1) Evander Inc. has decided to use the high-low method to estimate the total cost and the...
Question:
1) Evander Inc. has decided to use the high-low method to estimate the total cost and the fixed and variable cost components of the total cost. The data for various levels of production are as follows:
Units Produced | Total Costs |
---|---|
2,015 | $217,620 |
3,140 | 250,260 |
5,115 | 338,520 |
a. Determine the variable cost per unit and the total fixed cost. Variable cost _____________ ?? Total fixed _______________ ??
b. Based on part (a), estimate the total cost for 2,570 units of production. Total cost for 2,570 __________ ?? 2) High-low method for a service company
Sierra Railroad Inc. decided to use the high-low method and operating data from the past six months to estimate the fixed and variable components of transportation costs. The activity base used by Sierra Railroad is gross-ton miles, which is the total number of tons multiplied by the miles moved.
Month | Transportation Costs | Gross-Ton Miles |
---|---|---|
January | $1,203,500 | 384,000 |
February | 1,341,800 | 429,000 |
March | 948,300 | 278,000 |
April | 1,286,500 | 416,000 |
May | 1,079,000 | 334,000 |
June | 1,383,300 | 452,000 |
Determine the variable cost per gross-ton mile and the total fixed cost. Variable cost (If required, round to two decimal places.) ________ per gross-ton mile ??? Total fixed cost__________ ???
3)Contribution margin and contribution margin ratio
For a recent year, McDonalds (MCD) company-owned restaurants had the following sales and expenses (in millions):
Line Item Description | Amount |
---|---|
Sales | $20,000 |
Food and paper | $(2,600) |
Payroll and employee benefits | (2,200) |
Occupancy and other expenses | (4,100) |
General, selling, and administrative expenses | (5,100) |
Total | $(14,000) |
Operating income | $6,000 |
Assume that the variable costs consist of food and paper, payroll, 25% of occupancy and other expenses, and 40% of the general, selling, and administrative expenses.
a. What is McDonald's contribution margin?
b. What is McDonald's contribution margin ratio? Round to one decimal place.
c. How much would operating income increase if same-store sales increased by $800 million for the coming year, with no change in the contribution margin ratio or fixed costs? Round your answer to the nearest tenth of a million (one decimal place).