2. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 1 Introduction to Management Accounting

3. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 2 Introduction to Management Accounting Introduction to Cost Behavior and Cost-Volume Relationships Chapter 2

4. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 3 Cost Drivers and Cost Behavior Traditional View of Cost Behavior Activity-Based View of Cost Behavior Resource A Cost Driver = Units of ResourceOutput Resource A Cost Driver = Units of ResourceOutput Resource B Cost Driver = Units of ResourceOutput Resource B Cost Driver = Units of ResourceOutput Activity A Cost Driver = Units of Activity Output Activity A Cost Driver = Units of Activity Output Activity B Cost Driver = Units of Activity Output Activity B Cost Driver = Units of Activity Output Resource B Cost Driver = Units of ResourceOutput Resource B Cost Driver = Units of ResourceOutput Resource A Cost Driver = Units of ResourceOutput Resource A Cost Driver = Units of ResourceOutput Product or Service Cost Driver = Units of Final Product or Service Cost Driver = Output of Final Product or Service Learning Objective 1

5. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 4 Cost Drivers and Cost Behavior Cost behavior is how the activities of an organization affect its costs. Cost behavior is how the activities of an organization affect its costs. Any output measure that causes the use of costly resources is a cost driver. Any output measure that causes the use of costly resources is a cost driver.

6. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 5 Value Chain Functions, Costs, and Cost Drivers Value Chain Function and Example Costs Example Cost Drivers Research and development Salaries marketing research personnel Number of new product proposals costs of market surveys Salaries of product and process engineers Complexity of proposed products Design of products, services, and processes Salaries of product and process engineers Number of engineering hours Cost of computer-aided design equipment Number of parts per product Cost to develop prototype of product for testing Value Chain Function and Example Costs Example Cost Drivers Research and development Salaries marketing research personnel Number of new product proposals costs of market surveys Salaries of product and process engineers Complexity of proposed products Design of products, services, and processes Salaries of product and process engineers Number of engineering hours Cost of computer-aided design equipment Number of parts per product Cost to develop prototype of product for testing

7. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 6 Value Chain Functions, Costs, and Cost Drivers Value Chain Function and Example Costs Example Cost Drivers Production Labor wages Labor hours Supervisory salaries Number of people supervised Maintenance wages Number of mechanic hours Depreciation of plant and machinery Number of machine hours supplies Energy cost Kilowatt hours Marketing Cost of advertisements Number of advertisements Salaries of marketing personnel, Sales dollars travel costs, entertainment costs Value Chain Function and Example Costs Example Cost Drivers Production Labor wages Labor hours Supervisory salaries Number of people supervised Maintenance wages Number of mechanic hours Depreciation of plant and machinery Number of machine hours supplies Energy cost Kilowatt hours Marketing Cost of advertisements Number of advertisements Salaries of marketing personnel, Sales dollars travel costs, entertainment costs

8. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 7 Value Chain Functions, Costs, and Cost Drivers Value chain function and Example costs Example Cost Drivers Distribution Wages of shipping personnel Labor hours Transportation costs including Weight of items delivered depreciation of vehicles and fuel Customer service Salaries of service personnel Hours spent servicing products Costs of supplies, travel Number of service calls Value chain function and Example costs Example Cost Drivers Distribution Wages of shipping personnel Labor hours Transportation costs including Weight of items delivered depreciation of vehicles and fuel Customer service Salaries of service personnel Hours spent servicing products Costs of supplies, travel Number of service calls

9. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 8 Variable and Fixed Cost Behavior A variable cost changes in direct proportion to changes in the cost-driver level. A variable cost changes in direct proportion to changes in the cost-driver level. A fixed cost is not immediately affected by changes in the cost-driver. A fixed cost is not immediately affected by changes in the cost-driver. Think of variable costs on a per-unit basis. Think of variable costs on a per-unit basis. The per-unit variable cost remains unchanged regardless of changes in the cost-driver. The per-unit variable cost remains unchanged regardless of changes in the cost-driver. Think of fixed costs on a total-cost basis. Think of fixed costs on a total-cost basis. Total fixed costs remain unchanged regardless of changes in the cost-driver. Total fixed costs remain unchanged regardless of changes in the cost-driver. Learning Objective 2

10. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 9 Relevant Range The relevant range is the limit of cost-driver activity level within which a specific relationship between costs and the cost driver is valid. The relevant range is the limit of cost-driver activity level within which a specific relationship between costs and the cost driver is valid. Even within the relevant range, a fixed cost remains fixed only over a given period of time Usually the budget period. Even within the relevant range, a fixed cost remains fixed only over a given period of time Usually the budget period.

11. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 10 Fixed Costs and Relevant Range 20 40 60 80 100 20 40 60 80 100 $115,000$115,000 100,000 100,000 60,000 60,000 Total Cost-Driver Activity in Thousands of Cases per Month Total Monthly Fixed Costs Relevant range $115,000$115,000 100,000 100,000 60,000 60,000 20 40 60 80 100 20 40 60 80 100

12. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 11 CVP Scenario Per Unit Percentage of Sales Per Unit Percentage of Sales Selling price $1.50100% Variable cost of each item 1.20 80 Selling price less variable cost $.30 20% Monthly fixed expenses: Rent $3,000 Rent $3,000 Wages for replenishing and Wages for replenishing and servicing 13,500 servicing 13,500 Other fixed expenses 1,500 Other fixed expenses 1,500 Total fixed expenses per month $ 18,000 Per Unit Percentage of Sales Per Unit Percentage of Sales Selling price $1.50100% Variable cost of each item 1.20 80 Selling price less variable cost $.30 20% Monthly fixed expenses: Rent $3,000 Rent $3,000 Wages for replenishing and Wages for replenishing and servicing 13,500 servicing 13,500 Other fixed expenses 1,500 Other fixed expenses 1,500 Total fixed expenses per month $ 18,000 Cost-volume-profit (CVP) analysis is the study of the effects of output volume on revenue (sales), expenses (costs), and net income (net profit). Cost-volume-profit (CVP) analysis is the study of the effects of output volume on revenue (sales), expenses (costs), and net income (net profit).

13. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 12 Break-Even Point The break-even point is the level of sales at which revenue equals expenses and net income is zero. The break-even point is the level of sales at which revenue equals expenses and net income is zero. Sales Sales - Variable expenses - Fixed expenses Zero net income (break-even point) Sales Sales - Variable expenses - Fixed expenses Zero net income (break-even point) Learning Objective 3

14. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 13 Contribution Margin Method $18,000 fixed costs ÷ $.30 = 60,000 units (break even) $18,000 fixed costs ÷ $.30 = 60,000 units (break even) Contribution margin Per Unit Selling price$1.50 Variable costs 1.20 Contribution margin$.30 Contribution margin Per Unit Selling price$1.50 Variable costs 1.20 Contribution margin$.30 Contribution margin ratio Per Unit % Selling price100 Variable costs.80 Contribution margin.20 Contribution margin ratio Per Unit % Selling price100 Variable costs.80 Contribution margin.20

15. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 14 Contribution Margin Method $18,000 fixed costs ÷ 20% (contribution-margin percentage) = $90,000 of sales to break even $18,000 fixed costs ÷ 20% (contribution-margin percentage) = $90,000 of sales to break even 60,000 units × $1.50 = $90,000 in sales to break even 60,000 units × $1.50 = $90,000 in sales to break even

16. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 15 Equation Method Sales – variable expenses – fixed expenses = net income $1.50N – $1.20N – $18,000 = 0 $.30N = $18,000 N = $18,000 ÷ $.30 N = 60,000 Units Sales – variable expenses – fixed expenses = net income $1.50N – $1.20N – $18,000 = 0 $.30N = $18,000 N = $18,000 ÷ $.30 N = 60,000 Units Let N = number of units to be sold to break even. Let N = number of units to be sold to break even.

17. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 16 Equation Method S –.80S – $18,000 = 0.20S = $18,000 S = $18,000 ÷.20 S = $90,000 S –.80S – $18,000 = 0.20S = $18,000 S = $18,000 ÷.20 S = $90,000 Let S = sales in dollars needed to break even. Let S = sales in dollars needed to break even. Shortcut formulas: Break-even volume in units = fixed expenses unit contribution margin unit contribution margin Break-even volume in sales = fixed expenses contribution margin ratio contribution margin ratio Shortcut formulas: Break-even volume in units = fixed expenses unit contribution margin unit contribution margin Break-even volume in sales = fixed expenses contribution margin ratio contribution margin ratio

18. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 17 Cost-Volume-Profit Graph 18,000 30,000 90,000 120,000 138,000 $150,000 0 102030405060708090100 Units (thousands) Dollars 60,000 Total Expenses Sales Net Income Area Break-Even Point 60,000 units or $90,000 Net Loss Area A C D B Fixed Expenses Variable Expenses Net Income Learning Objective 4

19. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 18 Target Net Profit Managers use CVP analysis to determine the total sales, in units and dollars, needed To reach a target net profit. Managers use CVP analysis to determine the total sales, in units and dollars, needed To reach a target net profit. Target sales – variable expenses – fixed expenses target net income target net income Target sales – variable expenses – fixed expenses target net income target net income $1,440 per month is the minimum acceptable net income. $1,440 per month is the minimum acceptable net income. Learning Objective 5

20. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 19 Target sales volume in units = (Fixed expenses + Target net income) ÷ Contribution margin per unit Target sales volume in units = (Fixed expenses + Target net income) ÷ Contribution margin per unit ($18,000 + $1,440) ÷ $.30 = 64,800 units Target Net Profit Selling price$1.50 Variable costs 1.20 Contribution margin per unit$.30 Selling price$1.50 Variable costs 1.20 Contribution margin per unit$.30 Target sales dollars = sales price X sales volume in units Target sales dollars = $1.50 X 64,800 units = $97,200. Target sales dollars = sales price X sales volume in units Target sales dollars = $1.50 X 64,800 units = $97,200.

21. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 20 Sales volume in dollars = 18,000 + $1,440 = $97,200 Sales volume in dollars = 18,000 + $1,440 = $97,200.20.20 Sales volume in dollars = 18,000 + $1,440 = $97,200 Sales volume in dollars = 18,000 + $1,440 = $97,200.20.20 Target Net Profit Target sales volume in dollars = Fixed expenses + target net income contribution margin ratio Target sales volume in dollars = Fixed expenses + target net income contribution margin ratio Contribution margin ratio Per Unit % Selling price100 Variable costs.80 Contribution margin.20 Contribution margin ratio Per Unit % Selling price100 Variable costs.80 Contribution margin.20

22. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 21 Operating Leverage Operating leverage: a firm’s ratio of fixed costs to variable costs. Margin of safety = planned unit sales – break-even sales How far can sales fall below the planned level before losses occur? Margin of safety = planned unit sales – break-even sales How far can sales fall below the planned level before losses occur? Highly leveraged firms have high fixed costs and low variable costs. A small change in sales volume = a large change in net income. Highly leveraged firms have high fixed costs and low variable costs. A small change in sales volume = a large change in net income. Low leveraged firms have lower fixed costs and higher variable costs. Changes in sales volume will have a smaller effect on net income. Low leveraged firms have lower fixed costs and higher variable costs. Changes in sales volume will have a smaller effect on net income.

23. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 22 Contribution Margin and Gross Margin Sales price – Cost of goods sold = Gross margin Sales price - all variable expenses = Contribution margin Per Unit Per Unit Selling price$1.50 Variable costs (acquisition cost) 1.20 Contribution margin and gross margin are equal$.30 gross margin are equal$.30 Learning Objective 6

24. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 23 Contribution Margin and Gross Margin Contribution Gross Contribution Gross Margin Margin Margin Margin Per Unit Per Unit Per Unit Per Unit Sales$1.50$1.50 Acquisition cost of unit sold1.20 1.20 Variable commission.12 Total variable expense $1.32 Contribution margin.18 Gross margin $.30 Contribution Gross Contribution Gross Margin Margin Margin Margin Per Unit Per Unit Per Unit Per Unit Sales$1.50$1.50 Acquisition cost of unit sold1.20 1.20 Variable commission.12 Total variable expense $1.32 Contribution margin.18 Gross margin $.30 Suppose the firm had to pay a commission of $.12 per unit sold.

25. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 24 Nonprofit Application Suppose a city has a $100,000 lump-sum budget appropriation to conduct a counseling program. Suppose a city has a $100,000 lump-sum budget appropriation to conduct a counseling program. Variable costs per prescription is $400 per patient per day. Variable costs per prescription is $400 per patient per day. Fixed costs are $60,000 in the relevant range of 50 to 150 patients. Fixed costs are $60,000 in the relevant range of 50 to 150 patients.

26. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 25 If the city spends the entire budget appropriation, how many patients can it serve in a year? If the city spends the entire budget appropriation, how many patients can it serve in a year? $100,000 = $400N + $60,000 $400N = $100,000 – $60,000 N = $40,000 ÷ $400 N = 100 patients $100,000 = $400N + $60,000 $400N = $100,000 – $60,000 N = $40,000 ÷ $400 N = 100 patients Nonprofit Application

27. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 26 Nonprofit Application If the city cuts the total budget Appropriation by 10%, how many Patients can it serve in a year? If the city cuts the total budget Appropriation by 10%, how many Patients can it serve in a year? $90,000 = $400N + $60,000 $400N = $90,000 – $60,000 N = $30,000 ÷ $400 N = 75 patients $90,000 = $400N + $60,000 $400N = $90,000 – $60,000 N = $30,000 ÷ $400 N = 75 patients Budget after 10% Cut $100,000 X (1 -.1) = $90,000 Budget after 10% Cut $100,000 X (1 -.1) = $90,000

28. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 27 Sales Mix Analysis Sales mix is the relative proportions or combinations of quantities of products that comprise total sales. Sales mix is the relative proportions or combinations of quantities of products that comprise total sales. Learning Objective 7

29. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 28 Sales Mix Analysis Ramos Company Example Sales in units 300,000 75,000 375,000 Sales @ $8 and $5 $2,400,000$375,000$2,775,000 Variable expenses @ $7 and $3 2,100,000 225,000 2,325,000 @ $7 and $3 2,100,000 225,000 2,325,000 Contribution margins @ $1 and $2$ 300,000$150,000$ 450,000 @ $1 and $2$ 300,000$150,000$ 450,000 Fixed expenses 180,000 Net income$ 270,000 Sales in units 300,000 75,000 375,000 Sales @ $8 and $5 $2,400,000$375,000$2,775,000 Variable expenses @ $7 and $3 2,100,000 225,000 2,325,000 @ $7 and $3 2,100,000 225,000 2,325,000 Contribution margins @ $1 and $2$ 300,000$150,000$ 450,000 @ $1 and $2$ 300,000$150,000$ 450,000 Fixed expenses 180,000 Net income$ 270,000 Wallets(W) Key Cases (K)Total

30. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 29 Sales Mix Analysis Break-even point for a constant sales mix of 4 units of W for every unit of K. sales – variable expenses - fixed expenses = zero net income [$8(4K) + $5(K)] – [$7(4K) + $3(K)] – $180,000 = 0 32K + 5K - 28K - 3K - 180,000 = 0 6K = 180,000 K = 30,000 W = 4K = 120,000 Break-even point for a constant sales mix of 4 units of W for every unit of K. sales – variable expenses - fixed expenses = zero net income [$8(4K) + $5(K)] – [$7(4K) + $3(K)] – $180,000 = 0 32K + 5K - 28K - 3K - 180,000 = 0 6K = 180,000 K = 30,000 W = 4K = 120,000 Let K = number of units of K to break even, and 4K = number of units of W to break even. Let K = number of units of K to break even, and 4K = number of units of W to break even.

31. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 30 Sales Mix Analysis If the company sells only key cases: break-even point = fixed expenses contribution margin per unit = $180,000 = $180,000 $2 $2 = 90,000 key cases = 90,000 key cases If the company sells only key cases: break-even point = fixed expenses contribution margin per unit = $180,000 = $180,000 $2 $2 = 90,000 key cases = 90,000 key cases If the company sells only wallets: break-even point = fixed expenses contribution margin per unit = $180,000 = $180,000 $1 $1 = 180,000 wallets = 180,000 wallets If the company sells only wallets: break-even point = fixed expenses contribution margin per unit = $180,000 = $180,000 $1 $1 = 180,000 wallets = 180,000 wallets

32. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 31 Sales Mix Analysis Suppose total sales were equal to the budget of 375,000 units. Suppose total sales were equal to the budget of 375,000 units. However, Ramos sold only 50,000 key cases And 325,000 wallets. What is net income? However, Ramos sold only 50,000 key cases And 325,000 wallets. What is net income?

33. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 32 Sales Mix Analysis Ramos Company Example Sales in units 325,000 50,000 375,000 Sales @ $8 and $5 $2,600,000 $250,000$2,850,000 Variable expenses @ $7 and $3 2,275,000 150,000 2,425,000 @ $7 and $3 2,275,000 150,000 2,425,000 Contribution margins @ $1 and $2 $ 325,000 $100,000$ 425,000 @ $1 and $2 $ 325,000 $100,000$ 425,000 Fixed expenses 180,000 Net income$ 245,000 Sales in units 325,000 50,000 375,000 Sales @ $8 and $5 $2,600,000 $250,000$2,850,000 Variable expenses @ $7 and $3 2,275,000 150,000 2,425,000 @ $7 and $3 2,275,000 150,000 2,425,000 Contribution margins @ $1 and $2 $ 325,000 $100,000$ 425,000 @ $1 and $2 $ 325,000 $100,000$ 425,000 Fixed expenses 180,000 Net income$ 245,000 Wallets(W) Key Cases (K)Total

34. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 33 Impact of Income Taxes Suppose that a company earns $480 before taxes and pays income tax at a rate of 40%. Suppose that a company earns $480 before taxes and pays income tax at a rate of 40%. What is the after-tax income? Learning Objective 8

35. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 34 Impact of Income Taxes Target income before taxes = Target after-tax net income 1 – tax rate 1 – tax rate Target income before taxes = $ 288 = $480 1 – 0.40 1 – 0.40 Suppose the target net income after taxes was $288.

36. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 35 Impact of Income Taxes Target sales – Variable expenses – Fixed expenses = Target after-tax net income ÷ (1 – tax rate) Target sales – Variable expenses – Fixed expenses = Target after-tax net income ÷ (1 – tax rate) $.50N – $.40N – $6,000 = $288 ÷ (1 – 0.40) $.10N = $6,000 + ($288/.6) $.06N = $3,600 + $288 = $3,888 N = $3,888/$.06 N = 64,800 units $.50N – $.40N – $6,000 = $288 ÷ (1 – 0.40) $.10N = $6,000 + ($288/.6) $.06N = $3,600 + $288 = $3,888 N = $3,888/$.06 N = 64,800 units

37. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 36 Impact of Income Taxes Suppose target net income after taxes was $480 $.50N – $.40N – $6,000 = $480 ÷ (1 – 0.40) $.10N = $6,000 + ($480/.6) $.06N = $3,600 + $480 = $4080 N = $4,080 ÷ $.06 N = 68,000 units $.50N – $.40N – $6,000 = $480 ÷ (1 – 0.40) $.10N = $6,000 + ($480/.6) $.06N = $3,600 + $480 = $4080 N = $4,080 ÷ $.06 N = 68,000 units

38. ©2008 Prentice Hall Business Publishing, Introduction to Management Accounting 14/e, Horngren/Sundem/Stratton/Schatzberg/Burgstahler 2 - 37 End of Chapter 2 The End