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Chapter 20: Q20E (page 1126)

Question: Determining fixed cost per unit

For each total fixed cost listed below, determine the fixed cost per unit when sales are 50, 100, and 200 units.

Store rent $ 5,000

Manager’s salary 3,000

Equipment lease 500

Depreciation on fixtures 250

Short Answer

Expert verified

Answer

The fixed cost per unit for 50 units is $175 per unit, for 100 units is $87.5, for 200 units is $43.75

Step by step solution

01

Calculation of total fixed cost

Particulars

Amount

Store rent

$5000

Manager’s salary

$3000

Equipment lease

$500

Depreciation on fixtures

$250

Total fixed cost

$8,750

02

Calculation of fixed cost per unit           

50

100

200

Total fixed cost

$8,750

$8,750

$8,750

÷ No. of units sold

50

100

20

Fixed cost per unit

$175

$87.5

$43.75

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Most popular questions from this chapter

Use the following information to complete Short Exercises S20-10 through S20-15.

Funday Park competes with Cool World by providing a variety of rides. Funday Park sells tickets at \(70 per person as a one-day entrance fee. Variable costs are \)42 per person, and fixed costs are \(170,800 per month.

Refer to the original information (ignoring the changes considered in Short Exercise S20-12). Suppose Funday Park increases fixed costs from \)170,800 per month to $231,000 per month. Compute the new breakeven point in tickets and in sales dollars.

Question: What is target profit?

Before you begin this assignment, review the Tying It All Together feature in the chapter.

Best Buy Co., Inc. is a leading provider of technology products. Customers can shop at more than 1,700 stores or online. The company is also known for its Geek Squad for technology services. Suppose Best Buy is considering a particular HDTV for a major sales item for Black Friday, the day after Thanksgiving, known as one of the busiest shopping days of the year. Assume the HDTV has a regular sales price of \(900, a cost of \)500, and a Black Friday proposed discounted sales price of \(650. Best Buy’s 2015 Annual Report states that failure to manage costs could have a material adverse effect on its profitability and that certain elements in its cost structure are largely fixed in nature. Best Buy, like most companies, wishes to maintain price competitiveness while achieving acceptable levels of profitability. (Item 1A. Risk Factors.)

Requirements

1. Calculate the gross profit of the HDTV at the regular sales price and at the discounted sales price.

2. Assume that during the November/December holiday season last year, Best Buy sold an average of 150 of this particular HDTV per store. If the HDTVs are marked down to \)650, how many would each store have to sell this year to make the same total gross profit as last year?

3. Relative to Sales Revenue, what type of costs would Best Buy have that are fixed? What type of costs would be variable?

4. Because Best Buy stated that its cost structure is largely fixed in nature, what might be the impact on operating income if sales decreased? Does having a cost structure that is largely fixed in nature increase the financial risk to a company? Why or why not?

5. In the Tying It All Together feature in the chapter, we looked at the cost of advertising. Is advertising a fixed or variable cost? If the company has a small margin of safety, how would increasing advertising costs affect Best Buy’s operating income? What would be the effect of decreasing advertising costs?

Following is a list of costs for a furniture manufacturer that specializes in wood tables. Classify each cost as variable, fixed, or mixed relative to the number of tables produced and sold.

1. Wood used to build tables

2. Depreciation on saws and other manufacturing equipment

3. Compensation for sales representatives paid on a salary plus commission basis

4. Supervisor’s salary

5. Wages of production workers

A chain of convenience stores has one manager per store who is paid a monthly salary. Relative to Store #36 located in Atlanta, Georgia, is the manager’s salary fixed or variable? Why?
See all solutions

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