High-low method

Ziegler Inc. has decided to use the high-low method to estimate the total cost and the fixed and variable cost components of the total cost. The data for various levels of production are as follows:

Units Produced	Total Costs
97,000			$26,467,000
111,000			28,721,000
123,000			30,653,000

This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.

Open spreadsheet

Determine the variable cost per unit and the total fixed cost. Round your answer for variable cost to the nearest cent. Round your answer for total fixed costs to the nearest dollar.

Variable cost:	$fill in the blank 2 per unit
Total fixed cost:	$fill in the blank 3

Based on part (a), estimate the total cost for 79,000 units of production. Round your answer to the nearest dollar.

Total cost for 79,000 units:

$fill in the blank 4

Margin of Safety

a. If Canace Company, with a break-even point at $240,800 of sales, has actual sales of $430,000, what is the margin of safety expressed (1) in dollars and (2) as a percentage of sales? Round the percentage to the nearest whole number.

1. $fill in the blank 1

2. fill in the blank 2%

b. If the margin of safety for Canace Company was 45%, fixed costs were $1,683,000, and variable costs were 55% of sales, what was the amount of actual sales (dollars)? (Hint: Determine the break-even in sales dollars first.) $fill in the blank 3

a. Young Company budgets sales of $1,220,000, fixed costs of $41,200, and variable costs of $183,000. What is the contribution margin ratio for Young Company? fill in the blank 1 %

b. If the contribution margin ratio for Martinez Company is 54%, sales were $852,000, and fixed costs were $345,060, what was the operating income? $fill in the blank 2

Sales mix and break-even sales

Dragon Sports Inc. manufactures and sells two products, baseball bats and baseball gloves. The fixed costs are $258,000, and the sales mix is 70% bats and 30% gloves. The unit selling price and the unit variable cost for each product are as follows:

Products	Unit Selling Price	Unit Variable Cost
Bats	$50		$45
Gloves	125		70

This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the questions below.

Open spreadsheet

Compute the break-even sales (units) for the overall enterprise product, E.

fill in the blank 2 units

How many units of each product, baseball bats and baseball gloves, would be sold at the break-even point?

Baseball bats:	fill in the blank 3 units
Baseball gloves:	fill in the blank 4 units

Sales mix and break-even analysis

Conley Company has fixed costs of $41,678,000. The unit selling price, variable cost per unit, and contribution margin per unit for the company's two products follow:

Product	Selling Price	Variable Cost per Unit	Contribution Margin per Unit
Yankee	$370		$160			$210
Zoro	290		160			130

The sales mix for products Yankee and Zoro is 65% and 35%, respectively.

This information has been collected in the Microsoft Excel Online file. Open the spreadsheet, perform the required analysis, and input your answers in the question below.

Open spreadsheet

Determine the break-even point in units of Yankee and Zoro of the overall (total) product, E. If required, round your answers to the nearest whole number.

Product Yankee: fill in the blank 2 units Product Zoro: fill in the blank 3 units

Break-even sales and sales to realize operating income

For the current year ended March 31, Cosgrove Company expects fixed costs of $452,500, a unit variable cost of $52, and a unit selling price of $77.

a. Compute the anticipated break-even sales (units). fill in the blank 1 unit

b. Compute the sales (units) required to realize operating income of $105,000. fill in the blank 2 units

Contribution Margin and Contribution Margin Ratio

For a recent year, McDonald's (MCD) company-owned restaurants had the following sales and expenses (in millions):

Sales	$23,900
Food and packaging	$(5,984)
Payroll	(6,000)
Occupancy (rent, depreciation, etc.)	(7,696)
General, selling, and administrative expenses	(3,500)
	$(23,180)
Operating income	$720

Assume that the variable costs consist of food and packaging, payroll, and 40% of the general, selling, and administrative expenses.

a. What is McDonald's contribution margin? Round to the nearest million. (Give answer in millions of dollars.) $fill in the blank 1 million

b. What is McDonald's contribution margin ratio? fill in the blank 2 %

c. How much would operating income increase if same-store sales increased by $1,400 million for the coming year, with no change in the contribution margin ratio or fixed costs? Round your answer to the closest million. $fill in the blank 3 million

Mastery Problem: Cost-Volume-Profit Analysis

Cost Behavior

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
9,000shelves	$108,000	$12,350	$120,000
18,000shelves	216,000	22,700	120,000
36,000shelves	432,000	43,400	120,000
45,000shelves	540,000	53,750	120,000

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

Lumber	Variable CostFixed CostMixed CostNone of these
Utilities	Variable CostFixed CostMixed CostNone of these
Depreciation	Variable CostFixed CostMixed CostNone of these

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 66f37c010fcdf9b_4	$fill in the blank 66f37c010fcdf9b_5
Utilities	fill in the blank 66f37c010fcdf9b_6	fill in the blank 66f37c010fcdf9b_7
Depreciation	fill in the blank 66f37c010fcdf9b_8	fill in the blank 66f37c010fcdf9b_9

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	8,800		176,250
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 2da8bbfc0068046_1	$fill in the blank 2da8bbfc0068046_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 2da8bbfc0068046_3
4,360	fill in the blank 2da8bbfc0068046_4
8,800	fill in the blank 2da8bbfc0068046_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

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 81,800 units during the year.

	Cover-to-Cover Company	Biblio Files Company
Contribution margin ratio (percent)	fill in the blank 4ff3250a0f9efde_1%	fill in the blank 4ff3250a0f9efde_2%
Unit contribution margin	$fill in the blank 4ff3250a0f9efde_3	$fill in the blank 4ff3250a0f9efde_4
Break-even sales (units)	fill in the blank 4ff3250a0f9efde_5	fill in the blank 4ff3250a0f9efde_6
Break-even sales (dollars)	$fill in the blank 4ff3250a0f9efde_7	$fill in the blank 4ff3250a0f9efde_8

Income Statement - Cover-to-Cover

Cover-to-Cover Company Contribution Margin Income Statement For the Year Ended December 31, 20Y8
Sales		$409,000
Variable costs:
Manufacturing expense	$245,400
Selling expense	20,450
Administrative expense	61,350	(327,200)
Contribution margin		$81,800
Fixed costs:
Manufacturing expense	$5,000
Selling expense	4,000
Administrative expense	11,450	(20,450)
Operating income		$61,350

Income Statement - Biblio Files

Biblio Files Company Contribution Margin Income Statement For the Year Ended December 31, 20Y8
Sales		$409,000
Variable costs:
Manufacturing expense	$163,600
Selling expense	16,360
Administrative expense	65,440	(245,400)
Contribution margin		$163,600
Fixed costs:
Manufacturing expense	$84,250
Selling expense	8,000
Administrative expense	10,000	(102,250)
Operating income		$61,350

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 $328,020. 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 90cc5ffd806605f_1%	fill in the blank 90cc5ffd806605f_2	$fill in the blank 90cc5ffd806605f_3
Deluxe	fill in the blank 90cc5ffd806605f_4%	fill in the blank 90cc5ffd806605f_5	$fill in the blank 90cc5ffd806605f_6

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 number 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 d8fbe2feaf8cfbb_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 d8fbe2feaf8cfbb_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 Company's contribution margin ratio is lower, meaning that it's 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.

abcda