EXERCISE 22-2

(a)

Maintenance Costs:
$4900 $2900
800 300

$2000
= $4 variable cost per machine hour
500
800
Machine Hours

Total costs
Less: Variable costs
800 $4
300 $4
Total fixed costs

300
Machine Hours

$4 900

$2 900

3 200
00 000
$1 700

1 200
$1 700

Thus, maintenance costs are $1700 per month plus $4 per machine hour.
(b)

$5000
Total Cost Line

$4900

COSTS

$4000
$3000

Variable Cost Element

$2000
$1700
$1000

Fixed Cost Element

200

400
Machine Hours

BRIEF EXERCISE 22-5

1.

(a)
(b)

$90 = ($250 $160)

36% ($90 $250)

2.

(c)
(d)

$300 = ($500 $200)

40% ($200 $500)

3.

(e)
(f)

$1200 = ($360 30%)

$840 ($1 200 $360)

600

800

BRIEF EXERCISE 22-6

(a)

$400Q = $260Q + $168 000 + $0

$140Q = $168 000
$140Q = 1200

(b)

Contribution margin per unit $140 or ($400 $260)

X = $168 000 $140
X = 1200 units

BRIEF EXERCISE 22-7

Margin of safety = $1 400 000 $900 000 = $500 000
Margin of safety ratio = $500 000 $1 400 000 = 35.7%

EXERCISE 22-3
(a)

(b)

(c)

Contribution margin (in dollars):

Sales = ($2 700$30) =

$81 000
Variable costs = $81 000 .75 = 60 750
Contribution margin
$20 250

Variable cost (per unit):

Contribution margin (per unit):
Contribution margin (ratio):

$30.75 = $22.50
$30 $22.50 ($3075%) = $7.50.
$7.50 $30 = 25%.

Breakeven sales (in dollars):

$18 000
= $72 000.
25%

Breakeven sales (in units):

$18 000
= 2400 units.
$7.50

Margin of safety (in dollars):

Margin of safety (ratio):

$81 000 $72 000 = $9000.

$9000 $81 000 = 11%.

EXERCISE 22-4
(a)

Sales Line

$3200
2800

Total Cost Line

DOLLARS (000)

2400
2000
Breakeven Point
1600
1200

Fixed Cost Line

800
400

100

200

300

400

500

600

700

Number of Units (in thousands)

(b)

(1)

Breakeven sales in units:

$4X = $2X + $800 000
$2X = $800 000
X = 400 000 units

(2)

Breakeven sales in dollars:

.50X = .50X + $800 000
.50X = $800 000
.50X = $1 600 000

(c)

(1)

(2)

Margin of safety in dollars:

$2 400 000 $1 600 000 = $800 000
Margin of safety ratio:
$800 000 $2 400 000 = 33%

800

PROBLEM 22-1
(a)

Variable costs (per haircut)

Barbers commission
Rent
Barber supplies
Total variable

(b)

(d)

Fixed costs (per month)

$8.00
.60
.40
$9.00

Barbers salaries
$12,800
Rent
1,400
Depreciation
1,000
Utilities
600
Advertising
400
Total fixed
$16,200
1600 haircuts$10 = $16 000

$20X = $9X + $16,200

$11X = $16200
X = 1,473 haircuts
The company should have a minimum number of 1,473 haircuts below which it will make a
loss.
Net income = $34,000 [($9.001700) + $16,200]
Net income = $2,500

PROBLEM 22-2
(a)

ROSEN PTY LTD

CVP Income Statement (Estimated)
For the Year ended 31 December 2011

Net sales ...........................................................................

Variable expenses
Cost of sales ............................................................
Selling expenses......................................................
Administrative expenses ..........................................
Total variable expenses .......................................
Contribution margin ...........................................................
Fixed expenses
Cost of sales ............................................................
Selling expenses......................................................
Administrative expenses ..........................................
Total fixed expenses ............................................
Net income ........................................................................
(1)

(b)

$4 000 000
$2 600 000 (1)
200 000
80 000
2 880 000
1 120 000
440 000
300 000
100 000
840 000
$ 280 000

Direct materials $720 000 + direct labor $1 340 000 + variable manufacturing
overhead $540 000.

Variable costs = 72% of sales ($2 880 000 $4 000 000) or $.72 per bottle
($1.0072%). Total fixed costs = $420 000.
(1)

$1.00X = $.72X + $840 000

$0.28X = $840 000
$0.14X = 3 000 000 units (breakeven)

(2)
(c)

3 000 000$1.00 = $3 000 000

Contribution margin ratio = ($1.00 $0.72) $1.00

Contribution margin ratio = 28%
Margin of safety ratio = ($4 000 000 $3 000 000) $4 000 000
Margin of safety ratio = 25%

(d)

Required sales

X = ($840,000 + $392,000) / 0.28 = $4 400 000