How do costs behave when there is a change in volume? a) ______ increases or decreases in total in direct proportion to increases or decreases in sales volume. b) ______ remains the same in total, regardless of change in sales. c) ______ have both a variable and fixed component.
How do costs behave when there is a change in volume?
a) ______ increases or decreases in total in direct proportion to increases or decreases in sales
volume.
b) ______ remains the same in total, regardless of change in sales.
c) ______ have both a variable and fixed component.
d) Answer the following regarding the high-low method:
i) What is the formula for determining the variable costs when using the high low method:
ii) Given the following information for the high and low levels, what is the variable cost per unit
and the total fixed costs?
iii) Based on the information in part ii), what is the relevant range?
In MyAccountingLab, complete Try It! 21-1 and S21-1 through S21-3.
LO2. What is contribution margin, and how is it used to compute operating income?
a) What is the contribution margin if net sales revenue is $100,000 and variable costs are $40,000?
b) Based on the information in part a), what is the contribution margin ratio?
In MyAccountingLab, complete Try It! 21-2 and S21-4 and S21-5.
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LO3. How is cost-volume-profit (CVP) analysis used?
a) Use the income statement below to answer the following questions.
BASIC TRAVEL
Contribution Margin Income Statement
Sales Revenue ($10 per unit * 36,800 units) $ 368,000
Variable Costs ($4.30 per unit * 36,800 units) 158,240
Contribution Margin 209,760
Fixed Costs 173,000
Operating Income $ 36,760
i) What is the breakeven in units (round up to nearest unit)?
ii) What is the number of units that need to be sold if there is a required profit of $10,000
(round up to nearest unit)?
In MyAccountingLab, complete Try It! 21-3 and S21-6 through S21-11.
LO4. How is CVP analysis used for sensitivity analysis?
a) Indicate whether the breakeven point will increase or decrease based on the following change
(each is independent):
i) Variable costs increase by $10 ______
ii) Sales price increases by $10 ______
iii) Fixed costs decrease by $1,000 ______
In MyAccountingLab, complete Try It! 21-4 and S21-12 and S21-13.
LO5. What are some other ways CVP analysis can be used?
a) In your own words, define what is margin of safety?
b) In your own words, define what is operating leverage?
c) In your own words, define what is a sales mix?
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In MyAccountingLab, complete Try It! 21-5 and S21-14 through S21-17.
LO6. How does variable costing differ from absorption costing?
e) ______ is included in the per unit cost when using absorption costing, but not when using variable
costing.
f) Sales revenue – variable costs = ______
g) ABC Company had the following costs:
Direct materials = $10 per unit
Direct labor = $5 per unit
Variable manufacturing overhead = $2 per unit
Fixed manufacturing overhead = $1,000
Units produced is 1,000 units
i) What is the cost per unit using the absorption method?
ii) What is the cost per unit using the variable method?
In MyAccountingLab, complete Try It! 21-6 and S21A-18 through S21A-20.
LO7. How does operating income differ between variable costing and absorption costing?
a) ABC Company had the following costs:
Direct materials = $10 per unit
Direct labor = $5 per unit
Variable manufacturing overhead = $2 per unit
Fixed manufacturing overhead = $1,000
Variable selling and administrative = $3 per unit
Fixed selling and administrative = $2,000
Selling price per unit = $100
Units produced and sold is 1,000 units
i) Using the absorption costing method, the gross profit is:
ii) Using the variable costing method, the contribution margin is:
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