2. With your Total Fixed Cost and Variable Cost per Unit from the high-low method, compute the total cost for the following values of N (Number of Units Produced).

Number of Units Produced	Total Cost
3,500	$fill in the blank 2e8c6c07ffa9066_3
4,360	fill in the blank 2e8c6c07ffa9066_4
5,775	fill in the blank 2e8c6c07ffa9066_5

3. Why does the total cost computed for 4,360 units not match the data for January?

a. The high-low method is accurate only for months in which production is at full capacity.

b. The high-low method only gives accurate data when fixed costs are zero.

c. The high-low method gives a formula for the estimated total cost and may not match levels of production other than the highest and lowest.

d. The high-low method gives accurate data only for levels of production outside the relevant range.

Feedback

Review the high-low method, and use the smallest and largest levels of production in your computation.

Contribution Margin

Review the contribution margin income statements for Cover-to-Cover Company and Biblio Files Company on their respective Income Statements. Complete the following table from the data provided on the income statements. Each company sold 75,800 units during the year.

	Cover-to-Cover Company	Biblio Files Company
Contribution margin ratio (percent)	fill in the blank 86ecc5079005fa1_1%	fill in the blank 86ecc5079005fa1_2%
Unit contribution margin	$fill in the blank 86ecc5079005fa1_3	$fill in the blank 86ecc5079005fa1_4
Break-even sales (units)	fill in the blank 86ecc5079005fa1_5	fill in the blank 86ecc5079005fa1_6
Break-even sales (dollars)	$fill in the blank 86ecc5079005fa1_7	$fill in the blank 86ecc5079005fa1_8

Feedback

Review the definitions of contribution margin ratio and unit contribution margin. Also review the formulas for break-even in terms of units sold and sales dollars.

Income Statement - Cover-to-Cover

Cover-to-Cover Company Contribution Margin Income Statement For the Year Ended December 31, 20Y8
Sales		$379,000
Variable costs:
Manufacturing expense	$227,400
Selling expense	18,950
Administrative expense	56,850	(303,200)
Contribution margin		$75,800
Fixed costs:
Manufacturing expense	$5,000
Selling expense	4,000
Administrative expense	9,950	(18,950)
Operating income		$56,850

Income Statement - Biblio Files

Biblio Files Company Contribution Margin Income Statement For the Year Ended December 31, 20Y8
Sales		$379,000
Variable costs:
Manufacturing expense	$151,600
Selling expense	15,160
Administrative expense	60,640	(227,400)
Contribution margin		$151,600
Fixed costs:
Manufacturing expense	$76,750
Selling expense	8,000
Administrative expense	10,000	(94,750)
Operating income		$56,850

Sales Mix

Biblio Files Company is making plans for its next fiscal year, and decides to sell two new types of bookshelves, Basic and Deluxe. The company has compiled the following estimates for the new product offerings.

Type of Bookshelf	Sales Price per Unit	Variable Cost per Unit
Basic	$5.00	$1.75
Deluxe	9.00	8.10

The company is interested in determining how many of each type of bookshelf would have to be sold in order to break even. If we think of the Basic and Deluxe products as components of one overall enterprise product called Combined, the unit contribution margin for the Combined product would be $2.31. Fixed costs for the upcoming year are estimated at $325,710. Recall that the totals of all the sales mix percents must be 100%. Determine the amounts to complete the following table.

Type of Bookshelf	Percent of Sales Mix	Break-Even Sales in Units	Break-Even Sales in Dollars
Basic	fill in the blank bda3effd1fc2033_1%	fill in the blank bda3effd1fc2033_2	$fill in the blank bda3effd1fc2033_3
Deluxe	fill in the blank bda3effd1fc2033_4%	fill in the blank bda3effd1fc2033_5	$fill in the blank bda3effd1fc2033_6

Feedback

Review the definition of break-even point.

Recall that the Combined unit contribution margin is given by [(Basic unit contribution margin) x (Basic percent of sales mix)] + [(Deluxe unit contribution margin) x (Deluxe percent of sales mix)]. Since these percents must add up to 100%, we have the following:

(Basic percent of sales mix) + (Deluxe percent of sales mix) = 100%, so that

(Deluxe percent of sales mix) = 100% - (Basic percent of sales mix)

Target Profit

Refer again to the income statements for Cover-to-Cover Company and Biblio Files Company on their respective Income Statement. Note that both companies have the same sales and net income. Answer questions (1) - (3) that follow, assuming that all data for the coming year is the same as the current year, except for the amount of sales.

1. If Cover-to-Cover Company wants to increase its profit by $40,000 in the coming year, what must their amount of sales be? $fill in the blank 072739fd3fe405f_1

2. If Biblio Files Company wants to increase its profit by $40,000 in the coming year, what must their amount of sales be? $fill in the blank 072739fd3fe405f_2

3. What would explain the difference between your answers for (1) and (2)?

a. Biblio Files Company has a higher contribution margin ratio, and so more of each sales dollar is available to cover fixed costs and provide operating income.

b. Cover-to-Cover Companys contribution margin ratio is lower, meaning that its more efficient in its operations.

c. The companies have goals that are not in the relevant range.

d. The answers are not different; each company has the same required sales amount for the coming year to achieve the desired target profit.