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Ogle Company manufactures and sells two products

Price: $12.99

Problem 1
Ogle Company manufactures and sells two products. Relevant per unit data concerning each product are given below:



Selling price $74 $110

Variable costs $40 $50

Machine hours 2 3


(a) Compute the contribution margin per unit of limited resource for each product.

(b) Which product should be manufactured if 1,000 additional machine hours are available?

Problem 2

Peterson Company incurred the following high and low maintenance costs totals during 2011: $432,000 at 20,000 units of activity during March and $320,000 at 12,000 units during August.

Instructions: Answer parts (a) through (c) below, presenting carefully labeled supporting calculations in all cases.

(a) Use the high-low method to compute the variable cost per unit and the total fixed cost element of the mixed cost component.

(b) Based on the above analysis, express the total maintenance cost in formula format.

(c) Compute the total maintenance cost for May when activity is 16,000 units.

Problem 3

Harder Company manufactures a product that sells for $50 per unit. Harder incurs a variable cost per unit of $30 and $3,400,000 in total fixed costs to produce this product. It is currently selling 200,000 units.

Instructions: Complete each of the following requirements, presenting labeled supporting computations.

(a) Compute and label the contribution margin per unit and contribution margin ratio.

(b) Using the contribution margin per unit, compute the break-even point in units.

(c) Using the contribution margin ratio, compute the break-even point in dollars.

(d) Compute the margin of safety and margin of safety ratio.

(e) Compute the number of units that must be sold in order to generate net income of $400,000 using the contribution margin per unit.

(f) Should Harder give a commission to its salesmen based on 10% of sales, if it will decrease fixed costs by $400,000 and increase sales volume 10%? Support your answer with labeled computations.

Problem 4

The following CVP income statements are available for Baxter Company and Donaldson Company.

Baxter Company Donaldson Company

Sales revenue $1,050,000 $1,050,000

Variable costs 525,000 210,000

Contribution margin 525,000 840,000

Fixed costs 325,000 640,000

Net income $ 200,000 $ 200,000


(a) Compute the degree of operating leverage for each company.

(b) Prepare a CVP income statement for each company, assuming that sales revenue decreases by 20%.

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