The costs and selling price are as just given.Comment on why the break-even points are different. Compute the break-even point in both sales dollars and units under each of the following independent assumptions. The variable cost is $3 per package, and fixed costs are $60,000 per month. Should Peter buy this company? Volume (units)Įxercise F Never Late Delivery currently delivers packages for $9 each. Calculate the break-even point in sales dollars. Use the following cost data to compute the variable cost per unit and the fixed cost for the period. The company that Peter is considering sells each unit it produces for $5. How many Michael Bears must be produced and sold each month to break even?Įxercise E Peter Garcia Meza is considering buying a company if it will break even or earn net income on revenues of $80,000 per month. Michael Bears have fixed costs of $100,000 per month and a variable cost of $12 per bear. One product, Michael Bears, sells for $28 per bear. Use the high-low method to determine the fixed and variable components of a mixed cost, given the following observations: Volume (number of tests)Įxercise C Compute the break-even point in sales dollars if fixed costs are $200,000 and the total contribution margin is 20% of revenue.Įxercise D Barney Company makes and sells stuffed animals. Exercises Exercise A Name and match the types of cost behavior with the appropriate diagram below: Exercise B Research Inc., performs laboratory tests. Identify as many costs of this business as you can and indicate which would be variable and which would be fixed. The students taking the classes would be charged a fee to rent and view the video on their laptops or smart phones. They would hire camera operators to record large introductory classes. ➢ Real world question Two enterprising students are considering renting space and opening a class video recording service. Identify at least two costs that college administrators might consider in deciding whether to hire the lecturer and add the class. ➢ What is meant by the term break-even point? ➢ What are two ways in which the break-even point can be expressed? ➢ What is the relevant range? ➢ What is the formula for calculating the break-even point in sales revenue? ➢ What formula is used to solve for the break-even point in units? ➢ How can the break-even formula be altered to calculate the number of units that must be sold to achieve a desired level of income? ➢ Why might a business wish to lower its break-even point? How would it go about lowering the break-even point? ➢ What effect would you expect the mechanization and automation of production processes to have on the break-even point? ➢ Real world question Assume your college is considering hiring a lecturer to teach a special class in communication skills. ➢ Describe two methods of determining the fixed and variable components of mixed costs. Short-Answer Questions, Exercises, and Problems Short-Answer Questions ➢ Name and describe four cost behavior patterns.
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