Answered: ) Classify each cost element as either…

Intermediate Accounting: Reporting And Analysis

3rd Edition

ISBN:9781337788281

Author:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Publisher:James M. Wahlen, Jefferson P. Jones, Donald Pagach

Chapter10: Property, Plant And Equipment: Acquisition And Subsequent Investments

Section: Chapter Questions

Problem 7P: Self-Construction Olson Machine Company manufactures small and large milling machines. Selling...

See similar textbooks

Related questions

Concept explainers

Question

a) Classify each cost element as either fixed, variable, or mixed

b) Calculate:
i) the variable production cost per unit and the total fixed production overhead.
ii) The total variable cost per unit and the total fixed costs

Hint: Use the high-low method to separate mixed costs into their fixed and variable components.

Buggs-Off Corporation produces and sells a line of mosquito repellants that
are sold usually all year round. The product sells at $100 per box. The following
cost data has been prepared for its estimated upper and lower limits of activity
for the year ended December 31, 2020.
Lower
Upper
Limit
Limit
Production (# of boxes)
4,000
6,000
Production Costs:
Direct Materials
$60,000
$90,000
Direct Labour
80,000
120,000
Overhead:
Indirect Materials.
25,000
37,500
Indirect Labour
40,000
50,000
Depreciation
20,000
20,000
Selling & Administrative Expenses:
Sales Salaries
50,000
65,000
Office Salaries
30,000
30,000
Advertising
45,000
45,000
Other
15,000
20,000
Total
$365,000
$477,500
Required:
a) Classify each cost element as either fixed, variable, or mixed
b) Calculate:
i) the variable production cost per unit and the total fixed production
overhead.
ii) The total variable cost per unit and the total fixed costs
Hint: Use the high-low method to separate mixed costs into their fixed and
variable components.
c) Assuming sales of 5,000 units, prepare a contribution margin income
statement for the year ended December 31, 2020, detailing the components
of total variable costs and total fixed costs, and clearly showing contribution
and net income.
d) Assuming sales of 5,000 units, calculate Buggs-Off break-even point and
margin of safety in units and sales dollars.
e) Recompute the break-even point in units, assuming that variable costs
increased by 20% and fixedcosts are reduced by $50,625. How will this
impact the margin of safety ratio?
f) The President of Buggs-Off is under pressure from shareholders to increase
operating income by 20%in 2021. Management expects per unit data and
total fixed costs to remain the same in 2021. Using the equation method,
compute the number of units that would have to be sold in 2021 to reach
the shareholders desired profit level. Is this a realistic goal?

Expert Solution

Trending now

This is a popular solution!

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions