Question

1. a: SISO - S100550 2. e: (5150 - $100/S150 = 1 3. : 575.000/S50 CM per unit 4. 5. : $300,000 - 5 Contribution margin ratio (5400 - $260)/540002 Targeted sales (68.10,000+ $70,0001/0.35 = 52.600 1.500 units Superscript letter AB, or donates assignments based on Appendix 21A, 218 or 27 con denotes assignments that involve decision making The U Discussion Questions 1. What is a variable cost? Identify two variable costs. 2. T When output volume increases, de variable costs per unit increase, decrease, or stay the same within the relevant range of activity? Explain. 3. When output volume increases, do fixed costs per unit increase, decrease, or stay the same within the relevant range of activity? Explain. 4. How is cost-volume-profit analysis useful? 5. How do step-wise costs and curvilinear costs differ? 6. Describe the contribution margin ratio in layperson's terms. 7. Define and explain the contribution margin ratio 8. Define and describe contribution margin per unit 9. In performing CVP analysis for a manufacturing company. what simplifying assumption is usually made about the vol ume of production and the volume of sales? 10. What two arguments tend to justify classifying all costs as either fixed or variable even though individual costs might not behave exactly as classified? 11. T How does assuming that operating activity occurs within a relevant range affect cost-volume-profit analysis? 12. List three methods to measure cost behavior, 13. How is a scatter diagram used to identify and measure the behavior of a company's costs? 14. In cost-volume-profit analysis, what is the estimated profit at the break-even point? 15. T Assume that a straight line on a CVP chart intersects the vertical axis at the level of fixed costs and has a positive slope that rises with each additional unit of volume by the amount of the variable costs per unit. What does this represent? 16. Google has both fixed and variable costs. Why are fixed costs depicted as a horizontal GOOGLE line on a CVP chart? 17. Each of two similar companies has sales of $20,000 and total costs of $15,000 for a month. Company A's total costs include S10.000 of variable costs and $5,000 of fixed costs. Il Company B's total costs include $4.000 of variable costs and $11.000 of fixed costs, which company will enjoy more profit if sales double? 18. of reflects expected sales in excess of the level of break-even sales. 19. T Apple produces tablet computers. IdentifyA some of the variable and fixed product costs as- APPLE sociated with that production. Hint: Limit costs to product costs 20. T Should Apple use single-product or multi- APPLE product break-even analysis? Explain. 21. Samsung is thinking of expanding sales of its most popular smartphone Samsung model by 65%. Should we expect its variable and fixed costs for this model to stay within the relevant range Explain 22Google uses variable costing for several coOGLE business decisions. How can variable cost- ing income be converted to absorption costing income?

Discussion questions 1,2,4,6,7,14,17 only

Answer 1

Answer is given below

1 Variable cost is the cost which varies in proportion to the units produced Example Direct Material Direct Labor When output increase variable cost per unit remains the same. Variable costs vary in relation to the units produced. Hence per unit cost remains same For example, if direct material cost is $2 per unit for 1,000 units total variable cost will be $2,000 for 2,000 units it will $4,000. So per unit variable cost will remain $2 per unit Usefulness of CVP analysis CVP analysis is an useful tool for managers and its application are as flows Helps in break even analysis and find out units to achieve target operating income Evaluation of investment Pricing decisions Launch of new products in market Budgeting activities Decision making like product profitability, discontinuance of division, etc Contribution margin in layman terminology is what one can earn after reducing his variable cost Contribution margin ratio is the ratio of Contribution to Sales. It is expressed as % of Sales Contribution margin is calculated by Sales - Variable cost Formula for Contribution margin Contribution Sales X 100 Contribution Margin is helpful in calculating Break even point 14 Estimated profit at Break-even point is Zero Breakeven point is the point at which there is no profit or no loss 17 Sales Variable cost Contribution Fixed cost Operating Income Company A $20,000 $10,000 $10,000 $5,000 $5,000 Company B $20,000 $4,000 $16,000 $11,000 $5,000 Operating Leverage Contribution Operating Income $10,000 2 $5,000 $16,000 $5,000 3.2 Company B will enjoy more profit if sales double Shown below 50% 20% Sales Variable cost Contribution Fixed cost Operating Income Company A $40,000 $20,000 $20,000 $5,000 $15,000 Company B $40,000 $8,000 $32,000 $11,000 $21,000