Exam 20: Cost Behavior Analysis

Cost-volume-profit analysis assumes costs and revenues have a close linear approximation.

Within the relevant range,fixed and variable costs behave differently.

Meredith Marshall owns a home inspection business,offering her services to homeowners.She currently charges $180 per inspection but wants to know if her fee should be raised.She has provided the following data from the past six months: Month Number of Overhead Inspections Costs March 60 \ 3,420 April 64 3,555 May 76 3,989 June 90 4,044 July 97 4,101 August 110 4,120 Meredith takes her daughter with her on all inspections and pays her $40 per inspection.Due to slower business in the cooler months,Meredith estimates she will average 60 inspections per month for the next six months.Prepare a schedule showing Meredith 's estimated total cost per inspection.

An insurance company pays its employees a commission of 6 percent on each sale.What is the proper classification of the cost of sales commissions?

The new Corina watch has an expected selling price per watch of $42,the projected variable cost per unit is $24,and estimated fixed costs per month are $31,680. The breakeven point in sales dollars is

Practical capacity is theoretical or ideal capacity reduced by normal and anticipated work stoppages,such as machine breakdowns.

Martin,Inc.,has two products: a pocket metronome (unit sales price,$25; unit variable cost,$15)and a pocket tuner (unit sales price,$14; unit variable cost,$9).The company's sales mix of the pocket metronome to the pocket tuner is 4:1 and fixed costs are $32,850. a. Determine the weighted-average contribution margin. b. Calculate the weighted-average breakeven point. c. Compute the breakeven point for each product.

Margin of safety is the excess of actual sales over break even sales.

Dick Sports,Inc.'s,income statement data for last year is as follows: Sales revenue \ 200,000 Variable costs 140,000 Fixed costs 30,000 Operating income 18,000 What is Dick's breakeven point in dollars?

As production increases,what should you expect to happen to the fixed costs per unit?

Cost behavior is defined as the manner in which costs respond to changes in volume or activity.

The breakeven formula adjusted for profits may be stated as

The weighted-average breakeven point is the breakeven point for the entire company.

Given the following cost and activity observations for Leno Enterprises' utilities,use the high-low method to calculate Leno's variable utilities cost per machine hour. Cost Machine Hours September 4,100 22,000 October 3,700 18,000 November 3,900 19,000 December 4,500 28,000

Cost-volume-profit analysis assumes a constant sales mix.

Unit fixed costs vary inversely with activity or volume.

Sales mix is the proportion of each product's unit sales relative to the company's total sales dollars.

Dapper Hat Makers is in the business of designing and producing specialty hats.The material used for derbies costs $4.50 per unit,and Dapper pays each of its two full-time employees $250 per week.If Employee A makes 15 derbies in one week,what is the variable cost per derby? (Round to two decimal places where necessary.)

A product line's contribution margin represents its contribution to paying off variable costs and to generating a profit.

Native American Pottery expects to earn a profit of $95,000 in 20xx.The company manufactures ornamental ceramic tiles.Each lot of 100 blocks requires variable costs of $5.00 for direct materials,$3.50 for direct labor,and $4.50 for overhead.Total variable costs are thus $13 per lot.Fixed costs for 20xx are expected to be $130,000.Each hundred-block lot will sell for $33. a. Determine how many lots of ceramic tiles the company must sell to earn its targeted profit, and convert this amount to sales dollars. b. Compute breakeven sales in dollars. c. Explain the dollar difference between breakeven sales dollars and the sales dollars necessary to earn the targeted profit. Use the contribution margin as part of your explanation.