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

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rubysalmon273

11 Aug 2017

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[(selling price variable cost per unit) * (quantity sold)] fixed costs = Operating income (contribution margin per unit * quantity of units sold) fixed costs = Breakeven point and target operating income: breakeven point, breakeven point (bep): the quantity of output sold at which total revenue equals total costs. (cid:1006)(cid:1004)(cid:1004)(cid:863) othe(cid:396) (cid:272)osts should (cid:271)e considered: compares the changes in contribution margin (through the effects of selling prices, variable costs, and units sold) to the changes in fixed costs. It"s a si(cid:373)ple app(cid:396)oa(cid:272)h to (cid:396)e(cid:272)og(cid:374)izi(cid:374)g uncertainty which is the possibility that an actual amount will deviate from an expected amount. Effects of sales mix on income: sales mix: the quantity (or proportion) of various products or services that constitute a (cid:272)o(cid:373)pa(cid:374)(cid:455)"s total u(cid:374)it sales, more than one product. ,000 fixed costs: 900000 5000 q 270000 = 0, q = 126 people.

Related Questions

In cost-volume-profit analysis, the unit contribution margin is:

a. Sales price per unit less cost of goods sold per unit.

b. Sales price per unit less unit fixed cost per unit.

c. Sales price per unit less total variable cost per unit.

d. Sales price per unit less unit total cost per unit.

e. The same as the contribution margin ratio.

silvercrocodile195

Columbia Products produced and sold 1,400 units of the companyâs only product in March. You have collected the following information from the accounting records:


Sales price (per unit)	$	129
Manufacturing costs:
Fixed overhead (for the month)		16,800
Direct labor (per unit)		7
Direct materials (per unit)		31
Variable overhead (per unit)		26
Marketing and administrative costs:
Fixed costs (for the month)		22,400
Variable costs (per unit)		4

Required:

a. Compute the following:


1.	Variable manufacturing cost per unit.	$64
2.	Full cost per unit.	$96
3.	Variable cost per unit.	$68
4.	Full absorption cost per unit.	$
5.	Prime cost per unit.
6.	Conversion cost per unit.
7.	Profit margin per unit.
8.	Contribution margin per unit.
9.	Gross margin per unit.

champagnewhale941

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

redant669

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

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