Contribution margin and break-even analysis}

Mariemont Manufacturing Inc. produces and sells a product with a price of \(\$ 100\) per unit. The following cost data have been prepared for its estimated upper and lower limits of activity:

{Required:}
1. Classify each cost element as either variable, fixed, or semivariable. (Hint: Recall that variable expenses must change in direct proportion to changes in the volume of activity.)
2. Calculate the break-even point in units and dollars. (Hint: First use the high-low method illustrated in Chapter 4 to separate costs into their fixed and variable components.)
3. Prepare a break-even chart.
4. Prepare a contribution income statement, similar in format to the statement appearing on page 433 , assuming sales of 5,000 units.
5. Recompute the break-even point in units, assuming that variable costs increase by \(20 \%\) and fixed costs are reduced by \(\$ 50,000\).

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Production (units). Production costs: Direct materials Direct labor Overhead: Lower Limit 4,000 Upper Limit 6,000 $ 60,000 $ 90,000 80,000 120,000 Indirect materials 25,000 37,500 Indirect labor 40,000 50,000 Depreciation. 20,000 20,000 Selling and administrative expenses: Sales salaries ......... 50,000 65,000 Office salaries 30,000 30,000 Advertising Other Total 45,000 45,000 15,000 20,000 $365,000 $477,500