Solution Manual For Managerial Accounting 10th Edition

Solution Manual for Managerial Accounting, 10th
Edition
To download the complete and accurate content document, go to:

https://testbankbell.com/download/solution-manual-for-managerial-accounting-10th-e
dition/
Solution Manual for Managerial Accounting, 10th Edition
CHAPTER 19—Solutions
COST-VOLUME-PROFIT ANALYSIS
Discussion Questions
DQ1. Total costs that change in direct proportion to changes in productive output (or any other
volume measure) are called variable costs. Total fixed costs remain constant within a rele-
vant range of volume or activity. They change only when volume or activity exceeds the
relevant range. A mixed cost has both variable and fixed cost components. If managers
can identify a cost's behavior then they can use this understanding to make comparisons
and determine selling prices that cover both fixed and variable costs within the relevant
range of activity.
DQ2. Mixed costs can be separated into their variable and fixed components using a variety
of methods, including the engineering, scatter diagram, high-low, and statistical methods.
Understanding cost behavior enhances its usefulness in decision making.
DQ3. When preparing a contribution margin income statement, all variable costs related to pro-
duction, selling, and administration are subtracted from sales to determine the total contri-
bution margin. Then, all fixed costs are subtracted from the total contribution margin to
determine operating income. The contribution margin income statement emphasizes cost
behavior rather than organizational functions, which enables managers to understand or
compare revenue and cost relationships on a per-unit basis or as a percentage of sales.
DQ4. CVP analysis examines the cost behavior patterns that underlie the relationships among
cost, volume of output, and profit. Generally the unit contribution margin for a single prod-
uct is used to find the breakeven point, but a contribution margin weighted by the sales
mix of multiple products can be used instead if the company sells a variety of products.
Since the breakeven point is when the company can begin to earn a profit, its determina-
tion in units or sales dollars empowers managers to understand and compare alternative
plans.
DQ5. CVP relationships provide a model of financial activity that management can use for plan-
ning and evaluating performance and analyzing alternatives. The addition of targeted
profit to the breakeven equation makes it possible to plan levels of operation that yield de-
sired profit. CVP analysis allows managers to compare several “what-if” scenarios and to
understand the outcome of each to determine which will generate the desired amount of
profit.
19-1
© 2014 Cengage Learning. All Rights Reserved. May not be scanned, copied, duplicated, or posted to a publicly accessible website, in whole or in part.
Visit TestBankBell.com to get complete for all chapters

Short Exercises
SE1. Accounting Concepts
1. b
2. a
SE2. Identification of Variable, Fixed, and Mixed Costs
1. (b) variable cost

2. (c) mixed cost
3. (a) fixed cost
4. (a) fixed cost
5. (b) variable cost
SE3. Mixed Costs: High-Low Method
Activity
Volume Month Level Cost
High June 100 hours $4,680
Low May 90 hours 4,230
Difference 10 hours $ 450
Variable cost per telephone hour = $450 / 10 hours

= $45 per hour
Fixed costs for June = $4,680 – ( $45 × 100 ) = $180

Fixed costs for May = $4,230 – ( $45 × 90 ) = $180
SE4. Contribution Margin Income Statement
Sales revenue* $120,000

Less variable costs** 50,000
Contribution margin $ 70,000
Less fixed costs 20,000
Operating income $ 50,000
* Sales revenue – $50,000 – $20,000 = $50,000

Sales revenue = $50,000 + $50,000 + $20,000
Sales revenue = $120,000
** $10 × 5,000 = $50,000 variable costs
Sales price × 5,000 = $120,000

Sales price = $24
19-2
SE5. Breakeven Analysis in Units and Dollars
$9 x = $5 x + $6,000
$4 x = $6,000
x = 1,500 units
Breakeven dollars = $9 × 1,500 units = $13,500
SE6. Contribution Margin in Units
Breakeven Units = Fixed Costs / Contribution Margin per Unit

= $7,700 / ( $11 – $4 )
= $7,700 / $7
= 1,100 units
SE7. Contribution Margin Ratio
Contribution Contribution Margin $8 *

= = = 0.500
Margin Ratio Selling Price $16
Fixed Costs $6,250

Breakeven Dollars = = = $12,500
Contribution Margin Ratio 0.500
*$16 – $8 = $8
SE8. Breakeven Analysis for Multiple Products
Weighted-
Selling – Variable = Contribution × Sales = Average
Price Costs Margin (CM) Mix CM
A $10 – $4 = $6 × 0.7500 = $4.50
B $ 8 – $5 = $3 × 0.2500 = 0.75
Weighted-average contribution margin $5.25
Weighted-Average Breakeven Point Units = $14,175 / $5.25 = 2,700 units
Breakeven point for each product line:
Weighted-Average Sales Breakeven

Breakeven Point × Mix = Point
A = 2,700 units × 0.7500 = 2,025 units
B = 2,700 units × 0.2500 = 675 units
Check: Contribution margin

Product A = 2,025 × $6 = $12,150
Product B = 675 × $3 = 2,025
Total contribution margin $14,175
Profit $ —
19-3
SE9. Monthly Costs and the High-Low Method
Volume Month Activity Level Cost

Highest November 95 cases $21,350
Lowest December 90 cases 20,840
Difference 5 cases $ 510
Variable Cost per Case = $510 / 5 cases = $102 per case

Fixed Cost for November = $21,350 – ( 95 × $102 ) = $11,660
Fixed Cost for December = $20,840 – ( 90 × $102 ) = $11,660
Variable cost per case for December:

Direct labor $190
Variable service overhead 102
Variable cost per case $292
Fixed cost per case for December:
Fixed service overhead ($11,660 / 90) $130 *
*Rounded
SE10. CVP Analysis and Projected Profit
Profit = Contribution Margin – Fixed Costs

= 300 ( $38 – $18 ) – $4,000
= 300 ( $20 ) – $4,000
= $6,000 – $4,000
= $2,000
19-4
Exercises: Set A
E1A. Identification of Variable and Fixed Costs
1. (b) fixed
2. (a) variable
3. (a) variable
4. (a) variable
5. (b) fixed
6. (a) variable
7. (a) variable
8. (a) variable
E2A. Variable Cost Analysis
1. Cars to Be Required Total

Month Serviced Quarts/Car Cost/Quart Cost/Month
1 250 4 $0.75 $ 750
2 280 4 0.75 840
3 360 4 0.75 1,080
Three-month total 890 $2,670
2. a. Cost per unit remained constant.

b. Total variable cost per month increased as the quantity of oil used increased.
E3A. Mixed Costs: High-Low Method
Machine Electricity
Volume Month Hours Cost
Highest July 6,000 $60,000
Lowest December 3,000 36,000
Difference 3,000 $24,000
Variable rate = $24,000 / 3,000 hours = $8 per machine hour
July: $60,000 – ( 6,000 × $8 ) = $12,000 fixed electricity cost

December: $36,000 – ( 3,000 × $8 ) = $12,000 fixed electricity cost
Total variable costs:

4,800 machine hours × $8 per machine hour $38,400
Total fixed costs:
$12,000 × 1 month 12,000
Estimated total electricity costs for next month $50,400
19-5
E4A. Mixed Costs: High-Low Method
Variable rate:
$80,000 – $60,000 $20,000
= = 50% of sales
$90,000 – $50,000 $40,000
Fixed costs:
$80,000 = 50% ( $90,000 ) + FC
FC = $35,000
or
$60,000 = 50% ( $50,000 ) + FC
FC = $35,000
Cost formula:
Monthly costs = 50% of sales + $35,000
E5A. Contribution Margin Income Statement and Ratio
1. Sales $100 × 400 units = $40,000

Less variable costs 40 * × 400 units = 16,000
Contribution margin $ 60 × 400 units = $24,000
Less fixed costs 18,000 **
Operating income $ 6,000
*($10,000 + $6,000) / 400 = $40

**($13,000 + $5,000) = $18,000
2. CM / Sales = CM Ratio
$60 / $100 = 60%
3. Sales – VC – FC = $0
$100 x – $40 x – $18,000 = $0
$60 x = $18,000
x = 300 units
19-6
E6A. Contribution Margin Income Statement and Breakeven Analysis
a. Selling price per unit:

$16,000,000 / 20,000 units = $800 per unit
b. Variable costs per unit:

( $8,000,000 + $4,000,000 ) / 20,000 units = $600 per unit
c. Breakeven in units:
Sales – VC – FC = $0
$800 x – $600 x – $2,000,000 = $0
$200 x = $2,000,000
x = 10,000 units
Breakeven in dollars:
Breakeven in units × Selling price = Breakeven in dollars
10,000 units × $800 = $8,000,000
E7A. Breakeven Analysis
FC
1. BE Units =
CM per Unit
$200,500 + $80,000
=
$30 – ( $8 + $12 )
$280,500
=
$10
= 28,050 sets
2. BE Dollars = BE Units × Selling Price per Set

= 28,050 × $30
= $841,500
FC
3. BE Units =
CM per Unit
$200,500 + $37,500
=
$34 – ( $8 + $12 )
$238,000
=
$14
= 17,000 sets
19-7
E7A. Breakeven Analysis (Concluded)
4. Fixed Variable Total Total

Units Costs Costs* Costs Sales**
— $238,000 $ — $ 238,000 $ —
5,000 238,000 100,000 338,000 170,000
10,000 238,000 200,000 438,000 340,000
15,000 238,000 300,000 538,000 510,000
20,000 238,000 400,000 638,000 680,000
25,000 238,000 500,000 738,000 850,000
30,000 238,000 600,000 838,000 1,020,000
35,000 238,000 700,000 938,000 1,190,000
40,000 238,000 800,000 1,038,000 1,360,000
*Variable Costs per Unit = $8 + $12 = $20

**Sales = $34 per unit sold
Breakeven Graph
Dollars (in thousands)
Total Revenue Line
Breakeven Point Total Cost Line

in Sales Dollars
($578,000 = 578
17,000 × $34)
Fixed Costs
238 ($238,000)
10,000 20,000 30,000 40,000

0
Key Units of Output
Fixed Cost
Breakeven Point
Total Cost in Sales Units
Total Revenue (17,000 units)
19-8
E8A. Breakeven Point for Multiple Products
Percentage Weighted-
Selling Variable Contribution of Sales Average
Price – Costs = Margin (CM) × Mix = CM
Aquariums $60 – $25 = $35 × 20% = $ 7.00
Water pumps 20 – 12 = 8 × 40% = 3.20
Air filters 10 – 3 = 7 × 40% = 2.80
Weighted-average breakeven point = $52,000 / $13 = 4,000 units
Breakeven point for each product:

Aquariums 4,000 units × 20% = 800 units
Water pumps 4,000 units × 40% = 1,600 units
Air filters 4,000 units × 40% = 1,600 units

Aquariums = 800 units × $35 = $28,000
Water pumps = 1,600 units × 8 = 12,800
Air filters = 1,600 units × 7 = 11,200
Profit $ 0
E9A. Breakeven Point for Multiple Products
Fraction Weighted-
Selling Variable Contribution of Sales Average
Price – Costs = Margin (CM) × Mix = CM
Hamburgers $0.99 – $0.27 = $0.72 × 1/6 = $0.12
Drinks $0.99 – $0.09 = $0.90 × 1/2 = 0.45
Fries $0.99 – $0.15 = $0.84 × 1/3 = 0.28
Weighted-average breakeven point = $1,020 / $0.85 = 1,200 units

Hamburgers 1,200 units × 1/6 = 200 units
Drinks 1,200 units × 1/2 = 600 units
Fries 1,200 units × 1/3 = 400 units

Hamburgers = 200 units × $0.72 = $ 144
Drinks = 600 units × $0.90 = 540
Fries = 400 units × $0.84 = 336
Profit $ 0
19-9
E10A. Sales Mix Analysis
Per Unit Percentage Per Unit

Contribution of Sales Weighted-Average
Margin (CM)* × Mix** = CM
Shampoo and set $12.25 × 40% = $ 4.90
Permanent 36.00 × 35% = 12.60
Cut and blow dry 10.00 × 25% = 2.50
Weighted-average breakeven point = $40,000 / $20 = 2,000 units

Shampoo and set 2,000 units × 40% = 800 units
Permanent 2,000 units × 35% = 700 units
Cut and blow dry 2,000 units × 25% = 500 units

Shampoo and set = 800 units × $12.25 = $ 9,800
Permanent = 700 units × $36.00 = 25,200
Cut and blow dry = 500 units × $10.00 = 5,000
Profit $ 0
* Contribution margin/unit:
Shampoo and set $14,700 / 1,200 = $12.25
Permanent $15,120 / 420 = $36.00
Cut and blow dry $10,000 / 1,000 = $10.00
** Percentage of sales mix:

Shampoo and set $24,000 / $60,000 = 40%
Permanent $21,000 / $60,000 = 35%
Cut and blow dry $15,000 / $60,000 = 25%
19-10
E11A. Cost Behavior in a Service Business
1. Using the high-low method:

Number of
Volume Month Payroll Forms Cost
Highest February 100 $3,500
Lowest January 50 2,000
Difference 50 $1,500
Variable overhead rate = $1,500 / 50 tax returns = $30 per tax return
February Fixed Service Total Service Variable Service

= –
Overhead Costs Overhead Costs Overhead Costs
= $3,500 – ( $30 × 100 )
= $500
2. Direct professional labor $40.00

Variable service overhead rate 30.00
Fixed service overhead ( $500 / 80 tax returns ) 6.25
Estimated total cost per tax return $76.25
19-11
E12A. CVP Analysis and Profit Planning
FC + P
1. Target Sales Units =
CM per Unit
$4,035,000 + $1,500,000
=
$130,000 – $68,500
$5,535,000
=
$61,500
= 90 units
FC + P
CM per Unit
( $4,035,000 + $29,240 ) + $1,500,000

=
$130,000 – ( $68,500 – $1,730 )
$4,064,240 + $1,500,000
=
$130,000 – $66,770
$5,564,240
=
$63,230
= 88 units
Increase in P
3. Additional Units =
CM per Unit
$1,264,600
=
$63,230
= 20 units
Proof:
FC + P
Target Sales Units =
CM per Unit
$4,064,240 + $2,764,600
=
$63,230
$6,828,840
=
$63,230
= 108 units
19-12
E13A. Planning Future Sales
FC + P
CM per Unit
$150,000 + $50,000
=
$40 – $20
$200,000
=
$20
= 10,000 daily rentals
2. 10,000 daily rentals / 50 autos = 200 days per auto per year
3. Target Sales Dollars = Number of Daily Rentals × Rental per Auto

= 10,000 × $40.00
= $400,000
Revised Target FC + P
4. = × Selling Price
Sales Dollars CM per Unit
( $150,000 – $5,000 ) + $70,000

= × $40
$20
$145,000 + $70,000
= × $40
$20
$215,000
= × $40
$20
= $430,000
E14A. CVP Analysis in a Service Business
Let x = Sales in Units (Inspections)

S = VC + FC + P
$60 x = $15 x + $3,000 + $1,500
$45 x = $4,500
x = 100 inspections
19-13
E15A. CVP and Breakeven Analysis and Pricing
FC $135,000 *
1. BE Units = = = 90,000 units
CM per Unit $1.50 **
*FC = $75,000 + $60,000 = $135,000
$60,000 + $30,000 + $45,000

VC per Unit = = $2.25
60,000 units
**CM per Unit = SP per Unit – VC per Unit = $3.75 – $2.25 = $1.50
2. CM per Unit = SP per Unit – VC per Unit = $3.70 – $2.25 = $1.45
Projected Operating Income = (CM per Unit × Sales Forecast) – FC
= ( $1.45 × 100,000 units) – $135,000
= $145,000 – $135,000
= $10,000
Yes, the price should be reduced. If the market research proves to be true, the operating
income will increase from a negative $45,000 to a positive $10,000.
Note to Instructor: Solutions for Exercises: Set B are provided separately on the Instructor’s
Resource CD and website.
19-14
Problems
P1. Cost Behavior and Projection for a Service Business
1. Variable costs: Skilled labor Fixed costs: Depreciation, paint-spraying equipment

Unskilled labor Lease payments on vans
Chlorine Rent on storage building
Paint primer
Paint Mixed costs: Utilities
2. Volume Month Hours Worked Utilities Cost

Highest August 1,460 $5,890
Lowest February 740 3,550
Difference 720 $2,340
$2,340
Variable rate = = $3.25 per hour worked
720 hours
August fixed cost = $5,890 – ( 1,460 hours × $3.25 )
= $5,890 – $4,745 = $1,145
3. Variable costs:
Skilled labor $20 × 12 hours × 500 = $120,000
Unskilled labor $8 × 8 hours × 500 = 32,000
Chlorine $5.50 × 3,000 gallons = 16,500
Paint primer $15.50 × 7,536 gallons = 116,808
Paint $16.00 × 6,280 gallons = 100,480
Total average variable costs $385,788
Fixed costs:
Depreciation, lease, rent $1,821 */mo. × 12 months = 21,852
Mixed costs:
Utilities 46,240 **
Total costs $453,880
Average cost per job = $453,880 / 500 jobs = $907.76 per job
*$600 + $800 + $421 = $1,821

**Annual estimated utilities costs = ($3.25 × 10,000 hours***) + (12 months × $1,145)
= $32,500 + $13,740 = $46,240
Annual actual utilities costs = $55,420 given
***500 jobs (12 hrs./job + 8 hrs./job) = 10,000 hours
4. Average variable cost: ( $385,788 / 500 jobs ) × 120% = $ 925.89 *

Average fixed cost: $21,852 / 500 jobs = 43.70 *
Mixed cost—variable: [( $3.25 × 10,000 ) / 500 jobs ] × 120% = 78.00
Mixed cost—fixed: ( $1,145 × 12 months ) / 500 jobs = 27.48
Projected average cost per job next year: $1,075.07
*Rounded
5. The utilities cost formula is an estimate based solely on two data points, the highest and
lowest activity months.
19-15
P2. Breakeven Analysis
1. BE Units = FC / CM per Hour

= $27,000 / ( $18.00 – $9.00 – $5.40 )
= $27,000 / $3.60
= 7,500 billable hours
2. BE Dollars = BE Hours × Billing Rate per Hour

= 7,500 hours × $18
= $135,000
3. BE Dollars = Billing Rate per Hour × ( FC / CM per Hour )

= $18 × [( $27,000 + $2,340 ) / ( $18.00 – $9.00 – $5.40 )
= $18 × ( $29,340 / $3.60 )
= $18 × 8,150
= $146,700
4. BE Dollars = Billing Rate per Hour × ( FC / CM per Hour )

= $17 × [( $27,000 – $3,600 ) / ( $17.00 – $9.00 – $5.00 )
= $17 × ( $23,400 / $3.00 )
= $17 × 7,800
= $132,600
19-16
P3. Planning Future Sales: Contribution Margin Approach
1. a. BE Units = FC / CM per Unit
= ( $36,000 + $45,000 + $11,400 ) / [ $55.00 – ( $18.50

+ $4.25 + $1.10 + $2.80 + $1.95 ) ]
= $92,400 / ( $55.00 – $28.60 )

= $92,400 / $26.40
= 3,500 units
b. Target Sales Units = ( FC + P) / CM per Unit

= ( $92,400 + $70,224 ) / $26.40
= $162,624 / $26.40
= 6,160 units
2. Target Sales Units = ( FC + P ) / CM per Unit

= ( $92,400 + $40,000 + $139,520 ) / $26.40
= $271,920 / $26.40
= 10,300 units

10,000 units = ( $92,400 + $131,600 ) / CM per Unit
= ( $224,000 ) / CM per Unit
Multiplying both sides of the equation by CM per unit, we get:

10,000 units × CM per Unit = $224,000
CM per Unit = $22.40
Revised SP per Unit = CM per Unit + VC per Unit
Revised SP per Unit = $22.40 + $28.60 = $51

= ( FC + $251,000 ) / ( $52.00 – $28.60 )
= ( FC + $251,000 ) / $23.40
= 15,000 units
Multiplying both sides of the equation by $23.40, we get:

15,000 units × $23.40 = FC + $251,000
FC = ( 15,000 × $23.40 ) – $251,000
FC = $351,000 – $251,000
FC = $100,000
Total fixed costs allowed $100,000

Less original fixed cost estimate 92,400
Additional dollars available for advertising $ 7,600
19-17
P4. Breakeven Analysis and Planning Future Sales
FC
1. a. BE Units =
CM per Unit
$600,000 + $300,000
=
$23 – ( $12 + $5 )
$900,000
=
$6
= 150,000 units
b. BE Dollars = 150,000 units × $23

= $3,450,000
FC + P
CM per Unit
$900,000 + $240,000
=
$6
$1,140,000
=
$6
= 190,000 units
3. a. SP – VC per Unit = CM per Unit / Units = Fixed Costs Covered

$23 – $17 = $6 × 30,000 = $180,000
b. FC + P
= CM per Unit
Units
( $841,000 – $180,000 + $210,000 )

=
130,000 units
$871,000
=
130,000 units
= $6.70 CM per Unit Required on Remaining Units
At sales of 160,000 units, the total required contribution margin equals the target profit
plus the revised fixed costs ($841,000) to be recovered.
19-18
P4. Breakeven Analysis and Planning Future Sales (Concluded)
Proof:
Required contribution margin ( $210,000 + $841,000 ) $1,051,000
Less contribution margin already generated
( 30,000 units × $6 ) 180,000
Balance of contribution margin to be generated $ 871,000
Required CM per Unit Balance of CM to Be Generated

=
on Balance of Sales Remaining Sales Volume
$871,000
=
160,000 units – 30,000 units
$871,000
=
130,000 units
= $6.70
19-19
P5. Planning Future Sales for a Service Business
1. a. BE Units = FC / CM per Loan
( $8,500 + $14,000 + $12,500 + $8,099 )

=
[ $250 – ( $15.50 × 5 )– $2.40 – $5.60 ]
= $43,099 / $164.50 = 262 loans
b. Target Sales Units = (FC + P) / CM per Loan
= ( $43,099 + $14,476 ) / $164.50
= $57,575 / $164.50 = 350 loans
2. Target Sales Units = (FC + P) / CM per Loan
= ( $43,099 + $5,662 + $20,000 ) / $164.50
= $68,761 / $164.50 = 418 loans
3. x = Loan Application Fee

Target Revenue = VC + FC + P
500 x = ( $85.50 × 500 ) + $43,099 + $41,651
x = ( $42,750 + $43,099 + $41,651 ) / 500
x = $127,500 / 500
x = $255
4. x = Maximum Additional Promotional Costs

750 × $280 = ( $85.50 × 750 ) + $43,099 + $50,000 + x
$210,000 = $64,125 + $43,099 + $50,000 + x
$210,000 = $157,224 + x
x = $210,000 – $157,224
x = $52,776
19-20
Alternate Problems
P6. Mixed Costs
1. Electricity expense:
Kilowatt-
Month Cost Hours Used
Highest April $8,960 268,400
Lowest July 6,970 188,800
Difference $1,990 79,600
Variable rate = $1,990 / 79,600 hours = $0.025 per kilowatt-hour
Fixed Cost = Total Cost – Variable Cost

April: $8,960 – ( 268,400 × $0.025 ) = $2,250 fixed electricity cost
July: $6,970 – ( 188,800 × $0.025 ) = $2,250 fixed electricity cost
Repairs and maintenance:

Labor
Month Cost Hours Used
Highest September $8,948 270
Lowest April 7,030 200
Difference $1,918 70
Variable rate = $1,918 / 70 hours = $27.40 per labor hour
Fixed Cost = Total Cost – Variable Cost

September: $8,948 – ( 270 × $27.40 )= $1,550 fixed R&M cost
April: $7,030 – ( 200 × $27.40 )= $1,550 fixed R&M cost
Total variable cost:
2,622,000 kilowatt-hours × $0.025 per kilowatt-hour $65,550
Total fixed cost:
$2,250 × 12 months $27,000

2,840 labor hours × $27.40 per labor hour $77,816
Total fixed cost:
$1,550 × 12 months $18,600
19-21
P6. Mixed Costs (Concluded)
2,622,000 kilowatt-hours × ( $0.025 + $0.003 per kilowatt-hour ) $ 73,416
Total fixed cost:
$2,250 × 12 months 27,000
Total $100,416

2,840 labor hours × ( $27.40 + $1.20 per labor hour ) $ 81,224
Total fixed cost:
$1,550 × 12 months 18,600
Total $ 99,824
The increased electricity and repairs and maintenance expenses will reduce the club's profits
and cash flows. To offset those reductions, the club can consider either increasing its mem-
bership dues or usage fees, or reducing some other costs.
19-22
P7. Breakeven Analysis
1. BE Units = FC / CM per Unit

= $166,500 / ( $435 – $210 )
= $166,500 / $225
= 740 systems
2. BE Dollars = BE Units × Selling Price per Unit

= 740 × $435
= $321,900

= ( $166,500 + $10,125 ) / ( $435 – $210 )
= $176,625 / $225
= 785 systems

= ( $166,500 + $15,200 ) / [ $425 – ( $210 – $15 ) ]
= $181,700 / ( $425 – $195 )
= $181,700 / $230
= 790 systems
19-23
P8. Planning Future Sales: Contribution Margin Approach
1. a. BE Units = FC / CM per Unit

= $79,000 * / ( $29.25 – $19.25 ** )
= $79,000 / $10.00
= 7,900 units (statues)
*$33,000 + $40,000 + $6,000 = $79,000

**$9.25 + $4.00 + $0.55 + $2.40 + $3.05 = $19.25
b. Target Sales Units = ( FC + P) / CM per Unit

= ( $79,000 + $50,000 ) / $10.00
= $129,000 / $10.00
2. Target Sales Units = ( FC + P) / CM per Unit

= ( $79,000 + $20,000 + $70,000 ) / $10.00
= $169,000 / $10.00
3. Target Sales Units = ( FC + P) / CM per Unit

15,000 units = ( $79,000 + $101,000 ) / CM per Unit
Multiplying both sides of the equation by CM per Unit, we get:

15,000 units × CM per Unit = $180,000
CM per Unit = $12.00
Revised SP per Unit = CM per Unit + VC per Unit
Revised SP per Unit = $12.00 + $19.25 = $31.25
4. 25,000 units = ( FC + $120,000 ) / ( $28.00 – $19.25 )

25,000 units = ( FC + $120,000 ) / $8.75
Multiplying both sides of the equation by CM per Unit, we get:

25,000 units × $8.75 = FC + $120,000
FC = ( 25,000 × $8.75 ) – $120,000
FC = $218,750 – $120,000
FC = $98,750
Total fixed costs allowed $98,750

Less original fixed cost estimate 79,000
Additional dollars available for advertising $19,750
19-24
P9. Breakeven Analysis and Planning Future Sales
FC
1. a. BE Units =
CM per Unit
$900,000 + $300,000
=
$36 – ( $25 + $5 )
$1,200,000
=
$6
= 200,000 units
b. BE Dollars = 200,000 units × $36
= $7,200,000
Target FC + P
2. =
Sales Units CM per Unit
$1,200,000 + $600,000
=
$6
$1,800,000
=
$6
= 300,000 units
3. a. SP – VC per Unit = CM per Unit × Units = Fixed Costs Covered

$36 – $30 = $6 × 30,000 = $180,000
FC + P
b. = CM per Unit
Units
( $1,000,000 – $180,000 ) + $290,000

=
370,000 units
$1,110,000
=
370,000 units
= $3.00 CM per unit required on remaining units
At sales of 370,000 units, the total required contribution margin equals the target profit
plus the revised fixed costs ($1,000,000) to be recovered.
19-25
P9. Breakeven Analysis and Planning Future Sales (Concluded)
Proof:
Required contribution margin ( $290,000 + $1,000,000 ) $1,290,000
Less contribution margin already generated ( 30,000 units × $6 ) 180,000
Balance of contribution margin to be generated $1,110,000
Required CM per Unit Balance of CM to Be Generated

=
on Balance of Sales Remaining Sales Volume
$1,110,000
=
400,000 units – 30,000 units
$1,110,000
=
370,000 units
= $3.00
19-26
P10. Planning Future Sales for a Service Business
1. a. BE Units = FC / CM per Application
( $4,950 + $34,000 + $45,000 + $20,000 )

=
[ $500 – ( $30 × 3 ) – $10 – $15 ]
= $103,950 / $385 = 270 loans
b. Target Sales Units = ( FC + P ) / CM per Loan
= ( $103,950 + $50,050 ) / $385
= $154,000 / $385 = 400 loans
2. Target Sales Units = ( FC + P ) / CM per Loan
= ( $103,950 + $5,450 + $60,000 ) / $385
= $169,400 / $385 = 440 loans
3. x = Loan Application Fee

500 x = ( $115 × 500 ) + $103,950 + $40,050
x = ( $57,500 + $103,950 + $40,050 ) / 500
x = $201,500 / 500
x = $403
4. x = Maximum Additional Promotional Costs

750 × $400 = ( $115 × 750 ) + $103,950 + $50,000 + x
$300,000 = $86,250 + $103,950 + $50,000 + x
$300,000 = $240,200 + x
x = $300,000 – $240,200
x = $59,800
19-27
Cases
C1. Ethical Dilemma: Breaking Even and Ethics
Les Pulaski should report the accounting error to the accountant and the error in her bonus cal-
culation to her supervisor. She should not receive a bonus based on an accounting error. Prod-
uct R56 would not have reached or exceeded the breakeven point if the returned goods had
been subtracted from total unit sales. Therefore, Pulaski should not receive the $1,000+ bonus.
C2. Group Activity: Cost Behavior and Contribution Margin
Note to Instructor: There is no set solution for this assignment. This is one of the best activities
for driving home the concepts of this chapter because students are familiar with the operations
of a fast-food restaurant. Many have probably worked in one. Class discussion is likely to be
lively and interesting and to include many examples of variable and fixed costs. Sometimes
there will be debates over whether a cost is fixed or variable. Bring out the fact that the incre-
mental variable cost of a large drink over a medium drink is less than the incremental revenue.
Thus, selling the larger drink increases the contribution margin. For a value meal, the logic is a
little different. The contribution margin on each item in a value meal is less, but the total con-
tribution margin is greater than if only an individual item were purchased. Thus, the restaurant
is better off.
19-28
C3. Conceptual Understanding: CVP Analysis
Total Sales
1. a. Selling Price per Set =
Number of Sets Sold
€13,500,000
=
15,000 sets
= €900
Variable Purchases Total Variable Purchases Costs

b. =
Cost per Set Number of Sets Sold
€6,000,000
=
15,000 sets
= €400
Variable Distribution Total Variable Distribution Costs

c. =
Cost per Set Number of Sets Sold
€2,115,000
=
15,000 sets
= €141
Variable Sales Total Variable Sales Commissions

d. =
Commission per Set Number of Sets Sold
€1,410,000
=
15,000 sets
= €94
e. Selling price per set €900

Less:
Variable purchases cost €400
Variable distribution cost 141
Variable sales commission 94
Total variable costs per set 635
Contribution margin per set €265
19-29
C3. Conceptual Understanding: CVP Analysis (Concluded)
2. BE Units = FC / CM per Set
€3,040,875
=
€265
= 11,475 sets
BE Euros = BE Sets × Selling Price per Set

= 11,475 sets × €900
= €10,327,500
Variable Costs
3. Variable Cost Ratio =
Sales
= €9,525,000 / €13,500,000
= 70.56%*
*Rounded
To reduce variable costs, the following actions could be taken (students should list three):
● Find new suppliers of high-quality, lower-cost pottery.
● Find alternative, less expensive ways to receive shipments from suppliers.
● Find less expensive ways to ship pottery to customers.
● Consider opening regional distribution centers.
● Reduce the percentage of the sales commission.
● Examine sales territories to identify costly inefficiencies in distribution and sales
activities.
4. There would have been no impact. Fixed costs are not affected by changes in sales
volume in the short run.
19-30
C4. Business Communications: CVP Analysis Applied
1. Datura, Ltd.
Budgeted Contribution Margin Income Statement
For the Year Ending December 31, 2015
Sales ( 15,000 × €890 ) €13,350,000
Less variable costs:
Purchases €6,000,000
Distribution ( 0.96 × €2,115,000 ) 2,030,400
Sales commissions
( 0.12 × €890 × 15,000 ) 1,602,000
Total variable costs 9,632,400
Contribution margin € 3,717,600
Less fixed costs
Distribution ( 0.90 × €985,000 ) € 886,500
Selling 1,184,000
General and administrative 871,875
Total fixed costs 2,942,375
Operating income € 775,225
The changes will not improve operating income. The estimates indicate that operating in-
come will decrease by €158,900. The president will need to work with the strategic planning
team to find ways to reduce operating costs.
2. a. The budgeted contribution margin income statement will help the president in the stra-
tegic planning process. She wants to know if certain changes will improve operating
income.
b. The president of Datura, Ltd., needs the report.
c. The sources of information are the contribution margin income statement from last year
and information from the vice presidents of sales and distribution.
d. The report is due within five days. Because the new year has begun and the strategic
planning process has been late in getting under way, the president needs to take
immediate action.
C5. Decision Analysis: Planning Future Sales
1. Target Operating Income = €934,125 × 1.1 = €1,027,538*

2. Using the information from C3 and C4, the projected operating income for the new year is
€775,225, which is €158,900 (€934,125 – €775,225) less than the target operating income for
last year. See next page for calculations.
3. Total contribution margin is €1,004,400. See next page for calculations.
4. Revised operating income is €1,779,625. See next page for calculations.
5. Yes. The Australian order generates additional operating income to exceed the target oper-
ating income of €1,027,538 by €752,087.
*Rounded
19-31
C5. Decision Analysis: Planning Future Sales (Concluded)
2., 3., and 4.
Datura, Ltd.
Revised Budgeted Contribution Margin Income Statements
For the Year Ending December 31, 2015
From C4 Australian Revised Income
Total Units Unit Sales Statement for Sales of
15,000 Per Unit 4,500 Per Unit 19,500 Units
Sales €13,350,000 €890.00 €4,005,000 € 890.00 €17,355,000
Less variable costs:
Purchases €6,000,000 €400.00 €1,800,000 € 400.00 € 7,800,000
Distribution 2,030,400 135.36 720,000 160.00 2,750,400
Sales commissions 1,602,000 106.80 480,600 106.80 2,082,600
Total variable costs 9,632,400 €642.16 €3,000,600 € 666.80 €12,633,000
Contribution margin € 3,717,600 €247.84 €1,004,400 € 223.20 € 4,722,000
Less fixed costs:

Distribution € 886,500 € 886,500
Selling 1,184,000 1,184,000
General and administrative 871,875 871,875
Total fixed costs 2,942,375 2,942,375
Operating income € 775,225 Projected operating income € 1,779,625
Desired operating income including
10% increase over last year
( 1.1 × €934,125 ) 1,027,538 *
Difference € 752,087
*Rounded
19-32
C6. Continuing Case: Cookie Company
1. Variable costs: Fixed costs:

Direct labor Depreciation, equipment
Recipe ingredients Insurance
Packaging Rent
Supplies Mixed costs:
Small tools Utilities
2. Note to Instructor: Answers will vary if students choose to use personal utility bills but will be
as follows if using the provided optional data.
Activity
Volume Month Level Cost
High September 1,866 kWh $230
Low October 1,146 kWh 158
Difference 720 kWh $ 72
Variable cost per kWh = $72 / 720 Hours

= $0.10 per kWh Hour
Fixed costs for September = $230 – ( $0.10 × 1,866 ) = $43.40

Fixed costs for October = $158 – ( $0.10 × 1,146 ) = $43.40
Monthly Electric Cost = $0.10 (kWh) + $43.40
3. a. My Cookie Company
Daily Contribution Margin Income Statement
Sales $1.00 × 500 units = $500
Less variable costs 0.30 * × 500 units = 150
Contribution margin $0.70 × 500 units = $350
Less fixed costs 180 **
Operating income $170
*($100 + $50) / 500 units = $0.30 per unit

**$120 + $60 = $180
b. CM / Sales = CM Ratio
$0.70 / $1.00 = 70%
c. x = breakeven in units
Sales – VC – FC = $0
$1.00 x – $0.30 x – $180 = $0
$0.70 x = $180
x = 257 units*
*Rounded
19-33
Solution Manual for Managerial Accounting, 10th Edition
Visit TestBankBell.com to get complete for all chapters

Solution Manual For Managerial Accounting 10th Edition

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

Solution Manual For Managerial Accounting 10th Edition

Uploaded by

Copyright:

Available Formats

Solution Manual for Managerial Accounting, 10th

To download the complete and accurate content document, go to:

Visit TestBankBell.com to get complete for all chapters

SE1. Accounting Concepts

SE2. Identification of Variable, Fixed, and Mixed Costs

1. (b) variable cost

SE3. Mixed Costs: High-Low Method

Variable cost per telephone hour = $450 / 10 hours

Fixed costs for June = $4,680 – ( $45 × 100 ) = $180

SE4. Contribution Margin Income Statement

Sales revenue* $120,000

* Sales revenue – $50,000 – $20,000 = $50,000

** $10 × 5,000 = $50,000 variable costs

Sales price × 5,000 = $120,000

Breakeven dollars = $9 × 1,500 units = $13,500

SE6. Contribution Margin in Units

Breakeven Units = Fixed Costs / Contribution Margin per Unit

SE7. Contribution Margin Ratio

Contribution Contribution Margin $8 *

Fixed Costs $6,250

SE8. Breakeven Analysis for Multiple Products

Weighted-Average Breakeven Point Units = $14,175 / $5.25 = 2,700 units

Breakeven point for each product line:

Weighted-Average Sales Breakeven

Check: Contribution margin

Volume Month Activity Level Cost

Variable Cost per Case = $510 / 5 cases = $102 per case

Variable cost per case for December:

SE10. CVP Analysis and Projected Profit

Profit = Contribution Margin – Fixed Costs

E1A. Identification of Variable and Fixed Costs

E2A. Variable Cost Analysis

1. Cars to Be Required Total

2. a. Cost per unit remained constant.

E3A. Mixed Costs: High-Low Method

Variable rate = $24,000 / 3,000 hours = $8 per machine hour

July: $60,000 – ( 6,000 × $8 ) = $12,000 fixed electricity cost

Total variable costs:

E5A. Contribution Margin Income Statement and Ratio

1. Sales $100 × 400 units = $40,000

*($10,000 + $6,000) / 400 = $40

a. Selling price per unit:

b. Variable costs per unit:

E7A. Breakeven Analysis

2. BE Dollars = BE Units × Selling Price per Set

4. Fixed Variable Total Total

*Variable Costs per Unit = $8 + $12 = $20

Total Revenue Line

Breakeven Point Total Cost Line

10,000 20,000 30,000 40,000

Weighted-average breakeven point = $52,000 / $13 = 4,000 units

Breakeven point for each product:

Check: Contribution margin

E9A. Breakeven Point for Multiple Products

Weighted-average breakeven point = $1,020 / $0.85 = 1,200 units

Breakeven point for each product:

Check: Contribution margin

Per Unit Percentage Per Unit

Weighted-average breakeven point = $40,000 / $20 = 2,000 units

Breakeven point for each product:

Check: Contribution margin

** Percentage of sales mix:

1. Using the high-low method: