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Chapter 20: Q4RQ (page 1119)
What is the purpose of using the high-low method?
The purpose of using the high-low method is to split mixed cost into fixed cost and variable cost.
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White Company sells flags with team logos. White has fixed costs of \(639,600 per year plus variable costs of \)4.20 per flag. Each flag sells for \(12.00.
Requirements
1. Use the equation approach to compute the number of flags White must sell each year to break even.
2. Use the contribution margin ratio approach to compute the dollar sales White needs to earn \)32,500 in operating income for 2018. (Round the contribution margin to two decimal places.)
3. Prepare White’s contribution margin income statement for the year ended December 31, 2018, for sales of 73,000 flags. (Round your final answers up to the next whole number.)
4. The company is considering an expansion that will increase fixed costs by 23% and variable costs by $0.60 per flag. Compute the new breakeven point in units and in dollars. Should White undertake the expansion? Give your reasoning. (Round your final answers up to the next whole number.)
Calculating breakeven point in units, contribution margin ratio given
Ocean Company sells a product with a contribution margin ratio of 80%. Fixed costs are \(2,800 per month. What amount of sales (in dollars) must Ocean Company have to break even? If each unit sells for \)30, how many units must be sold to break even?
How can CVP analysis be used by companies with multiple products?
Use the following information to complete Short Exercises S20-16 and S20-17.
Wild Waters Swim Park sells individual and family tickets. With a ticket, each person receives a meal, three beverages, and unlimited use of the swimming pools. Wild Waters has the following ticket prices and variable costs for 2018:
Individual Family Sales price per ticket \( 50 \) 150 Variable cost per ticket 35 140
Wild Waters expects to sell one individual ticket for every four family tickets. Wild Waters’s total fixed costs are $27,500.
S20-16 Calculating breakeven point for two products
Using the Wild Waters Swim Park information presented, do the following tasks.
Requirements
1. Compute the weighted-average contribution margin per ticket.
2. Calculate the total number of tickets Wild Waters must sell to break even.
3. Calculate the number of individual tickets and the number of family tickets the company must sell to break even.
Question: Determining total mixed cost
John Street Barber Shop pays \(25 per month for water for the first 8,000 gallons and \)3.50 per thousand gallons above 8,000 gallons. Calculate the total water cost when the barber shop uses 7,000 gallons, 10,000 gallons, and 13,000 gallons.
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