Cost-Volume-Profit Analysis and High-Low Method Walters, LLC produces knock-off

Question

Cost-Volume-Profit Analysis and High-Low Method Walters, LLC produces knock-off watches. Each watch sells for $40.00.Wes Use the following cost data to compute the variable cost per unit and the produced and sold 100 watches last year fixed cost for the period VolumeCost 10-s 800 00 uours- 20 S1,100.00 15 S 900.00 12 900.00 18 S1,050.00 1250-dec Halt-25- T$ 1.250.00-hyh 1. Using the high-low method, determine the amount of variable cost per unit. Answer 2. Using the high-low method, determine the total amount of fixed costs. Answer 3. What is the variable cost ratio? Answer 4. What is the contribution margin per unit? Answer: 5. What is the contribution margin ratio? Answer: 6. How many watches must Walters sell to break even? Answer: 7. What is the break-even sales revenue? Answer 8. What was Walters' operating income last year? Answer: 9. What was Walters' margin of safety? 10. Assume the company has a desired net income of $1,500. (1) How many sales dollars must the company eam? (2) How many watches must the company sell? Answer Answer Answer

Explanation / Answer

High volme 25 units at cost of $1250 Low volume 10 units at cost of $ 800 Req 1: Varriable cost per unit: Change in Cost / Change in units ( 1250 -800 ) / (25-10 ) = $30 per unit Req 2: At high volume, Total cost 1250 Less: variable cost (25 units @30) 750 Fixed cost 500 Req 3: Selling price per unit: $ 40 Variable cost per unit: $ 30 Variable cocst ratio : variable cost/ Selling price = 30 /40 *100 = 75% Req 4: Contribution margin per unit: Selling price - Variable cost = $ 40 - 30 = $ 10 per unit Req 5: CM ratio: Contnribution/ Selling price = 10 /40 *100 = 25% Req 6: Break even in unit: Fixed cost / CM per unit = $ 500 / $ 10 = 50 units Req7 Break even revenue: fixed cost / CM ratio = 500 / 25% = $2,000 Req 8: Number of units: 100 units Contribution earned: 100 units @$10 = $ 1,000 Net operating income: contribution - fixed cost =$ 1000 - 500 = $500 Req 9: Margin of Safety: Net income / CM ratio = $ 500 /25% = $ 2,000 Req 10: Desired profit: $ 1500 Contribution desired: 1500+500= $ 2,000 Sales revenue: Desired contribution/ CM ratio = 2000 /25% = $ 8,000 Sales in units: Desired contribution/ CM per unit : $ 2000 /10 = 200 units

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