Question

A traditional income statement classifies costs by ________; that is, costs are classified as either ________ costs or ________ costs.

A contribution margin income statement classifies costs by ________; that is, costs are classified as either ________ costs or ________ costs.

Accurate Accounting provides accounting services at an average price of $110 per hour and incurs variable costs of $60 per hour. Assume average fixed costs are $7,200 a month. (Round your answer to the nearest whole unit.)

a. What is the number of hours that must be billed to reach the breakeven point?

b. If the company desires to make a profit of $3,600, how many hours must be completed?

c. The company thinks it can reduce fixed costs to $6,800, but variable cost will increase to $64 per hour. The price per unit will not change. What is the new breakeven point in hours?

Barnes Company sells two products, X and Y. For the coming year, Barnes predicts sales of 5,000 units of X and 10,000 units of Y. The contribution margins per unit of products X and Y are $5 and $4, respectively. Calculate the weighted-average contribution margin

Answer 1

Q1.
Traditional Method classify the cost by nature of cost. That is cost are classified as either Product cost or Period cost.
Variable Method classify the cost by Cost behaviour. That is cost are classified as either variable cost or fixed cost.
Q2.
a.
Revenue per hour: $ 110
Variable cost per hour: $ 60
Contirbution margin per hour: 110 -60 = 50 per hour
Fixed cost: $ 7200
Break even in hours: Fixed cost/ Contribution per hour = 7200 /50 = 144 hours
b.
Desired profit: $ 3600
Desired contribution : 3600+7200 = 10800
Target sales in hours: Desired contribution/ Contribution per hour = 10800/50 = 216 hours
c.
Revnue per hou:		110
Revised variable ccost per hour:			64
Contribution per hour:			46
Break even in Hours: Fixed cost / Revised Contribution per hour = 7200/46 = 157 hours
Q3.
			Product X	Product Y	Total
Sales units			5000	10000	15000
Contribution per unit			5	4
Total ccontribution			25000	40000	65000
	Weighted Average Contribution per unit: Total contribution/Total units= 65000/15000 =4.33 pere unit