ACTG 2020 Chapter Notes - Chapter 4: Rede Ferroviária Nacional, Contribution Margin, Earnings Before Interest And Taxes

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23 Feb 2017

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Cost-volume-profit (cvp) estimates how changes in costs (both variable and fixed), sales volu(cid:373)e (cid:894)e. g. (cid:374)u(cid:373)(cid:271)er of u(cid:374)its sold(cid:895), a(cid:374)d pri(cid:272)e affe(cid:272)t a (cid:272)o(cid:373)pa(cid:374)y"s profit. Powerful tool for planning and decision making can be used to calculate: The number of units that must be sold to break even. The impact of a given reduction in fixed costs on the break-even point. The impact of an increase in price on profit. Break-even point (bep) is the point where total revenue equals total cost or total revenue total cost = 0. Operating income = total revenue total cost (variable costs and fixed costs) Variable costs (costs that increase as output increases) includes: Sales price per unit per unit. Variable cost per unit per unit. The amount left over for fixed costs and operating income after covering variable costs. Contributed margin ratio = contributed margin / sales. Contribute margin ratio = 600,000 / 1000,000 = 60%

Related Questions

EXERCISE 6-14 Variable Costing Unit Product Cost and Income Statement; Break-Even [L06-1, L06-2] 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: 20,000 19,000 1,000 Units in beginning inventory ......... Units produced ........... Units sold ........ Units in ending inventory .... Variable costs per unit: Direct materials ............ Direct labor ........... .......... Variable manufacturing overhead ...... Variable selling and administrative ..... Total variable cost per unit. $ 50 $160 Fixed costs: Fixed manufacturing overhead .. ........ Fixed selling and administrative .................. Total fixed costs .............................. $700,000 285,000 $985,000 Required: 1. Assume that the company uses variable costing. Compute the unit product cost for one barbe- cue grill. 2. Assume that the company uses variable costing. Prepare a contribution format income state- ment for the year. 3. What is the company's break-even point in terms of the number of barbecue grills sold?

The Hampshire Company manufactures umbrellas that sell for$12.50 each. In 2014, the company made and sold 60,000 umbrellas.The company had fixed manufacturing costs of $216,000. It also hadfixed costs for administration of $79,525. The per-unit costs ofeach umbrella are as follows:

Direct Materials: $3.00

Direct Labor: $1.50

Variable Manufacturing Overhead: $0.40

Variable Selling Expenses: $1.10

Using the information above, perform a cost-volume-profit (CVP)analysis by completing the steps below.

1. Compute net income before tax.

2. Compute the unit contribution margin in dollars and thecontribution margin ratio for one umbrella.

3. Calculate the break-even point in units and dollars ofrevenue.

4. Calculate the margin of safety:

In units

In sales dollars

As a percentage

5. Calculate the degree of operating leverage.

6. Assume that sales will increase by 20% in 2015. Calculate thepercentage of before-tax income for this increase. Providecalculations to prove that your percentage increase is correctbased on the operating leverage calculated in step 5.

7. Compute the number of umbrellas that Hampshire is required tosell if it plans to earn $150,000 in income before taxes by usingthe target income formula. Proof your calculation.

8. A company that specializes in tours in England has offered topurchase 5,000 umbrellas at $11 each from Hampshire. The variableselling costs of these additional units will be $1.30 as opposed to$1.10 per unit. Also, this production activity will incur another$15,000 of fixed administrative costs. Should Hampshire agree tosell these additional 5,000 umbrellas to the touring business?Provide calculations to support your decision.

Requirement 1
	Units	Price	Totals
Sales	X	$	$
Variable Costs	X	$	$
Fixed Costs			$
Net Income			$

Requirement 2

Contribution Margin per Unitin Dollars = Selling Price â Variable Costs

Selling Price		Variable Costs	Contribution Margin per Unit



Contribution Margin Ratio =Contribution Margin/Selling Price

Contribution Margin		Selling Price	Contribution Margin Ratio


Requirement 3

Break-Even Point = Fixed Costs/ Contribution Margin

Fixed Costs		Contribution Margin	Break-Even Point in Units (Rounded)


Break-Even Point in Units XSelling Price per Unit = Break-Even Point Sales

Break-Even Point in Units		Selling Price per Unit	Break-Even Point in Sales (Rounded)


Requirement 4A

Margin of Safety in Units =Current Unit Sales â Break-Even Point in Unit Sales

Current Unit Sales		Break-Even Point in Sales	Margin of Safety in Units


Requirement 4B

Margin of Safety in Dollars =Current Sales in Dollars â Break-Even Point Sales in Dollars

Current Sales in Dollars		Break-Even Point in Dollars	Margin of Safety in Dollars


Requirement 4C

Margin of Safety as aPercentage = Margin of Sales in Units / Current Unit Sales

Margin of Safety in Units		Current Unit Sales	Margin of Safety Percentage



Requirement 5

Degree of Operating Leverage =Contribution Margin / Operating Income

Contribution Margin		Operating Income	Operating Leverage



Requirement 6
	Units	$ Per Unit	Totals
Sales	X	$	$
Variable Costs	X	$	$
Fixed Costs			$
Net Income			$

Operating Leverage		Times % Increase	Increase would be XX%


Prior Income	$	From Part 1
Increase	$	Prior Income X XX% Above
Total	$


Requirement 7

Targeted Income = (Fixed Costs+ Target Income) / Contribution Margin

Fixed Costs + Target Income		Divided by Contribution Margin	# of Units (Rounded)
Fixed Costs	$
Target Income	$
Total	$	$	X

		# of Units Above X $ Per Unit
Proof	Revenue	XX,XXX X $XX.XX	$
	Variable Costs	XX,XXX X $X.XX	$
	Contribution Margin		$
	Fixed Costs		$
	Net Income		$


Requirement 8

Sales Mix
	Current	Specialty	Total
Expected Sales Units	X	X
Revenue = Sales X Price	$	$	$
Variable Costs X Units	$	$	$
Contribution Margin	$	$	$
Fixed Costs	$	$	$
Operating Income			$

Prior Net Income FromRequirement 1			$

Additional Operating Income	(Operating Income Above Less Prior Income)		$

Decision With Explanation

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CompuDesk, Inc., makes an oak desk specially design for personal computers. The desk sells for $200. Data for last year's operations follow:Units in beginning inventory --- 0Units produced ------------------- 10,000Units sold -------------------------- 9,000Units in ending inventory ------ 1,000Variable costs per unit: Direct materials -------------------------- $ 60 Direct labor ----------------------------------- 30 Variable manufacturing overhead ----- 10 Variable selling and administrative --- 20 Total variable cost per unit --------- $ 120Fixed costs: Fixed manufacturing overhead ------ $ 300,000 Fixed selling and administrative ------ 450,000 Total fixed costs ---------------------- $ 750,0001) Assume that the company uses variable costing. Compute the unit product cost for a (1) computer desk.2) Assume that the company uses variable costing. Prepare an income statement for a year in good form using the contribution format.3) What is the company's break-even point in terms of units sold?4) Reconcile the differenceRefer to the data above for CompuDesk. Assume in this exercise that the company uses absorption costing.1) Compute the unit product cost for one computer desk.2) Prepare an income statement for the year in good form.

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ACTG 2020 Chapter Notes - Chapter 4: Rede Ferroviária Nacional, Contribution Margin, Earnings Before Interest And Taxes

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