Problem #1 Walters, LLC produc
Problem #1
Walters, LLC produces knock-off watches. Each watch sells for$40.00. Walters produced and sold 100 watches last year. Use thefollowing cost data to compute the variable cost per unit and thefixed cost for the period.
|
Volume |
Cost |
|
10 |
$800.00 |
|
20 |
$1,100.00 |
|
15 |
$900.00 |
|
18 |
$1,050.00 |
|
25 |
$1,250.00 |
a. Using the high-low method, determine the amount ofvariable cost per unit.
Answer: ________________________
b. Using the high-low method, determine the total amountof fixed costs.
Answer: ________________________
c. What is the variable cost ratio?
Answer: ________________________
d. What is the contribution margin perunit?
Answer: ________________________
e. What is the contribution margin ratio?
Answer: ________________________
f. How many watches must Walters sell to breakeven?
Answer: ________________________
g. What is the break-even sales revenue?
Answer: ________________________
h. What was Walters’ operating income lastyear?
Answer: ________________________
i. What was Walters’ margin of safety?
Answer: ________________________
j. Assume the company has a desired net income of$1,500.
(1) How many sales dollarsmust the company earn?
Answer: ________________________
(2) How many watches must thecompany sell?
Answer: ________________________
Answer:
- All working forms part of the answer
- Answer are provided with workings, in a sequence as asked.
- Answer a) Variable cost per unit
|
Volume |
Cost |
|
|
Highest Level |
25 |
$1250 |
|
Lowest Level |
10 |
$800 |
|
Difference |
15 (B) |
$450 (A) |
|
Variable cost perunit [A/B] |
[450/15]$30 |
Answer b) Total fixed cost = $500
|
Working |
HighLevel |
LowLevel |
|
|
A |
Total cost |
$1250 |
$800 |
|
B |
Volume |
25 |
10 |
|
C |
Variable cost per unit |
$30 |
$30 |
|
D=BxC |
Total Variable cost |
$750 |
$300 |
|
E=A-D |
Total fixedcost |
$500 |
$500 |
Answer (c) to (j) in sequence
|
(C) |
|
|
Variable cost per unit |
30 |
|
Sale Price per unit |
40 |
|
Variable costratio |
75% |
|
(d) |
|
|
Sale Price per unit |
40 |
|
Variable cost per unit |
30 |
|
Contribution marginper unit |
$10 |
|
(e) |
|
|
Contribution margin per unit |
10 |
|
Sale Price per unit |
40 |
|
Contribution marginratio |
25% |
|
(f) |
|
|
Fixed Cost |
500 |
|
Contribution margin per unit |
10 |
|
Watches to be soldfor break Even |
50watches |
|
(g) |
|
|
Break Even in no of watches |
50 |
|
Sale Price per unit |
40 |
|
Break Even Salesrevenue |
$2000 |
|
(h) |
|
|
Contribution per unit |
10 |
|
Units Sold last year |
100 |
|
Total contribution margin |
1000 |
|
(-)Fixed Cost |
500 |
|
OperatingIncome |
$500 |
|
(i) |
|
|
Total Revenues |
4000 |
|
Break Even Revenues |
2000 |
|
Margin ofSafety |
$2000 |
|
(j) |
|
|
Desired Net Income |
1500 |
|
Fixed Cost |
500 |
|
Total contribution margin required |
2000 |
|
Contribution per unit |
10 |
|
(j2) No. of Units tosell |
200 |
|
(j1) Sales Dollars toearn $1500 profit |
[200 x 40]$8000 |
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