Computational Problems: Cost-Volume-Profit Analysis and High-Low Method of Estim
ID: 2536596 • Letter: C
Question
Computational Problems: Cost-Volume-Profit Analysis and High-Low Method of Estimation 1. PPP Publishers has collected the following data for recent months:
Month
Issues Published
Total Cost
May
20,500
$20,960
June
22,300
$21,428
July
18,750
$20,505
August
21,200
$21,395
Each issue sells for $1.50
Required:
a) Using the high-low method, find the following.
i. Variable cost per unit (issue): ___________________________
ii. Total fixed cost per month: ____________________________
iii. Cost Equation/Function: ____________________________________
b) i. What is the total estimated cost for a month when 22,000 issues are published?______ ii. What is the cost per issue in a month when 22,000 issues are published? __________
c) What is the Break-even Point (BEP) in units (issues)? ________________________
d) How many issues does PPP need to sell to generate a $25,000 profit? __________
e) Prepare a Contribution Margin Income Statement at the level of sales needed to generate a $25,000 profit.
Month
Issues Published
Total Cost
May
20,500
$20,960
June
22,300
$21,428
July
18,750
$20,505
August
21,200
$21,395
Explanation / Answer
HIGH-LOW METHOD: Cost Units High activity-June 21428 22300 Low activity -July 20505 18750 Change 923 3550 variable cost per unit: Change in cost/Change in units 923 /3550 = $0.26 per unit At high activity, Total c ost is 21428 Less: variable cost (22300*0.26) 5798 Total fixed cost 15630 Cost Equation, Let Cost= C and X= Number of units C(X) = $ 15630 + 0.26X Selling price per unit 1.5 Less: VC per unit 0.26 Contribution per unit 1.24 Break even point in units: Fixed cost / CM per unit 15630 /1.24 = 12605 units Target sales sunit: Desired contribution/ CM per unit (15630+25000)/1.24 = 32766 units CONTRIBUTION MARGIN INCOME STATEMENT Sales revenue (32766 units @1.50) 49149 Less: variable cost(32766*0.26) 8519.16 Contribution 40629.84 Less: Fixed cost 15630 net operating income 24999.84
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