# > DO IT! Chapter 6. CVP Income Statement D-1. Solution. Action Plan

Save this PDF as:

Size: px
Start display at page:

Download "> DO IT! Chapter 6. CVP Income Statement D-1. Solution. Action Plan"

## Transcription

1 Chapter 6 CVP Income Statement Use the CVP income statement format. Use the formula for contribution margin per unit. Use the formula for the contribution margin ratio. Garner Inc. sold 20,000 units and recorded sales of \$800,000 for the first quarter of In making the sales, the company incurred the following costs and expenses. Variable Fixed Cost of goods sold \$250,000 \$110,000 Selling expenses 100,000 25,000 Administrative expenses 82,000 73,000 (a) Prepare a CVP income statement for the quarter ended March 31, (b) Compute the contribution margin per unit. (c) Compute the contribution margin ratio. (a) Garner Inc. Income Statement For the Quarter Ended March 31, 2014 Sales (20,000 units) \$800,000 Variable expenses Cost of goods sold \$250,000 Selling expenses 100,000 Administrative expenses 82,000 Total variable expenses 432,000 Contribution margin 368,000 Fixed expenses Cost of goods sold 110,000 Selling expenses 25,000 Administrative expenses 73,000 Total fixed expenses 208,000 Net income \$160,000 (b) Contribution margin per unit: \$368, ,000 units 5 \$18.40 per unit. (c) Contribution margin ratio: \$368,000 4 \$800, % (or \$ \$ %). Related exercise material: BE6-1, BE6-2, and DO IT! 6-1. D-1

2 D-2 DO IT! CVP Analysis Krisanne Company reports the following operating results for the month of June. Krisanne Company CVP Income Statement For the Month Ended June 30, 2014 Total Per Unit Sales (5,000 units) \$300,000 \$60 Variable costs 180, Contribution margin 120,000 \$24 Fixed expenses 100,000 Net income \$ 20,000 To increase net income, management is considering reducing the selling price by 10%, with no changes to unit variable costs or fixed costs. Management is confident that this change will increase unit sales by 25%. Using the contribution margin technique, compute the break-even point in units and dollars and margin of safety in dollars (a) assuming no changes to sales price or costs, and (b) assuming changes to sales price and volume as described above. (c) Comment on your findings. the break-even point in units. the break-even point in dollars. the margin of safety in dollars. (a) Assuming no changes to sales price or costs: Break-even point in units 5 4,167 units (rounded) (\$100,000 4 \$24). Break-even point in sales dollars 5 \$250,000 (\$100, a ). Margin of safety in dollars 5 \$50,000 (\$300,000 2 \$250,000). a \$24 4 \$60. (b) Assuming changes to sales price and volume: Break-even point in units 5 5,556 units (rounded) (\$100,000 4 \$18 b ). Break-even point in sales dollars 5 \$300,000 (\$100,000 4 (\$18 4 \$54)). Margin of safety in dollars 5 \$37,500 (\$337,500 c 2 \$300,000). b \$60 2 (.10 3 \$60) \$18. c 5,000 1 ( ,000) 5 6,250 units, 6,250 units 3 \$54 5 \$337,500. (c) The increase in the break-even point and the decrease in the margin of safety indicate that management should not implement the proposed change. The increase in sales volume will result in contribution margin of \$112,500 (6,250 3 \$18), which is \$7,500 less than the current amount. Related exercise material: BE6-3, BE6-4, BE6-5, BE6-6, E6-1, E6-2, E6-3, E6-4, E6-5, and DO IT! 6-2.

3 DO IT! D-3 Sales Mix Break-Even The sales mix is the relative percentage of each product sold in units. The weighted-average unit contribution margin is the sum of the per unit contribution margins multiplied by the respective sales mix percentage. Determine the breakeven point in units by dividing the fixed costs by the weightedaverage unit contribution margin. Determine the number of units of each model to produce by multiplying the total breakeven units by the respective sales mix percentage for each product. Manzeck Bicycles International produces and sells three different types of mountain bikes. Information regarding the three models is shown below. Pro Intermediate Standard Total Units sold 5,000 10,000 25,000 40,000 Selling price \$800 \$500 \$350 Variable costs \$500 \$300 \$250 The company s total fixed costs to produce the bicycles are \$7,500,000. (a) Determine the sales mix as a function of units sold for the three products. (b) Determine the weighted-average unit contribution margin. (c) Determine the total number of units that the company must produce to break even. (d) Determine the number of units of each model that the company must produce to break even. (a) The sales mix percentages as a function of units sold are: Pro Intermediate Standard 5,000/40, % 10,000/40, % 25,000/40, % (b) The weighted-average unit contribution margin is: [ (\$800 2 \$500)] 1 [.25 3 (\$500 2 \$300)] 1 [ (\$350 2 \$250)] 5 \$150 (c) The break-even point in units is: \$7,500,000 4 \$ ,000 units (d) The break-even units to produce for each product are: Pro: 50,000 units % 5 6,250 units Intermediate: 50,000 units 3 25% 5 12,500 units Standard: 50,000 units % 5 31,250 units 50,000 units Related exercise material: BE6-7, BE6-8, BE6-9, BE6-10, E6-6, E6-7, E6-8, E6-9, E6-10, and DO IT! 6-3.

4 D-4 DO IT! Sales Mix with Limited Resources Calculate the contribution margin per unit of limited resource for each product. the contribution margin per unit of limited resource. To maximize net income, shift sales mix to the product with the highest contribution margin per unit of limited resource. Carolina Corporation manufactures and sells three different types of high-quality sealed ball bearings. The bearings vary in terms of their quality specifications primarily with respect to their smoothness and roundness. They are referred to as Fine, Extra-Fine, and Super-Fine bearings. Machine time is limited. More machine time is required to manufacture the Extra-Fine and Super-Fine bearings. Additional information is provided below. Product Fine Extra-Fine Super-Fine Selling price \$6.00 \$10.00 \$16.00 Variable costs and expenses Contribution margin \$2.00 \$ 3.50 \$ 5.00 Machine hours required (a) Ignoring the machine time constraint, what strategy would appear optimal? (b) What is the contribution margin per unit of limited resource for each type of bearing? (c) If additional machine time could be obtained, how should the additional capacity be used? (a) The Super-Fine bearings have the highest contribution margin per unit. Thus, ignoring any manufacturing constraints, it would appear that the company should shift toward production of more Super-Fine units. (b) The contribution margin per unit of limited resource (machine hours) is calculated as: Fine Extra-Fine Super-Fine Contribution margin per unit \$2 \$3.5 \$5 Limited resource consumed per unit.02 5 \$ \$ \$62.50 (c) The Fine bearings have the highest contribution margin per unit of limited resource even though they have the lowest contribution margin per unit. Given the resource constraint, any additional capacity should be used to make Fine bearings. Related exercise material: BE6-11, E6-11, E6-12, E6-13, and DO IT! 6-4.

5 DO IT! D-5 Variable Costing Recall that under variable costing, only variable manufacturing costs are treated as manufacturing (product) costs. Subtract all fixed costs, both manufacturing overhead and selling and administrative expenses, as period costs. Franklin Company produces and sells tennis balls. The following costs are available for the year ended December 31, The company has no beginning inventory. In 2014, 8,000,000 units were produced, but only 7,500,000 units were sold. The unit selling price was \$0.50 per ball. Costs and expenses were: Variable costs per unit Direct materials \$0.10 Direct labor 0.05 Variable manufacturing overhead 0.08 Variable selling and administrative expenses 0.02 Annual fixed costs and expenses Manufacturing overhead \$500,000 Selling and administrative expenses 100,000 (a) Compute the manufacturing cost of one unit of product using variable costing. (b) Prepare a 2014 income statement for Franklin Company using variable costing. (a) The cost of one unit of product under variable costing would be: Direct materials \$0.10 Direct labor 0.05 Variable manufacturing overhead 0.08 \$0.23 (b) The variable costing income statement would be as follows. Franklin Company Income Statement For the Year Ended December 31, 2014 Variable Costing Sales (7,500,000 3 \$0.50) \$3,750,000 Variable cost of goods sold (7,500,000 3 \$0.23) \$1,725,000 Variable selling and administrative expenses (7,500, ) 150,000 1,875,000 Contribution margin 1,875,000 Fixed manufacturing overhead 500,000 Fixed selling and administrative expenses 100, ,000 Net income \$1,275,000 Related exercise material: BE6-16, BE6-17, BE6-18, BE6-19, E6-17, E6-18, and E6-19.

6 D-6 DO IT! > Comprehensive DO IT! Francis Corporation manufactures and sells three different types of water-sport wakeboards. The boards vary in terms of their quality specifications primarily with respect to their smoothness and finish. They are referred to as Smooth, Extra-Smooth, and Super- Smooth boards. Machine time is limited. More machine time is required to manufacture the Extra-Smooth and Super-Smooth boards. Additional information is provided below. To determine how best to use a limited resource, calculate the contribution margin per unit of limited resource for each product type. Product Smooth Extra-Smooth Super-Smooth Selling price \$60 \$100 \$160 Variable costs and expenses Contribution margin \$10 \$ 25 \$ 30 Machine hours required Total fixed costs: \$234,000 Instructions Answer each of the following questions. (a) Ignoring the machine time constraint, what strategy would appear optimal? (b) What is the contribution margin per unit of limited resource for each type of board? (c) If additional machine time could be obtained, how should the additional capacity be used? to Comprehensive DO IT! (a) The Super-Smooth boards have the highest contribution margin per unit. Thus, ignoring any manufacturing constraints, it would appear that the company should shift toward production of more Super-Smooth units. (b) The contribution margin per unit of limited resource is calculated as: Extra- Super- Smooth Smooth Smooth Contribution margin per unit \$10 5 \$40 \$25 5 \$62.50 \$30 5 \$50 Limited resource consumed per unit (c) The Extra-Smooth boards have the highest contribution margin per unit of limited resource. Given the resource constraint, any additional capacity should be used to make Extra-Smooth boards. REVIEW Prepare CVP income statement and compute contribution margin. (LO 1), AP DO IT! 6-1 Amanda Inc. sold 10,000 units and recorded sales of \$400,000 for the first month of In making the sales, the company incurred the following costs and expenses. Variable Fixed Cost of goods sold \$184,000 \$70,000 Selling expenses 40,000 30,000 Administrative expenses 16,000 50,000 (a) Prepare a CVP income statement for the month ended January 31, (b) Compute the contribution margin per unit. (c) Compute the contribution margin ratio.

7 DO IT! D-7 DO IT! 6-2 of April. Queensland Company reports the following operating results for the month Queensland Company CVP Income Statement For the Month Ended April 30, 2014 Total Per Unit Sales (9,000 units) \$450,000 \$50 Variable costs 270, Contribution margin 180,000 \$20 Fixed expenses 150,000 Net income \$ 30,000 Compute the break-even point and margin of safety under different alternatives. (LO 2), AP Management is considering the following course of action to increase net income: Reduce the selling price by 4%, with no changes to unit variable costs or fixed costs. Management is confident that this change will increase unit sales by 20%. Using the contribution margin technique, compute the break-even point in units and dollars and margin of safety in dollars: (a) Assuming no changes to selling price or costs, and (b) Assuming changes to sales price and volume as described above. Comment on your findings. DO IT! 6-3 Snow Cap Springs produces and sells water filtration systems for homeowners. Information regarding its three models is shown below. Basic Basic Plus Premium Total Units sold ,500 Selling price \$250 \$400 \$800 Variable costs \$195 \$288 \$416 The company s total fixed costs to produce the filtration systems are \$165,480. (a) Determine the sales mix as a function of units sold for the three products. (b) Determine the weighted-average unit contribution margin. (c) Determine the total number of units that the company must produce to break even. (d) Determine the number of units of each model that the company must produce to break even. DO IT! 6-4 Eye Spy Corporation manufactures and sells three different types of binoculars. They are referred to as Good, Better, and Best binoculars. Grinding and polishing time is limited. More time is required to grind and polish the lenses used in the Better and Best binoculars. Additional information is provided below. Product Good Better Best Selling price \$90.00 \$ \$ Variable costs and expenses Contribution margin \$40.00 \$ \$ Grinding and polishing time required 0.5 hrs 1.5 hrs 6 hrs Compute sales mix, weightedaverage contribution margin, and break-even point. (LO 3), AP Determine sales mix with limited resources. (LO 4), AP (a) Ignoring the time constraint, what strategy would appear to be optimal? (b) What is the contribution margin per unit of limited resource for each type of binoculars? (c) If additional grinding and polishing time could be obtained, how should the additional capacity be used?

### Identify how changes in volume affect costs

Chapter 18 Identify how changes in volume affect Total variable change in direct proportion to changes in the volume of activity Unit variable cost remains constant Units produced 3 5 Total direct materials

### Cost-Volume-Profit Analysis

Cost-Volume-Profit Analysis Cost-volume-profit (CVP) analysis is used to determine how changes in costs and volume affect a company's operating income and net income. In performing this analysis, there

### Chapter 22: Cost-Volume-Profit

Chapter 22: Cost-Volume-Profit DO IT! 1 Types of Costs Helena Company reports the following total costs at two levels of production. 10,000 Units 20,000 Units Direct materials \$20,000 \$40,000 Maintenance

### 1. Which one of the following is the format of a CVP income statement? A. Sales Variable costs = Fixed costs + Net income.

1. Which one of the following is the format of a CVP income statement? A. Sales Variable costs = Fixed costs + Net income. B. Sales Fixed costs Variable costs Operating expenses = Net income. C. Sales

### COST-VOLUME-PROFIT RELATIONSHIPS

TM 5-1 COST-VOLUME-PROFIT RELATIONSHIPS Cost-volume-profit (CVP) analysis is concerned with the effects on net operating income of: Selling prices. Sales volume. Unit variable costs. Total fixed costs.

### The variable cost for each component are \$ 2,000 The components are sold for \$ The company sold during the prior year Ignore income taxes

Hilton Ex 8-26, 320-321 Air safety systems manufactures component used in radar safety systems The firms fixed costs are \$ 4,000,000 per year The variable cost for each component are \$ 2,000 The components

### Quiz Chapter 7 - Solution

Quiz Chapter 7 - Solution 1. In an income statement prepared as an internal report using the variable costing method, variable selling and administrative expenses would: A) not be used. B) be treated the

### SOLUTIONS TO BRIEF EXERCISES

SOLUTIONS TO BRIEF EERCISES BRIEF EERCISE 6-1 1. \$80 = (\$250 \$170) 32% (\$80 \$250) 2. (c) \$300 = (\$500 \$200) (d) 40% (\$200 \$500) 3. (e) \$1,000 = (\$300 30%) (f) \$700 (\$1,000 \$300) BRIEF EERCISE 6-2 PESAVENTO

### Chapter 19 (4) Cost Behavior and Cost-Volume-Profit Analysis Study Guide Solutions Fill-in-the-Blank Equations

Chapter 19 (4) Cost Behavior and Cost-Volume-Profit Analysis Study Guide Solutions Fill-in-the-Blank Equations 1. Variable cost per unit 2. Fixed cost 3. Variable costs 4. Contribution margin 5. Change

Chapter 6 Cost-Volume-Profit Analysis: Additional Issues Feature Story Rapid Replay Intel doesn t do things half-way. If you own a PC, then there is a roughly 85% chance that the microprocessor chip that

### Chapter. Cost-Volume-Profit Relationships

Chapter 6 Cost-Volume-Profit Relationships 6-2 LEARNING OBJECTIVES After studying this chapter, you should be able to: 1. Explain how changes in activity affect contribution margin. 2. Compute the contribution

### Chapter 6. Chapter 6-1. Basics of Cost-Volume-Profit Analysis. Basics of Cost-Volume-Profit Analysis. Cost-Volume-Profit Relationships

Chapter 6-1 Chapter 6 Cost-Volume-Profit Relationships McGraw-Hill /Irwin The McGraw-Hill Companies, Inc., 2007 Basics of Cost-Volume-Profit Analysis Contribution Margin (CM) is the amount remaining from

### ACG 3024 Accounting for Non-Financial Majors Homework Portfolio Study Guide

ACG 3024 Accounting for Non-Financial Majors Homework Portfolio Study Guide These are similar questions with the answers to help guide you when preparing the Homework Portfolio that you will upload to

6-1 Cost-Volume-Profit Analysis: Additional Issues 6-2 Managerial Accounting Fifth Edition Weygandt Kimmel Kieso study objectives 1. Describe the essential features of a cost-volume-profit income statement.

### Limited factor and break-even analysis

Chapter 7 Limited factor and break-even analysis Syllabus Content D - Marginal costing and decision-making 15% Contribution concept. Limiting factor analysis. Break-even charts, profit/volume graphs, break-even

### Answers for Weekly Challenge 2

Answers for Weekly Challenge 2 Challenge 1 (i) The key to calculating the breakeven point is to determine the contribution per unit. Contribution point = \$120 (\$22 + \$36 + \$14) = \$48 Fixed overhead Breakeven

### C 6 - ACRONYMS notesc6.doc Instructor s Supplemental Information Written by Professor Gregory M. Burbage, MBA, CPA, CMA, CFM

C 6 - ACRONYMS notesc6.doc Instructor s Supplemental Information ACRONYMS (ABBREVIATIONS) FOR USE WITH MANAGERIAL ACCOUNTING RELATING TO COST-VOLUME-PROFIT ANALYSIS. CM Contribution Margin in total dollars

### Helena Company reports the following total costs at two levels of production.

Chapter 22 Helena Company reports the following total costs at two levels of production. 10,000 Units 20,000 Units Direct materials \$20,000 \$40,000 Maintenance 8,000 10,000 Direct labor 17,000 34,000 Indirect

Pricing Your Work (Overhead Recovery Review) To accurately price your work, you need to be aware of three main factors: 1. The Estimate these costs are the direct costs of labor, equipment, materials,

### CHAPTER 22 COST-VOLUME-PROFIT ANALYSIS

CHAPTER 22 COST-VOLUME-PROFIT ANALYSIS Related Assignment Materials Student Learning Objectives Conceptual objectives: C1. Describe different types of cost behavior in relation to production and sales

### Lanen 3e, Chapter 17 Additional Topics in Variance Analysis

Lanen 3e, Chapter 17 Additional Topics in Variance Analysis Learning Objectives 1. Explain how to prorate s to inventories and cost of goods sold. 2. Use market share s to evaluate marketing performance.

### Fixed costs. Contribution margin ratio

SOLUTIONS TO EXERCISES EXERCISE 3-1 (20 minutes) 1. Fixed costs B E point in units = Contribution margin per unit \$180,000 \$180,000 = = = 7,500 units \$40 - \$16 \$24 B E point in sales dollars = Fixed costs

### UNIT2:- Session 1-3 :- Cost analysis for planning and decision making :-

UNIT2:- Session 1-3 :- Cost analysis for planning and decision making :- * Cost classification and approach :- A- Marginal costing :- - variable and fixed. - Variable cost is charged to the product unit.

### Prepare, Apply, and Confirm

Prepare, Apply, and Confirm etext Features Keep students engaged in learning on their own time, while helping them achieve greater conceptual understanding of course material through author-created solutions

### Managerial Accounting Prof. Dr. Vardaraj Bapat Department of School of Management Indian Institute of Technology, Bombay

Managerial Accounting Prof. Dr. Vardaraj Bapat Department of School of Management Indian Institute of Technology, Bombay Lecture - 26 Cost Volume Profit Analysis Dear participations in our early session,

### BUDGETING. Part 1 of 3. How to use an Excel-based budget to analyze company performance. By Jason Porter and Teresa Stephenson, CMA

Part 1 of 3 Turning Budgets How to use an Excel-based budget to analyze company performance By Jason Porter and Teresa Stephenson, CMA 34 STRATEGIC FINANCE I July 2011 into Business ILLUSTRATION: ROBERT

### Study Unit 8. CVP Analysis and Marginal Analysis

Study Unit 8 CVP Analysis and Marginal Analysis SU- 8.1 Cost-Volume-Profit (CVP) Analysis - Theory CVP = Break-even analysis Allows us to analyze the relationship between revenue and fixed and variable

### Standard Costing. Standard Costing and Variance Analysis

Standard Costing Standard Costing and Variance Analysis Standard Costing OBJECTIVE 1: Define standard costs, and explain how standard costs are developed, and compute a standard unit cost. Standard Costing

### Module 12 : Cost Volume Profit Analysis. Lecture 1 : Cost Volume Profit Analysis

Module 12 : Cost Volume Profit Analysis Lecture 1 : Cost Volume Profit Analysis Objectives In this lecture you will learn the following Cost Volume Profit (CVP) Introduction. Fixed costs. Variable costs.

### CHAPTER II LITE RATURE STUDY

CHAPTER II LITE RATURE STUDY 2.1. Cost Terminology Based on Charles T.Horngren (2009: 53), cost is a resource sacrificed or forgone to achieve a specific objective. A cost is usually measured as the monetary

### Dr. M.D. Chase Accounting 310 Examination 3 Garrison/Noreen 10 th Spring 2003

Exam No: Dr. M.D. Chase Accounting 310 Examination 3 Garrison/Noreen 10 th Spring 2003 Business ethics are the cornerstone of a successful free enterprise economy. Personal ethics are the foundation for

### Accounting Building Business Skills. Learning Objectives: Learning Objectives: Paul D. Kimmel. Chapter Fourteen: Cost-volume-profit Relationships

Accounting Building Business Skills Paul D. Kimmel Chapter Fourteen: Cost-volume-profit Relationships PowerPoint presentation by Kate Wynn-Williams University of Otago, Dunedin 2003 John Wiley & Sons Australia,

### MANAGERIAL ACCOUNTING PROJECT

MANAGERIAL ACCOUNTING PROJECT From: MR. HORTENSI 305-237-5143 jose.hortensi@mdc.edu I am available to help you, make sure you let me know if you need help. To: MANAGERIAL ACCOUNTING STUDENTS. This project

### Assumptions of CVP Analysis. Objective 1: Contribution Margin Income Statement. Assumptions of CVP Analysis. Contribution Margin Example

Assumptions of CVP Analysis Cost-Volume-Profit Analysis Expenses can be classified as either variable or fixed. CVP relationships are linear over a wide range of production and sales. Sales prices, unit

### ACG 2071 Midterm 2 Review Problems & Solutions

ACG 2071 Midterm 2 Review Problems & Solutions 5-1. On July 1, JKL Corporation s packaging department had Work in Process inventory of 6,000 units that were 75% complete with respect to materials and 30%

### Beginning Balance Ending Balance Raw materials... \$22,000 \$25,000 Work in process... \$52,000 \$34,000 Finished goods...

Baba Company is a manufacturing firm that uses job-order costing. The company's inventory balances were as follows at the beginning and end of the year: Beginning Balance Ending Balance Raw materials...

### MANAGERIAL ACCOUNTING 7e Al L. Hartgraves Wayne J. Morse

MANAGERIAL ACCOUNTING 7e Al L. Hartgraves Wayne J. Morse Learning Objective 1 CHAPTER 3 Cost Volume Profit Analysis and Planning Identify the uses and limitations of traditional cost volume profit analysis.

### Fill-in-the-Blank Equations. Exercises

Chapter 20 (5) Variable Costing for Management Analysis Study Guide Solutions 1. Variable cost of goods sold 2. Manufacturing margin 3. Income from operations 4. Contribution margin ratio Fill-in-the-Blank

### Chapter 6 Cost-Volume-Profit Relationships

Chapter 6 Cost-Volume-Profit Relationships Solutions to Questions 6-1 The contribution margin (CM) ratio is the ratio of the total contribution margin to total sales revenue. It can be used in a variety

### Cost-Volume-Profit Analysis

HOSP 2110 (Management Acct) Learning Centre Cost-Volume-Profit Analysis The basic principles of CVP analysis were covered in business math. CVP analysis can be done both graphically, through plotting the

### Cost Behavior and Cost-Volume-Profit Analysis QUESTIONS

Chapter 18 Cost Behavior and Cost-Volume-Profit Analysis QUESTIONS 1. A variable cost is one that varies proportionately with the volume of activity. For example, direct materials and direct labor (when

### 1. Austin Manufacturing had the following operating data for the year just ended.

1. Austin Manufacturing had the following operating data for the year just ended. Selling price per unit \$60 per unit Variable expense per unit \$22 per unit Fixed expense \$504,000 Management plans to improve

### Part Five. Cost Volume Profit Analysis

Part Five Cost Volume Profit Analysis COST VOLUME PROFIT ANALYSIS Study of the effects of changes of costs and volume on a company s profits A critical factor in management decisions Important in profit

### Exercises: Set B. Exercises: Set B 1

Exercises: Set B 1 Exercises: Set B E19-1B The Do Drop Inn is trying to determine its break-even point. The inn has 75 rooms that are rented at \$50 a night. Operating costs are as follows. Salaries Utilities

### Job Number A23 C76 G15 Direct labor (\$8/hour) \$24,000? \$8,800 Direct materials \$42,000 \$61,000? Overhead applied? \$24,750 \$6,050.

4-33 Dollars Company uses a job costing system that applies factory overhead on the basis of direct labor. No job was in process on February 1. During the month of February, the company worked on these

### 2. Cost-Volume-Profit Analysis

Cost-Volume-Profit Analysis Page 1 2. Cost-Volume-Profit Analysis Now that we have discussed a company s cost function, learned how to identify its fixed and variable costs. We will now discuss a manner

### Problems for CFA Level I

Problems for CFA Level I Analysis of Inventories 1. Assume that purchases and unit costs throughout the year were as in Table 1. Inventory at beginning of Quarter I: 400 units at \$20 per unit = \$8,000.

### Standard Costing. CA Final Course Paper 5 Advanced Management Accounting Chapter 5 Part 1 Arijit Chakraborty, FCA

Standard Costing CA Final Course Paper 5 Advanced Management Accounting Chapter 5 Part 1 Arijit Chakraborty, FCA 2 Learning Objectives 1. Understand the concept and purpose of Standard Costing & Variance

### BA213 Review for test # 2 Key

BA213 Review for test # 2 Key 1. Contribution margin can be defined as: a. the amount of sales revenue necessary to cover variable expenses. b. sales revenue minus fixed expenses. c. the amount of sales

### Course Title: Cost Accounting for Decision Making

Course Title: Cost Accounting for Decision Making Professional Development Programme on Enriching Knowledge of the Business, Accounting and Financial Studies (BAFS) Curriculum 1 Learning

### Solutions to Homework Problems for Basic Cost Behavior by David Albrecht

Solutions to Homework Problems for Basic Cost Behavior by David Albrecht Solution to Problem #11 This problem focuses on being able to work with both total cost and average per unit cost. As a brief review,

### Quantitative Marketing Analysis

Quantitative Marketing Analysis CLASS 2 09.16.13 Revenue (sales) Income Statement Sections 5 Expenses Cost of goods sold (FC and VC) Operating expenses (generally FC) Profit 1 EXHIBIT 2.4: PRO FORMA INCOME

### Variable Costs. Breakeven Analysis. Examples of Variable Costs. Variable Costs. Mixed

Breakeven Analysis Variable Vary directly in proportion to activity: Example: if sales increase by 5%, then the Variable will increase by 5% Remain the same, regardless of the activity level Mixed Combines

### Direct Manufacturing Labor \$10 per hour

Supplementary Problem #8: Budget Mechanics A budget is a quantitative expression for a set time period of a plan of action by management. The master budget is a comprehensive, organizationwide set of budgets

### Cost VOLUME RELATIONS & BREAK EVEN ANALYSIS

1. Introduction The cost volume profit (CVP) analysis helps management in finding out the relationship of costs and revenues to profit. Cost depends on various factors like Volume of production Product

### Exercises. Differential Analysis Sell (Alt. 1) or Lease (Alt. 2)

Chapter 24 and Product Pricing Study Guide Solutions Fill-in-the-Blank Equations 1. Differential revenue 2. Differential costs 3. Differential income (Loss) 4. Markup per unit 5. Estimated units produced

### Chapter 6: Break-Even & CVP Analysis

HOSP 1107 (Business Math) Learning Centre Chapter 6: Break-Even & CVP Analysis One of the main concerns in running a business is achieving a desired level of profitability. Cost-volume profit analysis

### Summary. Chapter Five. Cost Volume Relations & Break Even Analysis

Summary Chapter Five Cost Volume Relations & Break Even Analysis 1. Introduction : The main aim of an undertaking is to earn profit. The cost volume profit (CVP) analysis helps management in finding out

19 Cost-Volume-Profit Analysis Learning Objectives 1 Identify how changes in volume affect costs 2 Use CVP analysis to compute breakeven points 3 Use CVP analysis for profit planning, and graph the CVP

### Multiple Choice Questions (45%)

Multiple Choice Questions (45%) Choose the Correct Answer 1. The following information was taken from XYZ Company s accounting records for the year ended December 31, 2014: Increase in raw materials inventory

BREAK-EVEN ANALYSIS In your business planning, have you asked questions like these? How much do I have to sell to reach my profit goal? How will a change in my fixed costs affect net income? How much do

### Cost-Volume-Profit Analysis

Chapter 6 Notes Page 1 Cost-Volume-Profit Analysis Understanding the relationship between a firm s costs, profits and its volume levels is very important for strategic planning. When you are considering

### Month Cash Sales Credit Sales September 100,000 200,000 October 125,000 180,000 November 130,000 210,000 December 135,000 190,000

1. A company that desires to lower its break-even point should strive to: A. decrease selling prices B. reduce variable costs C. increase fixed costs D. sell more units E. pursue more than one of the above

### Accounting 2910, Summer 2002 Practice Exam 4. 1. The cost of materials entering directly into the manufacturing process is classified as:

Accounting 2910, Summer 2002 Practice Exam 4 1. The cost of materials entering directly into the manufacturing process is classified as: a. direct labor cost b. factory overhead cost c. burden cost d.

### Exam 3 chapters 8-10And12 Garrison14ed

Exam 3 chapters 8-10And12 Garrison14ed Student: 1. Which of the following is not a benefit of budgeting? A. It reduces the need for tracking actual cost activity. B. It sets benchmarks for evaluation performance.

### MATH FORMULAS. \$2.20 Divided by \$10.00 = 22% or to get your desired food cost \$10.00 x.22% = \$2.20

MATH FORMULAS Food Cost Beginning inventory + Purchases Ending Inventory = Food Cost \$\$\$ \$18,000.00 + \$64,000.00 = \$82,000.00 \$13,500.00 = \$68,500.00 Food Cost percentage Cost of food used divided by your

### Chapter 4. Systems Design: Process Costing. Types of Costing Systems Used to Determine Product Costs

4-1 Types of Systems Used to Determine Product Costs Chapter 4 Process Job-order Systems Design: Many units of a single, homogeneous product flow evenly through a continuous production process. One unit

### Cost Concepts and Behavior

Chapter 2 Cost Concepts and Behavior McGraw-Hill/Irwin Copyright 2011 by The McGraw-Hill Companies, Inc. All rights reserved. Learning Objectives L.O. 1 Explain the basic concept of cost. L.O. 2 Explain

### Quiz Chapter 4 - Solutions

Quiz Chapter 4 - Solutions 1. Salter Company uses the FIFO method in its process costing system. The company reported 25,000 equivalent units for materials last month. The company's beginning work in process

### Break-Even Point and Cost-Volume-Profit Analysis

9 Break-Even Point and Cost-Volume-Profit Analysis Objectives After completing this chapter, you should be able to answer the following questions: LO.1 LO.2 LO.3 LO.4 LO.5 LO.6 What is the break-even point

### Difference: Net Operating Income Increase or (Decrease) Total If Racing Bikes Are Dropped

Exercise 13-2 1. No, production and sale of the racing bikes should not be discontinued. If the racing bikes were discontinued, then the operating income for the company as a whole would decrease by \$11,000

Understanding Financial Statements For Your Business Disclaimer The information provided is for informational purposes only, does not constitute legal advice or create an attorney-client relationship,

### THE TRAINING PLACE OF EXCELLENCE Cost and Revenues Practice Assessment: Questions

THE TRAINING PLACE OF EXCELLENCE Cost and Revenues Practice Assessment: Questions Task 1: Inventory control The following information is available for product ZYQ: Annual demand 1,250,000 kilograms Annual

### Cost-Volume-Profit Analysis:

4 Cost-Volume-Profit Analysis: A Managerial Planning Tool After studying Chapter 4, you should be able to: 1 Determine the break-even point in number of units and in total sales dollars. 2 Determine the

### Chapter 25 Cost-Volume-Profit Analysis Questions

Chapter 25 Cost-Volume-Profit Analysis Questions 1. Cost-volume-profit analysis is used to accomplish the first step in the planning phase for a business, which involves predicting the volume of activity,

### THEME: INVENTORY ESTIMATION TECHNIQUES

THEME: INVENTORY ESTIMATION TECHNIQUES By John W. Day, MBA ACCOUNTING TERMS: Retail Method Terminology Original Sales Price The retail price at which goods are originally offered for sale. Markup The difference

### Marginal and. this chapter covers...

7 Marginal and absorption costing this chapter covers... This chapter focuses on the costing methods of marginal and absorption costing and compares the profit made by a business under each method. The

### ACCOUNTING FOR NON-ACCOUNTANTS MARGINAL COSTING

ACCOUNTING FOR NON-ACCOUNTANTS MARGINAL COSTING MARGINAL COSTING OBJECTIVE To be able to: Explain the relevance to management decisions of: Fixed costs Variable costs Contribution Prepare an operating

### SEEM 2440A/B Engineering Economics First term, 2011 12. Midterm Examination

SEEM 2440A/B Engineering Economics First term, 2011 12 Midterm Examination Instructions Exam Duration: 90 minutes Total Marks: 100 This examination paper comprises of THREE questions. Answer ALL questions.

### Blended Value Business Plan Pro Forma Income Statement User Guide

Blended Value Business Plan Pro Forma Income Statement User Guide OVERVIEW A business plan goes beyond the forecasting of a Feasibility Study. It provides details on the multiple factors required to develop

### 1. BE units = F (p v) = \$225,000 (\$45 \$30)/unit = 15,000 units = \$225,000 [(\$45 \$30) \$45] = \$225,000 0.33333 = \$675,000

9-37 CVP Analysis; Strategy 1. BE units = F (p v) = \$225,000 (\$45 \$30)/unit = 15,000 units BE \$ = F CMR = F [(p v) p] = \$225,000 [(\$45 \$30) \$45] = \$225,000 0.33333 = \$675,000 2. π B = Sales variable costs

### Budgeting. Once the year is over, company leaders often think that the budget no longer serves a purpose.

Calculating Part 3 of 3 Operating Variances Completing a Benchmarking Analysis with Your Excel-based Master Budget By Jason Porter and Teresa Stephenson, CMA Budgeting. Once the year is over, company leaders

### Financial Analysis, Modeling, and Forecasting Techniques. Course #5710B/QAS5710B Course Material

Financial Analysis, Modeling, and Forecasting Techniques Course #5710B/QAS5710B Course Material TECHNIQUES OF FINANCIAL ANALYSIS, MODELING, AND FORECASTING Delta Publishing Company Copyright 2011 by DELTA

### RAPID REVIEW Chapter Content

RAPID REVIEW BASIC ACCOUNTING EQUATION (Chapter 2) INVENTORY (Chapters 5 and 6) Basic Equation Assets Owner s Equity Expanded Owner s Owner s Assets Equation = Liabilities Capital Drawing Revenues Debit

### PRODUCTIVITY & GROWTH

Productivity Financial Tools There are a number of financial tools that can be used to measure the financial performance and potential contribution of improvement projects to the productivity of a business.

### MGT402 - Cost & Management Accounting Glossary For Final Term Exam Preparation

MGT402 - Cost & Management Accounting Glossary For Final Term Exam Preparation Glossary Absorption costing : Includes all manufacturing costs --- including direct materials, direct labor, and both variable

### Money Math for Teens. Break-Even Point

Money Math for Teens Break-Even Point This Money Math for Teens lesson is part of a series created by Generation Money, a multimedia financial literacy initiative of the FINRA Investor Education Foundation,

### The predetermined overhead rate is computed as follows:

Brief Exercise 2-3 (10 minutes) The predetermined overhead rate is computed as follows: Estimated total manufacturing overhead... \$134,000 Estimated total direct labor hours (DLHs)... 20,000 DLHs = Predetermined

### There are two basic types of cost accounting systems:

CHAPTER 2 JOB ORDER COSTING Managerial Accounting, Fourth Edition 2-1 Cost Accounting Systems There are two basic types of cost accounting systems: 2-2 LO 1: Explain the characteristics and purposes of

### CHAPTER 9 BREAK-EVEN POINT AND COST-VOLUME-PROFIT ANALYSIS

CHAPTER 9 BREAK-EVEN POINT AND COST-VOLUME-PROFIT ANALYSIS 11. a. Break-even in units = \$90,000 (\$70 \$40) = 3,000 units b. In dollars break-even = 3,000 \$70 = \$210,000 12. a. Break-even point in rings

### Management Accounting Fundamentals

Management Accounting Fundamentals Module 4 Cost behaviour and cost-volume-profit analysis Lectures and handouts by: Shirley Mauger, HB Comm, CGA Part 1 2 3 Module 4 - Table of Contents Content 4.1 Variable

### ntroductiorito MANAGERIAL ACCOUNTING McGraw-Hill Irwin Professor Miami University Professor Emeritus, Brigham Young University

ntroductiorito MANAGERIAL ACCOUNTING N Professor Miami University Professor Emeritus, Brigham Young University Professor Emeritus, University of Washington McGraw-Hill Irwin CONTENTS PROLOGUE Managerial

### Appendix I Whole Farm Analysis Procedures and Measures

Appendix I Whole Farm Analysis Procedures and Measures The whole-farm reports (except for the balance sheets) include the same number of farms, which were all of the farms whose records were judged to

### Advanced Placement (AP) Accounting Course & Exam Pilot Program Course Outline, Learning Objectives and Student Outcomes

Advanced Placement (AP) Accounting Course & Exam Pilot Program Course Outline, Learning Objectives and Student Outcomes Course Overview The Advanced Placement (AP) Accounting Course & Exam Pilot Program

### Multiproduct. The Definition of Sales Mix. Sales Mix and Break-Even Analysis

Multiproduct Appendix 11A Break-Even Analysis Before concluding our discussion, we should consider one additional application of the ideas that we have developed the use of CVP concepts in analyzing the

### QWhat Does CHAPTER. Managerial Accounting and Cost-Volume-Profit Relationships. It Mean?

12 CHAPTER Managerial Accounting and Cost-Volume-Profit When asked by a marketing or production manager what a certain item or activity costs, the management accountant who asks Why do you want to know?

### Exhibit 7.5: Graph of Total Costs vs. Quantity Produced and Total Revenue vs. Quantity Sold

244 13. 7.5 Graphical Approach to CVP Analysis (Break-Even Chart) A break-even chart is a graphical representation of the following on the same axes: 1. Fixed costs 2. Total costs at various levels of

### Trade Date The date of the previous trading day. Recent Price is the closing price taken from this day.

Definition of Terms Price & Volume Share Related Institutional Holding Ratios Definitions for items in the Price & Volume section Recent Price The closing price on the previous trading day. Trade Date