Managerial Accounting Chapter 6

Sheridan Company's cost of goods sold is $580000 variable and $320000 fixed. The company's selling and administrative expenses are $460000 variable and $520000 fixed. If the company's sales is $2140000, what is its contribution margin?

$1100000. (Sales - Variable Cost of Goods Sold - Variable Selling and Administrative Expenses = Contribution Margin)

Sandhill's sells two products, a pepper relish with a selling price of $4.90 and a variable cost per jar of $2.10 and a blackberry marmalade with a selling price of $4.90 and a variable cost per jar of $2.00. Sandhill's expected sales are 980 jars of pepper relish and 1470 jars of blackberry marmalade. Fixed expenses are $8346. At what volume of sales dollars will Sandhill's break-even?

$14298. Expected Sales (Pepper Relish) / (Expected Sales (Pepper Relish) + Expected Sales (Blackberry Marmalade) = Sales Mix; ((Pepper Relish Sales Mix x (Selling Price - Variable costs per unit)) + (Blackberry Marmalade Sales Mix x (Selling price - Variable costs per unit)) = Weighted-Average Contribution Margin; Fixed Cost / Weighted Average unit contribution margin = Break-even in units; Break-even in units x Selling price = Break-even point in Sales Dollars)

For Swifty Corporation, sales is $2300000, fixed expenses are $560000, and the contribution margin ratio is 36%. What are the total variable expenses?

$1472000 (Sales x (1 - Contribution margin ratio) = Total variable expenses)

For Vaughn Manufacturing, sales is $1360000 (6800 units), fixed expenses are $480000, and the contribution margin per unit is $100. What is the margin of safety in dollars?

$400000. (Fixed Expenses / Contribution margin per unit = Break even sales in units; Budgeted (Expected) Sales / units = Selling price; Break even sales in units x Selling price = Break-Even Sales in Dollars; Budgeted (Expected) Sales - Break-Even Sales in Dollars = Margin of Safety in Dollars)

For Coronado Industries, sales is $2500000, fixed expenses are $900000, and the contribution margin ratio is 36%. What is required sales in dollars to earn a target net income of $700000?

$4444444. ((Fixed expenses + Target net income) / Contribution margin = Required sales in dollars)

Sheffield Corp. can produce and sell only one of the following two products: Oven Contribution Hours Required Margin Per Unit Muffins 0.2 $6 Coffee Cakes 0.3 $7 The company has oven capacity of 3000 hours. How much will contribution margin be if it produces only the most profitable product?

$90000. (Muffins: Contribution Margin Per Unit / Muffins: Oven Hours Required = Muffins (Contribution Margin per unit of limited resources); Coffee Cakes: Contribution Margin Per Unit / Coffee Cakes: Oven Hours Required = Coffee Cakes (Contribution Margin per unit of limited resources); Muffins: Contribution Margin per unit of limited resources x Hours of Oven Capacity = Most profitable product

In 2019, Bramble Corp. sold 6200 units at $600 each. Variable expenses were $420 per unit, and fixed expenses were $285000. The same selling price, variable expenses, and fixed expenses are expected for 2020. What is Bramble's break-even point in sales dollars for 2020?

$950000. (Fixed expenses / ((Selling price - Variable expense per unit) / Selling price) = Break-even point in sales dollars)

Sunland Company has sales of $3000000, variable costs of $1000000, and fixed costs of $900000. Sunland's margin of safety ratio is

0.55. (Fixed Costs/ Contribution Margin Ratio) = Break even in dollars; (Expected (Budgeted) Sales - Break-even in dollars) / Expected (Budgeted) Sales) = Margin of Safety ratio)

During the last accounting period, Crane Corporation sold 82000 units at $45 each. The variable cost per unit was $20 per unit. Fixed costs totaled $1100000. What is the company's degree of operating leverage?

2.16. (Sales - Variable Costs = Contribution Margin; Sales- Variable Costs - Fixed Costs = Net Operating Income; Contribution Margin / Net Operating Income = Operating leverage)

In 2019, Waterway sold 3000 units at $500 each. Variable expenses were $250 per unit, and fixed expenses were $500000. The same selling price is expected for 2020. Waterway is tentatively planning to invest in equipment that would increase fixed costs by 20%, while decreasing variable costs per unit by 20%. What is Waterway's break-even point in units for 2020?

2000. (Fixed expenses x Increase Percentage in Fixed Cost) / (Selling price - (Variable costs per unit x Decrease Percentage in Variable Costs) = Break-even point in units)

Sheffield Corp. reported sales of $2000000 last year (100000 units at $20 each), when the break-even point was 78000 units. Sheffield's margin of safety ratio is

22%. (Expected (Actual) sales - Break even sales) x Selling price = Margin of Safety in Dollars / Expected (Actual) Sales = Margin of safety ratio)

Oriole Company sells two types of computer hard drives. The sales mix is 30% (Q-Drive) and 70% (Q-Drive Plus). Q-Drive has variable costs per unit of $90 and a selling price of $150. Q-Drive Plus has variable costs per unit of $105 and a selling price of $195. Oriole's fixed costs are $688500. How many units of Q-Drive would be sold at the break-even point?

2550. ((Q-Drive Sales Mix X (Selling Price - Variable costs per unit)) + (Q-Drive Plus Sales Mix X (Selling price - Variable costs per unit)) = Units Sold at Break-even point)

Cullumber Sails produces four types of sails for a Sportfish sailboat: the Classic, the American Pride, the Olympic and the Worlds. The company is in the process of preparing budgets for the upcoming period. The sales department projects the following: 15600 Classic sails, 24400 American Pride sails, 33600 Olympic sails, and 31500 Worlds sails. The sales mix for Olympic sails is

32%. (Olympic Units / (Classic Units + American Pride Units + Olympic Units + Worlds Units))

Ivanhoe Bikes manufactures three types of bike tires: the Pro, the Velo Road and the Diamond Back. Projected sales for the next period are 30240 Pro tires, 30240 Velo Road tires and 25920 Diamond Back tires. The sales mix for Velo Road tires is

35%. (Velo Road Units Sold / (Pro Units Sold + Velo Road Units Sold + Diamond Back Units Sold))

Sunland Enterprises manufactures wireless cordless drills. The company has the following projected income statement for the next quarter. Expected sales are 80,000 drills. Sales $6918400 Variable costs 5264000 Contribution margin 1654400 Fixed costs 1300000 Net operating income $354400 Sunland's projected degree of operating leverage is

4.67. (Sales - Variable Costs = Contribution Margin; Sales- Variable Costs - Fixed Costs = Net Operating Income; Contribution Margin / Net Operating Income = Operating leverage)

Sunland Company has two divisions—Standard and Premium. Each division has hundreds of different types of tennis racquets and tennis products. The following information is available: Standard Division Premium Division Total Sales $300000 $700000 $1000000 Variable costs $210000 280000 Contribution margin $90000 $420000 Total fixed costs $300000 What is the weighted-average contribution margin ratio?

51%. (Contribution Margin / Sales = Contribution Margin ratio; (Sales mix: Standard x Contribution Margin Ratio: Standard) + (Sales mix: Premium x Contribution Margin Ratio: Premium) = Weighted-average contribution margin ratio

Waterway Industries sells 5700 units of Product A annually, and 4300 units of Product B annually. The sales mix for Product A is

57%. (Product A Units Sold / (Product A Units Sold + Product B Units Sold))

In 2019, Sunland Company sold 3000 units at $800 each. Variable expenses were $500 per unit, and fixed expenses were $270000. The same selling price, variable expenses, and fixed expenses are expected for 2020. What is Sunland's break-even point in units for 2020?

900. (Fixed expenses / (Selling price - Variable expense per unit) = Break-even point in units)

Baleigh wants to develop a line of bath products to sell at the local market as her side hustle. Given her limited time, she wants, initially, to focus on the one product which will be most profitable. She has developed the following information: Product Selling Price Variable Costs Hours Required Soap on a Rope $6.75 $1.75 .25 Bath Bombs $26 $6 1 Bath Salts $14 $5 .5 Baleigh's market research suggests that the products will be popular, although she suspects that bath bombs are currently more trendy than soap on a rope. Fixed costs are estimated to be $3,000 and she plans to spend 700 hours manufacturing the products. Which product should Baleigh make and why?

Make Bath Bombs because it is the product with the highest contribution margin.

Crane Company can sell all the units it can produce of either Plain or Fancy but not both. Plain has a unit contribution margin of $42 and takes two machine hours to make and Fancy has a unit contribution margin of $45 and takes three machine hours to make. There are 2400 machine hours available to manufacture a product. What should Crane do?

Make Plain which creates $6 more profit per machine hour than Fancy does.