Survey Of Accounting 6th Edition By Warren – Test Bank

E11–6
Components produced … 1,000,000 1,500,000 2,000,000
Total costs:
Total variable costs … $430,000 (d) $ 645,000 (j) $ 860,000
Total fixed costs ……… 360,000 (e) 360,000 (k) 360,000
Total costs ……………… $790,000 (f) $ 1,005,000 (l) $1,220,000
Cost per unit:
Variable cost per unit (a) $ 0.43 (g) $ 0.43 (m) $ 0.43
Fixed cost per unit ….. (b) 0.36 (h) 0.24 (n) 0.18
Total cost per unit …… (c) $ 0.79 (i) $ 0.67 (o) $ 0.61
Supporting calculations:
a. $0.43 ($430,000 ÷ 1,000,000 disks)
b. $0.36 ($360,000 ÷ 1,000,000 disks)
c. $0.79 ($0.43 + $0.36)
d. $645,000 ($0.43 × 1,500,000 disks)
e. 360,000 (fixed costs do not change with volume)
f. $1,005,000 ($645,000 + $360,000)
g. $0.43 ($645,000 ÷ 1,500,000 disks; variable costs per unit do not change with
changes in volume)
h. $0.24 ($360,000 ÷ 1,500,000 disks)
i. $0.67 ($0.43 + $0.24)
j. $860,000 ($0.43 × 2,000,000 disks)
k. $360,000 (fixed costs do not change with volume)
l. $1,220,000 ($860,000 + $360,000)
m. $0.43 ($860,000 ÷ 2,000,000 disks; variable costs per unit do not change with
changes in volume)
n. $0.18 ($360,000 ÷ 2,000,000 disks)
o. $0.61 ($0.43 + $0.18)

E11–7
a. Variable Cost per Unit = Difference inProduction
Difference in Total Costs
= 70,000units — 45,000units
$2,110,000 — $1,535,000
=
25,000units
$575,000 = $23 per unit
The fixed cost can be determined by subtracting the estimated total variable
cost from the total cost at either the highest or lowest level of production, as
follows:
Total Cost = (Variable Cost per Unit × Units of Production) + Fixed Cost
Highest level:
$2,110,000 = ($23 × 70,000 units) + Fixed Cost
$2,110,000 = $1,610,000 + Fixed Cost
$500,000 = Fixed Cost
Lowest level:
$1,535,000 = ($23 × 45,000 units) + Fixed Cost
$1,535,000 = $1,035,000 + Fixed Cost
$500,000 = Fixed Cost
b. Total Cost = (Variable Cost per Unit × Units of Production) + Fixed Cost
Total cost for 60,000 units:
Variable cost:
Units …………………………………… 60,000
Variable cost per unit …………… × $23
Total variable cost ……………….. $1,380,000
Fixed cost …………………………… 500,000
Total cost ……………………………. $1,880,000

E11–8
Gross-Ton Mile =
DifferenceinGross-Ton Miles
Differencein Total Costs
= (180,000 — 110,000) gross-tonmiles
$2,095,800 — $1,426,600
=
70,000 gross-tonmiles
$669,200 = $9.56 per gross-ton mile
The fixed cost can be determined by subtracting the estimated total variable cost
from the total cost at either the highest or lowest level of gross-ton miles, as follows:
Total Cost = (Variable Cost per Gross-Ton Mile × Gross-Ton Miles) + Fixed Cost
Highest level:
$2,095,800 = ($9.56 × 180,000 gross-ton miles) + Fixed Cost
$2,095,800 = $1,720,800 + Fixed Cost
$375,000 = Fixed Cost
Lowest level:
$1,426,600 = ($9.56 × 110,000 gross-ton miles) + Fixed Cost
$1,426,600 = $1,051,600 + Fixed Cost
$375,000 = Fixed Cost

E11–9
a.
Sales ………………………………. $3,400,000
Variable costs …………………. 2,244,000
Contribution margin ………… $1,156,000
Contribution Margin Ratio = Sales
Sales — Variable Costs
= $3,400,000
$1,156,000 = 34%
b.
Sales ………………………………. $1,875,000
Contribution margin ratio … × 28%
Contribution margin ………… $ 525,000
Less fixed costs ………………. 390,000
Income from operations …… $ 135,000
E11–10
a.
Sales ………………………………………………………………………………………… $ 24,075
Variable costs:
Food and packaging …………………………………………………………….. $ 5,300
Payroll …………………………………………………………………………………. 4,122
General, selling, and administrative expenses (60% × $2,333) … 1,400
Total variable costs …………………………………………………………. $ 10,822
Contribution margin ………………………………………………………………….. $ 13,253
b.
Contribution Margin Ratio = Sales Variable Costs
Sales

= $24,075
$13,253 = 55.0%
c. Same-store sales increase …………………………………….. $600,000,000
Contribution margin ratio [from part (b)] ………………… × 55.0%
Increase in income from operations ………………………. $330,000,000
Note: Part (c) emphasizes “same-store sales” because of the assumption of no
change in fixed costs. McDonald’s will also increase sales from opening new
stores. However, the impact on income from operations for these additional sales
would need to include an increase in fixed costs in the calculation.

E11–11
a. Break-Even Sales (units) = Unit Contribution Margin
Fixed Costs
= $515 — $412
$988,800 = 9,600 units
b. Sales (units) = Unit ContributionMargin
FixedCosts + Target Profit
= $515 — $412
$988,800 + $180,250
= 11,350 units
E11–12
a. Break-Even Sales (units) = Unit Contribution Margin
Fixed Costs
= 2 3 4
1
$108.47 — $45.30 — $13.51
$1,060,800 = 21,361,257 barrels
The variable costs per unit are determined by multiplying the total amount of
each cost by the variable cost percentage (75% for production costs and 40%
for marketing and distribution costs), then dividing by the number of barrels.
1
($1,812,000,000 × 25%) + ($1,013,000,000 × 60%) = $1,060,800,000
2
$3,254,000,000 ÷ 30,000,000 barrels = $108.47 per barrel
3
($1,812,000,000 × 75%) ÷ 30,000,000 barrels = $45.30 per barrel
4
($1,013,000,000 × 40%) ÷ 30,000,000 barrels = $13.51 per barrel
b. Break-Even Sales (units) = $108.47 — $45.30 — $13.51
$1,060,800,000 + $40,000,000
= 22,166,734 barrels

E11–13
a. Break-Even Sales (units) = Unit Contribution Margin
Fixed Costs
= $80 — $64
$420,000 = 26,250 units
b. Break-Even Sales (units) = Unit Contribution Margin
Fixed Costs
= $84 — $64
$420,000 = 21,000 units
E11–14
Break-Even Sales (units) = Unit Contribution Margin
Fixed Costs
= $40 — $X
$40,000
= 8,000 cookbooks
Variable cost per cookbook: $40,000 = 8,000 cookbooks × ($40 – $X)
Variable cost per cookbook: 8,000 cookbooks
$40,000 = $40 – $X
Variable cost per cookbook: $5 = $40 – $X
Variable cost per cookbook: $35

E11–15
The cost of the promotion campaign is the fixed cost in this analysis, since we’re
trying to determine the break-even adoption rate of the campaign.
Promotional cost = $20,900,000
The contribution margin earned per new subscriber is essentially the revenue
earned less the variable cost over the 18-month subscription period.
Revenue: (18 months – 2 free months) × $9.95 per month = $159.20 per new account
Variable cost: 18 months × $4.20 per month = $75.60 per new account.
Contribution margin = Revenue per new account – Variable cost per new account
per new account
= $159.20 – $75.60
= $83.60
Note: The variable cost is for 18 months since the costs are incurred, even for the
2 free months.
The break-even number of subscribers necessary to cover the fixed cost of the
promotion would be computed as follows:
Break-Even =
Contribution Marginper Unit
Fixed Cost
= $83.60
$20,900,000 = 250,000 accounts
Therefore, if ESPN.com yielded more than 250,000 new subscribers out of the
promotional campaign, the costs of the campaign would be covered.