Download Week three homework and more Exercises Accounting in PDF only on Docsity!
EXERCISE 5-1 Preparing a Contribution Format Income Statement Whirly Corporation’s most recent income statement is shown below: Total Per Unit Sales (10,000 units) $350,000 $35. Variable expenses 200,000 20. Contribution margin 150,000 15. Fixed expenses 135, Net operating income $ 15,
Required: Prepare a new contribution format income statement under each of the following conditions (consider each case independently:
- The sales volume increases by 100 units. Total Per Unit Sales (10,100 units) $353,500 $35. Variable expenses 202,000 20. Contribution margin 151,000 15. Fixed expenses 135, Net operating income $ 16,
- The sales volume decreases by 100 units. Total Per Unit Sales (9,900 units) $346,500 $35. Variable expenses 198,000 20. Contribution margin 148,500 15. Fixed expenses 135, Net operating income $ 13,
- The sales volume is 9,000 units. Total Per Unit Sales (19,000 units) $665,000 $35. Variable expenses 380,000 20. Contribution margin 285,000 15. Fixed expenses 135, Net operating income $150,
EXERCISE 5-6 Compute the Break-Even Point Mauro Products distributes a single product, a woven basket whose selling price is $15 and whose variable expense is $ per unit. The company’s monthly fixed expense is $4, Required:
- Solve for the company’s break-even point in unit sales using the equation method. Sales = Selling price per unit x quantity sold = P x Q Variable expenses = variable expenses per unit x Quantity sold = V x Q Unit CM x Q – Fixed expense 15Q = 12Q + 4200 3Q = 4200 Break-Even Units = Q = 1400 units
- Solve for the company’s break-even point in dollar sales using the equation method and the CM ratio. CM ratio = unit contribution margin/unit selling price CM ratio = 3/15 =. Dollar sales to break even = fixed expenses/CM ratio Dollar sales to break even = 4,200/.2 = 21,
- Solve for the company’s break-even point in unit sales using the formula method. Units sales to break even = Fixed expenses / 1 – (Variable cost / Sales) 4,200/1- (16,800/21,000) Unit sales = 21,
- Solve for the company’s break-even point in dollar sales using the formula method and the CM ratio. Break Even Sales in Dollars = [Fixed Cost / 1 – (Variable Cost / Sales)] CM ratio = Unit contribution margin/Unit selling price 3/15= .2 = 20% Break Even Sales in Dollars ($) = $4,200 / 1 - (12/15) = $4,200 / 0.2 = $21,
EXERCISE 5-11 Missing Data; Basic CVP Concepts Fill in the missing amounts in each of the eight case situations below. Each case is independent of the others. (Hint: One way to find the missing amounts would be to prepare a contribution format income statement for each case, enter the known data, and then compute the missing items.) a. Assume that only one product is being sold in each of the four following case situations: Contribution Net Operating Units Variable Margin Fixed Income Case Sold Sales Expenses per Unit Expenses (Loss) 1 15,000 $180,000 $120,000 $4 50,000 10, 2 10,000 $100,000 10,000 $10 $32,000$8, 3 10,000 200,000$70,000$13 $118,000 $12, 4 6,000 $300,000 $210,000 $14 $100,000 $(10,000)
Case 1 Total Per Unit Sales (15,000) 180,000 12 Variable expenses 120,000 8 Contribution 60,000 4 Fixed expense 50, Net operating income (loss) 10,
Case 2 Total Per Unit Sales (4,000) 100,000 25 Variable expenses 60,000 15 Contribution 40,000 10 Fixed expense 32, Net operating income (loss) 8,
Case 3 Total Per Unit
Sales (10,000) 200,000 20 Variable expenses 70,000 7 Contribution 130,000 13 Fixed expense 118, Net operating income (loss) 12, Case 4 Total Per Unit Sales (6,000) 300,000 50
Sales (0) 600, Variable expenses 420, Contribution 0 Fixed expense 185, Net operating income (loss) (5,000) Contribution Margin 30%
Chapter 6 6- Ida Sidha Karya Company is a family-owned company located in the village of Gianyar on the island of Bali in Indonesia. The company produces a handcrafted Balinese musical instrument called a gamelan that is similar to a xylophone. The gamelans are sold for $850. Selected dates for the company’s operations last year follow:
Units in beginning inventory.......................................................................................................................... Units produced........................................................................................................................................... 250 Units sold................................................................................................................................................... 225 Units in ending inventory............................................................................................................................. 25 Variable costs per unit: Direct materials........................................................................................................................................ $ Direct labor.............................................................................................................................................. $ Variable manufacturing overheard............................................................................................................. $ Variable selling and administrative............................................................................................................$ Fixed costs: Fixed manufacturing overhead............................................................................................................$60, Fixed selling and administrative......................................................................................................... $20,
Required:
- Assume that the company used absorption costing. Compute the unit product cost for one gamelan. Direct materials........................................................................................................................................ $ Direct labor.............................................................................................................................................. $ Variable manufacturing overhead............................................................................................................ $ 40 Fixed manufacturing overhead ($60,000/250) ........................................................................................$ Absorption costing unit product cost....................................................................................................... $
- Assume that the company used variable costing. Compute the unit product cost for one gamelan. Direct materials........................................................................................................................................ $ Direct labor.............................................................................................................................................. $ Variable manufacturing overhead............................................................................................................ $ 40 Absorption costing unit product cost....................................................................................................... $
Wingate Company, a wholesale distributor of electronic equipment, has been experiencing losses for some time, as shown by its most recent monthly contribution format income statement, which follows: Sales.................................................................$1,000, Variable expenses................................................. 390, Contribution margin............................................. 610, Fixed expenses......................................................625, Net operating income (loss)............................. $ (15,000)
Division East Central West Sales........................................... 250,000 400,000350, Variable expenses as % of sales...... 52 % 30% 40% Traceable fixed expense............. 160,000 200,000175,
Required:
- Prepare a contribution format income statement segmented by divisions, as desired by the president.
Division Total
Company
East Central West
Sales 1,000,000 250,000 400,000 350, Variable expenses 390,000 130,000 120,000 140, Contribution margin 610,000 120,000 280,000 210, Traceable fixed margin 535,000 160,000 200,000 175, Segment margin 75,000 (40,000) 80,000 35, Common fixed expenses (625,000-535,000)
Net operating income (loss) (15,000)
- As a result of a marketing study, the president believes that sales in the West Division could be increased by 20% if the monthly advertising in that division were increased by $15,000. Would you recommend the increased advertising? Show computations to support your answer.
Sales Increase
350,0000 x.
Contribution Margin Ratio
210,000/350,
Increase Contribution Margin
70,000 x.
Advertising Expense 15,
Increased Segment Margin 27,
I would recommend the increased advertising because the net segment margin is profitable.
6- Chuck Wagon Grills, Inc., makes a single product—a handmade specialty barbecue grill that it sells for $210. Data for last year’s operations follow: Units in beginning inventory........................................................ 0 Units produced.....................................................................20, Units sold.............................................................................19, Units in ending inventory...................................................... 1,
Variable cost per unit: Direct materials.........................................................................$ Direct labor................................................................................. 80 Variable manufacturing overhead............................................... 20 Variable selling and administrative............................................. Total variable cost per unit..................................................... $
Fixed costs:
