Dokumen - Solution Manual Managerial Accounting Chapter 11 PDF

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Summary

CHAPTER 11 ANALYSIS: A MANAGERIAL PLANNING TOOL QUESTIONS FOR WRITING AND DISCUSSION 1. CVP analysis allows managers to focus on selling prices, volume, costs, profits, and sales mix. Many different questions can be asked to assess the effect on profits of changes in key variables. 1,200 packages, o...

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CHAPTER 11 COST-VOLUME-PROFIT ANALYSIS: A MANAGERIAL PLANNING TOOL QUESTIONS FOR WRITING AND DISCUSSION 1. CVP analysis allows managers to focus on selling prices, volume, costs, profits, and sales mix. Many different “what if” questions can be asked to assess the effect on profits of changes in key variables.

$30,000/$25 = 1,200 packages, or 2,400 units of A and 1,200 units of B.

2. The units-sold approach defines sales volume in terms of units of product and gives answers in these same terms. The salesrevenue approach defines sales volume in terms of revenues and provides answers in these same terms. 3. Break-even point is the level of sales activity where total revenues equal total costs, or where zero profits are earned. 4. At the break-even point, all fixed costs are covered. Above the break-even point, only variable costs need to be covered. Thus, contribution margin per unit is profit per unit, provided that the unit selling price is greater than the unit variable cost (which it must be for break-even to be achieved). 5. Profit = $7.00 × 5,000 = $35,000

12.

Profit = 0.60($200,000 – $100,000) = $60,000

13.

A change in sales mix will change the contribution margin of the package (defined by the sales mix) and, thus, will change the units needed to break even.

14.

Margin of safety is the sales activity in excess of that needed to break even. The higher the margin of safety, the lower the risk.

15.

Operating leverage is the use of fixed costs to extract higher percentage changes in profits as sales activity changes. It is achieved by increasing fixed costs while lowering variable costs. Therefore, increased leverage implies increased risk, and vice versa.

16.

Sensitivity analysis is a “what if” technique that examines the impact of changes in underlying assumptions on an answer. A company can input data on selling prices, variable costs, fixed costs, and sales mix and set up formulas to calculate break-even points and expected profits. Then, the data can be varied as desired to see what impact changes have on the expected profit.

17.

By specifically including the costs that vary with nonunit drivers, the impact of changes in the nonunit drivers can be examined. In traditional CVP, all nonunit costs are lumped together as “fixed costs.” While the costs are fixed with respect to units, they vary with respect to other drivers. ABC analysis reminds us of the importance of these nonunit drivers and costs.

6. Variable cost ratio = Variable costs/Sales. Contribution margin ratio = Contribution margin/Sales. Contribution margin ratio = 1 – Variable cost ratio. 7. Break-even revenues = $20,000/0.40 = $50,000 8. No. The increase in contribution is $9,000 (0.30 × $30,000), and the increase in advertising is $10,000. 9. Sales mix is the relative proportion sold of each product. For example, a sales mix of 3:2 means that three units of one product are sold for every two of the second product. 10.

Packages of products, based on the expected sales mix, are defined as a single product. Selling price and cost information for this package can then be used to carry out CVP analysis.

11.

Package contribution margin: (2 × $10) + (1 × $5) = $25. Break-even point =

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18.

JIT simplifies the firm’s cost equation since more costs are classified as fixed (e.g., direct labor). Additionally, the batch-level variable is gone (in JIT, the batch is one unit). Thus, the cost equation for JIT includes fixed costs, unit variable cost times the number of units sold, and unit product-level cost times the number of products sold (or related cost

driver). JIT means that CVP analysis approaches the standard analysis with fixed and unit-level costs only.

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EXERCISES 11–1 1.

Direct materials Direct labor Variable overhead Variable selling expenses Variable cost per unit

$3.90 1.40 2.10 1.00 $ 8.40

2.

Price Variable cost per unit Contribution margin per unit

3.

Contribution margin ratio = $5.60/$14 = 0.40 or 40%

4.

Variable cost ratio = $8.40/$14 = 0.60 or 60%

5.

Total fixed cost = $44,000 + $47,280 = $91,280

6.

Breakeven units = (Fixed cost)/Contribution margin = $91,280/$5.60 = 16,300

$14.00 8.40 $5.60

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11–2 1.

Price Less: Direct materials Direct labor Variable overhead Variable selling expenses Contribution margin per unit

$12.00 $1.90 2.85 1.25 2.00

8.00 $4.00

2.

Breakeven units = (Fixed cost)/Contribution margin = (44,000 + $37,900)/$4.00 = 20,475

3.

Units for target

4.

Sales (22,725 × $12) Variable costs (22,725 × $8) Contribution margin Fixed costs Operating income

= (44,000 + $37,900 + $9,000)/$4 = $90,900/$4 = 22,725 $ 272,700 181,800 $ 90,900 81,900 $ 9,000

Sales of 22,725 units does produce operating income of $9,000.

11–3 1.

Units = Fixed cost/Contribution margin = $37,500/($8 – $5) = 12,500

2.

Sales (12,500 × $8) Variable costs (12,500 × $5) Contribution margin Fixed costs Operating income

3.

Units = (Target income + Fixed cost)/Contribution margin = ($37,500 + $9,900)/($8 – $5) = $47,400/$3 = 15,800

$100,000 62,500 $ 37,500 37,500 $ 0

350

11–4 1.

Contribution margin per unit = $8 – $5 = $3 Contribution margin ratio = $3/$8 = 0.375, or 37.5%

2.

Variable cost ratio = $75,000/$120,000 = 0.625, or 62.5%

3.

Revenue = Fixed cost/Contribution margin ratio = $37,500/0.375 = $100,000

4.

Revenue = (Target income + Fixed cost)/Contribution margin ratio = ($37,500 + $9,900)/0.375 = $126,400

11–5 1.

Break-even units = Fixed costs/(Price – Variable cost) = $180,000/($3.20 – $2.40) = $180,000/$0.80 = 225,000

2.

Units = ($180,000 + $12,600)/($3.20 – $2.40) = $192,600/$0.80 = 240,750

3.

Unit variable cost = $2.40 Unit variable manufacturing cost = $2.40 – $0.32 = $2.08 The unit variable cost is used in cost-volume-profit analysis, since it includes all of the variable costs of the firm.

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11–6 1.

Before-tax income = $25,200/(1 – 0.40) = $42,000 Units = ($180,000 + $42,000)/$0.80 = $222,000/$0.80 = 277,500

2.

Before-tax income = $25,200/(1 – 0.30) = $36,000 Units = ($180,000 + $36,000)/$0.80 = $216,000/$0.80 = 270,000

3.

Before-tax income = $25,200/(1 – 0.50) = $50,400 Units = ($180,000 + $50,400)/$0.80 = $230,400/$0.80 = 288,000

11–7 1.

Contribution margin per unit = $15 – ($3.90 + $1.40 + $2.10 + $1.60) = $6 Contribution margin ratio = $6/$15 = 0.40 or 40%

2.

Breakeven Revenue = Fixed cost/Contribution margin ratio = ($52,000 + $37,950)/0.40 = $224,875

3.

Revenue = (Target income + Fixed cost)/Contribution margin ratio = ($52,000 + $37,950 + $18,000)/0.40 = $269,875

4.

Breakeven units = $224,875/$15 = 14,992 (rounded) Or Breakeven units = $89,950/$6 = 14,992 (rounded)

5.

Units for target income = $269,875/$15 = 17,992 (rounded) Or Units for target income = $107,950/$6 = 17,992 (rounded)

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11–8 1.

Sales mix is 2:1 (Twice as many videos are sold as equipment sets.)

2. Product Videos Equipment sets Total

Price $12 15

–

Variable Cost = $4 6

CM $8 9

×

Sales Mix = Total CM 2 $16 1 9 $25

Break-even packages = $70,000/$25 = 2,800 Break-even videos = 2 × 2,800 = 5,600 Break-even equipment sets = 1 × 2,800 = 2,800 3.

Switzer Company Income Statement For Last Year Sales ........................................................................................... Less: Variable costs ................................................................. Contribution margin.................................................................. Less: Fixed costs ...................................................................... Operating income ................................................................

$ 195,000 70,000 $ 125,000 70,000 $ 55,000

Contribution margin ratio = $125,000/$195,000 = 0.641, or 64.1% Break-even sales revenue = $70,000/0.641 = $109,204

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11–9 1.

Sales mix is 2:1:4 (Twice as many videos will be sold as equipment sets, and four times as many yoga mats will be sold as equipment sets.)

2. Product Videos Equipment sets Yoga mats Total

Price $12 15 18

–

Variable Cost = $4 6 13

CM $8 9 5

×

Sales Mix = Total CM 2 $16 1 9 4 20 $45

Break-even packages = $118,350/$45 = 2,630 Break-even videos = 2 × 2,630 = 5,260 Break-even equipment sets = 1 × 2,630 = 2,630 Break-even yoga mats = 4 × 2,630 = 10,520 3.

Switzer Company Income Statement For the Coming Year Sales ........................................................................................... Less: Variable costs ................................................................. Contribution margin.................................................................. Less: Fixed costs ...................................................................... Operating income ................................................................

$555,000 330,000 $225,000 118,350 $106,650

Contribution margin ratio = $225,000/$555,000 = 0.4054, or 40.54% Break-even revenue = $118,350/0.4054 = $291,934

11–10 1.

Variable cost per unit = $5.60 + $7.50 + $2.90 + $2.00 = $18 Breakeven units = $75,000/($24 – $18) = 12,500 Breakeven Revenue = $24 × 12,500 = $300,000

2.

Margin of safety in sales dollars = ($24 × 14,000) – $300,000 = $36,000

3.

Margin of safety in units = 14,000 units – 12,500 units = 1,500 units

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11–11 1. $35,000

$30,000

$25,000

$20,000

$15,000

$10,000

$5,000

$0 0

500

1,000

1,500

2,000

2,500

3,000

3,500

Units Sold

Break-even point = 2,500 units; + line is total revenue and x line is total costs.

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11–11 Continued 2.

a. Fixed costs increase by $5,000:

$40,000 $35,000 $30,000 $25,000 $20,000 $15,000 $10,000 $5,000 $0 0

500

1,000

1,500

2,000

Units Sold

Break-even point = 3,750 units

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2,500

3,000

3,500

4,000

11–11 Continued b. Unit variable cost increases to $7:

$50,000

$40,000

$30,000

$20,000

$10,000

$0 0

500

1,000

1,500

2,000

2,500

Units Sold

Break-even point = 3,333 units

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3,000

3,500

4,000

11–11 Continued c. Unit selling price increases to $12:

$50,000

$40,000

$30,000

$20,000

$10,000

$0 0

500

1,000

1,500

2,000

2,500

Units Sold

Break-even point = 1,667 units

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3,000

3,500

4,000

11–11 Continued d.

Both fixed costs and unit variable cost increase:

$70,000 $60,000 $50,000 $40,000 $30,000 $20,000 $10,000 $0 0

1,000

2,000

3,000

4,000

5,000

Units Sold

Break-even point = 5,000 units

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6,000

7,000

8,000

11–11 Continued 3.

Original data:

$10,000

$0 0

500

1,000

1,500

2,000

-$10,000

Break-even point = 2,500 units

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2,500

3,000

3,500

4,000

11–11 Continued a. Fixed costs increase by $5,000:

$15,000

$0 0

500

1,000

1,500

2,000

-$15,000

Break-even point = 3,750 units

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2,500

3,000

3,500

4,000

11–11 Continued b. Unit variable cost increases to $7:

$10,000

$0 0

500

1,000

1,500

2,000

-$10,000

Break-even point = 3,333 units

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2,500

3,000

3,500

4,000

11–11 Continued c. Unit selling price increases to $12:

$10,000

$0 0

500

1,000

1,500

2,000

-$10,000

Break-even point = 1,667 units

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2,500

3,000

3,500

4,000

11–11 Concluded d. Both fixed costs and unit variable cost increase:

$15,000

$0 0

1,000

2,000

3,000

4,000

5,000

6,000

7,000

-$15,000

Break-even point = 5,000 units 4. The first set of graphs is more informative since these graphs reveal how costs change as sales volume changes.

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11–12 1.

Darius: $100,000/$50,000 = 2 Xerxes: $300,000/$50,000 = 6

2.

Darius X = $50,000/(1 – 0.80) X = $50,000/0.20 X = $250,000

Xerxes X = $250,000/(1 – 0.40) X = $250,000/0.60 X = $416,667

Xerxes must sell more than Darius to break even because it must cover $200,000 more in fixed costs (it is more highly leveraged). 3.

Darius: 2 × 50% = 100% Xerxes: 6 × 50% = 300% The percentage increase in profits for Xerxes is much higher than the increase for Darius because Xerxes has a higher degree of operating leverage (i.e., it has a larger amount of fixed costs in proportion to variable costs as compared to Darius). Once fixed costs are covered, additional revenue must cover only variable costs, and 60 percent of Xerxes revenue above breakeven is profit, whereas only 20 percent of Darius revenue above break-even is profit.

11–13 1.

Breakeven units = $10,350/($15 – $12) = 3,450

2.

Breakeven sales dollars = $10,350/0.20 = $51,750

3.

Margin of safety in units = 5,000 – 3,450 = 1,550

4.

Margin of safety in sales dollars = $75,000 – $51,750 = $23,250

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11–14 1.

Variable cost ratio = Variable costs/Sales = $399,900/$930,000 = 0.43, or 43% Contribution margin ratio = (Sales – Variable costs)/Sales = ($930,000 – $399,900)/$930,000 = 0.57, or 57%

2.

Break-even sales revenue = $307,800/0.57 = $540,000

3.

Margin of safety = Sales – Break-even sales = $930,000 – $540,000 = $390,000

4.

Contribution margin from increased sales = ($7,500)(0.57) = $4,275 Cost of advertising = $5,000 No, the advertising campaign is not a good idea, because the company’s operating income will decrease by $725 ($4,275 – $5,000).

11–15 1.

Income 0 0 $570,000 P

= Revenue – Variable cost – Fixed cost = 1,500P – $300(1,500) – $120,000 = 1,500P – $450,000 – $120,000 = 1,500P = $380

2.

$160,000/($3.50 – Unit variable cost) = 128,000 units Unit variable cost = $2.25

3.

Margin of safety = Actual units – Breakeven units 300 = 35,000 – breakeven units Breakeven units = 34,700 Breakeven units = Total Fixed Cost/(Price – Variable cost per unit) 34,700 = Total Fixed Cost/($40 – $30) Total Fixed Cost = $347,000

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11–16 1.

Contribution margin per unit = $5.60 – $4.20* = $1.40 *Variable costs per unit: $0.70 + $0.35 + $1.85 + $0.34 + $0.76 + $0.20 = $4.20 Contribution margin ratio = $1.40/$5.60 = 0.25 = 25%

2.

Break-even in units = ($32,300 + $12,500)/$1.40 = 32,000 boxes Break-even in sales = 32,000 × $5.60 = $179,200 or = ($32,300 + $12,500)/0.25 = $179,200

3.

Sales ($5.60 × 35,000) Variable costs ($4.20 × 35,000) Contribution margin Fixed costs Operating income

$ 196,000 147,000 $ 49,000 44,800 $ 4,200

4.

Margin of safety = $196,000 – $179,200 = $16,800

5.

Break-even in units = 44,800/($6.20 – $4.20) = 22,400 boxes New operating income = $6.20(31,500) – $4.20(31,500) – $44,800 = $195,300 – $132,300 – $44,800 = $18,200 Yes, operating income will increase by $14,000 ($18,200 – $4,200).

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11–17 1.

Variable cost ratio = $126,000/$315,000 = 0.40 Contribution margin ratio = $189,000/$315,000 = 0.60

2.

$46,000 × 0.60 = $27,600

3.

Break-even revenue = $63,000/0.60 = $105,000 Margin of safety = $315,000 – $105,000 = $210,000

4.

Revenue = ($63,000 + $90,000)/0.60 = $255,000

5.

Before-tax income = $56,000/(1 – 0.30) = $80,000

Note: Tax rate = $37,800/$126,000 = 0.30 Revenue = ($63,000 + $80,000)/0.60 = $238,333 Sales ................................................................................ Less: Variable expenses ($238,333 × 0.40) .................. Contribution margin....................................................... Less: Fixed expenses .................................................... Income before income taxes ......................................... Income taxes ($80,000 × 0.30) ....................................... Net income ................................................................

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$ 238,333 95,333 $ 143,000 63,000 $ 80,000 24,000 $ 56,000

11–18 1.

Contribution margin/unit = $410,000/100,000 = $4.10 Contribution margin ratio = $410,000/$650,000 = 0.6308 Break-even units = $295,200/$4.10 = 72,000 units

Break-even revenue = 72,000 × $6.50 = $468,000 or = $295,200/0.6308 = $467,977* *Difference due to rounding error in calculating the contribution margin ratio. 2.

The break-even point decreases: X = $295,200/(P – V) X = $295,200/($7.15 – $2.40) X = $295,200/$4.75 X = 62,147 units Revenue = 62,147 × $7.15 = $444,351

3.

The break-even point increases: X = $295,200/($6.50 – $2.75) X = $295,200/$3.75 X = 78,720 units Revenue = 78,720 × $6.50 = $511,680

4.

Predictions of increases or decreases in the break-even point can be made without computation for price changes or for variable cost changes. If both change, then the unit contribution margin must be known before and after to predict the effect on the break-even point. Simply giving the direction of the change for each individual component is not sufficient. For our example, the unit contribution changes from $4.10 to $4.40, so the break-even point in units will decrease. Break-even unit...