Exam 15 January 10-11-03, questions and answers PDF

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1. Identify the costs as a variable, fixed, or mixed: (1)wood used in the production of furniture, (2)fuel used in delivery trucks, (3)straight-line depreciation on factory building, (4)screws used in the production of furniture, (5)sales staff salaries, (6)sales commission, (7)property taxes, (8)insurance on buildings, (9)hourly wages of furniture, (10)salaries of factory supervisors, (11)utilities, (12)telephone bill. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12.

Wood used in the production of furniture. Fuel used in delivery trucks. Straight-line depreciation on factory building. Screws used in the production of furniture. Sales staff salaries. Sales commissions. Property taxes. Insurance on buildings. Hourly wages of furniture craftsmen. Salaries of factory supervisors. Utilities Telephone bill.

Variable. Variable. Fixed. Variable. Fixed. Variable. Fixed. Fixed. Variable. Fixed. Mixed. Mixed.

2. (a)Identify the costs as variable, fixed, or mixed (b)calculate the expected costs when production is 5,000 units. Production in units = 3,000. Production costs: direct materials $7500, direct labor $15000, utilities $1800, property taxes $1000, indirect labor $4500, supervisory salaries $1800, maintenance $1100, depreciation $2400. (a)

Cost Fixed Direct materials Direct labor Utilities Property taxes X Indirect labor Supervisory salaries X Maintenance Depreciation X

Variable X X

Mixed

X X

(b) Fixed costs = $1,000 + $1,800 + $2,400 + $300 + $200 = $5,700 Variable costs to produce 3,000 units = $7,500 + $15,000 + $4,500 = $27,000

X

Variable cost per unit = $27,000/3,000 units = $9 per unit Variable cost portion of mixed cost = Total cost – Fixed portion Utilities: Variable cost to produce 3,000 units = $1,800 – $300 = $1,500 Variable cost per unit = $1,500/3,000 units = $.50 per unit Maintenance: Variable cost to produce 3,000 units = $1,100 – $200 = $900 Variable cost per unit = $900/3,000 units = $.30 per unit Cost to produce 5,000 units = (Variable costs per + Fixed cost unit X 5,000 units) = (($9 + $.50 + $.30) X 5,000) + $5,700 = $49,000 + $5,700 = $54,700 3. Determine the Inn's break-even point in (1)number of rented rooms per month and (2)dollars. The Inn is trying to determine its break-even point. The Inn has 50 rooms that it rents at $60 a night. Operating costs: salaries $7200 per month, utilities $1500 per month, depreciation $1200 per month, maintenance $300 per month, maid $8 per room, other costs $28 per room. 1. Contribution margin per room = $60 – ($8 + $28) Contribution margin per room = $24 Contribution margin ratio = $24 ÷ $60 = 40%

Fixed costs = $7,200 + $1,500 + $1,200 + $300 = $10,200 Break-even point in rooms = $10,200 ÷ $24 = 425 2. Break-even point in dollars = Fixed costs ÷ Contribution margin ratio = $10,200 ÷ .40 = $25,500 per month 4. (a)Determine the contribution margin in dollars, per unit, and as a ratio. (b)Using the contribution margin technique, compute the break-even point in dollars and in units: In the month of March, New Day Spa services 570 clients at an average price of $120. During the month, fixed costs were $21,000 and variable costs were 65% of sales. (a) Contribution margin in dollars: Sales = 570 X $120 = $68,400 Variable costs = $68,400 X .65 = 44,460 Contribution margin $ 23,940 Contribution margin per unit: $120 – $78 ($120 X 65%) = $42. Contribution margin ratio: $42 ÷ $120 = 35%. (b) Break-even sales in dollars: $21,000 ÷ 35% = $60,000. Break-even sales in units: $21,000 ÷ $42 = 500....