ACC 406 Study Guide - Final Guide: Fixed Cost, The Monthly, Break Even
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Question 1
Blacken Company manufactures motorcycles. The company'smanagement accountant wants to calculate the fixed and variablecosts associated with utility cost incurred by the factory. Datafor the past six months were collected.
Month | Utility cost | Machine hours | ||||
March | $30,255 | 2,200 | ||||
April | 32,750 | 2,525 | ||||
May | 34,712 | 2,710 | ||||
June | 31,850 | 2,410 | ||||
July | 30,720 | 2,290 | ||||
August | 29,980 | 2,150 |
Required:
A. Using the high-low method calculate thevariable rate per machine hour for the utility cost. Round youranswer to two decimal places.
$ per machine hour
B. Using the high-low method calculate thefixed cost of utilities. Round your answer to two decimalplaces.
$
C. Construct a cost formula for total utilitycost. Round your answers to two decimal places.
Total utility cost | = | Fixed cost | + | Variable cost |
= | $ | + | ($ per hour X no. of machine hours) |
D. Estimate the cost of utilities if 2,425machine hours are used. Round your answer to two decimalplaces.
$
Question 2
Income statements for two different companies in the sameindustry are as follows:
Company A | Company B | |
Sales | $400,000 | $400,000 |
Less: Variable costs | 300,000 | 200,000 |
Contribution margin | $100,000 | $200,000 |
Less: Fixed costs | 50,000 | 150,000 |
Operating income | $50,000 | $50,000 |
Required:
A. Calculate the degree of operating leveragefor each firm.
Company A: | |
Company B: |
B. Calculate the margin of safety in dollarsfor each firm.
Company A: | $ |
Company B: | $ |
C. Determine the operating income for each firmif sales increase by 20%.
Company A: | $ |
Company B: | $ |