Case 1
Auto Tires has been in the tire business for four years. It rents a building but owns all of its equipment. All employees are paid a fixed salary except for the busy season (April–June), when temporary help is hired by the hour. Utilities and other operating charges remain fairly constant during each month except in the busy season.
The average selling price per tire is $75 except during the busy season. Because a large number of customers buy tires prior to winter, discounts run above average during the busy season. A 15% discount is given when two tires are purchased at one time. During the busy months, selling prices per tire average $60.The president of Auto Tires is somewhat displeased with the company's management accounting system because the cost behavior patterns displayed by the monthly break-even charts are inconsistent; the busy months' charts are different from those for the other months of the year. The president is never sure whether the company has a satisfactory margin of safety or whether it is just above the break-even point.
Tasks: Answer the following questions:
Case 2 A CVP graph is frequently used in business meetings because it presents a picture of cost relationships within a company. Tasks: Complete the following tasks:
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