Introduction To Managerial Accounting Canadian Canadian 4Th Edition Brewer Solutions Manual Full Chapter PDF

Introduction to Managerial Accounting
Canadian Canadian 4th Edition Brewer

Solutions Manual
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Chapter 8
Cost-Volume-Profit Relationships
Solutions to Questions
8-1 The contribution margin (CM) ratio is neither earns a profit nor incurs a loss. It can
the ratio of contribution margin to total sales also be defined as the point where total
revenue. The CM ratio shows the change in revenues equal total costs, and as the point
contribution margin that will result from where total contribution margin equals total
increases and decreases in sales revenue. A fixed costs.
dollar increase in contribution margin will result
in a dollar increase in net income. Therefore, for 8-7 Three approaches to break-even
planning purposes, a product’s CM ratio is analysis are (a) the equation method, (b) the
extremely helpful in projecting potential contribution margin method, and (c) the
contribution margin and potential net income. graphical method. In the equation method, the
equation is: Sales = Variable expenses + Fixed
8-2 An incremental analysis focuses on the expenses + Profits, where profits are zero at the
changes in revenue, cost, and volume that will break-even point. The equation is solved to
result from a particular action. determine the break-even point in units or dollar
sales. In the contribution margin method, the
8-3 Company B will tend to realize the most total fixed costs are divided by the contribution
rapid increase in profits. The reason is that margin per unit to obtain the break-even point
Company B will have a higher contribution in units. Alternatively, the total fixed costs can
margin ratio than Company A due to its lower be divided by the contribution margin ratio to
variable costs. Thus, contribution margin (and obtain the break-even point in sales dollars. In
net income) will increase more rapidly as sales the graphical method, total cost and total
increase. revenue data are plotted on a two-axis graph.
The intersection of the total cost and the total
8-4 Operating leverage measures the impact revenue lines indicates the break-even point.
on net income of a given percentage change in The graph shows the break-even point in both
sales. The degree of operating leverage at a units and dollars of sales.
given level of sales is computed by dividing the
contribution margin at that level of sales by the 8-8 (a) The total revenue line would rise
net income. less steeply, and the break-even point would
occur at a higher volume of units. (b) Both the
8-5 No. A ten percent decrease in the selling fixed cost line and the total cost line would shift
price will have a greater impact on profits than a upward; the break-even point would occur at a
ten percent increase in variable expenses, since higher volume of units. (c) The total cost line
the selling price is a larger figure than the would rise more steeply, and the break-even
variable expenses. Mathematically, the same point would occur at a higher volume of units.
percentage applied to a larger base will yield a
larger result. In addition, the selling price affects
how much of the product will be sold.
8-6 The break-even point can be defined as

the level of sales at which an organization
Copyright © 2014 McGraw-Hill Ryerson Limited. All rights reserved.

Solutions Manual, Chapter 8 1
8-9
Sales revenue per car washed ...........................
$4.00
Variable expenses per car:
15%  $4.00 .................................................
0.60
Contribution margin per car ...............................
$3.40
Total fixed expenses $1,700 500
= =
Contribution margin per car $3.40 cars
8-10 The margin of safety is the excess of

budgeted (or actual) sales over the break-even
volume of sales. It states the amount by which
sales can drop before losses begin to be
incurred.

2 Introduction to Managerial Accounting, Fourth Canadian Edition
Brief Exercise 8-1 (30 minutes) (LO1 CC1)
1. The new income statement would be:

Total Per Unit
Sales (11,000 units) ......................................................................
$495,000 $45.00
Less variable expenses ..................................................................
275,000 25.00
Contribution margin ......................................................................
220,000 $20.00
Less fixed expenses ......................................................................
185,000
Net income...................................................................................
$ 35,000
You can get the same net income using the following approach.
Original net income.......................................................................
$15,000
Change in contribution margin
(1,000 units × $20.00 per unit) ..................................................
20,000
New net income ...........................................................................
$35,000

Total Per Unit
Sales (9,000 units)........................................................................
$405,000 $45.00
225,000 25.00
180,000 $20.00
185,000
Net income (loss) .........................................................................
($ 5,000)
You can get the same net income using the following approach.
$15,000
Change in contribution margin
(-1,000 units × $20.00 per unit) .................................................
(20,000)
New net income (loss) ..................................................................
($5,000)

Brief Exercise 8-1 (continued)

Total Per Unit
Sales (9,250 units)........................................................................
$416,250 $45.00
231,250 25.00
185,000 $20.00
185,000
Net income...................................................................................
$ 0
Note: This sales level is the company's break-even point.

Brief Exercise 8-2 (15 minutes) (LO1 CC2, 3)
1. The company's contribution margin (CM) ratio is:

Total sales....................................................................................
$200,000
Total variable expenses .................................................................
120,000
= Total contribution margin...........................................................
80,000
÷ Total sales ................................................................................
$200,000
= CM ratio ...................................................................................
40%
2. The change in net income from an increase in total sales of $1,100 can be estimated
by using the CM ratio as follows:
Change in total sales.....................................................................
$1,100
× CM ratio ...................................................................................
40 %
= Estimated change in net income .................................................
$ 440
This computation can be verified as follows:

Total sales....................................................................................
$200,000
÷ Total units sold .........................................................................
50,000 units
= Selling price per unit..................................................................
$4.00 per unit
Increase in total sales ...................................................................

$1,100
÷ Selling price per unit..................................................................
$4.00 per unit
= Increase in unit sales.................................................................
275 units
Original total unit sales .................................................................
50,000 units
New total unit sales ......................................................................
50,275 units
Original New
Total unit sales .............................................................................
50,000 50,275
Sales............................................................................................
$200,000 $201,100
120,000 120,660
80,000 80,440
65,000 65,000
Net income...................................................................................
$ 15,000 $ 15,440

1. The following table shows the effect of the proposed change in monthly advertising
budget:
Sales With
Additional
Current Advertising
Sales Budget Difference
Sales............................................................................................
$180,000 $189,000 $ 9,000
126,000 132,300 6,300
54,000 56,700 2,700
30,000 35,000 5,000
Net income...................................................................................
$ 24,000 $ 21,700 $(2,300)
Assuming no other important factors need to be considered, the increase in the
advertising budget should not be approved since it would lead to a decrease in net
income of $2,300.
Alternative Solution 1
Expected total contribution margin:
$189,000 × 30% CM ratio ..........................................................
$56,700
Present total contribution margin:
$180,000 × 30% CM ratio ..........................................................
54,000
Incremental contribution margin ....................................................
2,700
Change in fixed expenses:
Less incremental advertising expense .........................................
5,000
Change in net income ...................................................................
$(2,300)
Alternative Solution 2
Incremental contribution margin:
$9,000 × 30% CM ratio ............................................................
$ 2,700
Less incremental advertising expense ............................................
5,000
Change in net income ...................................................................
$(2,300)

2. The $2.50 increase in variable costs will cause the unit contribution margin to
decrease from $27 to $24.50 with the following impact on net income:
Expected total contribution margin with the higher-
quality components:
2,200 units × $24.50 per unit .....................................................
$53,900
2,000 units × $27 per unit .........................................................
54,000
Change in total contribution margin ...............................................
($ 100)
Assuming no change in fixed costs and all other factors remain the same, the
higher-quality components should NOT be used.
NOTE: This question is a nice illustration that an incremental approach is not always a
preferable approach to finding a solution. The solution is not determinable by a simple
inspection of the information. The reason is that there are two variables that are
changing: the unit CM and the sales volume. The best approach is to compare the
status quo to the new situation which will have BOTH changes incorporated.

Brief Exercise 8-4 (30 minutes) (LO2 CC7, 8)
1. The equation method yields the break-even point in unit sales, Q, as follows:
Sales = Variable expenses + Fixed expenses + Profits
$54Q = $45Q + $25,200 + $0
$9Q = $25,200
Q = $25,200 ÷ $9 per basket
Q = 2,800 baskets
2. The equation method can be used to compute the break-even point in sales dollars,
X, as follows:
Percent of
Per Unit Sales
Sales price ...................................................................................
$54 100.00%
45 83.33%
$9 16.67%

X = 0.8333X + $25,200 + $0
0.1667X = $25,200
X = $25,200 ÷ 0.1667
X = $151,170
3. The contribution margin method gives an answer that is identical to the equation
method for the break-even point in unit sales:
Break-even point in units sold = Fixed expenses ÷ Unit CM
= $25,200 ÷ $9 per basket
= 2,800 baskets
4. The contribution margin method also gives an answer that is identical to the
equation method for the break-even point in dollar sales:
Break-even point in sales dollars = Fixed expenses ÷ CM ratio
= $25,200 ÷ 0.1667
= $151,170*
* differs from $54 x 2,800 = $151,200 due to rounding

1. The CVP graph can be plotted using the three steps outlined in the text. The graph
appears on the next page.
Step 1. Draw a line parallel to the volume axis to represent the total fixed
expense. For this company, the total fixed expense is $24,000.
Step 2. Choose some volume of sales and plot the point representing total
expenses (fixed and variable) at the activity level you have selected. We'll use the
sales level of 8,000 units.
Fixed expense ..............................................................................
$ 24,000
Variable expense (8,000 units × $18 per unit) ................................ 144,000
Total expense ...............................................................................
$168,000
Step 3. Choose some volume of sales and plot the point representing total sales
dollars at the activity level you have selected. We'll use the sales level of 8,000 units
again.
Total sales revenue (8,000 units × $24 per unit) ............................
$192,000
2. The break-even point is the point where the total sales revenue and the total
expense lines intersect. This occurs at sales of 4,000 units. This can be verified by
solving for the break-even point in unit sales, Q, using the equation method as
follows:
$24Q = $18Q + $24,000 + $0
$6Q = $24,000
Q = $24,000 ÷ $6 per unit
Q = 4,000 units

CVP Graph
$200,000
$150,000
Dollars
$100,000
$50,000
$0
0 2,000 4,000 6,000 8,000
Volume in Units
Fixed Expense Total Expense Total Sales Revenue

1. The equation method yields the required unit sales, Q, as follows:

$180Q = $100Q + $60,000 + $10,000
$80Q = $70,000
Q = $70,000 ÷ $80 per unit
Q = 875 units
2. The contribution margin yields the required unit sales as follows:

Fixed expenses + Target profit
Units sold to attain the target profit=
Unit contribution margin
= ($60,000 + $15,000)/$80
= 938 units (rounded up)
The dollar sales required = 938 x $180 = $168,840.

1. The equation method yields the required unit sales, Q, as follows:

$180Q = $100Q + $60,000 + $16,667*
$80Q = $76,667
Q = $76,667 ÷ $80 per unit
Q = 959 units (rounded up)
* This amount represents the before-tax profit and is calculated as follows:
Before tax income = (After tax income) ÷ (1 – income tax rate)

= ($10,000) ÷ (1 – 0.40)
= $10,000 ÷ 0.60
= $16,667 (rounded)
2. The contribution margin yields the required unit sales as follows:

Fixed expenses + Target profit
Units sold to attain the target profit=
= ($60,000 + $25,000*) ÷ $80 per unit
= 1,063 units (rounded up)
The dollar sales required = 1,063 x $180 = $191,340.
* Target profit in the above equation is the before-tax profit computed as $15,000 ÷
0.60 = $25,000.

1. To compute the margin of safety, we must first compute the break-even unit sales.
$48Q = $28Q + $30,000 + $0
$20Q = $30,000
Q = $30,000 ÷ $20 per unit
Q = 1,500 units
Sales (at the budgeted volume of 2,000 units) ............................... $96,000
Break-even sales (at 1,500 units) ..................................................
72,000
Margin of safety (in dollars)...........................................................
$ 24,000
* Alternatively, margin of safety of 500 units x $48 = $24,000.
2. The margin of safety as a percentage of sales is as follows:

Margin of safety (in dollars)...........................................................
$24,000
÷ Sales ........................................................................................
$96,000
Margin of safety as a percentage of sales .......................................
25.0%

Brief Exercise 8-9 (15 minutes) (LO2 CC7, 8, 11)
1. Break even sales in units:
Break – even sales in units = $150,500 ÷ $5 = 30,100
2. Number of units sold
Margin of safety % = (Sales – Break-even sales) ÷ Sales
30% x Sales = (Sales - $150,500)
30% x Sales + 150,500 = Sales
Sales = [$150,500 ÷ (1-0.30)] = $215,000
Units sold: Sales ÷ Unit price = $215,000/$5 = 43,000 units

1. The company's degree of operating leverage would be computed as follows:

$38,400
÷ Net income ...............................................................................
$10,400
Degree of operating leverage ........................................................
3.69
2. A 10% decrease in sales should result in a 36.9% decrease (3.69 × 10%) in net
income.
3. The new income statement reflecting the change in sales would be:
Percent of
Amount Sales
Sales............................................................................................
$86,400 100%
51,840 60%
34,560 40%
28,000
Net income...................................................................................
$6,560
Net income reflecting change in sales ............................................
$ 6,560
$10,400
Percent change in net income........................................................
36.9%

Brief Exercise 8-11 (10 minutes) (LO1 CC1; LO2 CC7, 8)
At the break-even point, contribution margin = fixed costs

= $4,000
Contribution margin per unit = $4,000 ÷ 8,000 units

= $0.50 per unit
Contribution margin on the 401st unit sold = $0.50
Brief Exercise 8-12 (10 minutes) (LO1 CC1; LO2 CC7, 8)
At the break-even point, contribution margin = fixed costs
Contribution margin per unit = $8.50 – $6.75

= $1.75
Contribution margin at break-even sales = $1.75 × 39,000

= $68,250
Fixed costs = $68,250

Exercises
Exercise 8-1 (30 minutes) (LO1 CC1, 3, 4, 5)
Total Per Unit

1. Sales (20,000 units × 1.15 = 23,000 units) ....................................$345,000 $ 15.00
207,000 9.00
138,000 $ 6.00
70,000
Net income...................................................................................
$ 68,000
2. Sales (20,000 units × 1.25 = 25,000 units) ....................................$337,500 $13.50

225,000 9.00
112,500 $ 4.50
70,000
Net income...................................................................................
$ 42,500

171,000 9.00
142,500 $ 7.50
90,000
Net income...................................................................................
$ 52,500

172,800 9.60
129,600 $ 7.20
70,000
Net income...................................................................................
$ 59,600

Exercise 8-2 (30 minutes) (LO1 CC1; LO2 8)
1.
Before proposal
Total
Sales ...........................................................................................
$20,000
30,000
(10,000)
30,000
Net income...................................................................................
$ (40,000)
After Proposal
Sales ...........................................................................................
$20,000
15,000
5,000
40,000
Net income...................................................................................
$ (35,000)
Contribution margin ratio = Contribution margin ÷ sales = $5,000/$20,000

= 25%
Variable expense ratio = $15,000 ÷ $20,000 = 75%
Let X = Break-even point in sales dollars.

X = 0.75X + $40,000 + $0
0.25X = $40,000
X = $40,000 ÷ 0.25
X = $160,000

Exercise 8-3 (30 minutes) (LO1 CC1; LO2 CC13)
1. The income statement would be:

Per
Total Unit
Sales (15,000 games) ...................................................................
$300,000 $20
90,000 6
210,000 $14
182,000
Net income ...................................................................................
$ 28,000
The degree of operating leverage would be:

Contribution margin
Degree of operating leverage =
Net income
$210,000
= 7.5
$28,000
2. a. Sales of 18,000 games would represent a 20% increase over last year’s sales.
Since the operating leverage is 7.5, net income should increase by 7.5 times as
much, or by 150% (7.5 × 20%).
b. The expected total dollar amount of net income for next year would be:
Last year’s net income ..................................................................
$28,000
Expected increase in net income next year
(150% × $28,000) ....................................................................
42,000
Total expected net income ............................................................
$70,000

1. The contribution margin per person would be:

Price per ticket ............................................................................. $55
Less variable expenses:
Dinner ......................................................................................
$28
Favours and program ................................................................ 2 30
Contribution margin per person ..................................................... $25
The fixed expenses of the dinner-dance total $10,200. The break-even point would
be:
$55Q = $30Q + $10,200 + $0
$25Q = $10,200
Q = $10,200 ÷ $25 per person
Q = 408 persons; or, at $55 per person, $22,440
2. Variable cost per person ($28 + $2) ..............................................

$30
Fixed cost per person ($10,200 ÷ 300) ..........................................34
Ticket price per person to break even ............................................
$64

Exercise 8-4 (continued)
3. Cost-volume-profit graph:

Exercise 8-5 (30 minutes) (LO1 CC2, 3; LO2 CC7, 8, 9, 11)
1. Profit = Unit CM × Q − Fixed expenses

$0 = ($40 − $28) × Q − $150,000
$0 = $12Q − $150,000
$12Q = $150,000
Q = $150,000 ÷ $12 per unit
Q = 12,500 units, or at $40 per unit, $500,000
Alternatively:
Unit sales = Fixed expenses

to break even Unit contribution margin
$150,000
= =12,500 units
$12 per unit
or, at $40 per unit, $500,000.
2. The contribution margin at the break-even point is $150,000 because at that point it
must equal the fixed expenses.
3. Units sold to attain Target profit + Fixed expenses

=
target profit Unit contribution margin
$18,000 + $150,000
= =14,000 units
$12 per unit
Total Unit
Sales (14,000 units × $40 per unit) ......................... $560,000 $40
Variable expenses
(14,000 units × $28 per unit) ............................... 392,000 28
Contribution margin
(14,000 units × $12 per unit) ............................... 168,000 $12
Fixed expenses ....................................................... 150,000
Net operating income .............................................. $ 18,000

4. Margin of safety in dollar terms:

Margin of safety = Total sales - Break-even sales
in dollars
= $600,000 - $500,000 = $100,000

Margin of safety in percentage terms:
Margin of safety = Margin of safety in dollars

percentage Total sales
$100,000
= = 16.7% (rounded)
$600,000
5. The CM ratio is 30%.
Expected total contribution margin: $680,000 × 30% ................. $204,000
Present total contribution margin: $600,000 × 30% .................... 180,000
Increased contribution margin ................................................... $ 24,000
Alternative solution:
$80,000 incremental sales × 30% CM ratio = $24,000
Given that the company’s fixed expenses will not change, monthly net
operating income will increase by the amount of the increased contribution margin,
$24,000.


$0 = ($90 − $63) × Q − $135,000
$0 = $27Q − $135,000
$27Q = $135,000
Q = $135,000 ÷ $27 per lantern
Q = 5,000 lanterns, or at $90 per lantern, $450,000 in sales

$135,000
= = 5,000 lanterns,
$27 per lantern
or at $90 per lantern, $450,000 in sales
2. An increase in variable expenses as a percentage of the selling price would result in

a higher break-even point. If variable expenses increase as a percentage of sales,
then the contribution margin will decrease as a percentage of sales. With a lower
CM ratio, more lanterns would have to be sold to generate enough contribution
margin to cover the fixed costs.
Present: Proposed:
3. 8,000 Lanterns 10,000 Lanterns*
Total Per Unit Total Per Unit
Sales..................................... $720,000 $90 $810,000 $81 **
Variable expenses .................. 504,000 63 630,000 63
Contribution margin ............... 216,000 $27 180,000 $18
Fixed expenses ...................... 135,000 135,000
Net operating income............. $ 81,000 $ 45,000
* 8,000 lanterns × 1.25 = 10,000 lanterns

** $90 per lantern × 0.9 = $81 per lantern
As shown above, a 25% increase in volume is not enough to offset a 10% reduction
in the selling price; and, net operating income decreases.


$72,000 = ($81 − $63) × Q − $135,000
$72,000 = $18Q − $135,000
$18Q = $207,000
Q = $207,000 ÷ $18 per lantern
Q = 11,500 lanterns
Unit sales to attain = Target profit + Fixed expenses

target profit Unit contribution margin
$72,000 + $135,000
= = 11,500 lanterns
$18 per lantern

Exercise 8-7 (45 minutes) (LO1 CC4)
1. The numbered components are as follows:

(1) Dollars of revenue and costs.
(2) Volume of output, expressed in units, % of capacity, sales, or some
other measure of activity.
(3) Total expense line.
(4) Variable expense area.
(5) Fixed expense area.
(6) Break-even point.
(7) Loss area.
(8) Profit area.
(9) Revenue line.

2. a. Line 3: Remain unchanged.

Line 9: Have a flatter slope.
Break-even point: Increase.
b. Line 3: Have a steeper slope.
Line 9: Remain unchanged.
c. Line 3: Shift downward.
Break-even point: Decrease.
d. Line 3: Remain unchanged.
Break-even point: Remain unchanged.
e. Line 3: Shift upward and have a flatter slope.
Break-even point: Probably change, but the direction is uncertain.
f. Line 3: Have a flatter slope.
Line 9: Have a flatter slope.
Break-even point: Remain unchanged in terms of units; decrease in
terms of total dollars of sales.
g. Line 3: Shift upward.
h. Line 3: Shift downward and have a steeper slope.
Break-even point: Probably change, but the direction is uncertain.

Exercise 8-8 (20 minutes) (LO2 CC6, 7)
1. Sales = Variable expenses + Fixed expenses + Profits

$S = $0.60S + ($188,000 + $64,000) + $0
$0.4S = $252,000
S = $252,000 ÷ 0.40
S = $630,000 in sales.
Break-even point = Fixed expenses ÷ Contribution margin per unit

$252,000 ÷ $8 = 31,500 units, or at $20 per unit, $630,000 in sales
2.
New variable manufacturing cost = $8 × 1.1 = $8.80
New total variable cost = $8.80 + $4.00 = $12.80
Existing contribution margin ratio = 40%
New sales price to maintain existing contribution margin ratio

= $12.80 ÷ (1 – 0.40)
= $21.33

Exercise 8-9 (LO1 CC1, 4)
1.
Total Per unit Percentage
Sales (32,000 units) $496,0002 $15.50 100.0
Less: variable costs (32,000 units)
344,000 10.751 69.4
Contribution margin $152,000 $ 4.75 30.6
Less: fixed costs 106,8751
Income $ 45,125
1 Computation of variable and fixed costs using the high-low method:
High activity level Low activity Difference

level
Production costs $966,875 $321,875 $645,000
Production (units) 80,000 20,000 60,000
Variable costs per unit = $645,000 ÷ 60,000

= $10.75
Fixed costs = $966,875 – ($10.75 × 80,000)

= $106,875
Total costs for 32,000 units

= $106,875 + ($10.75 × 32,000)
= $450,875
2 Sales revenue at 32,000 units

= $450,875 + $45,125 (income)
= $496,000

2. CVP Graph (approximate graph not perfectly to scale)

Exercise 8-10 (25 minutes) (LO2 CC6, 7, 10)
1. Sales = Variable expenses + Fixed expenses + Target profits

$2.75Q = $2.20Q + $115,000 + $50,000*
$0.55Q = $165,000
Q = $165,000 ÷ $0.55
Q = 300,000 units
Break-even point= Fixed expenses + Target profit

$165,000 =300,000 units

$0.55
* $25,000 ÷ (1 – 0.50) = $50,000
2. The break-even point will NOT change (see below).
Old New
Fixed costs $115,000 $230,000
÷ Unit contribution margin $0.55 $1.10
= Break-even sales (units-rounded up) 209,091 209,091

Exercise 8-11 (15 minutes) (LO2 CC11)
Sales price $100.00

Less: Variable costs
Direct materials $30.00
Direct labour 20.00
Variable overhead 15.00
Commissions 10.00 75.00
Contribution margin $25.00
Contribution margin ratio = $25 ÷ $100 = 25%

Breakeven quantity = FC ÷ unit contribution margin = $150,000 ÷ $25 = 6,000 units
Breakeven sales = FC ÷ CM ratio = $150,000 ÷ 25% = $600,000
Margin of safety = Current sales – Breakeven sales = 4,000 units or $400,000.
Note: FC = $15 x 10,000 = $150,000.

1.
Old New
Fixed costs $240,000 $500,000
÷ Unit contribution margin* $8.00 $12.00
= Break-even sales (units-rounded up) 30,000 41,667
* Sales price – variable cost
2.

$S = $0.70S1 + $500,000 + $0.10S
$0.2S = $500,000
S = $500,000 ÷ 0.20
S = $2,500,000
1 $28 ÷ $40 = 70%
Break-even sales in units = $2,500,000 ÷ $40 = 62,500
3. Sales in units, where profits from each strategy is equal:
($36 – $28)Q – $240,000 = ($40 – $28)Q – $500,000

$8Q – $240,000 = $12Q – $500,000
4Q = $260,000
Q = 65,000 units
Sales in dollars with old machine = 65,000 x $36 = $2,340,000

Sales in dollars with new machine = 65,000 x $40 = $2,600,000

3. The above computation was for point of indifference in sales units; we can
compute point of indifference in sales dollars as follows:
(S – 0.7778S) – $240,000 = (S – 0.70S) – $500,000

0.2222S – $240,000 = 0.30S – $500,000
0.0778S = $260,000
S = $3,341,902
Sales in units with old machine = $3,341,902 ÷ $36 ≈ 92,831

Sales in units with new machine = $3,341,902 ÷ $40 ≈ 83,548
4. If demand is uncertain, the old machine represents less risk because of its lower
fixed costs. In this case, it is not the variable cost per unit that is reduced by the
new machine but rather the selling price per unit which has increased. However,
the effect is the same — the contribution margin per unit is increased with the
new machine at the “cost” of higher fixed costs. This is an example of operating
leverage. For every unit short of the break-even point, the new machine results
in a greater loss per unit, and for every unit past the break-even point, the new
machine results in a greater profit per unit. Also notice that the break-even
point is higher with the new machine than the old machine.

Problems
Problem 8-1 (90 minutes) (LO1 CC5; LO2 7, 9, 13)
1. The CM ratio is 60%:

Selling price ............................. $15 100%
Variable expenses .................... 6 40%
Contribution margin ................. $9 60%
2.
Break-even point in = Fixed expenses
total sales dollars CM ratio
$180,000
= =$300,000 sales
0.60
3. $45,000 increased sales × 60% CM ratio = $27,000 increase in contribution margin.

Since fixed costs will not change, net operating income should also increase by
$27,000.
4. a.
Contribution margin
Degree of operating leverage =
Net operating income
$216,000
= =6
$36,000
b. 6 × 15% = 90% increase in net operating income. In dollars, this increase would
be 90% × $36,000 = $32,400.

Problem 8-1 (continued)
5. Last Year: Proposed:

28,000 units 42,000 units*
Total Per Unit Total Per Unit
Sales.................................. $420,000 $15.00 $567,000 $13.50 **
Variable expenses ............... 168,000 6.00 252,000 6.00
Contribution margin ............ 252,000 $ 9.00 315,000 $ 7.50
Fixed expenses ................... 180,000 250,000
Net operating income.......... $ 72,000 $ 65,000
* 28,000 units × 1.5 = 42,000 units

** $15 per unit × 0.90 = $13.50 per unit
No, the changes should not be made.
6. Expected total contribution margin:

28,000 units × 200% × $7 per unit* ............................. $392,000
28,000 units × $9 per unit ............................................ 252,000
Incremental contribution margin, and the amount by which
advertising can be increased with net operating income
remaining unchanged ................................................... $140,000
*$15 – ($6 + $2) = $7

Problem 8-2 (90 minutes) (LO1 CC3; LO2, 6, 7, 8, 9, 12)
1. The CM ratio is 30%.

Total Per Unit Percentage
Sales (13,500 units) ............... $270,000 $20 100%
Variable expenses .................. 189,000 14 70%
Contribution margin ............... $ 81,000 $ 6 30%
The break-even point is:

Profit = Unit CM × Q − Fixed expenses
$0 = ($20 − $14) × Q − $90,000
$0 = $6Q − $90,000
$6Q = $90,000
Q = $90,000 ÷ $6 per unit
Q = 15,000 units
15,000 units × $20 per unit = $300,000 in sales.

$90,000
= = 15,000 units
$6 per unit
Dollar sales = Fixed expenses

to break even CM ratio
$90,000
= = $300,000 in sales
0.30
2. Incremental contribution margin:
$70,000 increased sales × 30% CM ratio ....................... $21,000
Less increased fixed costs:
Increased advertising cost ............................................. 8,000
Increase in monthly net operating income ......................... $13,000
Since the company presently has a loss of $9,000 per month, if the changes are
adopted, the loss will turn into a profit of $4,000 per month.

3. Sales (27,000 units × $18 per unit*).......................... $486,000

Variable expenses
(27,000 units × $14 per unit) ................................. 378,000
Contribution margin .................................................. 108,000
Fixed expenses ($90,000 + $35,000) ......................... 125,000
Net operating loss..................................................... $(17,000)
*$20 – ($20 × 0.10) = $18

$4,500 = ($20.00 − $14.60*) × Q − $90,000
$4,500 = $5.40Q − $90,000
$5.40Q = $94,500
Q = $94,500 ÷ $5.40 per unit
Q = 17,500 units
*$14.00 + $0.60 = $14.60.
Unit sales to attain = Target profit + Fixed expenses

target profit CM per unit
$4,500 + $90,000
=
$5.40 per unit**
= 17,500 units
**$6.00 – $0.60 = $5.40.
5. a. The new CM ratio would be:

Per Unit Percentage
Sales ................................................... $20 100%
Variable expenses ................................ 7 35%
Contribution margin ............................. $13 65%

The new break-even point would be:

$208,000
= = 16,000 units
$13 per unit
Dollar sales = Fixed expenses

to break even CM ratio
$208,000
= = $320,000 in sales
0.65
b. Comparative income statements follow:
Not Automated Automated
Total Per Unit % Total Per Unit %
Sales (20,000 units) .......... $400,000 $20 100 $400,000 $20 100
Variable expenses ............. 280,000 14 70 140,000 7 35
Contribution margin .......... 120,000 $6 30 260,000 $13 65
Fixed expenses ................. 90,000 208,000
Net operating income ........ $ 30,000 $ 52,000

c. Whether or not one would recommend that the company automate its operations
depends on how much risk he or she is willing to take, and depends heavily on
prospects for future sales. The proposed changes would increase the company’s
fixed costs and its break-even point. However, the changes would also increase
the company’s CM ratio (from 30% to 65%). The higher CM ratio means that
once the break-even point is reached, profits will increase more rapidly than at
present. If 20,000 units are sold next month, for example, the higher CM ratio
will generate $22,000 more in profits than if no changes are made.
The greatest risk of automating is that future sales may drop back down to
present levels (only 13,500 units per month), and as a result, losses will be even
larger than at present due to the company’s greater fixed costs. (Note the
problem states that sales are erratic from month to month.) In sum, the
proposed changes will help the company if sales continue to trend upward in
future months; the changes will hurt the company if sales drop back down to or
near present levels.
Note to the Instructor: Although it is not asked for in the problem, if time permits
you may want to compute the point of indifference between the two alternatives
in terms of units sold; i.e., the point where profits will be the same under either
alternative. At this point, total revenue will be the same; hence, we include only
costs in our equation:
Let Q = Point of indifference in units sold
$14Q + $90,000 = $7Q + $208,000
$7Q = $118,000
Q = $118,000 ÷ $7 per unit
Q = 16,857 units (rounded)
If more than 16,857 units are sold, the proposed plan will yield the greatest
profit; if less than 16,857 units are sold, the present plan will yield the greatest profit
(or the least loss).

Problem 8-3 (90 minutes) (LO1 CC4, 5; LO2 CC7, 8)
1. Sales = Variable expenses + Fixed expenses + Profits

$30.00Q = $18.00Q + $150,000 + $0
$12.00Q = $150,000
Q = $150,000 ÷ $12.00 per pair
Q = 12,500 pairs
12,500 pairs × $30.00 per pair = $375,000 in sales.
Alternatively:
Fixed expenses $150,000
= = 12,500 pairs
CM per unit $12.00 per pair
Fixed expenses $150,000

= = $375,000 in sales
CM ratio 0.40
Note: CM Ratio = ($30 - $18) / $30 = 0.40
2.
$700
$600
Total Sales Revenue
Break-Even Point:
$500 12,500 pairs of shoes or
Total Dollars (000s)
$375,000 in total sales

$400
Total Expenses
$300
Total Fixed
$200 Expenses
$100
$0
0
00
00
00
00
00
50
00
50
,0
,5
,0
,5
,0
2,
5,
7,
10
12
15
17
20
Number of Pairs of Shoes

3. The simplest approach is:

Break-even sales ..........................................................................
12,500 pairs
Actual sales ..................................................................................
12,000 pairs
Sales short of break-even..............................................................
500 pairs
500 pairs × $12.00 contribution margin per pair = $6,000 loss
Sales (12,000 pairs × $30.00 per pair) ...........................................
$360,000
Less variable expenses
(12,000 pairs × $18.00 per pair) ................................................
216,000
144,000
150,000
Net loss .......................................................................................
$ (6,000)
4. The variable expenses will now be $18.75 per pair, and the contribution margin will
be $11.25 per pair.
$30.00Q = $18.75Q + $150,000 + $0
$11.25Q = $150,000
Q = $150,000 ÷ $11.25 per pair
Q = 13,334 pairs (rounded up)
13,334 pairs × $30.00 per pair = $400,020 in sales
Fixed expenses = $150,000 = 13,334 pairs

CM per unit $11.25 per pair
Fixed expenses = $150,000 = $400,000 in sales

CM ratio 0.375
Note: CM Ratio = ($30 - $18.75) / $30 = 0.375

5. The simplest approach is:

Actual sales .................................................................................
15,000 pairs
Break-even sales ..........................................................................
12,500 pairs
Excess over break-even sales........................................................
2,500 pairs
2,500 pairs × $11.50 per pair* = $28,750 profit
*$12.00 present contribution margin – $0.50 commission = $11.50
Sales (15,000 pairs × $30.00 per pair) .......................................... $450,000
Less variable expenses (12,500 pairs × $18.00 per pair;
2,500 pairs × $18.50 per pair) ................................................... 271,250
Contribution margin .....................................................................
178,750
Less fixed expenses .....................................................................
150,000
Net income ..................................................................................
$ 28,750
6. The new variable expenses will be $13.50 per pair.

$30.00Q = $13.50Q + $181,500 + $0
$16.50Q = $181,500
Q = $181,500 ÷ $16.50 per pair
Q = 11,000 pairs
Break-even $sales = 11,000 pairs × $30.00 per pair
= $330,000 in sales.
Although the change will lower the break-even point from 12,500 pairs to 11,000
pairs, the company must consider whether this reduction in the break-even point is
more than offset by the possible loss in sales arising from having the sales staff on a
salaried basis. Under a salary arrangement, the sales staff has less incentive to sell
than under the present commission arrangement, resulting in a potential loss of
sales and a reduction of profits. Although it is generally desirable to lower the break-
even point, management must consider the other effects of a change in the cost
structure. The break-even point could be reduced dramatically by doubling the
selling price but it does not necessarily follow that this would improve the company’s
profit.

Problem 8-4 (45 minutes) (LO2 CC 7, 8)
1. Break-even price, assuming 50,000 units sold at break-even.
. Sales = Variable expenses + Fixed expenses + Profits

$P × (50,000) = ($6.50 × 50,000) + $275,000 + $0
$P × (50,000) = $325,000 + 275,000
P = $600,000 ÷ $50,000
P = $12
2.
Sales at breakeven = $12 × 50,000 = $600,000
Actual sales - $600,000 = ($158,088)
Actual sales = $441,912
Actual number of units sold = $441,912 ÷ $12 = 36,826
Contribution margin, without training = ($12 - $6.50) × 36,826

=$202,543
Contribution margin, with training = ($12 - $5.75*) × (36,826 × 1.20)

= $276,195
To break even, fixed costs should not exceed the contribution margin of $276,195.
Therefore,
Maximum cost of training = ($276,195 - $275,000) = $1,195
* With the training both materials and labour costs will reduce by $0.75, therefore, new
variable costs are $6.50 - $0.75 = $5.75.

Problem 8-5 (45 minutes) (LO2 CC6, 7, 8, 9, 12)
1.
Fixed costs = ($50 × 60,000) + $250,000 = $3,250,000
Unit contribution margin = $250 – $165 = $85
Break-even quantity = Fixed costs ÷ Unit contribution margin

= $3,250,000 ÷ $85 = 38,236 units (rounded up)
Break-even sales dollars = 38,236 × $250 = $9,559,000

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reducing it to quarter inch lengths, but we find that after the first few
days of feeding the hens show a decided preference for Sprouted
Oats, and now we make it a rule to feed the Timothy and Clover one
day and the Sprouted Oats the next. This works very well, and the
“Biddies” seem to enjoy the different rations on alternate days.
TWO WEEKS OLD CHICKS IN BROODER HOUSE RUNS
The Colony Range is so cared for and fertilized that the growing
pullet, for the Spring and Summer months, finds an unlimited supply
of succulent green food at her door.
CHAPTER XI
Anthracite Coal Ashes—A Substitute for Many
More Expensive Necessities
The feather of a bird is composed almost entirely of phosphorous,
and phosphorous is a great aid to the bird in digesting food. In fact,
there are manufactured “grits” offered on the market, which base
their efficiency on the amount of phosphorous they carry.
Anthracite, or hard, coal ashes, carry a considerable quantity of
phosphorous, and this is the reason chickens in all stages of their
existence are so fond of them. Our attention was first called to this
fact by observing the large number of pullets on the Colony Range,
where some loads of ashes had been used the previous season in
mixing with the fertilizer for the growing of potatoes. It was noticed
that these small heaps of ashes were very soon consumed, and
when they were replenished the pullets were never absent from the
piles. The experiment was then made of placing a small heap at the
extreme end of the chick runs from the Brooder House, and to our
surprise we found one was unable to see the ashes because of the
moving mass of yellow which covered them. It was necessary to
replenish these heaps almost daily. As ashes are perfectly sanitary
we decided to cover the entire chick run with them, which we did,
and every few days, through the brooding season, a fresh coating is
necessary, as the youngsters consume so much of the surface
constantly.
Better Than Charcoal

Next, we sifted ashes and filled the hoppers in the Laying Houses
with them. The layers ate them in the same way in which they
consumed wheat. For an experiment we stopped feeding charcoal
entirely, and found that the ashes supplied everything that the
charcoal did, with none of the dangers, for there seems to be no
doubt that where hens consume large quantities of charcoal they are
very susceptible to colds.
Large heaps of Anthracite ashes are now kept within a short
distance of every Colony House on the Range, and the use of these
ashes has very materially reduced the quantity of Grit and Shell
consumed, thus representing a considerable economy.
Until the use of Anthracite ashes came in on the Range we placed
Grit in receptacles near each Colony House, and the amount
consumed was really remarkable. As soon as the ashes were placed
there the Grit was deserted, and there practically was no
consumption of it at all, and after a few weeks we ceased to supply it
and have not done so now for years.
Since the use of the sifted ashes in the Laying Houses a soft
shelled egg is almost a curiosity on the Farm.
In the Brooder House runs, beside supplying the phosphorus to
the youngsters for their digestion, and the making of their feathers, it
does away with the fear of contamination of soil, of which so much is
now written, and it presents a surface which dries almost before the
rain storm is over, and there is no possibility of the youngsters being
let out into a muddy run.
CHAPTER XII
Eggs for Breeding Should be Laid by a Real
Yearling Hen
Having heard many stories told by Breeders who were sellers of
eggs for hatching, and also the tales by purchasers, we were
somewhat loath to embark in this branch of the Egg Trade. The
Breeders told stories of letters which would “raise your hair” from
people who had purchased from them and met with poor success,
and of course, from their point of view, the only person at fault was
the man who sold the eggs.
For the season of 1910 our breeding pen had reached a size
which allowed us, for the first time, to offer eggs to the public, and
we decided to try it out. To everyone we stated that we would not
guarantee fertility, but, as they were getting eggs from exactly the
same pens which were supplying our own incubators, we were able,
at all times, to tell what the customer was receiving. But we went
further, and agreed that anyone claiming a low fertility, if he would
send us the eggs which he claimed to be clear, and prepay the
expressage, we would, if his claim was substantiated, send him
another lot of eggs and pay the expressage both ways.
90,000 Orders for 40,000 Eggs

During the season of 1910 we sold something over 40,000 eggs
and returned money for about 50,000 beyond our ability to supply.
The result was that many people who were disappointed booked
orders at very early dates in 1910 for hatching eggs for the season of
1911.
Our experience was quite the reverse from the stories we had
been told. Of course, in doing a large business, it is not possible to
satisfy everyone, and then, unfortunately, there are some people
who are extremely fond of attempting to get something for nothing,
and you receive statements regarding orders which have been filled,
which when investigated, prove to be somewhat different from what
you were at first led to believe.
The fertility of our eggs was such that it was almost impossible for
anyone to make a complaint, and the hatching season of 1910, both
at the Farm and for our customers, was a most successful one.
For the season of 1911 we were able to increase our breeding
facilities considerably over 1910, but we were even more unable to
meet the demands upon us for hatching eggs, than in the previous
season. The results of this year were quite as satisfactory as for the
previous, and for the season of 1912 the Farm will be in a position to
fill more orders than ever before, as we have been able to make a
still greater increase on the breeding side.
YEARLING HENS IN BREEDER HOUSE BEFORE MATING READY FOR 1912
Orders for hatching eggs are booked by such a system that people
receive them when we agree to deliver the goods, and the illustration
herewith plainly shows the plan.
$ ........ SUNNY SLOPE FARM No.
THE GREAT CORNING EGG FARM
BREEDERS OF THE STRAIN OF S. C. WHITE LEGHORNS
WHICH CANNOT BE SURPASSED
BOUND BROOK, N. J. .................... 191

Received of.............................................
....................................................Dollars
FOR ........... S. C. W. LEGHORN EGGS FOR HATCHING. THESE
EGGS ARE TO BE SHIPPED BY EXPRESS ON OR ABOUT THE
.................. DAY OF .................... 191..
THE CORNING EGG FARM
BY ....................
CHAPTER XIII
Policing the Farm—With Bloodhounds,
Searchlights and Rifles
In the Fall of each year, from almost every part of the Country,
come reports of what seems to be organized thieving in the poultry
line. Both large and small farms are generally sufferers. For a
number of years people in the vicinity of the The Corning Egg Farm
have met with losses, and in the year 1910 an organized gang was
unearthed, which had a camp on the adjacent hills, and made nightly
raids, then shipped the birds by crossing the Watchung Mountains
and reaching railroad communication on the other side, sending their
stolen feathered plunder into the New York Market.
Shoot First—Investigate Afterwards

The Corning Egg Farm takes a great many precautions in regard
to efficient policing, and has earned a reputation for straight
shooting, not with a gun carrying bird shot, but with rifles. It is
thoroughly understood for miles around that we shoot first and
investigate afterwards. The farm carries some of the finest Blood
Hounds in the Country, all trained man-trailers, and it is thoroughly
understood that if the rifle fails to stop a thief, and it becomes
desirable to see him, the hounds will take up the trail the next day,
and no matter where he may have gone there will be no difficulty in
reaching him. Should he take train the dogs will tell the fact, and then
it will be only necessary to try each station until the one is reached
where he left the train. Should he leave by means of a horse, when
he either gets into the wagon, or mounts the horse, the hound will
take the scent, and carry it until he again takes to the ground.
“SOCRATES,” THE GREAT BLOODHOUND WHICH HEADS THE CORNING
KENNELS
Socrates, the Great Bloodhound

The head of the kennel, “Socrates,” No. 127320, (his registered
name is “Ottawa’s Major”) is a direct descendant from Rosemary and
Delhi, the two great dogs of Mr. Burgh, of England, who for years
has been the leading breeder of man-trailing Blood Hounds.
Altogether the Farm to-day is carrying seventeen dogs. Fifteen of
them are pure and grade Blood Hounds; two are Fox Terriers. The
Fox Terriers are kept for a breed of thieves other than the two-legged
kind, and rats have no place on which to rest the soles of their feet.
The dogs, every night, are distributed at different points of the
Farm, and one of the great qualities of the Blood Hound is its
marvelous nose, which works just as well in the dark as in the light,
and as watch dogs, because of this peculiarity, they are most
efficient, giving notice of anyone approaching the Farm long before
he could possibly be detected by a dog of another breed. When they
give tongue there is no doubt in the mind of anyone but that he is
approaching a very dangerous zone.
On the Foreman’s Apartments there is a Tower which connects
with his room, the windows of which command a view of every part
of the Farm. In this Tower there is a searchlight, and at any time of
the night, if the dogs give warning of a possible disturber, any part of
the Farm can be instantly flooded with light. Back of the search light
is the high power rifle.
Throughout the Range there is a trolley system which is used, the
overhead wire being so divided that each dog has a run of one
hundred feet, and the leash attached to the sliding pulley gives him
twenty feet on either side of the wire. This makes a complete circuit
of the Colony Range, so that it is impossible for anyone to cross in
among the Colony Houses without being reached by one of the
dogs.
We have been breeding some grade hounds, which make a rather
more ferocious animal than the pure breed, so far as natural
disposition goes. The nose quality, however, is all retained, thus
enabling these grades to become perfect trailers.
SOCRATES II AND DIOGENES

Sons of the Great Socrates
BUSTER, AMERICA’S GREATEST RATTER
It is well on any egg farm to establish a reputation for being in a

position to always place a marauder behind the bars, and nothing so
insures protection as the knowledge that on the Farm there are
carried dogs which are capable of trailing a trespasser wherever he
may go.
CHAPTER XIV
The Necessity for Pure Water—An Egg is
Chemically 80% Water
Eighty per cent. of an egg is water. If a sanitary egg is to be
produced it is most essential that pure water should be accessible to
the hens at all times, and not only should the water be pure, but the
drinking fountains must be of such a nature that they can readily be
kept in a pure state, and that the cups, into which the water flows
from the main fountain, cannot be fouled by the birds.
Automatic Fountains Essential

On The Corning Egg Farm the supply of water is placed before the
birds in automatic fountains, which work on air pressure, and contain
five gallons each. The water feeds down through a pipe into the
cups, the feeding pipe shutting off by the turning of a small cock,
thus permitting the removal of the cup, so that it can be thoroughly
cleansed each day at the time of filling the fountain, by the use of a
small brush, or swab. Once a week a quarter of a teaspoonful of
Potassium Permanganate is put into each fountain, just enough to
give the water a slight coloring. It is a mistake to have the color so
deep that it verges on the purple. This purifies the fountain and acts
as a preventive of colds.
CORNING AUTOMATIC DRINKING FOUNTAIN
It is a very good practice also to occasionally put a few drops of

Kerosene oil into the bottom of the cup and then allow the water to
run in. The Kerosene will run over the entire surface of the cup and
then rise to the top of the water. As the birds dip their bills to drink a
small amount of the Kerosene is taken up on the bill, and, when the
head is thrown back to swallow it runs into the nostrils.
The drinking fountains are occasionally thoroughly cleansed with a
strong solution of Washing Soda. This, of course, is carefully washed
out of the fountains before they are filled up and placed in the Laying
Houses.
Hot Water in Cold Weather

In the Breeding and Laying Houses during the cold months, hot
water is placed in the fountains. On The Corning Egg Farm a large
boiler, with a hot water attachment, is maintained for this purpose,
and water is taken to the Laying Houses at as close to boiling point
as it is possible to get it there.
Hens Drink More in Afternoon

At first the watering was done early in the morning, but now the
watering hour has been changed to the first hour of the afternoon.
The reason for this is because, by sitting in the Laying Houses and
watching the birds, it was discovered that from one o’clock to
roosting time more water is consumed than at any other hours of the
day. At first it was thought that Biddy, on leaving her roost,
immediately sought the drinking fountain, but we find the first act,
generally speaking, is to endeavor to fill the crop with grain, and she
vigorously starts to work in the litter.
By placing the hot water in the fountains during the hour after
noon, we find that with the closing of the house for the night, the
water retains its temperature to a remarkable degree, and it is not at
all chilling to the birds in the morning of ordinary cold weather. If the
night has been an extremely cold one we make it a practice of going
through the Houses with boiling water, emptying out what may be in
the cups, and refilling them from the hot water can, thus giving any
bird which may desire a large quantity, warm water to drink at this
time in the morning.
The supply of water for all the stock on The Corning Egg Farm
comes from the deep well, already described in the chapter on
“Building the Farm.”
CHAPTER XV
Hard Coal Ashes, Oyster Shell, and Grit
As stated in the chapter on “Anthracite Coal Ashes,” ashes have
entirely taken the place of charcoal on The Corning Egg Farm. They
are fed in hoppers with the Grit and Oyster Shell. These hoppers are
divided into three compartments, and are automatic in feeding down
the ingredients, in small quantities at a time, for Biddy’s use.
It is very essential to supply the hen with the proper grinding
material for operation in her mill, for, from the crop, what she takes
into her system in the way of grain, etc., is passed into the gizzard,
where she places a certain amount of hard, sharp stones, to use as
mill stones, and this great muscular organ then puts the food into the
proper condition for her to assimilate it.
The Grit placed in the hoppers is hard and sharp. Ordinary
pebbles are of no use to Biddy in preparing her food for digestion.
There are a great many different grits on the market sold through
Poultry Supply Houses, and by the manufacturers themselves.
Where it is possible to procure Grit having the essentials as already
described, and carrying a good percentage of lime, it adds very
materially to the desirability of the Grit.
Oyster Shell occupies the third compartment of the hoppers, this
supplying the hen with the lime necessary for her own system and
for the shell of the egg. It should be seen to that the Oyster Shell is
free from dust, and rather coarse as to its size. This represents an
economy because there is so little waste by the fowls when the Shell
is fed to them in this condition. The lack of lime in the system of the
hen is one of the reasons for soft shelled eggs, and the lack of lime
in the ingredients fed to a young chick means soft bones, which
shows most decidedly in leg weaknesses.
Where the hen is supplied with the full quantity of the ingredients
which give her lime, she turns out eggs which you might term “well
shelled” and this adds materially to the appearance of the egg, and,
consequently, helps to give it a better grading.
CHAPTER XVI
Beef Scrap and Green Bone Substitutes for
Nature’s Animal Food
Undoubtedly the ideal animal food for the hen, if it were possible to
procure it in sufficient quantities the year round, would be angle
worms, grasshoppers, and other members of the insect family, which
the early Spring supplies in such liberal quantities. It must be
remembered that in these different worms and insects there is a
large amount of phosphorous, which adds very greatly to the ability
of the hen to successfully digest the large quantity of food which is
necessary, if she is to produce a large quantity of eggs.
Green Cut Bone Nearest Nature

The thing, perhaps, nearest in an artificial way to Nature’s animal
food, is green cut bone, and it is certainly relished by the hens, and a
great assistance in producing Winter eggs. The exercise of great
care, however, in the selection of bone is very necessary, for, if salt
bone, or tainted bone, is cut up and fed to the fowls, it will prove
most detrimental, and in many instances will mean the loss of the
hen.
For those who do not find it possible to set up the necessary bone-
cutting machinery there are numerous brands of “Beef Scrap” on the
market. This is made from green bone and meat which is then
cooked, ground and pressed, so as to preserve it fresh and sweet.
This also is a most successful way to supply the hens with the
necessary amount of animal food. It is readily mixed into the mash,
just as the green cut bone is, and, where the proper mechanical
mixer is used, it is possible to thoroughly coat the entire meal
mixture with the oily condition coming from the beef scrap, and until
one has seen beef scrap mixed into the mash by such a mixer he
has no idea how successful the operation is in preparing a high
grade mash. The beef scrap and also the fresh cut bone carry a high
percentage of phosphorus, and in fact have about all the ingredients
found in animal food secured by the hen while running on Range.
There are now appearing numerous advertisements of a prepared
fish, to take the place of other animal foods, but The Corning Egg
Farm is unable to give any opinion as to the efficiency of this
preparation. It has been the rule at the Farm, when we have
thoroughly tested and found satisfactory any article of food, not to
experiment with the various substitutes which at all times are so
widely advertised.
CHAPTER XVII
A Time for Everything—Everything on Time
In any business, or occupation, that one attempts to carry on
successfully there must be system. Nature teaches system, and the
hen, as a part of Nature, is a very regular performer. She does
everything on time, and at a given time, and if her routine is broken
in upon she is a very much upset individual. The owner who rudely
disturbs her routine suffers in the loss of eggs.
The schedule of work among the fowls on The Corning Egg Farm
is without variation each day. In Summer the houses are always
open and need no attention in the morning, but in Winter the drops
are raised in ordinarily cold weather, as soon as it is light enough to
enable the hens to work in the litter for grain. On very cold mornings
the raising of the drops is deferred until the Sun is up, and when this
is done the drinking cups in the fountains are filled with hot water.
Fixed Feeding Hours

As close to eight o’clock as possible green food is fed to all the
hens, and, if the ground is in a reasonably dry condition, the green
food for the cockerels is scattered outside their pen, and the entire
flock is driven out of the House, where they are soon busy
consuming the green food and whatever grain may have been left on
the ground from their outdoor feeding of the previous day.
For a number of years it was the method at The Corning Egg
Farm, between the hours of nine and ten o’clock, to make a
gathering of eggs. This has now been abandoned for the reason that
so many birds were disturbed on the nests during such an early visit
to the House for gathering, and the first gathering now on the Farm
is made at eleven-thirty.
In the study of feeding, extending over a term of years, it has been
found that a considerable economy in time can be made, with
exactly as advantageous results from the layers, by the following
routine. Fresh water is placed in all the laying and breeding pens at
one o’clock, p.m., and it is boiling water during the Winter months.
Directly following the watering the mash is placed in the troughs, and
the grain ration is scattered through the litter, both in Summer and
Winter. It has been found that the hens work just as hard, and
continue to do so, as they did when the mash and grain fed were
given at hours which practically followed the Sun, that is, earlier in
Winter, and later in Summer. In past years, the oats were fed to the
flocks as a separate ration, at eleven-thirty o’clock. This we have
discontinued. The grain ration is made up of cracked corn, wheat
and oats, in varying proportions according to the season of the year.
PART OF THE OLD INCUBATOR CELLAR

The New Building with the 15,600 Egg Machines was not Sufficiently Completed
for Interior Photograph
Four Collections of Eggs Daily

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Introduction to Managerial Accounting

Canadian Canadian 4th Edition Brewer

8-6 The break-even point can be defined as

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8-10 The margin of safety is the excess of

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1. The new income statement would be:

2. The new income statement would be:

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3. The new income statement would be:

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1. The company's contribution margin (CM) ratio is:

This computation can be verified as follows:

Increase in total sales ...................................................................

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Copyright © 2014 McGraw-Hill Ryerson Limited. All rights reserved.

Copyright © 2014 McGraw-Hill Ryerson Limited. All rights reserved.

Sales = Variable expenses + Fixed expenses + Profits

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Brief Exercise 8-5 (continued)

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Fixed Expense Total Expense Total Sales Revenue

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1. The equation method yields the required unit sales, Q, as follows:

2. The contribution margin yields the required unit sales as follows:

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1. The equation method yields the required unit sales, Q, as follows:

* This amount represents the before-tax profit and is calculated as follows:

Before tax income = (After tax income) ÷ (1 – income tax rate)

2. The contribution margin yields the required unit sales as follows:

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* Alternatively, margin of safety of 500 units x $48 = $24,000.

2. The margin of safety as a percentage of sales is as follows:

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1. Break even sales in units:

Break – even sales in units = $150,500 ÷ $5 = 30,100

2. Number of units sold

Margin of safety % = (Sales – Break-even sales) ÷ Sales

30% x Sales = (Sales - $150,500)

30% x Sales + 150,500 = Sales

Sales = [$150,500 ÷ (1-0.30)] = $215,000

Units sold: Sales ÷ Unit price = $215,000/$5 = 43,000 units

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1. The company's degree of operating leverage would be computed as follows:

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At the break-even point, contribution margin = fixed costs

Contribution margin per unit = $4,000 ÷ 8,000 units

Contribution margin on the 401st unit sold = $0.50

Brief Exercise 8-12 (10 minutes) (LO1 CC1; LO2 CC7, 8)

At the break-even point, contribution margin = fixed costs

Contribution margin per unit = $8.50 – $6.75

Contribution margin at break-even sales = $1.75 × 39,000

Fixed costs = $68,250

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Exercise 8-1 (30 minutes) (LO1 CC1, 3, 4, 5)

Total Per Unit

2. Sales (20,000 units × 1.25 = 25,000 units) ....................................$337,500 $13.50

3. Sales (20,000 units × 0.95 = 19,000 units) ....................................$313,500 $16.50

4. Sales (20,000 units × 0.90 = 18,000 units) ....................................$302,400 $16.80

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Contribution margin ratio = Contribution margin ÷ sales = $5,000/$20,000

Variable expense ratio = $15,000 ÷ $20,000 = 75%

Let X = Break-even point in sales dollars.