One of the goals of analyzing cost behavior is to develop the cost formula for both fixed and variable costs that can be used for any activity level within the relevant range. Thompson makes, sells, and installs furnaces for $3,000 each. Fixed costs are $125,000 and unit contribution margin is $1,200.
Required: If Thompson made, sold, and installed 500 furnaces in 2009:
a.What was its total contribution margin?
b.What was the overall cost formula for Thompson?
c.What was its break-even point in units?
d.What was its NOI/EBIT for the year?
e.What was the relationship between beginning and ending inventories? Why?
f.What is the significance of the relevant range in CVP analysis?
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