Professional Documents
Culture Documents
Cost-Volume-Profit
ASSIGNMENT CLASSIFICATION TABLE
Learning Objectives
Questions
Brief
Exercises
Do It!
Exercises
A
Problems
B
Problems
1.
Distinguish between
variable and fixed costs.
1, 2, 3, 6
1, 2, 3, 4,
5, 6
1A, 6A
1B, 6B
2.
4, 5
3.
6, 7, 8
1, 3, 4, 5
1A
1B
4.
5.
10, 11, 17
6, 7
8, 9, 10, 11,
12, 13, 17
6.
12, 13, 14
8, 9
3, 4
8, 9, 10,
11, 12, 13,
14, 16, 17
7.
16
10, 12
14, 15, 17
2A, 5A, 6A
2B, 5B, 6B
8.
15
11
16, 17
2A, 4A,
5A, 6A
2B, 4B,
5B, 6B
2
1, 2
1, 3, 4,
5, 6
7
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5-1
5-2
Description
Difficulty
Level
Time
Allotted (min.)
1A
Simple
2030
2A
Moderate
3040
3A
Simple
2030
4A
Moderate
2030
5A
Moderate
2030
6A
Moderate
2030
1B
Simple
2030
2B
Moderate
3040
3B
Simple
2030
4B
Moderate
2030
5B
Moderate
2030
6B
Moderate
2030
Copyright 2012 John Wiley & Sons, Inc.Weygandt, Managerial Accounting, 6/e, Solutions Manual(For Instructor Use Only)
Learning Objective
*1.
*2.
Knowledge Comprehension
Analysis
Synthesis
Evaluation
Q5-1
Q5-2
Q5-3
Q5-6
BE5-1 E5-5
E5-1
E5-2
DI5-1
E5-3
E5-6
P5-1A
P5-1B
Q5-4
Q5-5
E5-2
BE5-2
*3.
Q5-6
Q5-7
BE5-1
*4.
Q5-9
*5.
Q5-10
Q5-11
Q5-17
BE5-6
BE5-7
E5-8
E5-9
E5-10
E5-11
E5-12
E5-13
E5-17
BE5-6
P5-1A
P5-2A
P5-1B
P5-2B
P5-3A
P5-3B
P5-4A
P5-5A
P5-6A
P5-4B
*6.
Q5-12
Q5-14
Q5-13
BE5-8
BE5-9
DI5-3
DI5-4
E5-8
E5-9
E5-10
E5-11
E5-12
E5-13
E5-14
E5-17
E5-16
P5-1A
P5-2A
P5-1B
P5-2B
P5-3A
P5-4A
P5-3B
P5-4B
P5-5A
P5-5B
*7.
Q5-16
BE5-10
BE5-12
DI5-4
E5-12 P5-2A
E5-14 P5-2B
E5-15
E5-17
P5-5A
P5-6A
P5-5B
P5-6B
*8.
Q5-15
BE5-11
DI5-4
E5-17 E5-16
P5-2A
P5-2B
E5-4
Application
E5-7
BYP5-6
DI5-1 Q5-8
E5-1 BE5-4
BE5-5
BYP5-4
DI5-2 BE5-3
E5-5 E5-3
E5-6 P5-1A
BYP5-1
BYP5-2
P5-6A
P5-6B
P5-1B
P5-5A
P5-5B
P5-4A
P5-6A
P5-4B
BYP5-5
BYP5-3
BYP5-7
BYP5-8
P5-5B
P5-6B
P5-6B
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Correlation Chart between Blooms Taxonomy, Learning Objectives and End-of-Chapter Exercises and Problems
5-3
ANSWERS TO QUESTIONS
1.
(a) Cost behavior analysis is the study of how specific costs respond to changes in the level of activity
within a company.
(b) Cost behavior analysis is important to management in planning business operations and in deciding
between alternative courses of action.
2.
(a) The activity index identifies the activity that causes changes in the behavior of costs. Once the
index is determined, it is possible to classify the behavior of costs in response to changes in
activity levels into three categories: variable, fixed, or mixed.
(b) Variable costs may be defined in total or on a per-unit basis. Variable costs in total vary directly
and proportionately with changes in the activity level. Variable costs per unit remain the
same at every level of activity.
3.
Fixed costs remain the same in total regardless of changes in the activity level. In contrast, fixed costs
per unit vary inversely with activity. As volume increases, fixed costs per unit decline and vice versa.
4.
(a) The relevant range is the range of activity over which a company expects to operate during the
year.
(b) Disagree. The behavior of both fixed and variable costs are linear only over a certain range
of activity. CVP analysis is based on the assumption that both fixed and variable costs
remain linear within the relevant range.
5.
This is true. Most companies operate within the relevant range. Within this range, it is possible to
establish a linear (straight-line) relationship for both variable and fixed costs. If a relevant range
cannot be established, segregation of costs into fixed and variable becomes extremely difficult.
6.
Apartment rent is fixed because the cost per month remains the same regardless of how much Adam
uses the apartment. Rent on a Hertz rental truck is a mixed cost because the cost usually includes a
per day charge (a fixed cost) plus an activity charge based on miles driven (a variable cost).
7.
For CVP analysis, mixed costs must be classified into their fixed and variable elements. One approach
to the classification of mixed costs is the high-low method.
8.
Variable cost per unit is $1.30, or [($165,000 $100,000) (90,000 40,000)]. At any level of activity,
fixed costs are $48,000 per month [$165,000 (90,000 X $1.30)].
9.
No. Only two of the basic components of cost-volume-profit (CVP) analysis, unit selling prices and
variable cost per unit, relate to unit data. The other components, volume, total fixed costs, and
sales mix, are not based on per-unit amounts.
10.
There is no truth in Fayes statement. Contribution margin is sales less variable costs. It is the
revenue that remains to cover fixed costs and to produce income (profit) for the company.
11.
Contribution margin is $14 ($40 $26). The contribution margin ratio is 35% ($14 $40).
5-4
Copyright 2012 John Wiley & Sons, Inc.Weygandt, Managerial Accounting, 6/e, Solutions Manual(For Instructor Use Only)
$
,5.3
1
8
0
+
,6
$
9
0
Disagree. Knowledge of the break-even point is useful to management in deciding whether to introduce
new product lines, change sales prices on established products, and enter new market areas.
13.
14.
(a) The break-even point involves the plotting of three lines over the full range of activity: the total
revenue line, the total fixed cost line, and the total cost line. The break-even point is determined at the intersection of the total revenue and total cost lines.
(b) The break-even point in units is obtained by drawing a vertical line from the break-even point to the
horizontal axis. The break-even point in sales dollars is obtained by drawing a horizontal line from
the break-even point to the vertical axis.
15.
Margin of safety is the difference between actual or expected sales and sales at the break-even
point. 1,250 X $12 = $15,000; $15,000 $13,200 = $1,800; $1,800 $15,000 = 12%.
16.
At break-even sales, the contribution margin is equal to the fixed costs. The contribution margin
ratio is:
= 36%
17.
PACE COMPANY
CVP Income Statement
Sales..................................................................................................
Variable expenses
Cost of goods sold ($600,000 X .70)..........................................
Operating expenses ($200,000 X .70)........................................
Total variable expenses......................................................
Contribution margin............................................................................
$900,000
$420,000
140,000
560,000
$340,000
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5-5
$10,000
8,000
8,000
6,000
6,000
4,000
4,000
2,000
2,000
20
40
60
80 100
Activity Level
5-6
FIXED COST
Relevant Range
20
40
60
80 100
Activity Level
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COST
30,000
15,000
Fixed Cost Element
0
500
1,000
1,500
2,000
2,500
Total cost
Less: Variable costs
8,500 X $1.50
7,500 X $1.50
Total fixed costs
High
$15,000
12,750
$ 2,250
Low
$13,500
11,250
$ 2,250
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5-7
Total cost
Less: Variable costs
40,000 X $1.55
18,000 X $1.55
Total fixed costs
Activity Level
High
Low
$66,100
$32,000
62,000
000,000
$4,100
27,900
$4,100
(a)
(b)
2.
(c)
(d)
3.
(e)
(f)
$2,400,000
1,076,000
1,324,000
583,000
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Net income.........................................................................
$ 741,000
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5-9
Variable cost:
Fixed cost:
DO IT! 5-3
(a)
(b)
The contribution margin per unit is $80 ($250 $170). The formula
therefore is $140,000 $80, and the breakeven point in units is 1,750.
DO IT! 5-4
(a)
5-10
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Margin of safety
=
(c)
31.25%
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5-11
SOLUTIONS TO EXERCISES
EXERCISE 5-1
(a) The determination as to whether a cost is variable, fixed, or mixed can
be made by comparing the cost in total and on a per-unit basis at two
different levels of production.
Variable Costs
Fixed Costs
Mixed Costs
Variable
Variable
Mixed
Rent
Maintenance
Supervisory salaries
Fixed
Mixed
Fixed
EXERCISE 5-2
(a)
5-12
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Copyright 2012 John Wiley & Sons, Inc.Weygandt, Managerial Accounting, 6/e, Solutions Manual (For Instructor Use Only)
5-13
$
4
,9
,73
0
$
2
5
0$
2
,4
0
=
=
Cost
Units
$15,000*
5,000*
$3 per
unit
*Any costs and units within the relevant range could have been used
to calculate the same unit cost of $3.
(d) Fixed cost within the
relevant range
(3,000 8,000 units)
$8,000
EXERCISE 5-3
Total costs
Less: Variable costs
700 X $6
300 X $6
Total fixed costs
$ 700
300
Machine Hours
$2,500
1,800
$ 700
Thus, maintenance costs are $700 per month plus $6 per machine hour.
5-14
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(b)
COSTS
$4,900
$4,000
$3,000
Variable Cost Element
$2,000
$1,000
$ 700
EXERCISE 5-4
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
Variable.
Variable.
Fixed.
Variable.
Fixed.
Variable.
Fixed.
Fixed.
Variable.
Fixed.
Mixed.
Mixed.
Copyright 2012 John Wiley & Sons, Inc.Weygandt, Managerial Accounting, 6/e, Solutions Manual (For Instructor Use Only)
5-15
$
,8
5
0
$
,3
2
7
5
0
$
,4
2
5
0
=
EXERCISE 5-5
High
$5,000
Total cost
Less: Variable costs
8,000 X $.50
3,500 X $.50
Total fixed costs
Activity Level
4,000
00,000
$1,000
Low
$2,750
1,750
$1,000
(b)
COSTS
Thus, maintenance costs are $1,000 per month plus $.50 per
machine hour.
$5,000
$4,000
Variable Cost Element
$3,000
$2,000
$1,000
2,000
4,000
6,000
8,000
Machine Hours
5-16
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EXERCISE 5-6
(a)
(b)
Cost
Direct materials
Direct labor
Utilities
Property taxes
Indirect labor
Supervisory salaries
Maintenance
Depreciation
Fixed
X
X
Variable
X
X
X
X
Fixed costs
Mixed
= $30,000/3,000 units
= $10 per unit
Utilities:
Variable cost to produce 3,000 units = $2,100 $300
= $1,800
Variable cost per unit
= $1,800/3,000 units
= $.60 per unit
Maintenance:
Variable cost to produce 3,000 units = $1,100 $200
= $900
Variable cost per unit
= $900/3,000 units
= $.30 per unit
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5-17
= $60,300
5-18
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EXERCISE 5-7
MEMO
To:
Jim Taylor
From:
Student
Re:
$36
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5-19
EXERCISE 5-9
1.
$
2
1
,%
0
4
8
=
$21
OR
Fixed costs Contribution margin ratio
EXERCISE 5-10
$67,200
Variable costs = $67,200 X .60 = 40,320
Contribution margin
$26,880
5-20
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EXERCISE 5-11
iB
F
x
e
d
c
o
s
t
r(3
e
-$
l5
a
i1
k
v
n
a
n
u
s
2
,0
$
5
)
$15,000 = $20,000
75%
$36,000 = $25
1,440 fares
(b) At the break-even point fixed costs and contribution margin are equal.
Therefore, the contribution margin at the break-even point would be
$15,000.
EXERCISE 5-12
(a) Unit contribution margin =
=
= $1.60
Variable cost per unit
OR
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5-21
CANNES COMPANY
CVP Income Statement
For the Month Ended September 30, 2014
(c)
Per Unit
$400
275
$125
Total
$240,000
165,000
75,000
52,000
$ 23,000
Total
$166,400
114,400
52,000
52,000
$ 0
Per Unit
$400
275
$125
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5-23
$
5
7
0
,
+
$
2
1
0
,
1
9
6
0
*
$
5
0
$
$
5
7
0
,X
,
+
$
2
6
0
9
EXERCISE 5-14
= 13,000 units
(c)
$2,002,000 = 13,000X
X = $154
EXERCISE 5-15
1.
2.
Alternative 1, increasing selling price, will produce the highest net income.
5-24
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DOLLARS (000)
EXERCISE 5-16
(a)
$3,200
Sales Line
2,800
2,400
Break-even Point
2,000
1,600
1,200
800
400
(b) 1.
2.
(c) 1.
2.
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5-25
EXERCISE 5-17
(a) Contribution ratio = Contribution margin Sales
($40 $16) $40 = 60%
(b) Break-even in dollars: $19,500 60% = $32,500
(c) Margin of safety = (2,600 X $40) $32,500 = $71,500
$71,500 $104,000 = 68.75%
(d) Current contribution margin $40 $16 = $24
Total contribution margin is $24 X 2,600 = $62,400
30% increase in contribution margin is $62,400 X 30% = $18,720
Total increase in sales required: $18,720 60% = $31,200
5-26
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SOLUTIONS TO PROBLEMS
PROBLEM 5-1A
(c)
DOLLARS (000)
$4.50
.30
.20
$5.00
$4,000
500
200
1,100
175
25
$6,000
18
Sales Line
15
Break-even Point
12
9
Fixed Cost Line
6
3
300
600
Number of Haircuts
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5-27
= $2,500
5-28
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PROBLEM 5-2A
(a)
JORGE COMPANY
CVP Income Statement (Estimated)
For the Year Ending December 31, 2014
Sales................................................................
Variable expenses
Cost of goods sold.................................
Selling expenses....................................
Administrative expenses.......................
Total variable expenses..................
Contribution margin.......................................
Fixed expenses
Cost of goods sold.................................
Selling expenses....................................
Administrative expenses.......................
Total fixed expenses.......................
Net income......................................................
$1,800,000
$1,170,000*
70,000
20,000
280,000
65,000
60,000
1,260,000
540,000
405,000
$ 135,000
2.
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5-29
X=
5-30
$
4
0
5
,.3
+
$
1
8
0
,
= $1,950,000
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$
9
0
,.3
2
,$
$
9
0
.8
4
3
1
,.2
0
7
PROBLEM 5-3A
(a) Sales were $2,500,000, variable expenses were $1,700,000 (68% of sales),
and fixed expenses were $900,000. Therefore, the break-even point in
dollars is:
= $2,812,500
(b) 1.
The effect of this alternative is to increase the selling price per unit
to $6 ($5 X 120%). Total sales become $3,000,000 (500,000 X $6).
Thus, the contribution margin ratio changes to 43% [($3,000,000
$1,700,000) $3,000,000]. The new break-even point is:
= $2,093,023 (rounded)
2.
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5-31
((2
,2
)4
0
X
$
4
0
(
1
6
,
8
7
5
X
$
4
0
)
(,0X
,(2
2
X
$
4
0
)
$
)4
3
(,0X
8
2
1
,$
)3
X
$
3
8
8
)
PROBLEM 5-4A
= 16% (rounded)
New margin of safety ratio
= 13% (rounded)
(c)
Current
New
$800,000
480,000
320,000
270,000
$ 50,000
$912,000
576,000
336,000
294,000
$ 42,000
(24,000 X $38)
(24,000 X $24)
The proposed changes will raise the break-even point 4,125 units. This
is a significant increase. Margin of safety is 3% lower and net income
5-32
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5-33
PROBLEM 5-5A
(a) (1)
Current Year
$1,500,000
Sales
Variable costs
Direct materials
Direct labor
Manufacturing overhead ($350,000 X .70)
Selling expenses ($250,000 X .40)
Administrative expenses ($270,000 X .20)
Total variable costs
Contribution margin
511,000
290,000
245,000
100,000
54,000
1,200,000
$ 300,000
Sales
Current Year
$1,500,000 X 1.1
Variable costs
Direct materials
Direct labor
Manufacturing overhead
Selling expenses
Administrative expenses
Total variable costs
Contribution margin
511,000
290,000
245,000
100,000
54,000
1,200,000
$ 300,000
X 1.1
X 1.1
X 1.1
X 1.1
X 1.1
X 1.1
X 1.1
Projected Year
$1,650,000
562,100
319,000
269,500
110,000
59,400
1,320,000
$ 330,000
(2)
Fixed Costs
Current Year
Manufacturing overhead ($350,000 X .30)
$105,000
Selling expenses ($250,000 X .60)
150,000
Administrative expenses ($270,000 X .80)
216,000
Total fixed costs
$471,000
5-34
Projected year
$105,000
150,000
216,000
$471,000
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required for = (Fixed costs + Target net income) Contribution margin ratio
target net
income
$3,355,000
($471,000
$200,000)
.20
($3,355,000
$2,355,000)
$3,355,000
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5-35
PROBLEM 5-6A
(a) 1.
2.
3.
5-36
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PROBLEM 5-1B
(a) Variable costs (per haircut)
Barbers commission
$3.00
Rent
.60
Barber supplies
.40
Total variable
$4.00
$7,500*
700
400
300
100
$9,000
*($1,500 X 3) + $3,000
(c)
DOLLARS (000)
Break-even Point
18
Sales Line
Total Cost Line
15
12
9
6
3
300
600
Number of Haircuts
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5-37
PROBLEM 5-2B
(a)
$2,500,000
$1,080,000 (1)
80,000
40,000
380,000
250,000
150,000
1,200,000
1,300,000
780,000
$ 520,000
(1) Direct materials $360,000 + direct labor $450,000 + variable manufacturing overhead $270,000.
(b) Variable costs = 48% of sales ($1,200,000 $2,500,000) or $.24 per
bottle ($.50 X 48%). Total fixed costs = $780,000.
1.
2.
5-38
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X=
$
7
8
0
,.5
+
$
6
2
4
,0
= $2,700,000
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5-39
$
8
4
,.3
0
5
,$
$
8
4
0
.6
,.3
0
PROBLEM 5-3B
(a) Sales were $1,800,000 and variable expenses were $1,170,000, which
means contribution margin was $630,000 and CM ratio was 35%. Fixed
expenses were $840,000. Therefore, the breakeven point in dollars is:
= $2,400,000
(b) 1.
The effect of this alternative is to increase the selling price per unit
to $37.50 ($30 X 125%). Total sales become $2,250,000 (60,000 X
$37.50). Thus, the contribution margin ratio changes to 48%
[($2,250,000 $1,170,000) $2,250,000]. The new breakeven point is:
= $1,750,000
2.
3.
5-40
Copyright 2012 John Wiley & Sons, Inc.Weygandt, Managerial Accounting, 6/e, Solutions Manual(For Instructor Use Only)
(2
,4X
0
)(2
$
(4
3
,,7
0
1
2
0
X
$
3
0
)
)0
X
$
3
*5
6
2
7
2
7
PROBLEM 5-4B
= 40%
New margin of safety ratio
= 35%
*$30 X $90
(c)
Current
New
$600,000
240,000
360,000
216,000
$144,000
$648,000
288,000
360,000
234,000
$126,000
(24,000 X $27)
(24,000 X $12)
No, the changes should not be made because net income will be lower
than the net income currently earned. In addition, the break-even point
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5-41
would be higher by 3,600 units and the margin of safety ratio would
decrease from 40% to 35%.
5-42
Copyright 2012 John Wiley & Sons, Inc.Weygandt, Managerial Accounting, 6/e, Solutions Manual(For Instructor Use Only)
PROBLEM 5-5B
(a) (1)
Current Year
$1,800,000
Sales
Variable costs
Direct materials
Direct labor
Manufacturing overhead ($480,000 X .40)
Selling expenses ($400,000 X .30)
Administrative expenses ($484,000 X .50)
Total variable costs
Contribution margin
456,000
250,000
192,000
120,000
242,000
1,260,000
$ 540,000
Sales
Current Year
$1,800,000 X 1.2
Variable costs
Direct materials
Direct labor
Manufacturing overhead
Selling expenses
Administrative expenses
Total variable costs
Contribution margin
456,000
250,000
192,000
120,000
242,000
1,260,000
$ 540,000
(2)
Fixed Costs
Manufacturing overhead ($480,000 X .60)
Selling expenses ($400,000 X .70)
Administrative expenses ($484,000 X .50)
Total fixed costs
X 1.2
X 1.2
X 1.2
X 1.2
X 1.2
X 1.2
X 1.2
Projected Year
$2,160,000
547,200
300,000
230,400
144,000
290,400
1,512,000
$ 648,000
Current
Year
$288,000
280,000
242,000
$810,000
Projected
Year
$288,000
280,000
242,000
$810,000
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5-43
Sales dollars
required for = (Fixed costs + Target net income) Contribution margin ratio
target net income
$3,410,000
=
($810,000 +
$213,000)
.30
(d)
3,410,000
*(Rounded)
(e) (1)
5-44
Sales
$1,800,000
Variable costs
Direct materials
Direct labor ($250,000 $100,000)
Manufacturing overhead ($480,000 X .10)
Selling expenses ($400,000 X .80)
Administrative expenses ($484,000 X .50)
Total variable costs
Contribution margin
456,000
150,000
48,000
320,000
242,000
1,216,000
$ 584,000
Copyright 2012 John Wiley & Sons, Inc.Weygandt, Managerial Accounting, 6/e, Solutions Manual(For Instructor Use Only)
$432,000
80,000
242,000
$754,000
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5-45
PROBLEM 5-6B
(a) 1.
2.
3.
5-46
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BYP 5-1
(a) $250 + $100 + $170 + $420 + $400 = $1,340 total variable costs
(b) Contribution margin per unit = $2,000 $1,340 = $660
(c) $359,700* $660 = 545 units
*$119,700 $240,000
(d) ($359,700 + $270,600) $660 = 955 units
(e) Actual (expected) sales = $2,000 X 1,000 = $2,000,000
Break-even sales = $2,000 X 545 = $1,090,000
Margin of safety in dollars = $2,000,000 $1,090,000
= $910,000
Margin of safety ratio = $910,000 $2,000,000
= 45.5%
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5-47
BYP 5-2
(a)
(1)
Capital-Intensive
(2)
$2,524,000
502,000
$3,026,000
$32.00
$5.00
6.00
3.00
2.00
16.00
$16.00
$3,026,000
$16.00
189,125
Labor-Intensive
$1,550,000
502,000
$2,052,000
$32.00
$5.50
8.00
4.50
2.00
20.00
$12.00
$2,052,000
$12.00
171,000
(b) Creative Ideas Company would be indifferent between the two manufacturing methods at the volume (X) where total costs are equal.
$16X + $3,026,000 = $20X + $2,052,000
$4X = $974,000
X = 243,500 units
(c) Creative Ideas should employ the capital-intensive manufacturing
method if annual sales are expected to exceed 243,500 units and the
labor-intensive manufacturing method if annual sales are not expected
to exceed 243,500 units. The labor-intensive method is more profitable
for sales up to 243,500 units because the fixed costs are lower. The
capital-intensive method is more profitable for sales above 243,500
units because its contribution margin is higher.
5-48
Copyright 2012 John Wiley & Sons, Inc.Weygandt, Managerial Accounting, 6/e, Solutions Manual(For Instructor Use Only)
BYP 5-3
MANAGERIAL ANALYSIS
$2.50
.49
.25
$3.24
$200,000
162,400
90,000
$452,400
$1,575,000
$825,000
147,000
75,000
1,047,000
528,000
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$200,000
162,400
90,000
452,400
$ 75,600
$1,824,000
$960,000
226,560
96,000
1,282,560
541,440
$200,000
202,400
90,000
492,400
$ 49,040
5-50
Copyright 2012 John Wiley & Sons, Inc.Weygandt, Managerial Accounting, 6/e, Solutions Manual(For Instructor Use Only)
(d) Peris plan should be accepted. It produces a higher net income and
a lower break-even point than Pauls plan.
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BYP 5-4
REAL-WORLD FOCUS
5-52
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BYP 5-5
REAL-WORLD FOCUS
(a) Barnes and Noble has 1,362 stores with a total of 18.8 million square
feet. That is a huge investment in fixed costs that have very little value
in an e-book environment.
(b) Barnes and Nobles big advantage (which enabled it to put lots of small
independent book sellers out of business), was that each of its
superstores had 150,000 books in stock. However, that is no longer as
impressive when you consider that booksellers websites now give you
access to millions of e-book titles which can be downloaded directly to
e-readers.
(c) The authors say that the arrival of Apples iPad has huge implications
for e-books. ITunes has more than 125 million customers. They represent
a very wide potential audience for e-books.
(d) Barnes and Nobel earns about $12.50 on a $25 hardcover book. The
same book, as an e-book, would sell for $12.99 and Barnes and Noble
would earn $3.90. Obviously they cant afford this decline unless they
can dramatically reduce their fixed costs.
(e) Barnes and Noble was one of the first companies to have an e-reader,
called the Rocket e-book. However, it abandoned its e-reader in 2003
because sales of e-books had been very low. Four years later Amazon
introduced its Kindle e-reader, which has been hugely popular. A second
mistake was that Barnes and Noble was very slow to upgrade its website
to encourage the sale of e-books. Again, Amazon was more than happy
to fill the void.
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5-53
BYP 5-6
To:
COMMUNICATION ACTIVITY
My Roommate
From:
Your Roommate
Subject:
Cost-Volume-Profit Questions
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5-55
BYP 5-7
ETHICS CASE
Keep quiet.
Confess his mistake to management.
5-56
Copyright 2012 John Wiley & Sons, Inc.Weygandt, Managerial Accounting, 6/e, Solutions Manual(For Instructor Use Only)
BYP 5-8
(a)
The variable gasoline cost of going one mile in the hybrid car would
be $0.09 ($3.60/40). The variable gasoline cost of going one mile in the
traditional car would be $0.12 ($3.60/30).
(b)
The savings per mile of driving the hybrid vehicle would be $0.03
($0.12 $0.09).
(c)
(d)
There are many other factors that you would want to consider in your
analysis. For example, do the vehicles differ in their expected repair
bills, insurance costs, licensing fees, or ultimate resale value. Also, some
states and some employers offer rebates for the purchase of hybrid
vehicles. In addition, your decision might be influenced by non-financial
factors, such as a desire to reduce emissions.
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