Nike Company wants to develop a cost formula for its maintenance costs to estimate such costs for the coming year….

Nike Company wants to develop a cost formula for its maintenance costs to estimate such costs for the coming year. The following data are available:
Month Direct Labor Hours Maintenance Costs Incurred
January 4,000 $ 900
February 6,500 1,325
March 7,000 1,500
April 5,500 1,150
Using the high-low method, what is the cost formula for maintenance costs?
a. $500 + $1.00 per direct labor hour
b. $300 + $1.50 per direct labor hour
c. $100 + $0.20 per direct labor hour
d. $200 + $0.10 per direct labor hour

3. If sales are $80,000, variable costs are $50,000, and fixed costs are $20,000, the contribution margin ratio is
a. 37.5%
b. 12.5%
c. 62.5%
d. 25.0%
4. At the breakeven point
a. Sales will be equal to variable costs plus target profit
b. Sales will be equal to variable costs plus fixed costs
c. Sales will be equal to fixed costs plus target profit
d. Fixed costs will be equal to variable costs

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5. An increase in the breakeven point can be caused by:
a. an increase in desired profit.
b. an increase in selling price per unit.
c. an increase in variable cost per unit.
d. a decrease in total fixed cost.

EXTRA CREDIT (Worth 2 points)

4. Acme, Inc. manufactures pencils which sell for $7.50 each. Acme expects to sell 82,000 pencils next quarter. At this level of sales, variable expenses will total $184,500 and fixed expenses will total $242,130. How many pencils will Acme have to sell next quarter to breakeven? Hint: First determine the VC per unit.
a. 32,284 pencils.
b. 46,120 pencils.
c. 56,884 pencils.
d. 345,900 pencils.

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