Assignment 1

1- Determine the missing amounts.

Unit Selling
Price
Unit Variable
Costs
Contribution
Margin per Unit
Contribution
Margin Ratio
1. $300 $210 A. B.
2. $600 C. $120 D.
3. E. F. $400 40%

Solution
A. $300 $210 = $90
B. $90 $300 = 30%
C. $600 $120 = $480
D. $120 $600 = 20%
E. $400 40% = $1,000
F. If 40% = CM ratio, then 60% = variable cost percentage; $1,000 60% = $600
Or $1,000 $400 = $600
2- Mexican Company has sales of $1,500,000 for the first quarter of 2012. In making the
sales, the company incurred the following costs and expenses.
Variable Fixed
Product costs $400,000 $550,000
Selling expenses 100,000 75,000
Administrative
expenses
80,000 67,000


Calculate net income under CVP for 2012.
Solution
$1,500,000 [$400,000 + $100,000 + $80,000] [$550,000 + $75,000 + $67,000] =
$228,000


3- Kettle Company has a unit selling price of $500, variable cost per unit $300, and fixed
costs
of $170,000.


Compute the break-even point in units and in sales dollars.

Solution
$500X $300X $170,000 = 0
Break-even point in units = X = 850 units
Break-even point in dollars = 850 units $500 = $425,000
4- Apple Company reported actual sales of $2,000,000, and fixed costs of $400,000. The
contribution margin ratio is 25%.


Compute the margin of safety in dollars and the margin of safety ratio.

Solution
Break-even point in dollars: $400,000 25% = $1,600,000
Margin of safety in dollars: $2,000,000 $1,600,000 = $400,000
Margin of safety ratio: $400,000 $2,000,000 = 20%
5- Novell Company manufactures a single product. Annual production costs incurred in the
manufacturing process are shown below for the production of 2,000 units. The Utilities and
Maintenance are mixed costs. The fixed portions of these costs are $200 and $400,
respectively.
Costs Incurred
Production in Units 2,000 4,000
Production Costs
a. Direct Materials $ 4,000 ?
b. Direct Labor 16,000 ?
c. Utilities 1,000 ?
d. Rent 3,000 ?
e. Indirect Labor 4,600 ?
f. Supervisory Salaries 1,500 ?
g. Maintenance 900 ?
h. Depreciation 2,500 ?





Calculate the expected costs to be incurred when production is 4,000 units. Use your
knowledge of cost behavior to determine which of the other costs are fixed or variable.

Solution
Costs Incurred
Production in Units 2,000 4,000
Production Costs
a. Direct Materials $ 4,000 $ 8,000
b. Direct Labor 16,000 32,000
c. Utilities 1,000 1,800
d. Rent 3,000 3,000
e. Indirect Labor 4,600 9,200
f. Supervisory Salaries 1,500 1,500
g. Maintenance 900 1,400
h. Depreciation 2,500 2,500
a. Variable $4,000 2,000 = $2.00 per unit; 4,000 $2.00 = $8,000
b. Variable $16,000 2,000 = $8.00 per unit; 4,000 $8.00 = $32,000
c. Mixed $1,000 $200 = $800; $800 2,000 = $.40 per unit of variable costs;
4,000 $.40 = $1,600 + $200 (fixed) = $1,800
d. Fixed $3,000
e. Variable $4,600 2,000 = $2.30 per unit; 4,000 $2.30 = $9,200
f. Fixed $1,500
g. Mixed $900 $400 = $500 variable portion; $500 2,000 = $.25
4,000 $.25 = $1,000 + $400 (fixed portion) = $1,400
h. Fixed $2,500