Chapter 20 Review

Managerial Accounting

1. Describe the following costs, examples may also be needed:

a. Mixed-
b. Fixed-
c. Variable-
2. Levi has a skateboard shop. In this shop Levi transforms raw materials into custom skateboards.
In reviewing his utility bill for the last 12 months, he found that his highest bill of $12,900 took
place in June, the month prior to the X-Games. His lowest utility bill occurred in October, $8,100.
His shaper and plainer machines worked a total of 1480 hours in June and 904 hours in October.

a. Calculate the variable rate per machine hour and Levi’s total fixed cost utility cost.

(12,900-8,100)/(1,480-904)

= $8.33 per machine hour

12,900 – (1480*8.33)

= $571.60

b. Show the equation for determining the total utility cost for Levi’s Shop.

Fixed Cost + (Variable Cost x Machine Hours) = Total Utility Costs

c. Predicator step: If Levi anticipates using 1,900 machine hours next June, predict his total
utility bill.

Cost Amount
Fixed 571.60
Variable (8.33 * 1900)
Total Util. Cost 16,398.60
 3. Compute the following: Contribution Margin, Breakeven Point, and Units to Achieve Operating
Income:

Product X Product Y Product Z

Number of Units 900 3,700 6,100
Sales price per unit $100 $31.50 $119.99
Variable cost per unit $37.50 $12.95 $89.75
Total Fixed Costs $99,150 $54,780 $32,550
Target Operating Income $310,000 $94,500 $115,000

Contribution margin per

Contribution margin ratio
Breakeven point in units
Breakeven in dollars (sales)
# of Units to achieve target income

4. Qwest arena is venue that hosts multiple types of sporting and entertainment events. They sell
tickets for $25.00 for entrance to a single event. The variable costs per ticket are $8.00; the fixed
costs for a single event are $93,700.
a. What number of tickets must Qwest sell for each event to break-even?

CM = 25-8

=$17 Per ticket

Break Even:

$93,700/$17

=5,511.76/5,512 Tickets