33:010:275 Lecture Notes - Lecture 5: Earnings Before Interest And Taxes, Contribution Margin, Expense Ratio

72 views3 pages

mauveporcupine901

21 Feb 2017

School

Rutgers University

Department

Accounting

Course

33:010:275

Professor

S A V I T A S A H A Y

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Chapter 3 cost-volume profit analysis: cost-volume profit-analysis. An examination of the cost behavior patterns that underlie: basics of cost-volume profit. Contribution income statement is helpful to managers in judging the impact on profits of changes in selling price, cost, or volume. Contribution margin the amount remaining from sales revenue after variable expenses have been deducted. Contribution approach sales, variable expenses, and contribution margin can also be expressed on a per unit basis. Contribution margin fixed expenses = net operating income. Profit = (sales variable expenses) fixed expenses: variable expense ratio the ratio of expenses to sales. Sales increase, fixed expenses decrease, and net operating income increase: break-even in unit sales. Profit = unit contribution margin x quantity fixed expenses: break even point equation method. Profit = cm ratio x sales fixed expenses: break-even in dollar sales: fixed expenses/cm ratio, break-even in units = fixed expenses/cm per unit, fenestre corporatio(cid:374)"s (cid:272)o(cid:374)tri(cid:271)utio(cid:374) (cid:373)argi(cid:374) ratio is 2(cid:1009)%.

Related Questions

Shown here is an income statement in thetraditional format for a firm with a sales volume of 7,900 units.Cost formulas also are shown:


Revenues	$	34,500
Cost of goods sold ($5,600 + $2.2/unit)		22,980

Gross profit	$	11,520
Operating expenses:
Selling ($1,180 +$0.1/unit)		1,970
Administration ($3,550 +$0.2/unit)		5,130

Operating income	$	4,420

the optional account names for the three boxes under variableexpense are:

Requirement 1:

Prepare an income statement in the contributionmargin format. (Omit the "$" sign in yourresponse.)


revenues		$
Variable expenses:
cost of good sold	$
selling expense
administrative expense

Total variable expenses

Contribution margin		$
Fixed expenses:
costof good sold	$
admistratitve expenses
selling expenses

Total fixed expenses

operating income		$

Requirement 2:

Calculate the contribution margin per unit andthe contribution margin ratio. (Omit the "$" and "%" signs inyour response. Round contribution margin per unit to 2 decimalplaces and contribution margin ratio to whole number.)

Contribution margin per unit	$
Contribution margin ratio	%

Requirement 3:
(a)	Calculate the firm's operating income (or loss)if the volume changed from 7,900 units to 11,850 units.(Do not round yourintermediate calculations. Round your answer to the nearest dollaramount. Omit the "$" sign in your response.)

operating income

(b)	Calculate the firm's operating income (or loss)if the volume changed from 7,900 units to 3,950 units. (Do not round your intermediatecalculations. Round your answer to the nearest dollar amount. Inputall amount as positive values. Omit the "$" sign in yourresponse.)

operating income

Requirement 4:
Refer to your answer to requirement 1 for total revenues of$34,500.
(a)	Calculate the firm%u2019s operating income (orloss) if unit selling price and variable expenses per unit do notchange, and total revenues increase by $10,500. (Do not round your intermediatecalculations. Round your answer to the nearest dollar amount. Omitthe "$" sign in your response.)

operating income

(b)

Calculate the firm's operating income (or loss)if unit selling price and variable expenses per unit do not change,and total revenues decrease by $3,000. (Do not round your intermediatecalculations. Round your answer to the nearest dollar amount. Inputthe amount as positive value. Omit the "$" sign in yourresponse.)

operating income

amberpanda95

Mathews Company manufactures only one product. For the year ended December 31, the The excess of sales over variable costs.contribution margin increased by $20,280 from the planned level of $681,720. The president of Mathews Company has expressed some concern about this increase and has requested a follow-up report.

The following data have been gathered from the accounting records for the year ended December 31:

	Actual	Planned	DifferenceâIncrease (Decrease)
Sales	$1,339,000	$1,318,980	$20,020
Variable costs:
Variable cost of goods sold	$507,000	$533,520	$(26,520)
Variable selling and administrative expenses	130,000	103,740	26,260
Total variable costs	$637,000	$637,260	$(260)
Contribution margin	$702,000	$681,720	$20,280
Number of units sold	13,000	14,820
Per unit:
Sales price	$103	$89
Variable cost of goods sold	39	36
Variable selling and administrative expenses	10	7

Required:

1. Prepare a contribution margin analysis report for the year ended December 31.

Mathews Company
Contribution Margin Analysis
For the Year Ended December 31
Planned contribution margin		$
Effect of change in sales:
Sales quantity factor	$
Unit price factor
Total effect of change in sales
Effect of changes in variable cost of goods sold:
Variable cost quantity factor	$
Unit cost factor
Total effect of changes in variable cost of goods sold
Effect of changes in variable selling and administrative expenses:
Variable cost quantity factor	$
Unit cost factor
Total effect of changes in variable selling and administrative expenses
Actual contribution margin		$

2. At a meeting of the board of directors on January 30, the president, after reviewing the contribution margin analysis report, made the following comment:

It looks as if the price increase of $14 was a favorable tradeoff for decreased sales volume, yet variable cost of goods sold was less than planned and variable selling and administrative expenses were out of control and needed to be investigated. He went on to say that since the favorable tradeoff between higher price and lower sales volume was so successful, the company should consider increasing the sales price to $130.

Do you agree or disagree with the president's proposal and which reason would best explain your decision about the data?

a) Disagree with the president because the majority of the decrease in the variable cost of goods sold was due to the variable cost quantity factor and the increased variable selling and administrative expenses are probably a result additional selling efforts needed to be competitive at higher prices.

b) Agree with the president because the unit cost factor for the variable selling and administrative cost is greater than the unit cost factor for the variable cost of goods sold, making an investigation necessary.

c) Agree with the president because the total effect of change in sales is greater than the total effect of changes in variable cost of goods sold, making an additional price raise attractive for more profits.

d) Disagree with the president because the contribution margin as a percentage of sales is greater for the planned sales level than the actual sales level, making his concern about variable selling and administrative expenses unwarranted.

e) Agree with the president because the majority of the decrease in the variable cost of goods sold was due to the sales price factor, as well as an increase in the variable selling and administrative expenses as a percentage of sales, making an additional price raise attractive for more profits.

purplecheetah825

Phoenix Companyâs 2017 master budget included the following fixed budget report. It is based on an expected production and sales volume of 15,000 units.

PHOENIX COMPANY
Fixed Budget Report
For Year Ended December 31, 2017

Machinery repairs (variable cost)

45,000

DepreciationâPlant equipment (straight-line)

300,000

Utilities ($45,000 is variable)

195,000

Plant management salaries

Sales salary (fixed annual amount)

235,000

430,000

General and administrative expenses

Entertainment expense

85,000

440,000

Income from operations

370,000

Prepare flexible budgets for the company at sales volumes of 14,000 and 16,000 units and classify all items listed in the fixed budget as variable or fixed.

PHOENIX COMPANY
Fixed Budget Report
For Year Ended December 31, 2017
	Flexible Budget		Flexible Budget for:
	Variable Amount per Unit	Total Fixed Cost	Units Sales of 14,000	Unit Sales of 16,000

Variable costs









Fixed costs

The companyâs business conditions are improving. One possible result is a sales volume of 18,000 units. The company president is confident that this volume is within the relevant range of existing capacity. How much would operating income increase over the 2017 budgeted amount of $370,000 if this level is reached without increasing capacity?

PHOENIX COMPANY
Forecasted Contribution Margin Income Statement
For Year Ended December 31, 2017
Sales (in units)	15,000	18,000
Contribution margin (per unit)
Contribution margin
Fixed costs
Operating income

An unfavorable change in business is remotely possible; in this case, production and sales volume for 2017 could fall to 12,000 units. How much income (or loss) from operations would occur if sales volume falls to this level? (Enter any loss with minus sign.)

PHOENIX COMPANY
Forecasted Contribution Margin Income Statement
For Year Ended December 31, 2017
Sales (in units)	15,000	12,000
Contribution margin (per unit)
Contribution margin
Fixed costs
Operating income (loss)

byzantiumscorpion900

33:010:275 Lecture Notes - Lecture 5: Earnings Before Interest And Taxes, Contribution Margin, Expense Ratio

Document Summary

Get access

Related Documents

33:010:275 Lecture Notes - Lecture 3: Earnings Before Interest And Taxes, Contribution Margin, Net Income

33:010:275 Lecture Notes - Lecture 3: Contribution Margin, Earnings Before Interest And Taxes, Cost Driver

Related Questions