1. A product sells for $150 per unit, and its variable costs per unit are $80. T
ID: 2468074 • Letter: 1
Question
1. A product sells for $150 per unit, and its variable costs per unit are $80. The fixed costs are $369,000. If the firm wants to earn $30,000 pretax income, how many units must be sold?
2.
Willco Inc. manufactures electronic parts. They are analyzing their monthly maintenance costs to determine the best way to budget these costs in the future. They have collected the following data for the last six months.
Using the high-low method and the Willco data, calculate the variable maintenance cost per machine hour (round to three decimal places).
Month Machine Hours Maintenance Costs January 52,500 $107,000 February 70,000 129,500 March 65,000 113,400 April 65,000 120,000 May 73,800 129,000 June 61,250 106,000Explanation / Answer
Answer 1. Targeted Sales in Unit = (Fixed Cost + Target profit) / Contribution Per Unit Fixed Cost = 369000 Target Income = 30000 Contribution per Unit = $150 (SP per Unit) - $80 (Variable Cost) = $70 per unit Targeted Sales in Unit = (369000 + 30000) / 70 = 5700 Units Answer 2. Month Mach Hrs Maint. Costs Jan 52,500 107,000 Low May 73,800 129,000 High Using the High Low Method, Variable Cost per Unit = (129000 - 107000) (Change in Cost) / (73800 - 52500) (Change in Mach Hrs) Variable Cost per Unit = $1.033 per Unit (Approx)
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