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Cost Behavior: Analysis and Use WRCISE 3-5 Cost Behavior, Contribution Format Income Company manufactures and sells a single product. A l per unit costs over the relevant range of 30,000 to 500 Contribution Format Income Statement (LOI, L04 nd sells a single product. A partially completed schedule of the company's over the relevant range of 30,000 to 50,000 units produced and sold annually is given below: Units Produced and Sold 30,000 40,000 50,000 $180,000 300,000 $480.000 Total costs: Variable costs ...... Fixed costs ........ Total costs.... Cost per unit: Variable cost. Fixed cost .. Total cost per unit calf -a44 Required: 1 Complete the schedule of the company's total and unit costs above Assume that the company produces and sells 45,000 units during the year at a selling price of $16 per unit. Prepare a contribution format income statement for the year. EXERCISE 3-6 High-Low Method; Scattergraph Analysis (LO2, LO3] The following data relating to units shipped and total shipping expense have been assembled by Archer Company, a wholesaler of large, custom-built air-conditioning units for commercial buildings: Units Shipped Month January February March April ...... May June ... July Total Shipping Expense $1,800 $2,300 $1,700 $2,000 $2,300 $2,700 $1,200 2. The president of the company has Required: 1. Using the highl Using the high-low method, estimate a cost formula for shipping expense. of the company has no confidence in the high-low method and would like you to check your results using a scattergraph. . Prepare a scatter the horizontal axis. Use a ruler to fit a straight line to your plotted points. your scattergraph, estimate the approximate variable cost per unit shipped and the approximate fixed cost per month with the quick-and-dirty method. Other than the number of units shipped, are likely to affect the company's total shipping b. Using your scattergraph, 3. What factors, other than the expense? Explain. Hoi Chane ISE 3-7 Cost Behavior, High-Low Method L01. L03] many has determined Wonde var 1. 2. Prepare a scattorgraph using the URL tis. Fit a line to your plotted points using a ruler Use the quick-and-dirty method, what is the approximate monthly fixed cost The able cose per il processed? Show your computations. osts of the hotel season and in the EXERCISE - High Low Method |L03) The Cheyenne Hotel in Big Sky, Montana, has accumulated records of the total clectrical costs of the and the number of occupancy-days over the last year. An occupancy-day represents a room rented one day. The hotel's business is highly seasonal, with peaks nccurring during the ski season and in Occupancy-Days 1,736 1.904 2056 960 360 744 Month January... February - March April May June July August September ... October November December Electrical Costs $4,127 $4,207 $5,083 $2,857 $1.871 $2,696 $4.670 $5.148 $2,691 $1,588 $2,454 $3.529 2,108 2,406 840 124 720 1.364 Required: 1. Using the high-low method, estimate the fixed cost of clectricity per month and the variable cost of electricity per occupancy-day. Round off the fixed cost to the nearest whole dollar and the variable Cost to the nearest whole cent. 2. What other factors other than occupancy-days are likely to affect the variation in electrical costs from month to month? EXERCISE 3-4 Contribution Format Income Statement (L04) The Alpine House, Inc., is a large retailer of winter sports equipment. An income statement for the com- pany's Ski Department for a recent quarter is presented below: The Alpine House, Inc. Income Statement-Ski Department For the Quarter Ended March 31 Sales..... Cost of goods sold........ Gross margin..... Selling and administrative expenses Selling expenses..... $30,000 Administrative expenses...... 10,000 Net operating income... $150,000 90,000 60,000 40,000 $ 20,000 Skis sell, on the avengs, for 5750 per pair. Variable selling expenses are $50 per pair of skis sold.. remaining selling expenses are fixed. The administrative expenses are 20% variable and 80% fixed. The company does not manufacture its own skis; it purchases them from a supplier for $450 per pair Required: 1. Prepare a contribution format income statement for the quarter. 2 For every pair of skis sold during the quarter, what was the contribution toward covering fixed expensc and toward earning profits
