High-Low Method

The following are monthly sales totals taken from the log of a color photocopying machine used by the Kinlo's Printing Company.

Cost was based on a flat fee plus a declining cost per copy made after a minimum number of copies had been made each month.

Number of

Total

Month

Copies Made

Cost

REQUIRED

January

35,200

$ 10,800

To differentiate the variable and fixed costs in the use of this machine

February

30,400

9,600

for future planning, use the high-low method to (a) determine the variable

March

32,900

10,225

cost per copy and (b) compute the fixed and variable costs for the

April

40,300

12,075

months of February and June.

May

38,400

11,600

June

48,900

14,225

Cost-Volume-Profit Analysis

Tom owns and operates Trader Tom's Pizzas. He makes and sells frozen 4-cheese pizzas, New York style. The

expected selling price is $10 per pizza. The projected variable cost per pizza is $6. The estimated fixed costs

per month are $10,000.

REQUIREMENTS

1.)

How many pizzas must be sold to obtain a profit before taxes of $20,000 per month?

2.)

What is Tom's break-even point in number of pizzas sold per month?

3.)

If 6,000 pizzas are sold in a given month and fixed costs increase by $5,000, the overall profit is

4.)

Tom's rent and his other fixed costs increase to a total of $15,000 per month. Also, assume that variable

costs rise to $7 per pizza. If Tom raises his average price to $12 per pizza, how many pizzas must he now

sell to make $20,000 profit per month.

5.)

Tom may lose 10% of his customers if he raises his prices. If this should happen, what would be Tom's

profit per month? Assume that Tom had been serving 7,500 pizzas per month.