Professional Documents
Culture Documents
Solution Manual Managerial Accounting Hansen Mowen 8th Editions CH 11 PDF
Solution Manual Managerial Accounting Hansen Mowen 8th Editions CH 11 PDF
COST-VOLUME-PROFIT ANALYSIS:
A MANAGERIAL PLANNING TOOL
QUESTIONS FOR WRITING AND DISCUSSION
347
18. JIT simplifies the firm’s cost equation since driver). JIT means that CVP analysis ap-
more costs are classified as fixed (e.g., di- proaches the standard analysis with fixed
rect labor). Additionally, the batch-level vari- and unit-level costs only.
able is gone (in JIT, the batch is one unit).
Thus, the cost equation for JIT includes
fixed costs, unit variable cost times the
number of units sold, and unit product-level
cost times the number of products sold (or
related cost
348
EXERCISES
11–1
2. Price $14.00
Variable cost per unit 8.40
Contribution margin per unit $5.60
349
11–2
1. Price $12.00
Less:
Direct materials $1.90
Direct labor 2.85
Variable overhead 1.25
Variable selling expenses 2.00 8.00
Contribution margin per unit $4.00
11–3
350
11–4
11–5
351
11–6
11–7
Or
Or
352
11–8
1. Sales mix is 2:1 (Twice as many videos are sold as equipment sets.)
2. Variable Sales
Product Price – Cost = CM × Mix = Total CM
Videos $12 $4 $8 2 $16
Equipment sets 15 6 9 1 9
Total $25
Break-even packages = $70,000/$25 = 2,800
Break-even videos = 2 × 2,800 = 5,600
Break-even equipment sets = 1 × 2,800 = 2,800
3. Switzer Company
Income Statement
For Last Year
Sales ........................................................................................... $ 195,000
Less: Variable costs ................................................................. 70,000
Contribution margin.................................................................. $ 125,000
Less: Fixed costs ...................................................................... 70,000
Operating income ................................................................ $ 55,000
Contribution margin ratio = $125,000/$195,000 = 0.641, or 64.1%
Break-even sales revenue = $70,000/0.641 = $109,204
353
11–9
1. Sales mix is 2:1:4 (Twice as many videos will be sold as equipment sets, and
four times as many yoga mats will be sold as equipment sets.)
2. Variable Sales
Product Price – Cost = CM × Mix = Total CM
Videos $12 $4 $8 2 $16
Equipment sets 15 6 9 1 9
Yoga mats 18 13 5 4 20
Total $45
Break-even packages = $118,350/$45 = 2,630
Break-even videos = 2 × 2,630 = 5,260
Break-even equipment sets = 1 × 2,630 = 2,630
Break-even yoga mats = 4 × 2,630 = 10,520
3. Switzer Company
Income Statement
For the Coming Year
Sales ........................................................................................... $555,000
Less: Variable costs ................................................................. 330,000
Contribution margin.................................................................. $225,000
Less: Fixed costs ...................................................................... 118,350
Operating income ................................................................ $106,650
Contribution margin ratio = $225,000/$555,000 = 0.4054, or 40.54%
Break-even revenue = $118,350/0.4054 = $291,934
11–10
354
11–11
1.
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$0
0 500 1,000 1,500 2,000 2,500 3,000 3,500
Units Sold
Break-even point = 2,500 units; + line is total revenue and x line is total costs.
355
11–11 Continued
$40,000
$35,000
$30,000
$25,000
$20,000
$15,000
$10,000
$5,000
$0
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000
Units Sold
356
11–11 Continued
$50,000
$40,000
$30,000
$20,000
$10,000
$0
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000
Units Sold
357
11–11 Continued
$50,000
$40,000
$30,000
$20,000
$10,000
$0
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000
Units Sold
358
11–11 Continued
$70,000
$60,000
$50,000
$40,000
$30,000
$20,000
$10,000
$0
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000 8,000
Units Sold
359
11–11 Continued
3. Original data:
$10,000
$0
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000
-$10,000
360
11–11 Continued
$15,000
$0
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000
-$15,000
361
11–11 Continued
$10,000
$0
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000
-$10,000
362
11–11 Continued
$10,000
$0
0 500 1,000 1,500 2,000 2,500 3,000 3,500 4,000
-$10,000
363
11–11 Concluded
$15,000
$0
0 1,000 2,000 3,000 4,000 5,000 6,000 7,000
-$15,000
4. The first set of graphs is more informative since these graphs reveal how
costs change as sales volume changes.
364
11–12
1. Darius: $100,000/$50,000 = 2
Xerxes: $300,000/$50,000 = 6
2. Darius Xerxes
X = $50,000/(1 – 0.80) X = $250,000/(1 – 0.40)
X = $50,000/0.20 X = $250,000/0.60
X = $250,000 X = $416,667
Xerxes must sell more than Darius to break even because it must cover
$200,000 more in fixed costs (it is more highly leveraged).
11–13
365
11–14
11–15
366
11–16
367
11–17
368
11–18
369
11–18 Concluded
5. The break-even point will increase because more units will need to be sold to
cover the additional fixed expenses.
Break-even units = $345,200/$4.10 = 84,195 units
Revenue = $547,268
370
PROBLEMS
11–19
371
11–19 Concluded
11–20
5. Let X = Units
0.10($50)X = $50.00X – $28.80X – $816,412
$5X = $21.20X – $816,412
$16.20X = $816,412
X = 50,396 units
372
11–21
373
11–22
1. Sales mix:
Squares: $300,000/$30 = 10,000 units
Circles: $2,500,000/$50 = 50,000 units
Sales Total
Product P – V* = P–V × Mix = CM
Squares $30 $10 $20 1 $ 20
Circles 50 10 40 5 200
Package $220
*$100,000/10,000 = $10
$500,000/50,000 = $10
Break-even packages = $1,628,000/$220 = 7,400 packages
Break-even squares = 7,400 × 1 = 7,400
Break-even circles = 7,400 × 5 = 37,000
3. New mix:
Sales Total
Product P – V = P–V × Mix = CM
Squares $30 $10 $20 3 $ 60
Circles 50 10 40 5 200
Package $260
Break-even packages = $1,628,000/$260 = 6,262 packages
Break-even squares = 6,262 × 3 = 18,786
Break-even circles = 6,262 × 5 = 31,310
CM ratio = $260/$340* = 0.7647
*(3)($30) + (5)($50) = $340 revenue per package
0.10Revenue = 0.7647Revenue – $1,628,000
0.6647Revenue = $1,628,000
Revenue = $2,449,225
374
11–22 Concluded
11–23
375
11–24
1. Currently:
Sales (830,000 × $0.36) $ 298,800
Variable expenses 224,100
Contribution margin $ 74,700
Fixed expenses 54,000
Operating income $ 20,700
New contribution margin = 1.5 × $74,700 = $112,050
$112,050 – promotional spending – $54,000 = 1.5 × $20,700
Promotional spending = $27,000
376
11–25
377
11–26
378
11–26 Concluded
The new break-even point is a revised break-even for 2004. Total fixed costs
must be reduced by the contribution margin already earned (through the first
five months) to obtain the units that must be sold for the last seven months.
These units are then be added to those sold during the first five months:
CM earned = $600,000 – (83* × $2,686) – (195* × $1,328) = $118,102
*224 – 141 = 83; 524 – 329 = 195
X = ($225,000 + $44,000 – $118,102)/$5,612 = 27 packages
In the first five months, 28 packages were sold (83/3 or 195/7). Thus, the re-
vised break-even point is 55 packages (27 + 28)—in units, 165 of Grade I and
385 of Grade II.
379
11–27
1. R = F/(1 – VR)
= $150,000/(1/3)
= $450,000
380
11–28
3. Sales $ 1,218,000
Variable costs (0.45 × $1,218,000) 548,100
Contribution margin $ 669,900
Fixed costs 550,000
Operating income $ 119,900
Break-even in units = $550,000/$23.10* = 23,810
Break-even in sales dollars = $550,000/0.55** = $1,000,000
*$669,900/29,000 = $23.10
**$669,900/$1,218,000 = 55%
381
11–29
1. The annual break-even point in units at the Peoria plant is 73,500 units and at
the Moline plant, 47,200 units, calculated as follows:
Unit contribution calculation:
Peoria Moline
Selling price $150.00 $150.00
Less variable costs:
Manufacturing (72.00) (88.00)
Commission (7.50) (7.50)
G&A (6.50) (6.50)
Unit contribution $ 64.00 $ 48.00
Break-even calculation:
Break-even units = Fixed costs/Unit contribution
Peoria = $4,704,000/$64
= 73,500 units
Moline = $2,265,600/$48
= 47,200 units
2. The operating income that would result from the divisional production man-
ager’s plan to produce 96,000 units at each plant is $3,628,800. The normal
capacity at the Peoria plant is 96,000 units (400 × 240); however, the normal
capacity at the Moline plant is 76,800 units (320 × 240). Therefore, 19,200 units
(96,000 – 76,800) will be manufactured at Moline at a reduced contribution
margin of $40 per unit ($48 – $8).
Contribution per plant:
Peoria (96,000 × $64) $ 6,144,000
Moline (76,800 × $48) 3,686,400
Moline (19,200 × $40) 768,000
Total contribution $ 10,598,400
Less: Fixed costs 6,969,600
Operating income $ 3,628,800
382
11–29 Concluded
3. If this plan is followed, 120,000 units will be produced at the Peoria plant and
72,000 units at the Moline plant.
Contribution per plant:
Peoria (96,000 × $64) $ 6,144,000
Peoria (24,000 × $61) 1,464,000
Moline (72,000 × $48) 3,456,000
Total contribution $ 11,064,000
Less: Fixed costs 6,969,600
Operating income $ 4,094,400
383
11–30
3. The general assumptions underlying break-even analysis that limit its useful-
ness include the following: all costs can be divided into fixed and variable
elements; variable costs vary proportionally to volume; and selling prices re-
main unchanged.
384
MANAGERIAL DECISION CASES
11–31
2. I = X(P – V) – F
X($30 – $10) – $100,000 = X($30 – $6) – $200,000
$20X – $100,000 = $24X – $200,000
$100,000 = $4X
X = 25,000
The manual process is more profitable if sales are less than 25,000 cases; the
automated process is more profitable at a level greater than 25,000 cases. It is
important for the manager to have a sales forecast to help in deciding which
process should be chosen.
3. The divisional manager has the right to decide which process is better. Dan-
na is morally obligated to report the correct information to her superior. By al-
tering the sales forecast, she unfairly and unethically influenced the decision-
making process. Managers do have a moral obligation to assess the impact of
their decisions on employees, and to be fair and honest with employees.
However, Danna’s behavior is not justified by the fact that it helped a number
of employees retain their employment. First, she had no right to make the de-
cision. She does have the right to voice her concerns about the impact of au-
tomation on employee well-being. In so doing, perhaps the divisional manag-
er would come to the same conclusion even though the automated system
appears to be more profitable. Second, the choice to select the manual sys-
tem may not be the best for the employees anyway. The divisional manager
may have more information, making the selection of the automated system
the best alternative for all concerned, provided the sales volume justifies its
selection. For example, the divisional manager may have plans to retrain and
relocate the displaced workers in better jobs within the company. Third, her
motivation for altering the forecast seems more driven by her friendship for
Jerry Johnson than any legitimate concerns for the layoff of other employees.
Danna should examine her reasoning carefully to assess the real reasons for
her behavior. Perhaps in so doing, the conflict of interest that underlies her
decision will become apparent.
385
11–31 Concluded
4. Some standards that seem applicable are III-1 (conflict of interest), III-2 (re-
frain from engaging in any conduct that would prejudice carrying out duties
ethically), and IV-1 (communicate information fairly and objectively).
11–32
386
11–32 Continued
Dream $275,500/$21,680 = 13
Petrushka $145,500/$21,680 = 7
Nutcracker $70,500/$29,150 = 3
Sleeping Beauty $345,000/$21,680 = 16
Bugaku $155,500/$21,680 = 8
387
11–32 Continued
388
11–32 Concluded
RESEARCH ASSIGNMENT
11–33
389
390