1. a.

The equation to calculate the variable rate can be found on page 270 and is equal to the high expense of $480 less the low expense of $444 divided by the high activity of 200 hours less the low activity of 176 hours. The rate per open hour is then $36 divided by 24 hours or $1.50 per hour.

2. c.

The fixed cost is equal to the total utility bill expense less the variable portion of the bill. The variable portion is $1.25 times the number of open hours. If the total utility bill is $450, then the variable portion is $1.25 times 200 or $250. The fixed cost is therefore $450 less $250 or $200.

3. d.

The variable portion is $380 which is $2.00 times the 190 open hours The total bill is expected to $605 which is the variable portion of $380 plus the fixed portion of $225.

4. b.

The mixed expenses must first be separated into their appropriate variable or fixed category. The total variable expense percentage is then 39% so the contribution margin ratio is 100% less 39% or 61%.

5. a.

Total revenue for 10 snowboards is $2,700. Variable expenses are 41% of revenues or $1,107. The contribution margin is $1,593 and can be calculated by subtracting the variable expenses of $1,107 from the revenues of $2,700. An alternate computation would be to multiply the contribution margin percentage of 59% times revenues of $2,700.

6. d.

Total revenue is $3,000. Variable expenses are 40% times $3,000 or $1,200. The contribution margin is $1,800. Net income equals contribution margin less fixed expenses. Since fixed expenses are $1,400, net income is $400.

7. d.

Profit will increase by the contribution margin per unit times the two additional units. Contribution margin per unit is $180 calculated by subtracting $120 from $300. If volume increases by two units, profit increases by $360 or 2 times $180. Fixed costs are not considered as there would be no additional fixed costs for selling 2 more units.

8. b.

The contribution margin is $6,468 which is the difference between sales of $8,400 and variable expenses of $1,932. The contribution margin ratio is 77% calculated by dividing the contribution margin of $6,468 by sales of $8,400.

9. c.

If sales were $9,000 variable expenses would change in direct proportion to the change in sales but fixed expenses would stay the same. The variable expense percentage is 23% which can be calculated by dividing $1,932 by sales of $8,400. Applying this percentage to sales of $9,000 gives variable expense of $2,070. Sales of $9,000 less variable expenses of $2,070 less fixed expense of $4,200 gives you profit of $2,730.

10. b.

Generally accepted accounting principles require the preparation of a traditional income statement for all companies that are publicly traded.