Question

1. Calculator

   High-Low Method

   The manufacturing costs of Alex Industries for three months of the year are provided below.

   	Total Costs		Production
   January	$428,040		2,255 units
   February	665,840		6,355
   March	568,820		4,220

   Using the high-low method, determine (a) the variable cost per unit and (b) the total fixed cost. Round all answers to the nearest whole dollar.

   a. Variable cost per unit	$
   b. Total fixed cost	$

   Contribution Margin

   Sally Company sells 22,000 units at $18 per unit. Variable costs are $10.8 per unit, and fixed costs are $63,400.

   Determine (a) the contribution margin ratio, (b) the unit contribution margin, and (c) income from operations.

   a. Contribution margin ratio (Enter as a whole number.)		%
   b. Unit contribution margin (Round to the nearest cent.)	$	per unit
   c. Income from operations	$

Answer 1

High low method

variable cost per unit = maximum cost - minimum cost / maximum unit - minimum unit

= 665,840 - 428,040 / 6,355 - 2,255

= 237,800 - 4,100

= 58 per unit

fixed cost = total cost - variable cost

= 665,840 - (6,355 x 58)

= 665,840 - 368,590

= 297,250

Requirement a.

contribution margin ratio = contribution margin / sale x 100

= 158,400 / 396,000 x 100

= 40%

contribution margin = sale - variable cost

= (22,000 x 18) - (22,000 x 10.8)

= 158,400

Requirement b.

unit contribution margin = per unit selling price - per unit variable cost

= 18 - 10.8

= 7.2 per unit

Requirement c.

sale (22,000 x 18)	396,000
Less: variable cost (22,000 x 10.8)	237,600
contribution	158,400
Less: Fixed cost	63,400
income from operation	95,000