Solutions Jiambolvo

Solutions

4-3:

a.

($143910-116990)/(170-130)

Variable cost= $673

Y = Total cost

X = high number of units produced

b = fixed cost

y= 673x +b

143,910= 673 (170) +b

b= $29,500

b.

Break even point = Fixed cost/(selling price - variable cost)

At a price of $1,300 contribution margin is ($1,300-$673)= $627.

So break even is 29500/627= 47.04 or 47 units

c.

Margin of safety at 165 units is 165-47= 118 units

d.

Profit at 165 units is 165* 673- 29500= $81,545.

e.

High low method only uses two data points, so definitely has shortcomings. It would be better to use ordinary least squares regression which takes into account all the data points.

4-5:

a. Number of trips

(6 per week × 52 weeks) 312

Revenue per trip ($360 x 4 passengers) $1,440

Total revenue ($1,440 per trip x 312 trips) $449,280

Variable costs:

Fuel $147,976

Maintenance +127,920

Total variable costs $275,896

Variable costs per trip ($275,896 ÷ 312) $884.28

Contribution margin per trip ($1,440 − $884.28) $555.72

Fixed costs:

Salary $ 70,000

Depreciation of plane 25,000

Depreciation of office equipment 2,800

Rent 40,000

Insurance 20,000

Miscellaneous +7,500

Total fixed costs $165,300

Breakeven number of trips is ($165,300 ÷ $555.72) = 297 trips.

b. If Michael draws a salary...