Question

PLEASE SHOW ALL WORK

Question 1
Cereola Corp produces 2 products Model A & B.
Model A sells for $60 and has variable cost of goods sold for $15, variable selling and admin for $9 and sales of 1,000 units;
Model B sells for $40 and has variable cost of goods sold for $16, variable selling and admin for $6 and sales of 500 units.
The fixed expenses for the organization are $75,000.

a. What is the overall contribution margin for the expected sales mix?
b. What is the break-even point in units for the expected sales mix?
c. How many units of Model A and Model B should be sold at the break-even point?

Question 2
The following data pertains to activity and maintenance costs for two recent years:
Year 2 Year 1
Activity level 12,000 8,000
Machine Cost $15,000 $12,000

Using the high-low method, the cost estimation equation would be?

Answer 1

Question 1

	Model A	Model B
Selling price per unit	$60	$40
Variable costs per unit	$24 ($15+$9)	$22 ($16+$6)
Contribution margin per unit	$36	$18

Fixed expenses = $75,000

a.

Overall contribution margin = (Contribution margin of Model A * Sales mix) + (Contribution margin of Model B * Sales mix)

= ($36*1,000/1,500) + ($18*500/1,500)

= $24 + $6

= $30

b.

Breakeven point in units = Fixed expenses / Overall contribution margin

= $75,000 / $30

= 2,500

c.

Model A = 2,500 units * Sales mix

= 2,500 * 1,000/1,500

= 1,667 units

Model B = 2,500 units * Sale mix

= 2,500 * 500/1,500

= 833 units

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Question 2

Variable cost per unit = (Total cost at highest activity level - Total cost at lowest activity level) / (Highest activity level - Lowest activity level)

= ($15,000 - $12,000) / (12,000 - 8,000)

= $0.75

Fixed cost = Total cost - Variable cost

= $15,000 - (12,000*$0.75)

= $6,000

Cost estimation equation = $6,000 + $0.75 per unit.