Lesson 14
Managerial Accounting II: Applications
Exercise
1. XYZ Company's most recent contribution format income statement is presented below:
Sales
$250000
Less: Variable Expenses
$150000
Contribution Margin
$100000
Less: Fixed Expenses
$120000
Net Loss
$(20000)
The company sells its only product for $50 per unit. There were no beginning or ending inventories.
Required:
Compute the company's break-even point in units sold.
Compute the total variable expenses at the break-even point.
How many units would have to be sold to earn a target profit of $30000?
The sales manager is convinced that a $20000 increase in the advertising budget would increase total sales by $90000. Would you advise the increased advertising outlay?
2. XYZ Company operates a local parcel delivery service. The company keeps detailed records relating to operating costs of trucks, and has found that if a truck is driven 220000 kilometres per year, the operating cost is 15 cents per kilometre. This cost increases to 17.5 cents per kilometre if a truck is driven 120000 kilometres per year.
Required:
Estimate the cost formula for truck operating costs using the high-low method.