Question 1

Blacken Company manufactures motorcycles. The company's management accountant wants to calculate the fixed and variable costs associated with utility cost incurred by the factory. Data for the past six months were collected.

Month	Utility cost			Machine hours
March	$30,255			2,200
April	32,750			2,525
May	34,712			2,710
June	31,850			2,410
July	30,720			2,290
August	29,980			2,150

Required:

A. Using the high-low method calculate the variable rate per machine hour for the utility cost. Round your answer to two decimal places. $ per machine hour

B. Using the high-low method calculate the fixed cost of utilities. Round your answer to two decimal places. $

C. Construct a cost formula for total utility cost. Round your answers to two decimal places.

Total utility cost	=	Fixed cost	+	Variable cost
	=	$	+	($ per hour X no. of machine hours)

D. Estimate the cost of utilities if 2,425 machine hours are used. Round your answer to two decimal places. $

Question 2

Income statements for two different companies in the same industry are as follows:

	Company A	Company B
Sales	$400,000	$400,000
Less: Variable costs	300,000	200,000
Contribution margin	$100,000	$200,000
Less: Fixed costs	50,000	150,000
Operating income	$50,000	$50,000

Required:

A. Calculate the degree of operating leverage for each firm.

Company A:
Company B:

B. Calculate the margin of safety in dollars for each firm.

Company A:	$
Company B:	$

C. Determine the operating income for each firm if sales increase by 20%.

Company A:	$
Company B:	$