E5-1

Hall Company manufactures a single product. Annual production costs incurred in the
manufacturing process are shown below for two levels of production.
Costs Incurred
Production in Units
Production Costs
Direct Materials
Direct Labor
Utilities
Rent
Maintenance
Supervisory salaries

5,000
Total Cost
$8,250
9,500
1,500
4,000
800
1,000

Cost/Unit
$1.65
1.90
0.30
0.80
0.16
0.20

10,000
Total Cost
$16,500
19,000
2,500
4,000
1,100
1,000

Cost per Unit

$1.65
1.90
0.25
0.40
0.11
0.10

Correct.
Match the definitions to the terms.
1.

Remain constant in total, but vary on a per-unit basis.

2.

Contain both a fixed element and a variable element. Vary both in total and on a per unit
basis.

3.

Vary in total but remain constant on a per-unit basis.

Variable costs

Fixed costs

Mixed costs

SHOW ANSWER

Correct.
Classify each cost above as either variable, fixed, or mixed.
Direct Materials

Variable

Direct Labor

Variable

Utilities

Mixed

Rent

Fixed

Maintenance

Mixed

Supervisory salaries

Fixed

E5-9
Correct.
The Lake Shore Inn is trying to determine its break-even point. The inn has 50 rooms that are rented
at $60 per night. Operating costs are as follows:
Salaries
$7,200 per month
Utilities
$1,500 per month
Depreciation
$1,200 per month
Maintenance
$300 per month
Maid Service
$8 per room
Other Costs
$28 per room
Determine the inn's break-even point in (1) number of rented rooms per month and (2) dollars.
Break-even number of rooms rented per month

425

Break-even sales dollars

25,500

E6-7
Rapid Auto has over 200 auto-maintenance service outlets nationwide. It provides primarily two
lines of service: oil changes and brake repair. Oil change-related services represent 65% of its
sales and provide a contribution margin ratio of 20%. Brake repair represents 35% of its sales
and provides a 60% contribution margin ratio. The company's fixed costs are $16,000,000 (that
is, $80,000 per service outlet).

Correct.
Calculate the dollar amount of each type of service that the company must provide in order to
break even. (Round computations for weighted-average contribution margin to 2
decimal places, e.g. 10.50, and final answers to 0 decimal places, e.g. 125.)
Oil changes
Break repairs

$
30,588,235

$
16,470,588

SHOW SOLUTION
SHOW ANSWER

Correct.
The company has a desired net income of $60,000 per service outlet. What is the dollar amount
of each type of service that must be provided by each service outlet to meet its target net income
per outlet? (Round answers to 0 decimal places, e.g. 125.)
$

Oil changes

267,647

Break repairs

144,118

E6-10
Mega Electronix sells television sets and DVD players. The business is divided into two divisions
along product lines. CVP income statements for a recent quarter's activity are presented below.
TV Division
DVD Division
Total
Sales
$600,000
$400,000
$1,000,000
450,000
240,000
690,000
Variable costs
Contribution margin

$150,000

$160,000

310,000
124,000

Fixed costs

$186,000

Net income

Correct.
Determine sales mix percentage and contribution margin ratio for each division. (Round
answers to 2 decimal places, e.g. .50.)
Sales Mix Percentage
TV Division

.60

DVD Division

.40

Contribution margin ratio

TV Division

.25

DVD Division

.40

SHOW SOLUTION
SHOW ANSWER

Correct.
Calculate the company's weighted-average contribution margin ratio. (Round answer to 2
decimal places, e.g. .50.)
.31

SHOW SOLUTION
SHOW ANSWER

Correct.
Calculate the company's break-even point in dollars. (Use the rounded amount from the
previous question when calculating the answer for this question.)
$
400,000

SHOW SOLUTION
SHOW ANSWER

Correct.

Determine the sales level in dollars for each division at the break-even point.
TV Division
DVD Division

$
240,000

$
160,000