1. Kylie Hepworth has been operating a beauty shop in a college town for the past 10 years.

Recently, Kylie rented

space next to her shop and opened a tanning salon. She anticipated that the cost the tanning service would be primarily
fixed but found that tanning salon costs increased with the number of appointments. Cost for this service over the past
eight months are as follows :
Month Tanning Appointments Total Cost
January 700 $1.758
February 2.000 $2.140
March 3.100 $2.790
April 2.500 $2.400
May 1.500 $1.800
June 2.300 $2.275
July 2.150 $2.200
August 3.100 $2.640
Required :
A. Which month represents the high point ? The low point ?

High point : March

Low point : January

B. Using the high-low method, compute the variable rate for tanning. Computed the fixed cost per month

Variable rate : (2.790 – 1.758) : (3.100 – 700) = $0,43

Fixed cost : 1.758 – (0,43 * 700) = $1.457

C. Using your answers to requirement 2, write the cost formula for tanning service ?

Total tanning service cost : fixed cost + (variable rate * number appointments)

D. Calculate the total predicted cost of tanning services for september for 2.500 appointments using the formula found
in requirment 3. Of that total cost, how much is the total fixed cost for september? How much is the total predicted
variable cost for september ?

Tanning services September : 1.457 + (0,43 * 2.500) = 2.532

Fixed cost : 2.532 – (0,43 * 2.500) = $1.457
Variable cost : 2.532 – 1.457 = $1.075
2. Secuti Company plans to sell 7,500 mowers at $750 each in the coming years. Variable cost per unit is $225. Total
fixed cost is $55.000.
Required :
a. Calculate the variable cost ratio

Variable cost ratio : 225 : 750 = 0,3

b. Calculate the contribution margin ratio using unit figures

Contribution margin ratio : (750 - 225) : 750 = 0,7

c. Prepare a contribution margin income statement based on the budgeted figures for next year. In a coloumn next to the
income statement, show the percentages based on sales for sales, total variable expense, and total contribution margin

Sales 750*7.500 $5.625.000 100%

Variable cost 225*7.500 ($1.687.500) -30%
Contribution margin $3.397.500 70%
Fixed cost ($ 55.000)
Operating income $3.882.500

3. Biggy Company plans to sell 2.500 books at $750 each in the coming year. Variable cost per unit is $125. Total fixed
cosr is $10.000
Required :
A. Calculate the contribution margin ratio using unit figures

Contribution margin 750 - 125 625

Contribution margin ratio 625 : 750 0,83

B. Calculate the sales revenue that alet must make to break even by using break event point in sales equation

Break even point 10.000 : 0,83 $12.000

Break even sales (unit) 12.000 : 750 16
C. Check your answer by preparing a contribution margin income statement based on the break even point in sales
dollars
Contribution margin income statement
Sales $12.000
Variable cost (16 units) 125*16 ($ 2.000)
Contribution margin $10.000
Fixed cost ($ 2.000)
Oprationg income 0