447 Words2 Pages

Exercise 6-6 (45 minutes)
| 1. | |Units Shipped |Shipping Expense |
| |High activity level |8 |$3,600 |
| |Low activity level |2 | 1,500 |
| |Change |6 |$2,100 |
Variable cost element:
[pic]
Fixed cost element:
|Shipping expense at the high activity level |$3,600 |
|Less variable*…show more content…*

2. a. See the scattergraph on the following page. b. (Note: Students’ answers will vary due to the imprecision and subjective nature of this method of estimating variable and fixed costs.) |Total cost at 5 units shipped per month [a point |$2,600 | |falling on the line in (a)] | | |Less fixed cost element (intersection of the Y axis) | 1,100 | |Variable cost element |$1,500*…show more content…*

The cost formula is $1,100 per month plus $300 per unit shipped or Y = $1,100 + 300X, where X is the number of units shipped. Exercise 6-6 (continued) 2. a. The scattergraph appears below: [pic] 3. The cost of shipping units is likely to depend on the weight and volume of the units shipped and the distance traveled as well as on the number of units shipped. In addition, higher cost shipping might be necessary to meet a deadline. Problem 7-18 (60 minutes) 1. The CM ratio is 60%: |Selling price |$30 |100% | |Variable expenses | 12 | 40% | |Contribution margin |$18 | 60% | |2. |[pic] | 3. $60,000 increased sales × 60% CM ratio = $36,000 increased contribution margin. Since fixed costs will not change, operating income should also increase by $36,000. |4. |a. |[pic]

2. a. See the scattergraph on the following page. b. (Note: Students’ answers will vary due to the imprecision and subjective nature of this method of estimating variable and fixed costs.) |Total cost at 5 units shipped per month [a point |$2,600 | |falling on the line in (a)] | | |Less fixed cost element (intersection of the Y axis) | 1,100 | |Variable cost element |$1,500

The cost formula is $1,100 per month plus $300 per unit shipped or Y = $1,100 + 300X, where X is the number of units shipped. Exercise 6-6 (continued) 2. a. The scattergraph appears below: [pic] 3. The cost of shipping units is likely to depend on the weight and volume of the units shipped and the distance traveled as well as on the number of units shipped. In addition, higher cost shipping might be necessary to meet a deadline. Problem 7-18 (60 minutes) 1. The CM ratio is 60%: |Selling price |$30 |100% | |Variable expenses | 12 | 40% | |Contribution margin |$18 | 60% | |2. |[pic] | 3. $60,000 increased sales × 60% CM ratio = $36,000 increased contribution margin. Since fixed costs will not change, operating income should also increase by $36,000. |4. |a. |[pic]

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