1. When using the high-low method for estimating the fixed and variable portion
ID: 2391199 • Letter: 1
Question
1. When using the high-low method for estimating the fixed and variable portion of a mixed cost, you must first find the high and low points of sales. Then, to find the variable cost per unit, you must: Select one: a. Divide the difference in unit sales by the difference in total cost b. Divide the difference in total cost by the difference in unit sales c. Divide the difference in dollar sales by the difference in total cost d. Divide the difference in total cost by the difference in dollar sales
2. Sales mix is Select one: a. the relative percentage in which a company sells its multiple products b. the trend of sales over recent periods c. the mix of variable and fixed expenses in relation to sales d. a measure of leverage used by the company
3. In a sales mix situation, at any level of units sold, net income will be higher if Select one: a. more higher contribution margin units are sold than lower contribution margin units b. more lower contribution margin units are sold than higher contribution margin units c. more fixed expenses are incurred d. weighted-average unit contribution margin decreases
4. Ramirez Corporation sells two types of computer chips. The sales mix is 30% (Q-Chip) and 70% (Q-Chip Plus). Q-Chip has variable costs per unit of $60 and a selling price of $100. Q-Chip Plus has variable costs per unit of $70 and a selling price of $130. The weighted-average unit contribution margin for Ramirez is Select one: a. $46 b. $50 c. $54 d. $100
5. Ramirez Corporation sells two types of computer chips. The sales mix is 30% (Q-Chip) and 70% (Q-Chip Plus). Q-Chip has variable costs per unit of $60 and a selling price of $100. Q-Chip Plus has variable costs per unit of $70 and a selling price of $130. Ramirez’s fixed costs are $540,000. How many units of Q-Chip would be sold at the break-even point? Select one: a. 3,000 b. 3,522 c. 5,000 d. 7,000
Explanation / Answer
Answers
b. Divide the difference in total cost by the difference in unit sales = CORRECT ANSWER
Example:
A
Difference in Cost
$ 20,000.00
B
Difference in Units
1000
C=A/B
Variable cost per unit
$ 20.00
a.the relative percentage in which a company sells its multiple products = CORRECT ANSWER
Example:
Products
A
B
C
Total
No. of units sold
10000
15000
25000
50000
Sales Mix
20%
30%
50%
100%
a.more higher contribution margin units are sold than lower contribution margin units = CORRECT ANSWER
This is because, when units with higher contribution margin are sold in greater quantity, contribution margin will increase at a faster rate than it would have increased otherwise.
Working:
Q Chip
Q Chip Plus
A
Sales Mix
30%
70%
B
Selling price
$ 100.00
$ 130.00
C
variable cost
$ 60.00
$ 70.00
D=B-C
Unit Contribution margin
$ 40.00
$ 60.00
E = A x D
Weighted Average contribution margin
$ 12.00
$ 42.00
Total Weighted Average contribution margin = $ 12 + $ 42 = $54 = CORRECT ANSWER = Option ‘C’
Working
A
Fixed Cost
$ 5,40,000.00
B [Calculated in Question 4]
Weighted Average contribution margin
$ 54.00
C = A/B
Total Break Even Units
10000
D = C x 30%
Q Chip's Break Even
3000
E = C x 70%
Q Chips Plus's Break Even
7000
Hence, the correct answer is Option ‘A’: 3,000 units = Break Even for Q CHip
A
Difference in Cost
$ 20,000.00
B
Difference in Units
1000
C=A/B
Variable cost per unit
$ 20.00
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