Week 4 BA225 Managerial Accounting

Week 4 BA225 Managerial Accounting


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W4 Assignment “Application Problems 4”

Application Problems Week 4

    • Page 209: Brief Exercises 5-1, 5-2, 5-4

BE5-1 Monthly production costs in Dilts Company for two levels of production are as


Cost                           2,000 Units             4,000 Units

Indirect labor              $10,000                  $20,000

Supervisory salaries       5,000                     5,000

Maintenance                  4,000                     6,000

Indicate which costs are variable, fixed, and mixed, and give the reason for each answer.

BE5-2 For Lodes Company, the relevant range of production is 40–80% of capacity. At

40% of capacity, a variable cost is $4,000 and a fixed cost is $6,000. Diagram the behavior of each cost within the relevant range assuming the behavior is linear.

BE5-4 Bruno Company accumulates the following data concerning a mixed cost, using

miles as the activity level.

                          Miles                       Total                 Miles                    Total

                          Driven                     Cost                 Driven                   Cost

January             8,000                    $14,150     March  8,500                 $15,000

February           7,500                       13,500     April    8,200                   14,490

Compute the variable- and fixed-cost elements using the high-low method.


    • Pages 260-261: Exercises 6-2, 6-5, 6-7

E6-2 In the month of June, Jose Hebert’s Beauty Salon gave 4,000 haircuts, shampoos,

and permanents at an average price of $30. During the month, fixed costs were $16,800 and variable costs were 75% of sales.


(a) Determine the contribution margin in dollars, per unit and as a ratio.

(b) Using the contribution margin technique, compute the break-even point in dollars and

in units.

(c) Compute the margin of safety in dollars and as a ratio.


E6-5 Carey Company had sales in 2016 of $1,560,000 on 60,000 units. Variable costs

totaled $900,000, and fixed costs totaled $500,000.

A new raw material is available that will decrease the variable costs per unit by 20%

(or $3). However, to process the new raw material, fixed operating costs will increase by $100,000. Management feels that one-half of the decline in the variable costs per unit should be passed on to customers in the form of a sales price reduction. The marketing department expects that this sales price reduction will result in a 5% increase in the number of units sold.


Prepare a projected CVP income statement for 2017 (a) assuming the changes have not

been made, and (b) assuming that changes are made as described.


E6-7 PDQ Repairs has 200 auto-maintenance service outlets nationwide. It performs

primarily two lines of service: oil changes and brake repair. Oil change–related services

represent 70% of its sales and provide a contribution margin ratio of 20%. Brake repair

represents 30% of its sales and provides a 40% contribution margin ratio. The company’s fixed costs are $15,600,000 (that is, $78,000 per service outlet).


(a) Calculate the dollar amount of each type of service that the company must provide in order to break even.

(b) The company has a desired net income of $52,000 per service outlet. What is the dollar amount of each type of service that must be performed by each service outlet to meet its target net income per outlet?