Resource: WileyPLUS Brief Exercise BE18-1 Brief Exercise BE18-7 Brief Exercise BE18-11 Exercise E19-2 Question 1 Monthly production costs in Pesavento Company for two levels of production are as follows. Cost3,000 units6,000 units Indirect labor$10,000 $20,000 Supervisory salaries5,000 5,000 Maintenance4,000 7,000 Indicate which costs are variable, fixed, and mixed. Indirect laborVariable cost Supervisory salariesFixed cost MaintenanceMixed cost Question 1 – Solution Indirect labor is a variable cost because it increases in total directly and proportionately with the change in the activity level.
Supervisory salaries is a fixed cost because it remains the same in total regardless of changes in the activity level. Maintenance is a mixed cost because it increases in total but not proportionately with changes in the activity level. Question 2 Bruno Manufacturing Inc. has sales of $2,200,000 for the first quarter of 2010. In making the sales, the company incurred the following costs and expenses. VariableFixed Cost of goods sold$920,000 $440,000 Selling expenses70,000 45,000 Administrative expenses86,000 98,000
Complete the CVP income statement for the quarter ended March 31, 2010. BRUNO MANUFACTURING INC. CVP Income Statement For the Quarter Ended March 31, 2010 Sales$2,200,000 Variable costs1,076,000 Contribution Margin1,124,000 Fixed costs583,000 Net income$541,000 Question 2 – Solution BRUNO MANUFACTURING INC. CVP Income Statement For the Quarter Ended March 31, 2010 Sales$2,200,000 Variable costs ($920,000 + $70,000 + $86,000)1,076,000 Contribution Margin1,124,000 Fixed costs ($440,000 + $45,000 + $98,000)583,000 Net income$541,000 Question 3
For Dousmann Company actual sales are $1,200,000 and break-even sales are $840,000. Compute the following (a) the margin of safety in dollars and (b) the margin of safety ratio. Margin of safety in dollars$360,000 Margin of safety ratio30% Question 3 – Solution Margin of safety = $1,200,000 – $840,000 = $360,000 Margin of safety ratio =$360,000 ? $1,200,000 = 30% Question 4 Determine the contribution margin in dollars, per unit, and as a ratio. Contribution margin in dollars$21,000 Contribution margin per unit$6 Contribution margin ratio20% Contribution margin (in dollars):Sales = (3,500 ? 30) =$105,000 Variable costs = $105,000 ? .80 =84,000 Contribution margin$21,000 Contribution margin (per unit):$30 – $24 ($30 ? 80%) = $6. Contribution margin (ratio):$6 ? $30 = 20% Using the contribution margin technique, compute the break-even point in dollars and in units. Break-even point in dollars$84,000 Break-even point in units2,800 Breakeven sales (in dollars):$16,800= $84,000 20% Breakeven sales (in units):$16,800= 2,800 Compute the margin of safety in dollars and as a ratio. Margin of safety in dollars$21,000 Margin of safety ratio20%