1. The following information is available for a company\'s cost of sales over th

Question

1. The following information is available for a company's cost of sales over the last five months.

Using the high-low method, the estimated variable cost of sales per unit sold is:

a. $24.33

b. $74.09

c. $31.45

d. $14.07

e. $28.33

2. A company manufactures and sells a product for $119 per unit. The company's fixed costs are $67,760, and its variable costs are $89 per unit. The company's break-even point in units is:

a. 2,259 b. 569 c. 761 d. 326 e. 830

3. Forrester Company is considering buying new equipment that would increase monthly fixed costs from $450,000 to $432,000 and would decrease the current variable costs of $70 by $10 per unit. The selling price of $120 is not expected to change. Forrester's current break-even sales are $1,080,000 and current break-even units are 9,000. If Forrester purchases this new equipment, the revised break-even point in dollars would be:

a. $900,000 b. $1,080,000 c. $450,000 d. $1,260,000 c. 864,000

During a recent fiscal year, Creek Company reported pretax income of $134,000, a contribution margin ratio of 25% and total contribution margin of $490,000. Total variable costs must have been:

a. $1,424,000 b. $1,470,000 c. $536,000 d. $1,960,000 e. $2,496,000

Month Units sold Cost of sales January 440 $ 32,600 February 840 $ 39,000 March 1,800 $ 51,000 April 2,600 $ 63,000

Explanation / Answer

1) Variable cost of sale per unit sold = (63000-32600)/(2600-440) = 14.07

So answer is d) $14.07

2) Break even point = 67760/(119-89) = 2259 Units

So answer is a) 2259

3) Revised break even point = 450000/(120-60) = 7500 Units

Break even sales = 7500*120 = $900000

So answer is a) $900000

4) Variable cost = 490000*75/25 = 1470000

So answer is b) $1470000

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