37 views

Uploaded by Honey Jane Requina Sanchez

accounting

- Ch13_001
- Horngren Ima15 Im 06
- anthonyIM_16.doc
- Cost volume profit analysis
- dictionary for controllers.pdf
- IB L2 CM Breakeven
- Application of Cost Volume Profit in an Enterprise
- Break Even Analysis
- Cost Volume Profit Analysis
- Hanson Case Analysis
- fmq
- Formula .docx
- Management Accounting Summary
- Ch 8 - adms 1500
- Leverage and Capital Structure
- Sas Ancova 2010
- Solution - 15.34
- Data Mining Tutorial Complete
- Unit 2 Pricing
- 106-310-1-SM.pdf

You are on page 1of 27

Given:

Chi Omega Sorority is planning its annual Riverboat Extravaganza. The Extravaganza committee has

assembled the following expected costs for the event:

Variable Costs:

Dinner (per person) $7

Favors and programs (per person) 3

Total variable costs per person $10

Fixed costs:

Band $1,500

Tickets and Advertising 700

Riverboat Rental 4,800

Floorshow and Strolling Entertainers 1,000

Total fixed costs $8,000

The committee members would like to charge $30 per person for the evening's activities.

Required:

1. Compute the break-even point for the Extravaganza (in terms of the number of persons

that must attend).

$30(X) = $10(X) + $8,000 + $0

$20(X) = $8,000

X = $8,000 / $20 = 400 People

2. Assume that only 250 persons attended the Extravaganza last year. If the same number

attend this year, what price per ticket must be charged to breakeven?

(X)(250) = $10(250) + $8,000 + $0

(X)(250) = $2,500 + $8,000

(250)(X) = $10,500

X = $10,500 / 250

X= $42 price per ticket

3. Refer to the original data ($30 ticket price per person). Prepare a CVP graph for the

Extravaganza from zero tickets up to 600 tickets sold.

Graph Data:

Persons Estimated Fixed Sales Variable

Attending Cost Cost Values Cost

0 $8,000 $8,000 $0 $0

100 $9,000 $8,000 $3,000 $1,000

200 $10,000 $8,000 $6,000 $2,000

300 $11,000 $8,000 $9,000 $3,000

400 $12,000 $8,000 $12,000 $4,000

500 $13,000 $8,000 $15,000 $5,000

600 $14,000 $8,000 $18,000 $6,000

CVP Chart

$20,000

$18,000

f(x) = 30x

$16,000

$14,000

f(x) = 10x + 8000

$12,000

Cost

$10,000

$8,000

f(x) = 2.57817514245217E-15x + 8000

$6,000

$4,000

$2,000

$0

0 100 200 300 400 500

$4,000

$2,000

$0

0 100 200 300 400 500

Persons Attending

CVP Chart

Column E

Total Cost

Column F

TFC

Column E

Total Cost

Column F

TFC

Attending

CVP Chart

$20,000

$18,000

f(x) = 30x

$16,000

$14,000

f(x) = 10x + 8000

Cost

$12,000

$10,000

$8,000

f(x) = 2.57817514245217E-15x + 8000

$6,000

Column E

$4,000 Total Cost

Column F

TFC

$2,000

$0

0 100 200 300 400 500 600 700

Persons Attending

Demo C5-2: B/E Analysis; Target Profit; Margin of Safety; C/M Ratio

Given:

Pringle Company distributes a single product. The company's sales and expenses for a recent month were

Sales $600,000 $40 15,000

Variable expenses 420,000 $28 15,000

Contribution margin $180,000 $12

Fixed expenses 150,000

Net operating income $30,000

Required:

1. What is the monthly break-even point in units sold and in sales dollars?

$40(X) = $28(X) + $150,000 +0

$12(X) = $150,000

X = $150,000/$12

X = 12,500 12,500 units $500,000 Sales dollars

2. Without resorting to computations, what is the total contribution margin at the break-even

point?

At the break-even point, the total contribution must be equal to total fixed costs

3. How many units would have to be sold each month to earn a target profit of $18,000?

Verify your answer by preparing a contribution format income statement at the target

level of sales.

$40(X) = $28(X) + $150,000 + $18,000

$12(X) = $168,000

X = $168,000/$12

X = 14,000 14,000 units

Pringle Company

Contribution Margin Income Statement

For the Month ended _______________

Variable Expenses 28 392,000

Contribution Margin $12 $168,000 $168,000

Less: Fixed Expenses 150,000

Net Income $18,000

4. Refer to the original data. Compute the company's margin of safety in both dollar and

percentage terms.

Margin of safety = Current or budgeted sales level - breakeven.

M/S = $600,000 - ($40 X 12,500)

M/S = $600,000 - $500,000 = $100,000 2,500 units

Contribution ratio = TCM/Sales = $168,000/$560,000 = 30.0% 30.0%

Contribution ratio = (CM/Unit)/(Unit SP) = $12/$40 = 30.0%

how much would you expect monthly net operating income to increase?

$80,000 X 30% = $24,000

Proof:

Change in units 2,000

CM per unit $12

Change in TCM $24,000

cent month were

Demo C5-3: Basic CVP Analysis

Given:

Stratford Company distributes a lightweight lawn chair that sells for $15 per unit. Variable costs are $6

per unit, and fixed costs $180,000 annually.

Selling price per unit $15

Variable cost per unit $6

Total fixed costs $180,000

CM% = TCM / Sales or CM per unit / Selling price = ($15 - $6) / $15 = 60%

1X = VC%(X) + TFC

1(X) - VC%(X) = TFC

(1 - VC%)(X) = TFC VC% = 40%

CM%(X) = TFC

X = TFC/CM%

X =$180,000 / .60

X= $300,000

3. The company estimates that sales will increase by $45,000 during the coming year due to

increased demand. By how much should net operating income increase? $45,000

CM Ratio 60% CM per unit $9

Change in OI $27,000 Change in OI $27,000

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

Variable expenses 144,000 0.40

Contribution margin $216,000 0.60

Fixed expenses 180,000

Operating income $36,000

DOL = $216,000 / $36,000 = 6

b. The president expects sales to increase by 15% next year. By how much should net

operating income increase?

Proof:

% Change in Sales X DOL = % Change in OI Sales

15% X 6 = 90% Variable expenses

Contribution margin

Original operating income $36,000 Fixed expenses

% increase in OI resulting from a 15% increase in sales 90% Operating income

Dollar increase in OI resulting from a 15% increase in sales $32,400

5. Refer to the original data. Assume that the company sold 28,000 units last year. The sales

manager is convinced that a 10% reduction in the selling price, combined with a $70,000

increase in advertising expenditures, would cause annual sales in units to increase by 50%.

Prepare two contribution format income statements, one showing the results of last year's

operations and one showing what the results of operations would be if these changes were

made. Would you recommend that the company do as the sales manager suggests?

Stratford Company

Contribution Format Income Statements

Last Year and Pro-forma Based on Proposal Proof

Q5 Q5 Q6

Last Year Projected Projected

Volume 28,000 Volume 42,000 Volume 56,000

Per Unit Per Unit Per Unit

Sales $15.00 $420,000 $13.50 $567,000 $15.00 $840,000

Variable expenses $6.00 168,000 $6.00 $252,000 $8.00 $448,000

Contribution margin $9.00 $252,000 $7.50 $315,000 $7.00 $392,000

Fixed expenses 180,000 250,000 320,000

Operating income $72,000 $65,000 $72,000

No, the changes should not be made because the projected OI is lower than last year's OI.

6. Refer to the original data. Assume again that the company sold 28,000 units last year.

The president feels that it would be unwise to change the selling price. Instead, he wants

to increase the sales commission by $2 per unit. He thinks that this move, combined

with some increase in advertising, would cause annual unit sales to double. By how much

could advertising be increased with profits remaining unchanged? Do not prepare an

income statement; use the incremental analysis approach.

Long Way:

Sales = TVC + TFC + OI

Let X = increase in advertising expense

(28,000 X 2)($15) = (28,000 X 2)($6 + $2) + ($180,000 + $X) + $72,000

(56,000)($15) = (56,000)($8) + ($180,000 + $X) + $72,000

$840,000 = $448,000 +$180,000 + X + $72,000

X = $140,000

Incremental Approach:

Estimated New Total Contribution Margin (28,000 X 2 X ($9 - $2)) $392,000

Original Total Contribution Margin (28,000 X $9.00) 252,000

Increase in TCM assuming TFC remain the same $140,000

$414,000 $248,400

165,600

$248,400 $248,400

180,000

$68,400 $32,400

$68,400

140,000

Demo C5-4: Sales Mix; Multiproduct Break-Even Analysis

Given:

Marlin Company, a wholesale distributor, has been operating for only a few months. The company sells

three products - sinks, mirrors, and vanities. Budgeted sales by product and in total for the coming

month are shown below:

Product

Sinks Mirrors Vanities

Percentage of total sales 48% 20% 32%

Sales $240,000 100% $100,000 100% $160,000

Variable expenses 72,000 30% 80,000 80% 88,000

Contribution margin $168,000 70% $20,000 20% $72,000

Fixed expenses

Net operating income

Break-even point in sales dollars = Fixed expenses / CM ratio = $223,600 / .52 = $430,000

As shown by these data, net operating income is budgeted at $36,400 for the month, and break-even sales at

Assume that actual sales for the month total $500,000 as planned. Actual sales by product are:

Mirrors 200,000 0.40

Vanities 140,000 0.28

Total $500,000

Required:

1. Prepare a contribution format income statement for the month based on actual sales data.

Product

Sinks Mirrors Vanities

Percentage of total sales 32% 40% 28%

Sales $160,000 100% $200,000 100% $140,000

Variable expenses 48,000 30% 160,000 80% 77,000

Contribution margin $112,000 70% $40,000 20% $63,000

Fixed expenses

Net operating income

2. Compute the break-even point in sales dollars for the month, based on your actual data.

Break-even point in sales dollars = Fixed expenses / CM ratio = $223,600 / .43 = $520,000

3. Considering the fact that the company met its $500,000 sales budget for the month, the president is shocked at

the results shown on your income statement in (1) above. Prepare a brief memo for the president explaining

why both the operating results and the break-even point in sales dollars are different from what was budgeted.

Although the company met its sales budget of $500,000 for the month, the mix of products sold changed significa

that budgeted. This change in sales mix is the reason that the budgeted NOI was not met, and that BE sales incre

As shown by the data in the table below, sales shifted away from Sinks, which provides the greatest CM per dollar

of sales, and shifted strongly toward Mirrors, which provides the least CM per dollar of sales. Consequently, altho

the company met its budgeted level of total sales, these sales provided considerably less CM than we had planned

with a resulting decrease in NOI.

The company's overall CM ratio decreased to 43%, from a planned level of 52%. With less average CM per dollar o

a greater level of sales had to be achieved to provide sufficient CM to cover fixed costs. Hence the rise in BE sale

Product Sales Sales Mix Mix CM% CM%

Sinks $160,000 $240,000 32% 48% 70% 70%

Mirrors 200,000 $100,000 40% 20% 20% 20%

Vanities 140,000 $160,000 28% 32% 45% 45%

Total $500,000 $500,000 100% 100% 52% 43%

43%

. The company sells

al for the coming

oduct

Vanities Total

32% 100%

100% $500,000 100%

55% 240,000 48%

45% $260,000 52%

223,600 0.52

$36,400

$430,000

by product are:

oduct

Vanities Total

28% 100%

100% $500,000 100%

55% 285,000 57%

45% $215,000 43% 43%

223,600

($8,600)

$520,000

o for the president explaining

erent from what was budgeted.

s not met, and that BE sales increased.

ollar of sales. Consequently, although

rably less CM than we had planned,

d costs. Hence the rise in BE sales.

Actual Actual

Sales Mix CM% TCM

$500,000 32% 70% $112,000

$500,000 40% 20% $40,000

$500,000 28% 45% $63,000

TCM 43% $215,000 $215,000

TFC 223,600

NOI ($8,600)

Demo C5A-1: High-Low Method; Scattergraph Analysis; Regression

Given:

Zerbel Company, a wholesaler of large, custom-built air conditioning units for commercial buildings,

has noticed considerable fluctuation in its shipping expense from month to month, as shown below:

Total

Units Shipping

Month Shipped Expense Summary Assuming 6 units are expected to be shipped)

January 4 $2,200 1 Average Cost: $2,600

February 7 $3,100 2 High-Low $2,900

March 5 $2,600 3 Scattergraph $2,920

April 2 $1,500 4 Regression Values: $2,918

May 3 $2,200 Intercept: 1010.714286

June 6 $3,000 Slope: 317.8571429

July 8 $3,600 RSQ: 0.962220603

1. Using the high-low method, estimate the cost formula for shipping expense.

Cost formula: Y = a + bX

where Y = Total shipping costs Dependent variable

X = Units shipped Independent variable

b = Variable cost per unit

a = Fixed portion of total shipping cost

Y X

High X Value $3,600 8

Low X Value $1,500 2

Difference $2,100 6

Estimate a: a = Y - TVC

Y TVC TFC

High X Value $3,600 $2,800 $800

Low X Value $1,500 $700 $800

2. The president has no confidence in the high-low method and would like you to "check out' your

results using the scattergraph method.

a. Prepare a scattergraph using the data given above. Plot cost on the vertical axis and activity

on the horizontal axis. Fit a straight line to your plots.

To tal Sh ip p in g Exp en se

4000

3500

f(x) = 317.8571428571x + 1010.7142857143

To tal Sh ip p in g Exp en

Total Shipping Expense Scattergraph

4000

3500

f(x) = 317.8571428571x + 1010.7142857143

R² = 0.9622206025

3000

2500

2000

1500

1000

500

0

1 2 3 4 5 6 7 8

Units Shipped

b. Using your scattergraph, estimate the approximate variable cost per unit shipped and the approximate fixed cos

per month with the quick-and-dirty method.

Click on format. Select options.

Forecast backwards two units,

Select plotted point (5, $2,600) which lies on the trend line.

The variable cost can be quickly estimated by subtracting the estimated fixed cost ($1,000) from the total cost at the poin

lying on the straight line.

Estimate variable cost per unit by taking TVC and dividing it by the number for the selected point (5).

3. What factors, other than the number of units shipped, are likely to affect the company's shipping expense?

b. The distance shipped.

c. The speed of the shipping process -- delivery deadlines.

1. Using the least-squares regression method, estimate the cost formula for shipping expense.

Note: the R-squared is 0.96, which means that 96% of the variation in shipping costs is explained by

knowing the number of units shipped. This is a very high R-squared and indicates a very good fit.

SUMMARY OUTPUT To find the regression function: Click on Data Tab, then click on icon in the Data Analysis s

Regression Statistics

Multiple R 0.980928439

R Square 0.962220603

Adjusted R Sq 0.954664723

Standard Error 149.0445763

Observations 7

ANOVA

df SS MS F Significance F

Regression 1 2828928.571 2828928.571 127.3472669 9.54922E-05

Residual 5 111071.4286 22214.28571

Total 6 2940000

Intercept 1010.714286 151.6827382 6.663344147 0.0011491192 620.8013943 1400.627177

X Variable 1 317.8571429 28.16677736 11.28482463 9.54922E-05 245.4521366 390.2621491

RESIDUAL OUTPUT

1 2282.142857 -82.14285714

2 3235.714286 -135.7142857

3 2600 0

4 1646.428571 -146.4285714

5 1964.285714 235.7142857

6 2917.857143 82.14285714 82.14285714

7 3553.571429 46.42857143

2. Prepare a simple table comparing the variable and fixed cost elements of shipping expense as computed under

the quick-and-dirty scattergraph method, the high-low method, and the least-squares regression method.

Method Element (a) per Unit (b)

High-Low $800 $350

Quick & Dirty $1,000 $320

Regression $1,010.714 $317.857

ed to be shipped)

7 8 9

ipping expense?

icon in the Data Analysis section.

620.8013943 1400.627177

245.4521366 390.2621491

e as computed under

ession method.

Demo C5A-2: Cost Behavior: High-Low Method; C/M Format Income Statement

Given:

Frankel Ltd., a British merchandising company, is the exclusive distributor of a product that

is gaining rapid market acceptance. The company's revenues and expenses (in British

pounds) for the last three months are given below.

Frankel Ltd.

Comparative Income Statements

For the Three Months Ended. June 30

April May June

Sales in units 3,000 Per Unit 3,750 Per Unit 4,500

Sales Revenue £420,000 £140 £525,000 £140 £630,000

Cost of Goods Sold 168,000 56 210,000 56 252,000

Gross Margin £252,000 £84 £315,000 £84 £378,000

Selling and Administrative Expense

Shipping Expense £44,000 £14.67 £50,000 £13.33 £56,000

Advertising Expense 70,000 23.33 70,000 18.67 70,000

Salaries and Commissions 107,000 35.67 125,000 33.33 143,000

Insurance Expense 9,000 3.00 9,000 2.40 9,000

Depreciation Expense 42,000 14.00 42,000 11.20 42,000

Total Selling and Administrative Expenses £272,000 £90.67 £296,000 £78.93 £320,000

Net Operating Income (Loss) -£20,000 -£6.67 £19,000 £5.07 £58,000

1. Identify each of the company's expenses (including cost of goods sold) as either variable,

fixed, or mixed.

(See Above)

2. Using the High-Low Method, separate each mixed expense into variable and fixed elements.

State the cost formula for each mixed expense.

Mixed Cost £56,000 £44,000 £12,000

Volume 4,500 3,000 1,500 £8.00 per unit

Fixed Cost £20,000 £20,000

Cost formula y = 20,000 + 8.00(X)

Mixed Cost £143,000 £107,000 £36,000

Volume 4,500 3,000 1,500 £24.00 per unit

Fixed Cost £35,000 £35,000

Cost formula y = 35,000 + 24.00(X)

3. Redo the Company's income statement at the 4,500- unit level of activity using the C/M

format.

Frankel Ltd.

Contribution Format Income Statements

For the Month Ended. June 30

Variable expenses:

Cost of goods sold (4,500 units X 56 per unit) £252,000

Shipping Expense (4,500 units X 8 per unit) 36,000

Salaries and Commission Expense (4,500 units X 24 per unit) 108,000 396,000

Contribution Margin (4,500 units X (140 - 88) per unit) £234,000

Fixed Expenses:

Shipping Expense £20,000

Advertising Expense 70,000

Salaries and Commissions 35,000

Insurance Expense 9,000

Depreciation Expense 42,000 176,000

Net Operating Income £58,000

June

Per Unit

£140

56 V

£84

£12.44 M

15.56 F

31.78 M

2.00 F

9.33 F

£71.11 M

£12.89

d elements.

£52

£52

- Ch13_001Uploaded bykhaledhereh
- Horngren Ima15 Im 06Uploaded byAhmed Alhawy
- anthonyIM_16.docUploaded byAlka Narayan
- Cost volume profit analysisUploaded byRakib
- dictionary for controllers.pdfUploaded byi_kostadinovic
- IB L2 CM BreakevenUploaded bymuris
- Application of Cost Volume Profit in an EnterpriseUploaded byNaim Naim
- Break Even AnalysisUploaded byBabacar Tall
- Cost Volume Profit AnalysisUploaded bysofyan timoty
- Hanson Case AnalysisUploaded byMonika
- fmqUploaded byAmit Deshmukh
- Formula .docxUploaded byJikose
- Management Accounting SummaryUploaded byTan Nguyen
- Ch 8 - adms 1500Uploaded byVita Sonya
- Leverage and Capital StructureUploaded byC H ♥ N T Z
- Sas Ancova 2010Uploaded byAlex Roberts
- Solution - 15.34Uploaded bysan
- Data Mining Tutorial CompleteUploaded byrookieanalytics
- Unit 2 PricingUploaded byRAHUL140592
- 106-310-1-SM.pdfUploaded byAndika Saputra
- MG2451 2 MarksUploaded bySandeepakMadhavan
- [object XMLDocument]Uploaded byradhika1991
- Eco BreakevenUploaded bykhen026
- WOVENSACKS PROJECTI.xlsxUploaded byPradeep Tl
- Regression AnalysisUploaded byBitan Banerjee
- R1Uploaded bysiddhant
- Accounting Soluting Chap 014Uploaded byKhesvina Thevan
- SET CUploaded byVince Besario
- bmac5203Uploaded byShaanySiraj
- CHAPTER 5Uploaded byPatrick Earl T. Pintac

- 202E05Uploaded byHoney Jane Requina Sanchez
- Chapter 15Uploaded byCodeSeeker
- CHAPTER 6Uploaded byJuliet Austria Dimalibot
- Terms and ConditionUploaded byHoney Jane Requina Sanchez
- ResultUploaded byHoney Jane Requina Sanchez
- Cost Acctg CHAPTER-5.pdfUploaded byRenzo Ramos
- Savings AccountUploaded byHoney Jane Requina Sanchez
- Doc1Uploaded byHoney Jane Requina Sanchez
- Advanced Accounting by GuerreroUploaded bychahunay
- Advanced Accounting by GuerreroUploaded bychahunay

- CAP369 __ REAL TIME SYSTEMS.pdfUploaded byAmar Deep
- Water ActivityUploaded byfabiandionisio
- Addressing Modes in 8051Uploaded bySundar Sathappan
- 3873Uploaded bySHANKARAPPA
- Chapter 4 Mathematical Reasoning (1)_4AUploaded byCheng WL
- CHAPTER 1 STATISTICS.pdfUploaded byIrfan Syafri
- Chapter 9Uploaded byakttripathi
- Record Excel Macros that WorkUploaded byrafayghauri
- 2nd PresentationUploaded byTanvir Khan Marwat
- PRO 5 PB EnglishUploaded bykaniappan sakthivel
- Mega Parts Book_Vol 2Uploaded byMohamed Cheikh
- Industrial Engineering Interview Questions and Ansndustrial Engineering Interview Questions and Answers -Uploaded byDibyendu Chakladar
- Entropy and the Second Law of Thermodynamics Disorder and the Unavailability of Energy 6Uploaded byHarishChoudhary
- Data SheetUploaded byalamsaqib1
- Operating System Security 2008Uploaded byj2ch5en
- EESiFlo 6000 Series SpecificationsUploaded byYimmy Alexander Parra Marulanda
- TCR Project GuideUploaded byShraddha Harugade
- AIEEE Part Test-4Uploaded bysirsa11
- Gun ManualUploaded byOliver Kraus
- Notes for AP Physics.pdfUploaded byBooker
- More Cyclones in Bay of Bengal.why?Uploaded bySaurabh Agrawal
- Definition of Process ChainUploaded byAgnihotri Vikas
- QuizUploaded bygowrishankarpl
- 77605 CapUploaded bySankar Nayagam
- A Method of Designing Block Cipher Which Involves a Key Bunch Matrix with Polynomial Entries over F2Uploaded byInternational Organization of Scientific Research (IOSR)
- Citric Acid Facilitated Thermal Treatment an Innovative Method for the Remediation of MercuryUploaded byDian Rahmat Yuneri
- PhD_Thesis_2011_CarstenVolcker.pdfUploaded byTrần Hoàng Chương
- Intel D945GCNL MotherboardUploaded byShue Madey
- Impact of a Rigid on Composite Laminate using GENOA PFA MaterialUploaded byDan Wolf
- Quartal Triads for a Coltrane SoundUploaded byPim Van Harten