Variable Cost and Contribution Margin

Topics: Variable cost, Contribution margin, Costs Pages: 2 (394 words) Published: June 19, 2013
1. Henning Co. estimates that variable costs will be 60% of sales and fixed costs will total $2,160,000. The selling price of the product is $10, and 600,000 units will be sold.

Instructions
Using the mathematical equation,
(a)Compute the break-even point in units and dollars.
(b)Compute the margin of safety in dollars and as a ratio.
(c)Compute net income.

2. Taveras Industries developed the following information for the product it sells:

Sales price$50 per unit
Variable cost of goods sold$28 per unit
Fixed cost of goods sold$650,000
Variable selling expense10% of sales price
Variable administrative expense$2.00 per unit
Fixed selling expense$400,000
Fixed administrative expense$300,000

For the year ended December 31, 2013, Taveras produced and sold 100,000 units of product.

Instructions
(a)Prepare a CVP income statement using the contribution margin format for Taveras Industries for 2013. (b)What was the company's break-even point in units in 2013? Use the contribution margin technique. (c)What was the company's margin of safety in dollars in 2013?

3. Oscar Corporation produces and sells three products. Unit data concerning each product is shown below.
Product
X Y Z  
Selling price$200$300$250
Direct labor costs457560
Other variable costs110130106

The company has 2,000 hours of labor available to build inventory in anticipation of the company's peak season. Management is trying to decide which product should be produced. The direct labor hourly rate is $15.

Instructions
(a)Determine the number of direct labor hours per unit.
(b)Determine the contribution margin per direct labor hour. (c)Determine which product should be produced and the total contribution margin for that product.

4. DeMont Tax Services provides primarily two lines of service: accounting and tax. Accounting-related services represent 60% of its revenue and provide a...
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