Question

In: Accounting

High-Low Cost Estimation and Profit Planning Comparative 2007 and 2008 income statements for Dakota Products Inc....

High-Low Cost Estimation and Profit Planning Comparative 2007 and 2008 income statements for Dakota Products Inc. follow: DAKOTA PRODUCTS INC. Comparative Income Statements For Years Ending December 31, 2007 and 2008 2007 2008 Unit sales 5,000 8,000 Sales revenue $60,000 $96,000 Expenses (64,000) (76,000) Profit (loss) $(4,000) $20,000 (a) Determine the break-even point in units. Answer 0 units (b) Determine the unit sales volume required to earn a profit of $5,000. Answer 0

Solutions

Expert Solution

(a) Determine the break-even point in units

5,500 Units

(b) Determine the unit sales volume required to earn a profit of $5,000

6,125 units

Working:

Step-1:Calculation of Variable cost per unit, Total Fixed Cost and Selling Price per unit
a. As per high-low method,
Variable cost per unit = (Total cost at highest level-Total cost at lowest level)/(Highest level-Lowest Level)
= (76000-64000)/(8000-5000)
= $            4.00
b. Now either at highest level of 8000 units or
or lowest level of 5000 units
Total cost $       76,000 $       64,000
Less:Variable cost $       32,000 $       20,000
(8000*4.00) (5000*4.00)
Fixed Cost $       44,000 $       44,000
c. Sales Price per unit = Total Sales /Total Units sold
So,
Sales Price per unit of:
2007 $       60,000 / 5000 = $    12.00
2008 $       96,000 / 8000 = $    12.00
Step-2:Calculation of Break even point in units sales
Break even point in units sales = Fixed Cost/Contribution Margin per unit
= $ 44,000 / $            8.00
=         5,500
Working:
Selling Price per unit $         12.00
Less: Variable cost per unit $            4.00
Contribution Margin per unit $            8.00
Step-3:Calculation of Unit sales volume required to earn profit of $ 5,000
Fixed Cost $       44,000
Target Profit $         5,000
Target Contribution Margin $       49,000
/Contribution margin per unit $            8.00
Target units to be sold 6125

ekkarill92 answered 1 year ago
Next > < Previous

Related Solutions

Comparative Income Statement Analysis Comparative 2012 and 2013 income statements for Dakota Products: 2017 2018 Change...
Comparative Income Statement Analysis Comparative 2012 and 2013 income statements for Dakota Products: 2017 2018 Change Unit Sales       10,000         14,000      4,000 Revenue $ 150,000 $    220,000     70,000 Expenses      120,000        160,000     40,000 Operating Profit $    30,000 $      60,000 a. What is the break-even point? b. What number of units are required to earn an operating profit of $70,000 c. What was the margin of safety for both 2017 and 2018?
Donellys, Inc. has prepared the following comparative balance sheets for 2007 and 2008: 2008 2007 Cash...
Donellys, Inc. has prepared the following comparative balance sheets for 2007 and 2008: 2008 2007 Cash $ 297,000 $ 153,000 Receivables 159,000 107,000 Inventory 150,000 180,000 Prepaid expenses 18,000 27,000 Plant assets 1,260,000 1,050,000 Accumulated depreciation (450,000) (375,000) Patent, net (intangible asset) 153,000 174,000 $1,587,000 $1,316,000 Accounts payable $ 153,000 $ 168,000 Accrued liabilities 60,000 42,000 Bonds payable 0 450,000 Preferred stock 645,000 0 Common stock 600,000 600,000 Retained earnings 129,000 56,000 $1,587,000 $1,316,000 1. The Accumulated Depreciation account has...
Computational Problems: Cost-Volume-Profit Analysis and High-Low Method of Estimation 1. PPP Publishers has collected the following...
Computational Problems: Cost-Volume-Profit Analysis and High-Low Method of Estimation 1. PPP Publishers has collected the following data for recent months: Month Issues Published Total Cost May 20,500 $20,960 June 22,300 $21,428 July 18,750 $20,505 August 21,200 $21,395 Each issue sells for $1.50 Required: a) Using the high-low method, find the following. i. Variable cost per unit (issue): ___________________________ ii. Total fixed cost per month: ____________________________ iii. Cost Equation/Function: ____________________________________ b) i. What is the total estimated cost for a month...
Special Order: High-Low Cost Estimation SafeRide, Inc. produces air bag systems that it sells to North...
Special Order: High-Low Cost Estimation SafeRide, Inc. produces air bag systems that it sells to North American automobile manufacturers. Although the company has a capacity of 300,000 units per year, it is currently producing at an annual rate of 180,000 units. SafeRide, Inc. has received an order from a German manufacturer to purchase 60,000 units at $7.00 each. Budgeted costs for 180,000 and 240,000 units are as follows: 180,000 Units 240,000 Units Manufacturing costs Direct materials $450,000 $600,000 Direct labor...
Special Order: High-Low Cost Estimation SafeRide, Inc. produces air bag systems that it sells to North...
Special Order: High-Low Cost Estimation SafeRide, Inc. produces air bag systems that it sells to North American automobile manufacturers. Although the company has a capacity of 300,000 units per year, it is currently producing at an annual rate of 180,000 units. SafeRide, Inc. has received an order from a German manufacturer to purchase 60,000 units at $7.00 each. Budgeted costs for 180,000 and 240,000 units are as follows: 180,000 Units 240,000 Units Manufacturing costs Direct materials $450,000 $600,000 Direct labor...
Cost Estimation; High-low Method; MAPE: Horton Manufacturing Inc. produces blinds and other window treatments for residential...
Cost Estimation; High-low Method; MAPE: Horton Manufacturing Inc. produces blinds and other window treatments for residential homes and offices. The owner is concerned about the maintenance costs for the production machinery because maintenance costs for the previous fiscal year were higher than he expected. The owner has asked you to assist in estimating future maintenance costs to better predict the firm's profitability. Together, you have determined that the best cost driver for maintenance costs is machine hours. The data from...
In applying the high-low method of cost estimation to mixed costs, how is the total fixed...
In applying the high-low method of cost estimation to mixed costs, how is the total fixed cost estimated? If fixed costs increase, what would be the impact on the (a) contribution margin? (b) income from operations? An examination of the accounting records of Clowney Company disclosed a high contribution margin ratio and production at a level below maximum capacity. Based on this information, suggest a likely means of improving income from operations. Explain.
Cost Behavior Analysis in a Restaurant: High-Low Cost Estimation Assume a Jimmy John's restaurant has the...
Cost Behavior Analysis in a Restaurant: High-Low Cost Estimation Assume a Jimmy John's restaurant has the following information available regarding costs at representative levels of monthly sales: Monthly sales in units 5,000 8,000 10,000 Cost of food sold $ 10,000 $ 16,000 $ 20,000 Wages and fringe benefits 4,250 4,400 4,500 Fees paid delivery help 1,250 2,000 2,500 Rent on building 1,200 1,200 1,200 Depreciation on equipment 600 600 600 Utilities 500 560 600 Supplies (soap, floor wax, etc.) 150...
Cost Behavior Analysis in a Restaurant: High-Low Cost Estimation Assume a Papa John's restaurant has the...
Cost Behavior Analysis in a Restaurant: High-Low Cost Estimation Assume a Papa John's restaurant has the following information available regarding costs at representative levels of monthly sales: Monthly sales in units 5,000 8,000 10,000 Cost of food sold $10,000 $16,000 $20,000 Wages and fringe benefits 4,200 4,320 4,400 Fees paid delivery help 1,100 1,760 2,200 Rent on building 1,100 1,100 1,100 Depreciation on equipment 900 900 900 Utilities 800 920 1,000 Supplies (soap, floor wax, etc.) 250 340 400 Administrative...
Cost Behavior Analysis in a Restaurant: High-Low Cost Estimation Assume a Potbelly’s restaurant has the following...
Cost Behavior Analysis in a Restaurant: High-Low Cost Estimation Assume a Potbelly’s restaurant has the following information available regarding costs at representative levels of monthly sales (meals served): Monthly sales in units 5,000 7,000 10,000 Cost of food sold $ 7,500 $10,500 $15,000 Wages and fringe benefits 5,900 5,940 6,000 Fees paid delivery help 6,000 8,400 12,000 Rent on building 3,500 3,500 3,500 Depreciation on equipment 850 850 850 Utilities 600 640 700 Supplies (soap, floor wax, etc.) 400 480...
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT