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
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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%