High-Low, Break-Even [LO 1, 2) Lancer Audio produces a high-end DVD player that

Question

High-Low, Break-Even [LO 1, 2) Lancer Audio produces a high-end DVD player that sells for dollar1,300. Total operating expenses for the past 12 months are as follows: REQUIRED Use the high-low method to estimate fixed and variable costs. Based on these estimates, calculate the break-even level of sales in units. (Round to the nearest whole unit.) Calculate the margin of safety for the coming August assuming estimated sales of 175 units. Estimate total profit assuming production and sales of 175 units.

Explanation / Answer

Answer:a Calculation of variable cost per unit

=change in cost/Change in units

=(143910-116990)/(170-130)

=673 per unit

Fixed cost=143910-(170*673)

=29500

Variable cost=170*673=114410

Answer:b Contribution per unit=Sales per unit-Variable cost per unit

=$1300-$673=627

BEP (units)=Fixed expense/Contribution margin per unit

=29500/627

=47 units

Answer:c MOS=Total sales-Breakeven sales

=(175*1300)-(47*1300)

=227500-61100

=166400

Answer:d Total profit=Total sales-Variable cost-Fixed cost

=(175*1300)-(175*673)-29500

=80225

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