🏷️ LIMITED TIME OFFER: GET 20% OFF GRADE+ YEARLY SUBSCRIPTION →
Log in
HomeStudy Guides420,000CA160,000

ACCT 2230 Study Guide - Final Guide: Earnings Before Interest And Taxes

232 views1 pages
sangriaeel172
27 Dec 2015
School
University of Guelph
Department
Accounting
Course
ACCT 2230
Professor
Alireza Talebi

For unlimited access to Study Guides, a Grade+ subscription is required.

Document Summary

= estimated total manufacturing overhead cost for coming period. Estimated total units in the allocation base for the coming period x actual activity. Pro t = (unit cm x #units sold) - fixed expenses. Contribution margin (cm) = sales revenue - variable expenses. Sales price per unit (cm per unit) = unit price - unit variable cost. = (# units above breakeven) x cm per unit. Contribution margin = sales x cm ratio. Net operating income = increase in cm - increase in advertising expenses. Net income = change in sales dollars x cm ratio. Target pro t in = fixed expenses + target pro t units sold. Margin of safety = total sales - break-even sales. Margin of safety % = margin of safety.

Get access

Grade+20% off
$8 USD/m$10 USD/m
Billed $96 USD annually
Grade+
Homework Help
Study Guides
Textbook Solutions
Class Notes
Textbook Notes
Booster Class
40 Verified Answers

Related Documents

ACCT 2230 Chapter 7: Chapter 7 Managerial Accounting Notes
azurecrow744
ACCT 2230 Lecture Notes - Lecture 3: Earnings Before Interest And Taxes, Income Statement, Fixed Cost
sangriaeel172
ACCT 2230 Chapter Notes - Chapter 11: Earnings Before Interest And Taxes
tandolphin556

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

Not sure how to complete this multi production CM incomestatement at breakeven. If you can be detailed inyour answers so I can understand it, that would be awesome! Thanksin advance!

Applicable to thecompany as a whole:
Net income earned during mostrecent period: $ 65,000
Contribution marginratio: 15%
Fixed costs incurred duringmost recent period: $ 175,000
Statutory tax rate: 37%
Operating income generated atbreakeven: $ -
Applicable to the FootballDivision
Selling price perfootball $ 18.00
Total variable cost dollarsincurred by Football Division $ 952,088
Quantity of footballs soldduring most recent period: 64,000
Applicable to the BaseballDivision
Variable cost perbaseball: $ 3.24
Footballs Baseballs Total
Total $ $ per Unit Sales Ratios Total $ $ per Unit Sales Ratios Total $ Sales Ratios*
Revenues $ 1,152,000 $ 18.00 62% $ 702,497 $ 3.65 38% $ 1,854,497.35 100%
Variable Costs $ 952,088 $ 14.88 60% $ 624,235 $ 3.24 40% $ 1,576,323 100%
Contribution Margin $ 199,912 $ 3.12 72% $ 78,263 $ 0.41 28% $ 278,175 100%
Fixed Costs $ 175,000
Operating income $ 103,175
Income Tax $ 38,174.60
Net income $ 65,000
Footballs Baseballs Total
Total $ $ per Unit Sales Ratios Total $ $ per Unit Sales Ratios Total $ Sales Ratios
Revenues $ 1,166,666.67
Variable Costs
Contribution Margin
Fixed Costs
Operating income
Income Tax
Net income

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

Sales                               $20,000

Variable Expense             ($12,000)

Contribution Margin           $ 8,000

Fixed Expenses                ($6, 000)

Net Operating Income   $2, 000

Required:

1. What is the contribution margin per unit?

2. What is the contribution margin ratio?

3. What is the variable expense ratio?

4. If sales increase to  1,001 units, what would be the net operating income?

5. If sales decline to 900 units, what would be the net operating income?

6. If the selling price increase by $2 per unit and the sales volume decreases by 100 units, what would be the net operating income?

7. If the variable cost per unit increases by $1, spending on advertising increases by $1,500, and unit sales increases by 250 units. What would be the net operating income?

8. What is the break-even point in unit sales?

9. What is the break-even point in dollar sales?

10. How many units must be sold to achieve a target profit of $5,000? 

11. What is the margin of safety in dollars? What is the margin of safety percentage?

12. What is the degree of operating leverage?

13. Using the degree of operating leverage, what is the estimated percentage increase in net operating income of a 5% increase in sales?

14. Assume that the amounts of the company's total variable expenses and total fixed expenses were reversed. In other words, assume that the total variable expenses are $6,00 and the total fixed expenses are $12,000. Under this scenario and assuming that total sales remain the same, what is the degree of operating leverage?

15. Using the degree of operating leverage that you compute in the previous question, what is the estimated percentage increase in net operating income of a 5$ increase in sales?