ACCT

FC/ CM per unit =

Break point in units

ales $900,900 $529,100 $1,430,000 Variable costs 666,666 301,587 968,253 Contribution M $234,234 $227,513 461,747 Fixed costs 131,743 Net income $330,004

iPad division: $900,900 ÷ ($900,900 + $529,100) = 0.63 or 63% iPod division: $529,100 ÷ ($900,900 + $529,100) = 0.37or 37% Contribution Margin Ratio iPad division: $234,234 ÷ $900,900 = 0.26 or 26% iPod division: $227,513 ÷ $529,100 = 0.43 or 43% Weighted-average contribution margin ratio = $461,747/ 1,430,000 = 32.29 Break-even point in dollars = $131,743 ÷ 32.29% = $408,000 sales dollars needed at break-even point for each division iPad division: $408,000 x 0.63 = $257,040 iPod division: $408,000 x 0.37 = $150,960

FC/ CM Ratio

Required Sales (dollars)

CM per unit =

Unit Selling Price - Unit VC

Sales Mix Bedroom Division = $503,800 ÷ $1,261,200 = 0.40 Dining Room Division = $757,400 ÷ $1,261,200 =0.60 (b) Weight-average contribution margin ratio = $569,400/$1,261,200 = 0.45

sales $503,800 $757,400 $1,261,200 Variable costs $245,900 445,900 691,800 Contribution margin $257,900 $311,500 $ 569,400

Break even point using the mathematical equation:

unit selling priceQ = VC per unitQ + Fc +0

In the month of June, Jose Hebert's Beauty Salon gave 3,650 haircuts, shampoos, and permanents at an average price of $35. During the month, fixed costs were $16,850 and variable costs were 70% of sales. Determine the contribution margin in dollars, per unit and as a ratio

units = 3650 $ per unit = 35 Sales = 3650 * 35 = 127750 Sales - VC = CM = 127750 - (.7 * 127750) = 38325 CM per unit = CM/units = 38325 / 3650 = 10.5 CM Ratio = CM/Sales OR CM per unit/ $ per unit (unit selling price) CM Ratio = 10.5/35 = .3

Assuming that sales quantity increases by 10%, prepare a variable costing income statement for each company. Sales $602,700 $602,700 Variable costs 282,000 81,800 Contribution M 320,700 520,900 Fixed costs 173,500 373,700 Net income $147,200 $147,200

Armstrong Company Contador Company Sales $602,700 x 1.1 = $662,970 VC $282,000 x 1.1 = $310,200 $81,800 x 1.1 = $89,980

xpress Delivery is a rapidly growing delivery service. Last year, 83% of its revenue came from the delivery of mailing "pouches" and small, standardized delivery boxes (which provides a 13% contribution margin). The other 17% of its revenue came from delivering non-standardized boxes (which provides a 61% contribution margin). With the rapid growth of Internet retail sales, Express believes that there are great opportunities for growth in the delivery of non-standardized boxes. The company has fixed costs of $12,290,000. (a) What is the company's break-even point in total sales dollars? At the break-even point, how much of the company's sales are provided by each type of service he company's management would like to hold its fixed costs constant, but shift its sales mix so that 61% of its revenue comes from the delivery of non-standardized boxes and the remainder from pouches and small boxes. If this were to occur, what would be the company's break-even sales, and what amount of sales would be provided by each service type?

(a) Sales Mix ContributionM RWeighted-Averageontribution Mail pouches and small boxes 83% 13% 0.1079 Non-standard boxes 17% 61 % 0.1037 0.2116 Total break-even sales in dollars = $12,290,000 ÷ 0.2116 = $58,081,285 Sales Mix Percentage Total Break-even Sales in Dollars Sales Dollars Needed Per Product Mail pouches and small boxes 83 % x $58,081,285 = $48,207,467 Non-standard boxes 17 % x $58,081,285 = $9,873,818 Total sales $58,081,285 (b) Sales Mix Percentage Contribution Margin Ratio Weighted-Average Contribution Margin Ratio Mail pouches and small boxes 39 % 13 % 0.0507 Non-standard boxes 61 % 61 % 0.3721 0.4228 Total break-even sales in dollars = $12,290,000 ÷ 0.4228 = $29,068,117 Sales Mix Percentage Total Break-even Sales in Dollars Sales Dollars Needed Per Product Mail pouches and small boxes 39 % x $29,068,117 = $11,336,566 Non-standard boxes 61 % x $29,068,117 = $17,731,551 Total sales $29,068,117

Qwik Repairs has over 200 auto-maintenance service outlets nationwide. It provides primarily two lines of service: oil changes and brake repair. Oil change-related services represent 64% of its sales and provide a contribution margin ratio of 19%. Brake repair represents 36% of its sales and provides a 59% contribution margin ratio. The company's fixed costs are $15,006,000 (that is, $75,030 per service outlet). (a) Calculate the dollar amount of each type of service that the company must provide in order to break even. (b) The company has a desired net income of $60,560 per service outlet. What is the dollar amount of each type of service that must be provided by each service outlet to meet its target net income per outlet?

(a) Oil changes 64 % 19 % 0.122 Brake repair 36 % 59 % 0.212 0.334 Total break-even sales in dollars = $15,006,000 ÷ 0.334 = $44,928,144 Oil changes 64% x $44,928,144 = $28,754,012 Brake repair 36% x $44,928,144 = $16,174,132 Total sales $44,928,144 (b) Sales to achieve target net income = ($75,030 + $60,560) ÷ 0.334 = $405,958 Sales Mix% Total Sales Sales $ Needed Needed per product Oil changes 64 % x $405,958 = $259,813 Brake repair 36 % x $405,958 = $146,145 Total sales $405,958

determine the effect on each company's net income if sales decrease by 15% and if sales increase by 8%. Do not prepare income statements.

15% decrease: Traditional Yams (15 %) x1.32 = (19.80 %) Auto-Yams (15 %) x3.88 = (58.20 %) 8% increase: Traditional Yams 8 % x 1.32 = 10.56 % Auto-Yams 8 % x 3.88 = 31.04 %

he Heating Division of KLM International produces a heating element that it sells to its customers for $42 per unit. Its variable cost per unit is $25, and its fixed cost per unit is $6. Top management of KLM International would like the Heating Division to transfer 15,000 heating units to another division within the company at a price of $31. Assume that the Heating Division has sufficient excess capacity to provide the 15,000 heating units to the other division. What is the minimum transfer price that the Heating Division should accept?

25

Sales $152,600 $152,600 Variable costs 59,514 24,416 Contribution margin93,086 128,184 Fixed costs 49,738 84,836 Net income $43,348 $43,348

Break-even point in dollars: Logan Co. $49,738 ÷ ($93,086 ÷ $152,600) = $81,538 Morgan Co. $84,836 ÷ ($128,184 ÷ $152,600) = $100,995

FC + NI =

CM

Sales - VC =

CM

CM / Sales =

CM Ratio

Sales $602,700 $602,700 Variable costs 282,000 81,800 Contribution M 320,700 520,900 Fixed costs 173,500 373,700 Net income $147,200 $147,200

Contribution Margin ÷ NI = Degree ofOperatingLeverage Armstrong $320,700 ÷ $147,200 = 2.179 Contador $520,900 ÷ $147,200 = 3.539

In Briggs Company, data concerning two products are Contribution margin per unit—Product A $14, Product B $16; machine hours required for one unit—Product A 4, Product B 3.

Contribution margin per unit (a) $14 $16 Machine hours required (b) 4 3 Contribution margin per unit of limited resource [(a) ÷ (b)] $3.50 $5.33

Selling price $19 $14 $18 Variable costs and expenses $5 $12 $16 Machine hours to produce 2 1 2

Contribution margin per unit (a) $14 $2.00 $2 Machine hours required (b) 2 1 2 Contribution margin per unit of limited resource (a) ÷ (b) $7.00 $2.00 $1.00 (2) Product A should be manufactured because it results in the highest contribution margin per machine hour.

roduct 1 $46.76 0.15 hours Product 2 $35.50 0.10 hours If Ger's machine hours are limited to 2,000 per month, determine which product it should produce.

Contribution margin per unit (a) $46.76 $35.50 Machine hours required (b) 0.15 0.10 Contribution margin per unit of limited resource [(a) ÷ (b)] $312 $355 Product 2 has a higher contribution margin per limited resource, even though it has a lower contribution margin per unit. Given that machine hours are limited to 2,000 per month, Ger Corporation should produce Product 2.

Sam's Shingle Corporation is considering the purchase of a new automated shingle-cutting machine. The new machine will reduce variable labor costs but will increase depreciation expense. Contribution margin is expected to increase from $250,230 to $285,350. Net income is expected to be the same at $43,900.

Degree of operating leverage (old) = $250,230 ÷ $43,900 = 5.7 Degree of operating leverage (new) = $285,350 ÷ $43,900 = 6.5 if Sam's sales change, the resulting change in net income will be 1.1 times (6.5 ÷ 5.7) higher with the new machine than under the old system.

he degree of operating leverage for Montana Corp. and APK Co. are 1.7 and 5.2, respectively. Both have net incomes of $47,760. Determine their respective contribution margins.

Degree of operating leverage = Contribution margin ÷ Net income 1.7 = Contribution margin ÷ $47,760 Montana Corp. Contribution margin= $47,760 x 1.7 = $81,192 5.2 = Contribution margin ÷ $47,760 APK Co. Contribution margin = $47,760 x 5.2 = $248,352

Mussatto Corporation produces snowboards. The following per unit cost information is available: direct materials $17; direct labor $10; variable manufacturing overhead $4; fixed manufacturing overhead $17; variable selling and administrative expenses $4; and fixed selling and administrative expenses $11. Using a 30% markup percentage on total per unit cost, compute the target selling price.

Direct materials $17 Direct labor 10 Variable manufacturing overhead 4 Fixed manufacturing overhead 17 Variable selling and administrative expenses 4 Fixed selling and administrative expenses 11 Total unit cost $63 Total unit cost + (Markup percentage x Total unit cost) = Target selling price 63 + (30% x $63) = $81.90

Direct materials $20 Direct labor 7 Variable manufacturing overhead 7 Fixed manufacturing overhead 8 Variable selling and administrative expenses 2 Fixed selling and administrative expenses 8 Total unit costs

Direct materials $20 Direct labor 7 Variable manufacturing overhead 7 Fixed manufacturing overhead 8 Variable selling and administrative expenses 2 Fixed selling and administrative expenses 8 Total unit costs $52 Total unit cost + (Total unit cost × Markup percentage) = Target selling price $52 + ($52 × 31%) = $68.12

Determine the inn's break-even point in (1) number of rented rooms per month and (2) dollars. The Bonita Inn is trying to determine its break-even point. The inn has 75 rooms that are rented at $56 a night. Operating costs are as follows. Salaries $10,770 per month Utilities 1,810 per month Depreciation 1,300 per month Maintenance 820 per month Maid service 7 per room Other costs 35 per room

FC: Salaries, Utilities, Depreciation, Maintenance Total FC = $14700 per month VC: Maid Service,Other Costs Total VC = $42 per room $56 - $42= $14= CM BE point in rooms = FC / CM BE(rooms) = 14700/14 = 1050 BE in $= BErooms * room cost BE$= 1050 * 56 = 58800

Yard Tools manufactures lawnmowers, weed-trimmers, and chainsaws. Its sales mix and contribution margin per unit are as follows. Sales Mix Contribution Margin per Unit Lawnmowers 20 % $50 Weed-trimmers 50 % $30 Chainsaws 30 % $40 Yard Tools has fixed costs of $6,312,940.

Lawnmowers 20 % $50 $10 Weed-trimmers 50 % $30 $15 Chainsaws 30 % $40 $12 $37 Total break-even sales in units = $6,312,940 ÷ $37 = 170,620 units Sales Mix Percentage Total Break-even Sales in Units Sales Units Needed Per Product Lawnmowers 20 % x 170,620 = 34,124 units Weed-trimmers 50 % x 170,620 = 85,310 units Chainsaws 30 % x 170,620 = 51,186 units Total units 170,620 units

Selling price $19 $14 $18 Variable costs and expenses $5 $12 $16 Machine hours to produce 2 1 2

Machine hours (a) (1,590 ÷ 3) 530 530 530 Contribution margin per unit of limited resource (b) $7.00 $2.00 $1.00 Total contribution margin [(a) x (b)] $3,710 $1,060 $530 The total contribution margin = ($3,710 + $1,060 + $530) = $5,300. (2) Machine hours (a) 1590 Contribution margin per unit of limited resource (b) $7.00 Total contribution margin [(a) x (b)] $11,130

Margin of Safety Ratio=

Margin of Safety in $ / Actual Sales

Actual (expected Sales) - Break-Even Sales =

Margin of safety in $

Hannon Corporation produces high-performance rotors. It expects to produce 75,700 rotors in the coming year. It has invested $10,295,200 to produce rotors. The company has a required return on investment of 25%. What is its ROI per unit?

ROI per unit=(Total investment x Desired ROI percentage)/ Number of units = ($10,295,200 x 25%) / 75,700= $34

Rooney Small Engine Repair charges $46 per hour of labor. It has a material loading percentage of 41%. On a recent job replacing the engine of a riding lawnmower, Rooney worked 11.8 hours and used parts with a cost of $750. Calculate Rooney's total bill.

Rooney's total bill would equal: (11.8 hours × $46) + $750 + ($750 × 41%) = $1,600.30

Krystal Water is considering introducing a water filtration device for its 20-ounce water bottles. Market research indicates that 1,011,800 units can be sold if the price is no more than $4. If Krystal Water decides to produce the filters, it will need to invest $1,932,900 in new production equipment. Krystal Water requires a minimum rate of return of 21% on all investments. Determine the target cost per unit for the filter

The desired profit for this new product line is $405,909 ($1,932,900 x 21%) Each filter must result in $0.40 of profit ($405,909 /1,011,800 units) Market price - Desired profit = Target cost per unit $4 - $0.40 = $3.60 per unit

Eckert Company is involved in producing and selling high-end golf equipment. The company has recently been involved in developing various types of laser guns to measure yardages on the golf course. One small laser gun, called LittleLaser, appears to have a very large potential market. Because of competition, Eckert does not believe that it can charge more than $94 for LittleLaser. At this price, Eckert believes it can sell 119,000 of these laser guns. Eckert will require an investment of $12,561,111 to manufacture, and the company wants an ROI of 18%. Determine the target cost for one LittleLaser

The following formula may be used to determine return on investment: Investment x ROI percentage = Return on investment $12,561,111 x 18% = $2,261,000 Return on investment per unit is then $19 : ($2,261,000 ÷119,000) The target cost is therefore $75 computed as follows: Target cost = Market Price - Desired profit $75 = $94 - $19

During the current year, Mast Corporation expects to produce 11,800 units and has budgeted the following: net income $247,424; variable costs $1,073,600; and fixed costs $101,000. It has invested assets of $1,546,400. The company's budgeted ROI was 16%. What was its budgeted markup percentage using a full-cost approach? 36.52 122.15

The markup percentage is equal to Desired ROI per unit divided by total unit cost. The desired ROI per unit is computed as follows: Desired ROI per unit = $1,546,400 x 16%/11,800 units = $20.97 The total unit cost is computed as follows: Total unit cost = $1,073,600 + $101,000/ 11,800 units = $99.54 The markup percentage is computed as follows: Markup percentage = Desired ROI per unit/Total unit cost = $20.97/$99.54 = 21.07%

Morales Corporation produces microwave units. The following per unit cost information is available: direct materials $31; direct labor $22; variable manufacturing overhead $20; fixed manufacturing overhead $45; variable selling and administrative expenses $11; and fixed selling and administrative expenses $26. Its desired ROI per unit is $28.07. Compute its markup percentage using a total-cost approach

The markup percentage would be = $25.66/ ($31 + $22 + $13 + $46 + $13 + $24) = 17.22 %

he Heating Division of KLM International produces a heating element that it sells to its customers for $40 per unit. Its variable cost per unit is $20, and its fixed cost per unit is $12. Top management of KLM International would like the Heating Division to transfer 14,880 heating units to another division within the company at a price of $26. The Heating Division is operating at full capacity. Assume that the units being requested are special high-performance units, and that the division's variable cost would be $30 per unit. What is the minimum transfer price that the Heating Division should accept?

The minimum transfer price is equal to the division's variable cost plus its opportunity cost. In this case the minimum transfer price is: Minimum transfer price = $30 + ($40 - $20) = $50.

he Heating Division of KLM International produces a heating element that it sells to its customers for $42 per unit. Its variable cost per unit is $19, and its fixed cost per unit is $11. Top management of KLM International would like the Heating Division to transfer 14,560 heating units to another division within the company at a price of $31. The Heating Division is operating at full capacity. What is the minimum transfer price that the Heating Division should accept

The minimum transfer price is equal to the division's variable cost plus its opportunity cost. The opportunity cost is equal to its contribution margin on goods sold to external parties. Thus, the minimum transfer price in this case is: Minimum transfer price = $19 + ($42 - $19) = $42.

Jarlsberg Cheese Company has developed a new cheese slicer called Slim Slicer. The company plans to sell this slicer through its catalog, which it issues monthly. Given market research, Jarlsberg believes that it can charge $20.00 for the Slim Slicer. Prototypes of the Slim Slicer, however, are costing $26. By using cheaper materials and gaining efficiencies in mass production, Jarlsberg believes it can reduce Slim Slicer's cost substantially. Jarlsberg wishes to earn a return of 24% of the selling price. Compute the target cost for the Slim Slicer.

The target cost formula is: Target cost = Market price - Desired profit In this case, the market price is $20.00 and the desired profit is $4.80 (24% × $20.00). Therefore the target cost is $15.20 ($20.00 - $4.80).

Sales =

VC+FC+NI(or TNI)

Unit sales price $106 $31 $241 Unit variable costs 59 11 202 Unit contribution margin $47 $20 $39 Sales mix 30% 43% 27%

Weighted-average unit contribution margin = ($47 x 30%) + ($20 x 43%) + ($39 x 27%) = $33.23 Break-even point in units = $714,445 ÷ $33.23 = 21,500 Shoes (21,500 x 30%) = 6,450 pairs of shoes Gloves (21,500 x 43%) = 9,245 pairs of gloves Range Finders (21,500 x 27%) = 5,805 range finders