Reference no: EM131777803

Q1. The controller of Dugan Industries has collected the following monthly expense data for use in analyzing the cost behavior of maintenance costs.

Month                  Total Maintenance Costs         Total Machine Hours

January               $2,400                                       300

February              3,000                                         400

March                   3,600                                        600

April                    4,500                                         790

May                     3,200                                         500

June                    4,900                                         800

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 200 unit increments and $1,000 cost increments.

Q2. Black Brothers Furniture Corporation incurred the following costs.

1. Wood used in the production of furniture.

2. Fuel used in delivery trucks.

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 furniture craftsmen.

10. Salaries of factory supervisors.

11. Utilities expense.

12. Telephone bill.

Instructions - Identify the costs above as variable, fixed, or mixed.

Q3. Jim Thome wants Thome Company to use CVP analysis to study the effects of changes in costs and volume on the company. Thome has heard that certain assumptions must be valid in order for CVP analysis to be useful.

Instructions - Prepare a memo to Jim Thome concerning the assumptions that underlie CVP analysis.

Q4. In the month of June, Barbara's Beauty Salon gave 2,700 haircuts, shampoos, and permanents at an average price of $30. During the month, fixed costs were $18,000 and variable costs were 70% of sales.

Instructions -

(a) Determine the contribution margin in dollars, per unit, and as a ratio.

(b) Using the contribution margin technique, compute the break-even point in dollars and in units.

(c) Compute the margin of safety in dollars and as a ratio.

Q5. Grissom Company estimates that variable costs will be 60% of sales, and fixed costs will total $800,000. The selling price of the product is $4.

Instructions

(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.

(c) Compute the margin of safety in (1) dollars and (2) as a ratio, assuming actual sales are $2.5.