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Chapter 20: Q20-15RQ (page 1119)
What are the three approaches to calculating the sales required to achieve the breakeven point? Give the formula for each one.
Answer
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Using the high-low method
Mark owns a machine shop. In reviewing the shop’s utility bills for the past 12 months, he found that the highest bill of \(2,600 occurred in August when the machines worked 1,200 machine hours. The lowest utility bill of \)2,300 occurred in December when the machines worked 600 machine hours.
Requirements
1. Use the high-low method to calculate the variable cost per machine hour and the total fixed utility cost.
2. Show the equation for determining the total utility cost for the machine shop.
3. If Mark anticipates using 800 machine hours in January, predict the shop’s total utility bill using the equation from Requirement 2.
Question: Of the three approaches to calculate sales required to achieve the breakeven point, which one(s) calculate the required sales in units and which one(s) calculate the required sales in dollars?
The budgets of four companies yield the following information:
Company
Blue Red Green Yellow
Net Sales Revenue \( 1,900,000 \) (d) \( 1,500,000 \) (j) Variable Costs (a) 47,250 1,050,000 256,200 Fixed Costs (b) 168,000 159,000 (k) Operating Income (Loss) 298,500 (e) (g) 97,800
Units Sold 190,000 9,000 (h) (l) Contribution Margin per Unit \( 3.00 \) (f) \( 75.00 \) 18.00
Contribution Margin Ratio (c) 80% (i) 30%
Requirements
1. Fill in the blanks for each missing value. (Round the contribution margin per unit to the nearest cent.)
2. Which company has the lowest breakeven point in sales dollars?
3. What causes the low breakeven point?
A chain of convenience stores has one manager per store who is paid a monthly salary. Relative to the number of stores, is the manager’s salary fixed or variable? Why?
The Circle Clock Company sells a particular clock for \(25. The variable costs are \)13 per clock and the breakeven point is 250 clocks. The company expects to sell 300 clocks this year. If the company actually sells 400 clocks, what effect would the sale of additional 100 clocks have on operating income? Explain your answer.
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