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Managerial Accounting: Tools for Business Decision Making

Jerry J. Weygandt, Paul D. Kimmel, Donald E. Kieso

Chapter 5

Cost-Volume-Profit - all with Video Answers

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Chapter Questions

Problem 1

The controller of Teton Industries has collected the following monthly expense data for use in analyzing the cost behavior of maintenance costs.
$$
\begin{array}{|c|c|c|}
\hline \text { Month } & \begin{array}{c}
\text { Total } \\
\text { Maintenance Costs }
\end{array} & \begin{array}{c}
\text { Total } \\
\text { Machine Hours }
\end{array} \\
\hline \overline{\text { January }} & \$ 2,900 & 30 \\
\hline \text { February } & 3,000 & 400 \\
\hline \text { March } & 3,600 & 600 \\
\hline \text { April } & 4,300 & 790 \\
\hline \text { May } & 3,200 & 500 \\
\hline \text { June } & 4,500 & 800 \\
\hline
\end{array}
$$
Instructions:
(a) Determine the fixed-cost and variable-cost components using the high-low method.
(b) Prepare a graph showing the behavior of maintenance costs, and identify the fixed-cost and variable-cost elements. Use 200 unit increments and $$\$ 1,000$$ cost increments.

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Problem 2

Zion Seating Co., a manufacturer of chairs, had the following data for 2017:
$$
\begin{array}{ll}
\text { Sales } & 2,400 \text { units } \\
\text { Sales price } & \$ 40 \text { per unit } \\
\text { Variable costs } & \$ 15 \text { per unit } \\
\text { Fixed costs } & \$ 19,500
\end{array}
$$
Instructions
(a) What is the contribution margin ratio?
(b) What is the break-even point in dollars?
(c) What is the margin of safety in units and dollars?
(d) If the company wishes to increase its total dollar contribution margin by $40 \%$ in 2018 , by how much will it need to increase its sales if all other factors remain constant?

Amany Waheeb
Amany Waheeb
Numerade Educator