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ACBU 2223 Lecture 7: Lecture 7

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carminebear339
9 Feb 2017
School
Fordham University
Department
Accounting
Course
ACBU 2223
Professor
John Savignano

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Document Summary

(cid:1847)(cid:1866)(cid:1872) (cid:1829)=(cid:1845)(cid:1857)(cid:1864)(cid:1864)(cid:1866)(cid:1859) (cid:1868)(cid:1870)(cid:1855)(cid:1857) (cid:1868)(cid:1857)(cid:1870) (cid:1873)(cid:1866)(cid:1872) (cid:1848)(cid:1853)(cid:1870)(cid:1853)(cid:1854)(cid:1864)(cid:1857) (cid:1857)(cid:1876)(cid:1868)(cid:1857)(cid:1866)(cid:1871)(cid:1857)(cid:1871) (cid:1868)(cid:1857)(cid:1870) (cid:1873)(cid:1866)(cid:1872: unit volume usually represented on x axis & dollars on y axis in cost-volume-profit. Prepare & interpret cost-volume-profit graph & profit graph graph: simpler form of cost-volume-profit graph called profit graph. Using cm ratio to compute changes in contribution margin & net operating income resulting from changes in sales volume: (cid:1829) (cid:1870)(cid:1853)(cid:1872)(cid:1867)=(cid:3021)(cid:3042)(cid:3047)(cid:3028)(cid:3039) (cid:3030)(cid:3042)(cid:3041)(cid:3047)(cid:3045)(cid:3029)(cid:3048)(cid:3047)(cid:3042)(cid:3041) (cid:3040)(cid:3028)(cid:3045)(cid:3034)(cid:3041) (cid:3014) (cid:3043)(cid:3032)(cid:3045) (cid:3048)(cid:3041)(cid:3047) (cid:3020)(cid:3032)(cid:3039)(cid:3039)(cid:3041)(cid:3034) (cid:3043)(cid:3045)(cid:3030)(cid:3032) (cid:3043)(cid:3032)(cid:3045) (cid:3048)(cid:3041)(cid:3047) (cid:3021)(cid:3042)(cid:3047)(cid:3028)(cid:3039) (cid:3046)(cid:3028)(cid:3039)(cid:3032)(cid:3046, (cid:1842)(cid:1870)(cid:1867)(cid:1858)(cid:1872)=(cid:4666)(cid:1829) (cid:1870)(cid:1853)(cid:1872)(cid:1867) (cid:1845)(cid:1853)(cid:1864)(cid:1857)(cid:1871)(cid:4667) (cid:1832)(cid:1876)(cid:1857)(cid:1856) (cid:1857)(cid:1876)(cid:1868)(cid:1857)(cid:1866)(cid:1871)(cid:1857)(cid:1871) Variable expense ratio: ratio of variable expenses to sales, can be computed by dividing total variable expenses by total sales/dividing variable expenses per unit by unit selling price. Break-even analysis: profits sh @ break-even point, (cid:1847)(cid:1866)(cid:1872) (cid:1871)(cid:1853)(cid:1864)(cid:1857)(cid:1871) (cid:1872)(cid:1867) (cid:1854)(cid:1870)(cid:1857)(cid:1853)(cid:1863) (cid:1857)(cid:1874)(cid:1857)(cid:1866)=(cid:3032)(cid:3031) (cid:3032)(cid:3043)(cid:3032)(cid:3041)(cid:3046)(cid:3032)(cid:3046) (cid:3014) (cid:3043)(cid:3032)(cid:3045) (cid:3048)(cid:3041)(cid:3047, (cid:1830)(cid:1867)(cid:1864)(cid:1864)(cid:1853)(cid:1870) (cid:1871)(cid:1853)(cid:1864)(cid:1857)(cid:1871) (cid:1872)(cid:1867) (cid:1854)(cid:1870)(cid:1857)(cid:1853)(cid:1863) (cid:1857)(cid:1874)(cid:1857)(cid:1866)=(cid:3032)(cid:3031) (cid:3032)(cid:3043)(cid:3032)(cid:3041)(cid:3046)(cid:3032)(cid:3046) (cid:3014) (cid:3045)(cid:3028)(cid:3047)(cid:3042, (cid:1847)(cid:1866)(cid:1872) (cid:1871)(cid:1853)(cid:1864)(cid:1857)(cid:1871) (cid:1872)(cid:1867) (cid:1853)(cid:1872)(cid:1872)(cid:1853)(cid:1866) (cid:1872)(cid:1853)(cid:1870)(cid:1859)(cid:1857)(cid:1872) (cid:1868)(cid:1870)(cid:1867)(cid:1858)(cid:1872)=(cid:3021)(cid:3028)(cid:3045)(cid:3034)(cid:3032)(cid:3047) (cid:3043)(cid:3045)(cid:3042)(cid:3033)(cid:3047)+(cid:3032)(cid:3031) (cid:3032)(cid:3043)(cid:3032)(cid:3041)(cid:3046)(cid:3032)(cid:3046) (cid:3014) (cid:3043)(cid:3032)(cid:3045) (cid:3048)(cid:3041)(cid:3047)

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Related Questions

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 – 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 – 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 – 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

Vulcan Company's contribution format income statement for Juneis given below:

Vulcan Company
Income Statement
For the Month Ended June 30
Sales $859,000
Variable expenses

396,858
Contribution margin 462,142
Fixed expenses

436,372
Netoperating income

$25,770


Management isdisappointed with the company's performance and is wondering whatcan be done to improve profits. By examining sales and costrecords, you have determined the following:


a.

The company is divided into two salesterritories%u2014Northern and Southern. The Northern territoryrecorded $411,000 in sales and $209,850 in variable expenses duringJune; the remaining sales and variable expenses were recorded inthe Southern territory. Fixed expenses of $150,000 and $120,000 aretraceable to the Northern and Southern territories, respectively.The rest of the fixed expenses are common to the twoterritories.
b.

The company is the exclusive distributor for twoproducts%u2014Paks and Tibs. Sales of Paks and Tibs totaled$105,000 and $306,000, respectively, in the Northern territoryduring June. Variable expenses are 25% of the selling price forPaks and 60% for Tibs. Cost records show that $57,000 of theNorthern territory's fixed expenses are traceable to Paks and$50,000 to Tibs, with the remainder common to the two products.
references



18.
value:
19.00 points

Problem 11-24 Requirement 1

Requirement 1:

Prepare contribution format segmented incomestatements. (Roundpercentage computations to 1 decimal place. Negative amounts otherthan expenses should be indicated by a minus sign. Omit the "$" and"%" signs in your response.)


Sales Territory
Total Company Northern Southern
Amount % Amount % Amount %
Sales $ $ $
Variable expenses

Contribution margin

Traceable fixed expenses

Sales territory segment margin

$

$

Common fixed expenses
Netoperating income

$

Product Line
Northern Territory Paks Tibs
Amount % Amount % Amount %
Sales $ $ $
Variable expenses

Contribution margin
Traceable fixed expenses

Product line segment margin

$

$

Common fixed expenses
Sales territory segment margin

$

check my workreferences


19.
value:
1.00 points

Problem 11-24 Requirement 2

Requirement 2:

Based on the above incomestatements, which of the following the statement(s) is true?(Select all thatapply.)

The high traceable fixed expenses of the Paksproduct may simply mean that the Paks product is not highlyleveraged.
The Northern territory has high traceable fixedexpenses.
An increase in sales of Paks product line wouldnot greatly enhance profits in the Northern territory.
Compared to the Southern territory, the Northernterritory has a low contribution margin ratio.
The Northern territory has a poor salesmix.
Overall, compared to the Southern territory, theNorthern territory is very weak.

Stratford Company distributes a lightweight lawnchair that sells for $40 per unit. Variable expenses are $20.00 perunit, and fixed expenses total $200,000 annually.


Required:
1.

What is the product's CM ratio? (Do not round intermediatecalculations.)


CM ratio %


2.

Use the CM ratio to determine the break-evenpoint in sales dollars. (Donot round intermediate calculations. Round your answer to thenearest dollar amount. )


Break-even point in sales dollars $


3.

The company estimates that sales will increaseby $43,000 during the coming year due to increased demand. By howmuch should net operating income increase?


Net operating income increases by $


4. Assume that the operating results for last year were asfollows:


Sales $ 1,080,000
Variable expenses

540,000

Contribution margin 540,000
Fixed expenses 200,000
Net operating income $

340,000


a.

Compute the degree of operating leverage at thecurrent level of sales. (Round your answer to 2decimal places.)


Degree of operating leverage


b.

The president expects sales to increase by 16%next year. By how much should net operating income increase?(Round yourintermediate calculations to 2 decimal places and final answer tothe nearest dollar amount.)


Net operating income increases by $


5.

Refer to the original data. Assumethat the company sold 40,500 units last year. The sales manager isconvinced that a 11% reduction in the selling price, combined witha $65,000 increase in advertising expenditures, would increaseannual unit sales by 50%.


a.

Prepare two contribution formatincome statements, one showing the results of last year%u2019soperations and one showing what the results of operations would beif these changes were made. (Input all amounts aspositive values except losses which should be indicated by minussign. Do not round intermediate calculations. Round proposed unitsto the nearest whole number. Round your "Per unit" answers to 2decimal places.)


Last Year
40,500 units

Proposed
units
Total PerUnit Total PerUnit
(Click to select)Fixed expensesVariableexpensesSalesContribution marginNet operating income (loss) $ $ $ $
(Click to select)Contribution marginVariableexpensesFixed expensesSalesNet operating income (loss)
(Click to select)Fixed expensesContribution marginNetoperating income (loss)Variable expensesSales $ $
(Click to select)Contribution marginFixed expensesNetoperating income (loss)SalesVariable expenses
(Click to select)Net operating income(loss)Contribution marginSalesFixed expensesVariable expenses $ $


b. Would you recommend that the company do as the sales managersuggests?
No
Yes


6.

Refer to the original data. Assume again thatthe company sold 40,500 units last year. The president feels thatit would be unwise to change the selling price. Instead, he wantsto increase the sales commission by $1.90 per unit. He thinks thatthis move, combined with some increase in advertising, would doubleannual unit sales. By how much could advertising be increased withprofits remaining unchanged? Do not prepare an income statement;use the incremental analysis approach.


The amount by which advertising can be increasedis $