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.
1. Mastery Problem: Contribution Margin, Cost-Volume-Profit Analysis and Break-Even Point (Overview)
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 |
|
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| 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.
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:
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