Alden Co.'s monthly unit sales and total cost data for its operating activities of the past year follow, Management wants to use these data to predict future fixed and variable costs

Month	Units Sold	Total Cost		Month	Units Sold	Total Cost
1	320,000	$160,000		7	340,000	$220,000
2	160,000	100,000		8	280,000	160,000
3	280,000	220,000		9	80,000	64,000
4	200,000	100,000		10	160,000	140,000
5	300,000	230,000		11	100,000	100,000
6	200,000	120,000		12	110,000	80,000

Required

1. Estimate both the variable costs per unit and the total monthly fixed costs using the high-low method,

2. Use the results from part 110 predict future total costs when sales volume is (a) 200,000 units and (b) 300,000 units.

Alden Co.’s monthly unit sales and total cost data for its operating activities of the past year follow. Management wants to use these data to predict future fixed and variable costs.

$$\begin{matrix} \text{Month } & \text{Units Sold } & \text{Total Cost}\\ \text{1}\ldots\ldots\ldots & \text{320,000} & \text{\$160,000}\\ \text{2} \ldots\ldots\ldots & \text{160,000} & \text{100,000}\\ \text{3} \ldots\ldots\ldots & \text{280,000} & \text{220,000}\\ \text{4} \ldots\ldots\ldots & \text{200,000} & \text{100,000}\\ \text{5}\ldots\ldots\ldots & \text{300,000} & \text{230,000}\\ \text{6}\ldots\ldots\ldots & \text{200,000} & \text{120,000}\\ \text{7}\ldots\ldots\ldots & \text{340,000} & \text{\$220,000}\\ \text{8}\ldots\ldots\ldots & \text{280,000} & \text{160,000}\\ \text{9} \ldots\ldots\ldots & \text{80,000} & \text{64,000}\\ \text{10}\ldots\ldots\ldots & \text{160,000} & \text{140,000}\\ \text{11}\ldots\ldots\ldots & \text{100,000} & \text{100,000}\\ \text{12}\ldots\ldots\ldots & \text{110,000} & \text{80,000}\\ \end{matrix}$$

1. Prepare a scatter diagram for these data with sales volume (in units) plotted on the horizontal axis and total cost plotted on the vertical axis. 2. Estimate both the variable costs per unit and the total monthly fixed costs using the high-low method. Draw the total costs line on the scatter diagram in part 1. 3. Use the estimated line of cost behavior and results from part 2 to predict future total costs when sales volume is (a) 200,000 units and (b) 300,000 units.

The following costs result from the production and sale of 1,000 drum sets manufactured by Tight Drums Company for the year ended December 31, 2019. The drum sets sell for $500 each. The company has a 25% income tax rate.

Variable production costs                                   Fixed manufacturing costs         
    Plastic for casing$17,000                Taxes on factor                       $ 5,000
    Wages of assembly workers             82,000                Factory maintenance                    10,000        
    Drum stands                           26,000                Factory machinery depreciation         40,000
    Variable selling costs                                  Fixed selling and administrative costs     
Sales commissions                         15,000                Lease of equipment for sales staff     10,000
                                                                Accounting staff salaries              35,000   
                                                                Administrative management salaries    125,000

Required

1. Prepare a contribution margin income statement for the year.

2. Compute its contribution margin per unit and its contribution margin ratio.

Analysis Component

3. For each dollar of sales, how much is left to cover fixed costs and contribute 10 operating income?

The following costs result from the production and sale of 1,000 drum sets manufactured by Tight Drums Company for the year ended December 31, 2019. The drum sets sell for $500 each. The company has a 25% income tax rate.

Variable production costs                                           Fixed manufacturing costs 
    Plastic for casing$   17,000                               Taxes on factory                     $   5,000
    Wages of assembly workers       82,000                               Factory maintenance                     10,000
    Drum stands                     26,000                               Factory machinery depreciation          40,000
Variable selling costs                                              Fixed selling and administrative costs
    Sales commissions               15,000                               Lease of equipment for sales staff      10,000
                                                                         Accounting staff salaries               35,000
                                                                         Administrative management salaries     125,000     

Required

1. Prepare a contribution margin income statement for the year.

2. Compute its contribution margin per unit and its contribution margin ratio.

Analysis Component

3. For each dollar of sales, how much is left to cover fixed costs and contribute to operating income?

Felix & Co. reports the following information about its units produced and total costs. Estimate total costs of 3,000 units are produced.

Use spreadsheet software to use ordinary least-squares regression to estimate the cost equation, including fixed and variable cost amounts.

Use spreadsheet software to use ordinary least-squares regression to estimate the cost equation, including fixed and variable cost amounts.

Felix & Co. reports the following information about its units produced and total costs. Estimate total costs if 3,000 units are produced. Use the high-low method to estimate the fixed and variable components of total costs.

A jeans maker is designing a new line of jeans called Slims. The jeans will sell for $205 per pair and cost$164 per pair in variable costs to make.

1. Compute the contribution margin per pair.

2. Compute the contribution margin ratio.

3. Describe what the contribution margin ratio reveals about this new jeans line.

A jeans maker is designing a new line of jeans called Slims. The jeans will sell for $\$ 205$ per pair and cost $\$ 164$ per pair in variable costs to make.

1. Compute the contribution margin per pair.
2. Compute the contribution margin ratio.
3. Describe what the contribution margin ratio reveals about this new jeans line.

Following are five series of costs A through E measured at various volume levels. Identify each series as either fixed, variable, mixed, step-wise, or curvilinear.

$$\begin{matrix} & \text{A} & \text{B} & \text{C} & \text{D} & \text{E} & \text{F}\\ & \text{Volume (Units)} & \text{Series A} & \text{Series B} & \text{Series C} & \text{Series D} & \text{Series E}\\ \text{1} & \text{0} & \text{\$ 0} & \text{\$2,500} & \text{\$ 0} & \text{\$1,000} & \text{\$5,000}\\ \text{2} & \text{400} & \text{3,600} & \text{3,100} & \text{6,000} & \text{1,000} & \text{5,000}\\ \text{3} & \text{800} & \text{7,200} & \text{3,700} & \text{6,600} & \text{2,000} & \text{5,000}\\ \text{4} & \text{1,200} & \text{10,800} & \text{4,300} & \text{7,200} & \text{2,000} & \text{5,000}\\ \text{5} & \text{1,600} & \text{14,400} & \text{4,900} & \text{8,200} & \text{3,000} & \text{5,000}\\ \text{6} & \text{2,000} & \text{18,000} & \text{5,500} & \text{9,600} & \text{3,000} & \text{5,000}\\ \text{7} & \text{2,400} & \text{21,600} & \text{6,100} & \text{13,500} & \text{4,000} & \text{5,000}\\ \end{matrix}$$

While the total amount of fixed cost changes with the level of production, fixed cost per unit remains constant as volume changes.

a. True

b. False

Hudson Co. reports the contribution margin income statement for 2017 below. Using this information, compute Hudson Co.’s (1) break-even point in units and (2) break-even point in sales dollars.

$$\begin{matrix} \text{HUDSON CO. Contribution Margin Income Statement For Year Ended December 31, 2017}\\ \text{Sales (9,600 units at \$225 each)}\ldots\ldots\ldots & \text{\$2,160,000}\\ \text{Variable costs (9,600 units at \$180 each)} \ldots\ldots\ldots & \text{1,728,000}\\ \text{Contribution margin} \ldots\ldots\ldots & \text{432,000}\\ \text{Fixed costs} \ldots\ldots\ldots & \text{324,000}\\ \text{Pretax income } \ldots\ldots\ldots & \text{\$ 108,000}\\ \end{matrix}$$

Blanchard Company manufactures a single product that sells for $180 per unit and whose total variable costs are$135 per unit. The company’s annual fixed costs are $562,500. 1. Prepare a contribution margin income statement for Blanchard Company showing sales, variable costs, and fixed costs at the break-even point. 2. If the company’s fixed costs increase by$135,000, what amount of sales (in dollars) is needed to break even? Explain.

Hudson Co. reports the contribution margin income statement for 2019 below.

$$\begin{array}{c} \textbf{Contribution Margin Income Statement}\\ \textbf{For Year Ended December 31, 2019}\\ \end{array}$$

$$\begin{array}{lr} \text{Sales (9,600 units at \$225 each)}&\text{\$\hspace{1pt}2,160,000}\\ \text{Variable costs (9,600 units at \$180 each)}&\underline{\text{\hspace{6pt}1,728,000}}\\ \text{Contribution margin}&\text{432,000}\\ \text{Fixed costs}&\underline{\text{\hspace{13pt}324,000}}\\ \text{Pretax income}&\underline{\underline{\text{\$\hspace{8pt}108,000}}}\\ \end{array}$$

1. Compute the company's degree of operating leverage for 2019.
2. If sales decrease by 5% in 2020, what will be the company's pretax income?
3. Assume sales for 2020 decrease by 5%. Prepare a contribution margin income statement for 2020.

Blanchard Company manufactures a single product that sells for $180 per unit and whose total variable costs are$135 per unit. The company’s annual fixed costs are $562,500. The sales manager predicts that annual sales of the company’s product will soon reach 40,000 units and its price will increase to$200 per unit. According to the production manager, variable costs are expected to increase to $140 per unit, but fixed costs will remain at$562,500. The income tax rate is 20%. What amounts of pretax and after-tax income can the company expect to earn from these predicted changes?