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Week 3 Homework 1. Ace Company sells lawn mowers for \$200 per unit. Variable cost per unit is \$40, and fixed costs total \$4,000. Last month, Ace sold 760 lawn mowers. a. Calculate the contribution margin for last month. (5.3) b. Calculate the contribution margin per unit. (6.1) c. Calculate the contribution margin ratio. (6.1) 2. Nellie Company has monthly fixed costs totaling \$100,000 and variable costs of \$20 per unit. Each unit of product is sold for \$25. (6.1) a. Calculate the contribution margin per unit. b. Calculate the contribution margin ratio. c. Find the break-even point in units. d. Find the break-even point in sales dollars. e. How many units must be sold to earn a monthly profit of \$40,000? f. What amount of sales dollars is required to earn a monthly profit of \$60,000? 3. Snowboard Company is a manufacturer of one model of snowboard. Their current revenues and costs are based on the following information (the base case, copied from Figure 6.6 in the text). Assume the unit sales price decreases by 10 percent from the base case. (6.3) Base Case Sales price per unit \$250 Variable cost per unit \$150 Monthly fixed costs \$50,000 Volume of sales 700 units a. Calculate the new projected profit. b. Calculate the dollar change in profit from the base case. c. Calculate the percent change in profit from the base case. 4. High operating leverage means (choose one): (6.4) (a) The company has relatively low fixed costs. (b) The company has relatively high fixed costs. (c) The company will have to sell more units than a comparable company with low operating leverage to break even. (d) The company will have to sell fewer units than a comparable company with low operating leverage to break even. (e) Both (b) and (c) are correct. (f) Both (a) and (d) are correct. 5. CyclePath Company produces two different products that have the following price and cost characteristics. Selling price per unit Variable cost per unit Bicycle \$200 \$120 Tricycle \$100 \$ 50 Management believes that pushing sales of the Bicycle product would maximize company profits because of the high contribution margin per unit for this product. However, only 50,000 labor hours are available each year, and the Bicycle product requires 4 labor hours per unit while the Tricycle model requires 2 labor hours per unit. The company sells everything it produces. (6.5) a. Calculate the contribution margin per unit of constrained resource for each model. b. Which model would CyclePath prefer to sell to maximize overall company profit? Explain. 6. When the units produced are greater than the units sold, which costing approach will yield the highest profit? (choose one) (6.7) a) Variable costing will have the higher profit. b) Absorption costing will have the higher profit. c) Profit will be the same under both variable and absorption costing. d) None of the above. 7. Madden Company would like to estimate costs associated with its production of football helmets on a monthly basis. The accounting records indicate the following production costs were incurred last month for 4,000 helmets. Assembly workers’ labor (hourly) Factory rent Plant manager’s salary Supplies Factory insurance Materials required for production Maintenance of production equipment (based on usage) \$70,000 3,000 5,000 20,000 12,000 20,000 18,000 a. Identify which of the costs in the table above are fixed, and which are variable. (5.1) b. Use account analysis to estimate total fixed costs per month and the variable cost per unit. State your results in the cost equation form Y = f + vX by filling in the dollar amounts for f and v. (5.2) c. Estimate total production costs assuming 5,000 helmets will be produced and sold. (5.2) d. Prepare a contribution margin income statement assuming 5,000 helmets will be produced, and each helmet will be sold for \$70. Fixed selling and administrative costs total \$10,000. Variable selling and administrative costs are \$8 per unit. (5.3) 8. Riviera Incorporated produces flat panel televisions. The company has annual fixed costs totaling \$10,000,000 and variable costs of \$600 per unit. Each unit of product is sold for \$1,000. Riviera expects to sell 70,000 units this year. This is the base case. Assume a tax rate of 20%. a. Find the break-even point in units. b. How many units must be sold to earn an annual profit of \$2,000,000? c. Find the margin of safety in units. d. What amount of sales dollars is required to earn an annual profit of \$500,000 after taxes? e. Find the contribution margin per unit for Riviera Inc. f. How much will operating profit change if sales increase by 1,000 units? g. Go back to the base case. How much will operating profit change if fixed costs are 15 percent higher than anticipated? Would this increase in fixed costs result in higher or lower operating leverage? h. Go back to the base case. What will operating profit (loss) be if the variable cost per unit increases 10%?

Teacher_Lucia
School: UCLA

Hi, I have completed your assignment :). Kindly shoot me a message if you have questions :)

Week 3 Homework
1. Ace Company sells lawn mowers for \$200 per unit. Variable cost per unit is \$40, and fixed costs total
\$4,000. Last month, Ace sold 760 lawn mowers.
a. Calculate the contribution margin for last month. (5.3)
contribution margin for last month = sells - variable cost
= (760 * 200) - (40 * 200)
= \$144,000
b. Calculate the contribution margin per unit. (6.1)
contribution margin per unit = selling price per unit - variable cost per unit
= \$ 200 - \$ 40
= \$160
c. Calculate the contribution margin ratio. (6.1)
Contribution margin ratio = selling price - variable cost per unit/selling price
= \$200 -\$40 /\$200
= 160 / 200
= 0.8 x 100
= 80%
2. Nellie Company has monthly fixed costs totaling \$100,000 and variable costs of \$20 per unit. Each
unit of product is sold for \$25. (6.1)
a. Calculate the contribution margin per unit.
Contribution margin per unit = selling price per unit - variable cost per unit
= \$25 - \$ 20
= \$5
b. Calculate the contribution margin ratio.
Contribution margin ratio = selling price - variable cost per unit/selling price
= 25 - 20/25
= 5/25
= 0.16 or 16%

c. Find the break-even point in units.
Breakeven = Fixed costs/unit contribution
=100,000/5
= 20,000 units
d. Find the break-even point in sales dollars.
Total fixed costs / contribution margin ratio (%) = breakeven point in dollars
= 100000/16%
= \$625,000
e. How many units must be sold to earn a monthly profit of \$40,000?
unit sold to earn desired profit = fixed cost + desired profit/contribution per unit
= 100,000+40,000/5
= 28,000 units
f. What amount of sales dollars is required to earn a monthly profit of \$60,000?
sales dollars to earn desired profit = fixed cost + desired profit/contribution margin ratio
= 100,000 + 60,000/16%
= \$1,000,000
3. Snowboard Company is a manufacture...

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Anonymous
Awesome! Exactly what I wanted.

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