22. The Brener Company testing department performs a test on every fifth unit pr

Question

22. The Brener Company testing department performs a test on every fifth unit produced. The following information is available for the testing department: Information: Testing cost Number of tests 2015 $62,800 31,920 Information: Testing cost Number of tests 2016 $66,500 36,460 Required: Using the high-low method, determine the following: A. The variable cost element for testing cost. B. The fixed testing cost. C. The testing cost that can be expected if 40,000 units are tested 23. The following information is available for Mangers Lawn Service: Amount charged for each lawn mowed Annual fixed cost Variable cost per lawn mowed $ 60 28,000 20 Required: A. What is the contribution margin ratio? B. Calculate how many lawns Mangers Lawn Service much mow each year to break even. C. Calculate how many lawns Mangers Lawn Service must mow each year to earn a profit of $30,000. 24. Mary Lamb, the owner of Automobile Alley Repair, is considering the purchase of a new diagnostic machine. The following estimates are available: Initial outlay Annual reduction in labor cost Cost of capital Estimated life of machine Estimated residual value $228,000 $52,000 10% 6 years So Required: Determine the net present value of the machine purchase. Does the purchase meet the company's requirements?

Explanation / Answer

22) Variable cost per element : Change in cost/change in activity

= (66500-62800)/(36460-31920)

Variable cost per element = 0.81 per element

Fixed cost = Total cost-variable cost

= 66500-(36460*.81)

Fixed cost = 36967

Total cost on 40000 unit :

Total cost = (40000*.81+36967) = 69367

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