Question

1.

High-Low Method for a Service Company

Boston Railroad decided to use the high-low method and operating data from the past six months to estimate the fixed and variable components of transportation costs. The activity base used by Boston Railroad is a measure of railroad operating activity, termed “gross-ton miles,” which is the total number of tons multiplied by the miles moved.

	Transportation Costs		Gross-Ton Miles
January	$854,100		325,000
February	952,200		363,000
March	673,000		235,000
April	913,000		351,000
May	765,700		283,000
June	981,700		382,000

Determine the variable cost per gross-ton mile and the fixed cost.

Variable cost (Round to two decimal places.)	$ per gross-ton mile
Total fixed cost	$

2.

Contribution Margin and Contribution Margin Ratio

For a recent year, Wicker Company-owned restaurants had the following sales and expenses (in millions):

Sales	$26,100
Food and packaging	$9,106
Payroll	6,600
Occupancy (rent, depreciation, etc.)	5,814
General, selling, and administrative expenses	3,800
	$25,320
Income from operations	$780

Assume that the variable costs consist of food and packaging, payroll, and 40% of the general, selling, and administrative expenses.

a. What is Wicker Company's contribution margin? Round to the nearest million. (Give answer in millions of dollars.)
$ million

b. What is Wicker Company's contribution margin ratio? Round to one decimal place.
%

c. How much would income from operations increase if same-store sales increased by $1,600 million for the coming year, with no change in the contribution margin ratio or fixed costs? Round your answer to the closest million.
$ million

3.

Sales Mix and Break-Even Sales

Dragon Sports Inc. manufactures and sells two products, baseball bats and baseball gloves. The fixed costs are $522,000, and the sales mix is 30% bats and 70% gloves. The unit selling price and the unit variable cost for each product are as follows:

Products	Unit Selling Price		Unit Variable Cost
Bats	$60		$50
Gloves	150		90

a. Compute the break-even sales (units) for both products combined.
units

b. How many units of each product, baseball bats and baseball gloves, would be sold at break-even point?

Baseball bats	units
Baseball gloves	units

Answer 1

1
	Transportation Costs	Gross-Ton Miles
High level	981700	382000
Low level	673000	235000
Change	308700	147000
Variable cost	2.10	=308700/147000
Total fixed cost	179500	=981700-(382000*2.10)
2
a
Sales	26100
Less: Variable costs
Food and packaging	9106
Payroll	6600
General, selling, and administrative expenses	1520	=3800*40%
Total Variable costs	17226
Contribution margin	8874	million
b
Contribution margin	8874
Divide by sales	26100
Contribution margin ratio	34.0%
c
Income from operations increase	544 million	=1600*34%
3
a
Fixed costs	522000
/Weighted average unit contribution margin	45	=(60-50)*30%+(150-90)*70%
Break-even sales (units)	11600
b
Baseball bats	3480	=11600*30%
Baseball gloves	8120	=11600*70%