Question

The following information is available for a company’s maintenance cost over the last seven months.

Month	Maintenance Hours			Maintenance Cost
June		9		$	4,590
July		18			7,110
August		12			5,430
September		15			6,270
October		21			7,950
November		24			8,790
December		6			3,750

Using the high-low method, estimate both the fixed and variable components of its maintenance cost.

High-Low method - Calculation of variable cost per maintenance hour
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Total cost at the high point
Variable costs at the high point:
Volume at the high point:
Variable cost per maintenance hour
Total variable costs at the high point
Total fixed costs
Total cost at the low point
Variable costs at the low point:
Volume at the low point:
Variable cost per maintenance hour
Total variable costs at the low point
Total fixed costs

Blanchard Company manufactures a single product that sells for $205 per unit and whose total variable costs are $164 per unit. The company’s annual fixed costs are $553,500.

(a) Compute the company's contribution margin per unit.
	Contribution margin
(b) Compute the company's contribution margin ratio.
	Choose Numerator:	/	Choose Denominator:		=	Contribution Margin Ratio
		/			=	Contribution margin ratio
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(c) Compute the company's break-even point in units.
	Choose Numerator:	/	Choose Denominator:		=	Break-Even Units
		/			=	Break-even units
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(d) Compute the company's break-even point in dollars of sales.
	Choose Numerator:	/	Choose Denominator:		=	Break-Even Dollars
		/			=	Break-even dollars
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Blanchard Company manufactures a single product that sells for $120 per unit and whose total variable costs are $84 per unit. The company’s annual fixed costs are $529,200.

(1) Prepare a contribution margin income statement for Blanchard Company at the break-even point.

BLANCHARD COMPANY
Contribution Margin Income Statement (at Break-Even)
	Amount	Percentage of sales
		0%
	$0

(2) Assume the company’s fixed costs increase by $132,000. What amount of sales (in dollars) is needed to break even?

Break-Even Point in Dollars
Choose Numerator:	/	Choose Denominator:	=	Break-Even Point in Dollars
	/		=	Break-even point in dollars
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Blanchard Company manufactures a single product that sells for $180 per unit and whose total variable costs are $126 per unit. The company’s annual fixed costs are $842,400. Management targets an annual pretax income of $1,350,000. Assume that fixed costs remain at $842,400.

(1) Compute the unit sales to earn the target income.
Choose Numerator:	/	Choose Denominator:	=	Units to Achieve Target
	/		=	Units to achieve target
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(2) Compute the dollar sales to earn the target income.
Choose Numerator:	/	Choose Denominator:	=	Dollars to Achieve Target
	/		=	Dollars to achieve target
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Answer 1

High-Low Method- calculation of Variable cost per maintenance hour
Change in cost	(Cost at high Point - Cost at low Point) ($8790-$3750)		$5,040	Variable cost per unit ($5040/18)	$280
Change in Volume	(Volume at high Point - Volume at Low Point) (24-6)		18
Total cost at high point		$8,790
Variable cost at high point:
Volume at high point	24
Variable cost per maintenance hour	$280
Total variable cost at high point		$6,720
Total Fixed costs		$2,070
Total cost at Low point		$3,750
Variable cost at Low point:
Volume at Low point	6
Variable cost per maintenance hour	$280
Total variable cost at Low point		$1,680
Total Fixed costs		$2,070