Mastery Problem: Contribution Margin, Cost-Volume-Profit Analysis and Break-Even Point (Overview) Fixed, Variable and Mixed Costs An appreciation of cost behavior is needed in order for management to understand and predict profitability as the costs of material, labor and other operating expenses and levels of production and sales change. It's important to review the cost behavior of fixed, variable and mixed costs before contribution margins, cost-volume-profit analysis, and break-even points. 1.   In the table below, Have-A-Seat Inc. has outlined many of the costs associated with producing office chairs. With respect to the production and sale of office chairs, classify each cost as fixed, mixed, or variable. a.  Pressure-molded plastic for chair frames     b.  Pension cost: $0.50 per employee hour on the job     c.  Insurance premiums for inventory: $2,100 per month plus $0.01 for each dollar of inventory over $2 million     d.  Property taxes: $120,000 per year for the factory building and land     2.  Variable costs per unit     with changes in the level of activity, while fixed costs per unit     as the number of units increases and     as the number of units decreases.     Feedback   Refer to the rollovers to fixed, variable and mixed costs for help with this part.

FINANCIAL ACCOUNTING
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Chapter1: Financial Statements And Business Decisions
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1. Mastery Problem: Contribution Margin, Cost-Volume-Profit Analysis and Break-Even Point (Overview)

Fixed, Variable and Mixed Costs

An appreciation of cost behavior is needed in order for management to understand and predict profitability as the costs of material, labor and other operating expenses and levels of production and sales change. It's important to review the cost behavior of fixed, variable and mixed costs before contribution margins, cost-volume-profit analysis, and break-even points.

1.   In the table below, Have-A-Seat Inc. has outlined many of the costs associated with producing office chairs. With respect to the production and sale of office chairs, classify each cost as fixed, mixed, or variable.

a.  Pressure-molded plastic for chair frames  
 
b.  Pension cost: $0.50 per employee hour on the job  
 
c.  Insurance premiums for inventory: $2,100 per month plus $0.01 for each dollar of inventory over $2 million  
 
d.  Property taxes: $120,000 per year for the factory building and land  
 

2.  Variable costs per unit 

 

 with changes in the level of activity, while fixed costs per unit 

 

 as the number of units increases and 

 

 as the number of units decreases.

 
 
Feedback
 
Refer to the rollovers to fixed, variable and mixed costs for help with this part.

Contribution Margin Income Statement

A contribution margin income statement organizes costs by behavior (variable or fixed), rather than by function (operating, selling, or administrative). The contribution margin is the difference between sales and 

 

.

Byron Manufacturing has one product that sells for $24.00 per unit. The company estimates fixed costs at $6,000, direct materials at $4.00 per unit, direct labor at $5.00 per unit, and variable overhead costs at $3.00 per unit.

Fill in the contribution margin income statement when 730 units are sold:

 

Byron Manufacturing
Contribution Margin Income Statement
Sales
Less: Variable costs
Contribution margin
Less: Fixed costs
Operating income
Calculate Byron Manufacturing's per unit contribution margin : $
The contribution margin ratio is 50% V
Calculating the Break-even Point:
The break-even point in sales dollars is $
which is a break-even point in units of
units.
Transcribed Image Text:Byron Manufacturing Contribution Margin Income Statement Sales Less: Variable costs Contribution margin Less: Fixed costs Operating income Calculate Byron Manufacturing's per unit contribution margin : $ The contribution margin ratio is 50% V Calculating the Break-even Point: The break-even point in sales dollars is $ which is a break-even point in units of units.
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