Text: Part 2 - Answer the following questions
Question 2 (30 marks)
mixed cost, using miles as the
activity level.
Miles Driven 10,000 8,000 9,000 7,500
Total Cost $15,000 13,500 14,400 12,500
January February March April
Required:
1. Compute the variable and fixed cost elements using the high-low method.
2. If it is estimated that 12,000 miles will be driven in May, what is the expected total cost for May? (7.5 marks)
BXYZ Company sells its only product for $40 per unit. Its total fixed costs are $180,000 per annum. Its CM ratio is 20%. XYZ plans to sell 16,000 units this year.
Required:
1. Calculate CM per unit and the variable cost per unit.
2. Calculate the break-even point in unit sales and in dollar sales.
3. Calculate the unit sales and dollar sales required to achieve a target profit of $60,000 per year.
4. Assume that the company is able to reduce its variable costs by $4 per unit and accordingly the sales price per unit will also be reduced by 5%.
a. Calculate the company's new break-even point in unit sales and in dollar sales.
b. Calculate the dollar sales required to achieve a target profit of $60,000.
5. In your opinion, do you think the company would be better off with the assumed reductions? (12.5 marks) Why?