Chapter 4

Exercise 5:
Determine the fixed and variable components of repair expense using the high-low method. Use copies made as the measure of activity.

Slope=estimated variable cost
Intercept=estimated fixed costs

Slope=20,5000-8,5000/900,000-300,000 =12,000/600,000
Variable Cost=$0.02 per copy made

Intercept=300,000 x .02=$6,000 $8,500-$6,000
Fixed cost=$2,500

Exercise 8: a. Use account analysis to determine fixed cost per month and variable cost per new hire.

Fixed Costs:
Manager Salary-$8,000
Depreciation of equipment-$400
Building costs-$2,000 --------------------------------------
Total fixed cost per month=$10,400

Variable Costs:
Office supplies-$300
Staff salaries-$33,000 ---------------------------------------
Total variable costs=$33,300/60= $555-Variable cost per new hire

b. Estimated total cost of HR for June.

$10,400 + 70($555) =
$10,400 + $38,850 = $49,250-Total projected costs for HR in June

c. What is the expected incremental cost associated with hiring 10 more employees than were hired in May?

$38,850-$33,300= $5,550-Expected incremental costs for hiring 10 new employees

Exercise 12: a. What is the break-even point per month in sales dollars?

0 = SP (x) - .40 (x) – 300,000
300,000 = x - .40x
300,000 = .60x
$500,000 = x

b. What level of sales dollars is needed for a monthly profit of $60,000?

Contribution margin ratio = 1-.40/1 = .60
Dollar sales needed to attain specified profit = $60,000 + $300,000/.60
= $600,000

c. The marina anticipates sales of $1,000,000 in July. What is the expected level of profit?

P = 1(1,000,000) - .40 (1,000,000) – 300,000
P = 1,000,000 – 400,000 – 300,000
Profit = $300,000

Exercise 17: a. Calculate profit as a percent of sales in the prior year.

440,000/2,035,000 = 21.6216%

b. Suppose sales in