Question

Problem #1

Walters, LLC produces knock-off watches. Each watch sells for $40.00. Walters produced and sold 100 watches last year. Use the following cost data to compute the variable cost per unit and the fixed cost for the period.

Volume	Cost
10	$800.00
20	$1,100.00
15	$900.00
18	$1,050.00
25	$1,250.00

a. Using the high-low method, determine the amount of variable cost per unit.

Answer: ________________________

b. Using the high-low method, determine the total amount of fixed costs.

Answer: ________________________

c. What is the variable cost ratio?

Answer: ________________________

d. What is the contribution margin per unit?

Answer: ________________________

e. What is the contribution margin ratio?

Answer: ________________________

f. How many watches must Walters sell to break even?

Answer: ________________________

g. What is the break-even sales revenue?

Answer: ________________________

h. What was Walters’ operating income last year?

Answer: ________________________

i. What was Walters’ margin of safety?

Answer: ________________________

j. Assume the company has a desired net income of $1,500.

(1) How many sales dollars must the company earn?

Answer: ________________________

(2) How many watches must the company sell?

Answer: ________________________

Answer 1

• All working forms part of the answer
• Answer are provided with workings, in a sequence as asked.
• Answer a) Variable cost per unit

	Volume	Cost
Highest Level	25	$1250
Lowest Level	10	$800
Difference	15 (B)	$450 (A)
Variable cost per unit [A/B]	[450/15] $30

Answer b) Total fixed cost = $500

Working		High Level	Low Level
A	Total cost	$1250	$800
B	Volume	25	10
C	Variable cost per unit	$30	$30
D=BxC	Total Variable cost	$750	$300
E=A-D	Total fixed cost	$500	$500

Answer (c) to (j) in sequence

(C)
Variable cost per unit	30
Sale Price per unit	40
Variable cost ratio	75%
(d)
Sale Price per unit	40
Variable cost per unit	30
Contribution margin per unit	$10
(e)
Contribution margin per unit	10
Sale Price per unit	40
Contribution margin ratio	25%
(f)
Fixed Cost	500
Contribution margin per unit	10
Watches to be sold for break Even	50 watches
(g)
Break Even in no of watches	50
Sale Price per unit	40
Break Even Sales revenue	$2000
(h)
Contribution per unit	10
Units Sold last year	100
Total contribution margin	1000
(-)Fixed Cost	500
Operating Income	$500
(i)
Total Revenues	4000
Break Even Revenues	2000
Margin of Safety	$2000
(j)
Desired Net Income	1500
Fixed Cost	500
Total contribution margin required	2000
Contribution per unit	10
(j2) No. of Units to sell	200
(j1) Sales Dollars to earn $1500 profit	[200 x 40] $8000