MULTIPLE CHOICE: At the high level of activity in November, 6000 machine hours w

Question

MULTIPLE CHOICE:

At the high level of activity in November, 6000 machine hours were run and power costs were $22000. In April, a month of low activity, 1000 machine hours were run and power costs amounted to $13000. Using the high-low method, the estimated fixed cost element of power costs is

Bonita Industries’s variable costs are 30% of sales. The company is contemplating an advertising campaign that will cost $55000. If sales are expected to increase $250000, by how much will the company's net income increase?

A company has total fixed costs of $210000 and a contribution margin ratio of 30%. The total sales necessary to break even are

Explanation / Answer

1.Variable cost per unit=[Total cost at highest level-Total cost at lowest level]/(Highest level-Lowest level)

=(22000-13000)/(6000-1000)=$1.8/unit

Hence total fixed cost=22000-(1.8*6000)=$11200.

2.contribution margin=Sales-Variable costs

=(100-30)=70% of sales

Hence increase in net income=increase in contribution margin-increase in advertising expense

=(0.7*250,000)-$55000=$120000

3.Breakeven=Fixed cost/contribution margin ratio

=(210,000/0.3)=$700,000

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