How does assuming that operating activity occurs within a relevant range affect cost-volume-profit analysis?

What is a variable cost? Identify two variable costs.

A company’s only product sells for $150 per unit. Its variable costs per unit are$100, and its fixed costs total $75,000. What is its contribution margin per unit?

a.$50

b. $250

c.$100

d. $150

e.$25

The following costs result from the production and sale of 12,000 CD sets manufactured by Gilmore Company for the year ended December 31, 2019. The CD sets sell for $18 each. The company has a 25% income tax rate.

Variable manufacturing costs                                        Fixed manufacturing costs 
    Plastic for CD sets$   1,500                               Rent on factory                     $   6,750
    Wages of assembly workers      30,000                               Factory cleaning service                4,520
    Labeling                        3,000                               Factory machinery depreciation         20,000
Variable selling costs                                              Fixed selling and administrative costs
    Sales commissions               6,000                               Lease of office equipment               1,050
                                                                        Systems staff salaries                 15,000
                                                                        Administrative management salaries    120,000      

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. Interpret the contribution margin and contribution margin ratio from part 2.

Listed here are four series of separate costs measured at various volume levels. Examine each series and identify whether it is best described as a fixed, variable, step-wise, or curvilinear cost. Hint: It can help to graph each cost series.

Apple offers extended service contracts that provide repair coverage for its products. Assume Apple charges $160 to repair an iPhone screen and$400 for other repairs. Services are provided in a ratio of 2 screens to 1 other repair (2:1). Variable costs are 40% of selling price for iPhone screen repairs and 48% of selling price for other repairs. Assume fixed costs are $2 billion per year for the repair services department.

Required

1. Compute the selling price per composite unit for Apple’s repair services.

2. Compute the variable cost per composite unit for Apple’s repair services.

3. How many composite units must Apple’s repair services department sell each year to break even?

4. At the break-even level, how many screen repairs and other repairs will Apple complete each year?