Cover-to-Cover Company is a manufacturer of shelving for books. The company has compiled the following cost data, and wants your help in determining the cost behavior. After reviewing the data, complete requirements (1) and (2) that follow.

Units Produced	Total Lumber Cost	Total Utilities Cost	Total Machine Depreciation Cost
9,000 shelves	$108,000	$11,350	$130,000
18,000 shelves	216,000	21,700	130,000
36,000 shelves	432,000	42,400	130,000
45,000 shelves	540,000	52,750	130,000

1. Determine whether the costs in the table are variable, fixed, mixed, or none of these.

Lumber	Variable CostFixed CostMixed CostNone of theseVariable Cost
Utilities	Variable CostFixed CostMixed CostNone of theseMixed Cost
Depreciation	Variable CostFixed CostMixed CostNone of theseFixed Cost

2. For each cost, determine the fixed portion of the cost, and the per-unit variable cost. If there is no amount or an amount is zero, enter "0". Recall that, for N = Number of Units Produced, Total Costs = (Variable Cost Per Unit x N) + Fixed Cost. Complete the following table with your answers. Round variable portion of cost (per unit) answers to two decimal places.

Cost	Fixed Portion of Cost	Variable Portion of Cost (per Unit)
Lumber	$fill in the blank 535ead01f04d044_4	$fill in the blank 535ead01f04d044_5
Utilities	fill in the blank 535ead01f04d044_6	fill in the blank 535ead01f04d044_7
Depreciation	fill in the blank 535ead01f04d044_8	fill in the blank 535ead01f04d044_9

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Review the definitions for fixed, variable, and mixed costs, and the relationships between units produced and total cost for each type of cost. Recall that the high-low method may be used to separate a cost into its fixed and variable components.

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High-Low

Biblio Files Company is the chief competitor of Cover-to-Cover Company in the bookshelf business. Biblio Files is analyzing its manufacturing costs, and has compiled the following data for the first six months of the year. After reviewing the data, answer questions (1) through (3) that follow.

	Units Produced		Total Cost
January	4,360	units	$65,600
February	300		6,250
March	1,000		15,000
April	7,800		156,250
May	1,750		32,500
June	3,015		48,000

1. From the data previously provided, help Biblio Files Company estimate the fixed and variable portions of its total costs using the high-low method. Recall that Total Costs = (Variable Cost Per Unit x Number of Units Produced) + Fixed Cost. Complete the following table.

Total Fixed Cost	Variable Cost per Unit
$fill in the blank 4f7343f71ff0053_1	$fill in the blank 4f7343f71ff0053_2

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 4f7343f71ff0053_3
4,360	fill in the blank 4f7343f71ff0053_4
7,800	fill in the blank 4f7343f71ff0053_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.

abcdc

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

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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 80,800 units during the year.

	Cover-to-Cover Company	Biblio Files Company
Contribution margin ratio (percent)	fill in the blank a584fafa5f86ff1_1%	fill in the blank a584fafa5f86ff1_2%
Unit contribution margin	$fill in the blank a584fafa5f86ff1_3	$fill in the blank a584fafa5f86ff1_4
Break-even sales (units)	fill in the blank a584fafa5f86ff1_5	fill in the blank a584fafa5f86ff1_6
Break-even sales (dollars)	$fill in the blank a584fafa5f86ff1_7	$fill in the blank a584fafa5f86ff1_8

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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.

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Income Statement - Cover-to-Cover

Cover-to-Cover Company Contribution Margin Income Statement For the Year Ended December 31, 20Y8
Sales		$404,000
Variable costs:
Manufacturing expense	$242,400
Selling expense	20,200
Administrative expense	60,600	(323,200)
Contribution margin		$80,800
Fixed costs:
Manufacturing expense	$5,000
Selling expense	4,000
Administrative expense	11,200	(20,200)
Operating income		$60,600

Income Statement - Biblio Files

Biblio Files Company Contribution Margin Income Statement For the Year Ended December 31, 20Y8
Sales		$404,000
Variable costs:
Manufacturing expense	$161,600
Selling expense	16,160
Administrative expense	64,640	(242,400)
Contribution margin		$161,600
Fixed costs:
Manufacturing expense	$83,000
Selling expense	8,000
Administrative expense	10,000	(101,000)
Operating income		$60,600