of $350,000 based on a selling price of $5 per unit and fixed costs of $112,000. In 2014, the selling price and the variable Costs per unit did not change, but the break-even point increased to $420,000. Instructions (a) Compute the variable costs per unit and the contribution margin ratio for 2013. (b) Compute the increase in fixed costs for 2014 5-13 Cannes Company has the following information available for September 2014. Unit selling price of video game consoles $400 Unit variable costs $215 ‘otal fixed costs $52,000 Units sold, 600 Exercises 225 Compute break-even point 05.6.0" te Compute contribution margin ‘and break-even point ft Compute break-even point (005, 6), 4° Tt Compute variable costs per tun, contribution margin ratio, and increase in fixed cous. 05,6, Prepare CVP income statements. (005.6), a"226 5 Cost-Volume-Profit Instructions (@) Compute the contribution margin per unit. (b) Prepare a CVP income statement that shows both total and per unit amounts. (c) Compute Cannes’ break-even point in units. (d) Prepare a CVP income statement for the break-even point that shows both total and. per unit amounts. Compute various components E5-14 Naylor Company had $210,000 of net income in 2013 when the selling price per to derive tage nt income unit was $130, the variable costs per unit were $90, and the fixed costs were $570,000 under diferent assumptions. Management expects per unit data and total fixed costs to remain the same in 2014, The (06,7, president of Naylor Company is under pressure from stockholders to increase net income ‘by $52,000 in 2014. Instructions (a) Compute the number of units sold in 2013. (b) Compute the number of units that would have to be sold in 2014 to reach the stock- holders’ desired profit level (©) Assume that Naylor Company sells the same number of units in 2014 as it did in 2013. ‘What would the selling price have to be in order to reach the stockholders’ desired profit level? Compute net income under 5-18 Cottonwood Company reports the following operating results for the month of diferent altemaives. ‘August: sales $400,000 (units 5,000); variable costs $210,000; and fixed costs $90,000. Man- 07,0 ‘agement is considering the following independent courses of action to increase net income. 1. Increase selling price by 10% with no change in total variable costs or units sold. 2. Reduce variable costs to 45% of sales. Instructions Compute the net income to be earned under each alternative. Which course of action will produce the highest net income? Preparea CVP graph and ‘E516 Glacial Company estimates that variable costs will be 62.5% of sales, and fixed compute break-even point costs will total $600,000. The selling price of the product is $4 and margin of safety. zi (10 6,8), a” etetions (a) Prepare a CVP graph, assuming maximum sales of $3,200,000. (Note: Use $400,000 increments for sales and costs and 100,000 increments for units.) (b) Compute the break-even point in (1) units and (2) dollars. (©) Compute the margin of safety in (1) dollars and (2) as a rat are $2 million assuming actual sales Determine contribution 5-17 Oak Bucket Co,, 2 manufacturer of wood buckets, had the following data for 2013: rmarein ratio, break-even point in dllrs, and margin Sales 2,600 units of safer Sales price $40 per unit Variable costs §16 per unit (105, 6,7,8), 47 web pieper Instructions (2) What isthe contribution margin ratio? (b) What is the break-even point in dollars? (©) What is the margin of safety in dollars and as a ratio? {@) If the company ssishes to increase its total dollar contribution margin by 30% in 2014, by how muuch will t need to increase its sales if all other factors remain constant? (CGA adapted) eam 13 ta lal Sse ao) fear Vee ica tae) ad Visit the book’s companion website, at wwwwiley.com/collegefweygandt, and choose the Student Companion site to access Exercise Set B and Challenge Exercises.