AFM481 Lecture Notes - Lecture 16: Fixed Cost, Variable Cost, Cost Driver

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lilacmouse857

28 Jun 2018

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM481

Professor

Joyce Tian

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If sales mix changes to 3:7, we can calculate BEP sales volume in bundles increases from 75 to 100

units.

•

AFM 481 Page 11

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Document Summary

If sales mix changes to 3:7, we can calculate bep sales volume in bundles increases from 75 to 100 units. This is because the new sales mix shifted to the product with the lower contribution margin per unit ( rather than ) Wei should shift her sales mix to increase the sales volume of the higher contribution margin product. We have assumed so far that the single sales volume q was the only revenue driver and the only cost driver. Complicated problem arises if this assumption is wrong. The cvp analysis can be adapted if there are multiple cost drivers. Cvp analysis in non-profit and public sector organizations. So far cvp has been focused on merchandising companies. Cvp can also apply to manufacturing, service, non-profit. Need to focus on measuring output if its applied for service and non-profit. Note the percentage drop in people assisted (126-99)/126 = 0. 2143, more than the 15% of reduction in budget because of fixed cost.

Related Questions

I just need to reference numbers for the calculations

how to send my question with excel attachment ?

Use with Excel

The TV Corporation manufactures 2 types of TVs. The Basic TV

and the Deluxe TV. Budgeted and actual annual operating data areas follows:

Static Budget

Basic

Deluxe

Total

Number units Sold

60,000

40,000

100,000

Total Contribution Margin

$3,480,000

$3,444,000

$6,924,000

Budgeted CM per unit

$58.00

$86.10

Actual Results

Number units sold

59,850

45,150

105,000

Total Contribution Margin

$3,650,850

$3,612,000

$7,262,850

But, the actual industry volume was

300,000

Units

Prior to the beginning of the year, a consulting firm estimatedthe total volume

for volume of the Basic and Deluxe industry category to be

310,000

Units

Required:

Calculate the following information and variances on theworksheet entitled analysis. I have tried to give some helpfulhints.

Use the contribution margin approach in the following salesvariance analysis that follows.

a. Calculate the Static-budget variance.

I have tried to set up a model to use on the analysisworksheet.

Look at Exhibit 14-11 p.571

b. Calculate the contribution margin for the flexiblebudget.

c. Calculate the flexible budget variance.

d. Calculate the sales-volume variance.

e. Compute the actual sales-mix

f. Compute the budgeted sales-mix

g . Compute the sales-mix variance for each product andthen the total sales-mix variance like the table shown onpage 572. I have set up the table for you to fill in.

h. Compute the sales-quantity variance by type of machine andtotal

if total actual quantity is greater than total budgeted unitsthe sales-quantity will always be F and the opposite will occurwhen actual is less than budgeted).

i. Compute the market-share variance

j. Compute the market-size variance.

k. Comment on the results of the above variance analysis. Makesure your comments identify specific variances and

the impact of these variances on income.


Do not forget to use the IF function to determine if thevariance is favorable or unfavorable.
I used a formula approach like the author did and I expecteveryone to use cell references and use the Problem 2 worksheet asyour data for cell references.
I will take off 5 pts. if you have not used cell references fromthe problem 2 worksheet as your reference for the calculations. Iwill take off 3 pts. for not using IF statements or 1/2 each.
When you are adding multiple variances, either use the SUMIFfunction or a nested IF.
Also, make sure you are using ABS function, since variancesshould not be positive and negative.

I have color coded some areas that should match, since you canuse these variances to check your work since they should equal eachother.
Comments in "K" are worth 1 pt. You need to clearly identifymultiple sales variance you have calculated and the impact inincome.

a. Calculate the Static-budget variance.	$338,850	F

Static Budgeted Variance =Actual total contribution margin lessStatic total Contribution margin
Look at level 1 in Panel C in exhibit 14-11.

b. Calculate the contribution margin for the flexiblebudget.
	Basic	Deluxe	Total
Budgeted contribution margin per unit	$58	$86	Do not Total
Actual Number of units sold			Do not Total
Flexible -Budget Contribution Margin

c. Calculate the flexible budget variance.


d. Calculate the sales-volume variance.

Check Figure: static budget variance=flexible budget
variance+Sales volume Variance


		Basic	Deluxe
e. Calculate the Actual sales mix:
f. Calculate the Budgeted sales mix:
g . Compute the sales-mix variance for each product and then thetotal sales-mix variance like the table shown on page 572. I haveset up the table for you to fill in.
	Actual Units of All products sold	(Actual sales-mix%-Budgeted Sales Mix%	Budgeted Contribution Margin per unit	Sales-Mix Variance
Basic
Deluxe
g. Total Sales mix variance

Compute the sales-quantity variance by type of product andtotal.
Basic
Deluxe
h. Total Sales quantity variance


Check Figure: Sales-volume variance=Sales mixvariance+Sales Quantity Variance

Calculate the Actual market share:
Calculate the Budgeted market share:

Calculate the budgeted contribution margin
per composite unit of budgeted mix
Lastly:
I. Market-share Variance

j. Compute the market-size variance.
Check Figure: Sales-quantity variance=Market-sharevariance+Market size Variance

k. Comment on the results of the above variance analysis. Makesure your comments identify specific variances and the impact ofthese variances on income.

cerisecricket295

UESTION 9 At a volume of 3,000 units, Rudy Inc. reported thefollowing:

Sales $2,400,000 Variable Costs $900,000 Fixed Costs$650,000

1. Compute the operating leverage for Rudy Inc. Round to 2decimal places.

2. What would be the increase in Net Income from a 20% increasein Sales? To be marked correct, please give the % increase ratherthan $ amount, round answer to 2 places and state in decimal formi.e. 75% becomes 0.75.

3. If the company eliminates sales comissions of $100 per unitby changing to a flat salary increase of $400,000 for its salesmanagers, by what dollar amount would net income change? Noteincreases as a positive number, decreases as a negative number.

4. If instead of changing the sales commissions (treatindependently from #11), the company reduces its selling price by$100 per unit, resulting in an increase in sales of 900 units, whatis the impact to net income in dollars? Note increases with apositive number, decreases with a negative number.

5. If instead, the company decides to reduce the selling priceby $100, AND increase advertising by $200,000 and expects sales toincrease by 1,200 units, what would be the impact on net income indollars? Note increases with a positive number, decreases with anegative number.

silverwallaby139

Oslo Company prepared the following contribution format incomestatement based on a sales volume of 1,000 units (the relevantrange of production is 500 units to 1,500 units):


Sales	$	25,700
Variable expenses		13,900

Contribution margin		11,800
Fixed expenses		7,788

Net operating income	$	4,012

3. What is the variable expense ratio? Round yourpercentage answer to 2 decimal places (i.e .1234 should be enteredas 12.34). Variable expense ratio-

4. If sales increase to 1,001 units, what would be the increase innet operating income? (Round your answer to 2 decimalplaces.)

Increase in net operating Income-

5. If sales decline to 900 units, what would be the netoperating income? (Do not round intermediatecalculations.)

Net operating Income-

6. If the selling price increases by $1.60 per unit and thesales volume decreases by 100 units, what would be the netoperating income? (Do not round intermediatecalculations.)

Net operating Income-

7. If the variable cost per unit increases by $.60, spending onadvertising increases by $1,100, and unit sales increase by 250units, what would be the net operating income? (Do notround intermediate calculations.)

Net operating Income-

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AFM481 Lecture Notes - Lecture 16: Fixed Cost, Variable Cost, Cost Driver

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