Exercise 21-10 Contribution margin and break-even LO P2 Blanchard Company manufactures a single product that sells for $180 per unit and whose total variable costs are $135 per unit. The company’s annual fixed costs are $562,500.

Exercise 21-10 Contribution margin and break-even LO P2

Blanchard Company manufactures a single product that sells for $180 per unit and whose total variable costs are $135 per unit. The company’s annual fixed costs are $562,500. Explanation: (a) Contribution margin per unit = $180 – $135 = $45 per unit (b) Contribution margin ratio = $45 / $180 = 25% (c) Break-even point in units = $562,500 / $45 = 12,500 units (d) Break-even point in dollars = $562,500 / 25% = $2,250,000

Exercise 21-9 Contribution margin LO A2 A jeans maker is designing a new line of jeans called the Slims. The jeans will sell for $205 per pair and cost $164 per pair in variable costs to make.

Exercise 21-9 Contribution margin LO A2

A jeans maker is designing a new line of jeans called the Slims. The jeans will sell for $205 per pair and cost $164 per pair in variable costs to make.

Exercise 21-3 Cost behavior defined LO C1 Match each of the following definitions of costs to the cost classifications.

Exercise 21-3 Cost behavior defined LO C1

Match each of the following definitions of costs to the cost classifications.

QS 21-5 Contribution margin ratio LO A1 Compute and interpret the contribution margin ratio using the following data: sales, $5,000; total variable cost, $3,000.

QS 21-5 Contribution margin ratio LO A1

Compute and interpret the contribution margin ratio using the following data: sales, $5,000; total variable cost, $3,000. Explanation: Contribution margin  $5,000 – $3,000 = $2,000 Contribution margin ratio ($5,000 – $3,000) / $5,000 = 0.40 (or 40%) Interpretation: This result indicates 40 cents of each sales dollar is available to cover fixed costs and contribute to profit.

QS 21-3 Cost behavior estimation-high-low method LO P1 The following information is available for a company’s maintenance cost over the last seven months.

QS 21-3 Cost behavior estimation-high-low method LO P1

The following information is available for a company’s maintenance cost over the last seven months.

Month	Maintenance Hours			Maintenance Cost
June		9		$	5,450
July		18			6,900
August		12			5,100
September		15			6,000
October		21			6,900
November		24			8,100
December		6			3,600

  

Using the high-low method, estimate both the fixed and variable components of its maintenance cost.

Explanation:

	$8,100 – $3,600
Variable costs =		= $250 per maintenance hour
	24 – 6

Using the low point, $3,600 = ($250/maint. hr. × 6 maint. hrs.) + fixed cost.

Therefore, fixed cost = $2,100

 

QS 21-2 Cost behavior identification LO C1 Identify whether each of the following is best described as a fixed, variable, or mixed cost with respect to product units.

QS 21-2 Cost behavior identification LO C1

Identify whether each of the following is best described as a fixed, variable, or mixed cost with respect to product units.