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managerial accounting

Fundamental Managerial Accounting Concepts 6th Edition Edmonds, Tsay, olds - Solutions

How does a contribution margin income statement differ from the income statement used in financial reporting?
In what three ways can the contribution margin be useful in cost-volume-profit analysis?
If Company A has a projected margin of safety of 22 percent while Company B has a margin of safety of 52 percent, which company is at greater risk when actual sales are less than budgeted?
What variables affect profitability? Name two methods for determining profitability when simultaneous changes occur in these variables.
When would the customer be willing to pay a premium price for a product or service? What pricing strategy would be appropriate under these circumstances?
What are three alternative approaches to determine the break-even point? What do the results of these approaches show?
What is the equation method for determining the break-even point? Explain how the results of this method differ from those of the contribution margin approach.
If a company is trying to find the breakeven point for multiple products that sell simultaneously, what consideration must be taken into account?
What assumptions are inherent in cost volume-profit analysis? Since these assumptions are usually not wholly valid, why do managers still use the analysis in decision making?
Mary Hartwell and Jane Jamail, college roommates, are considering the joint purchase of a computer that they can share to prepare class assignments. Ms. Hartwell wants a particular model that costs $2,000; Ms. Jamail prefers a more economical model that costs $1,500. In fact, Ms. Jamail is adamant
How would the algebraic formula used to compute the break-even point under the equation method be changed to solve for a desired target profit?
Setting the sales price is easy: Enter cost information and desired profit data into one of the cost-volume-profit formulas, and the appropriate sales price can be computed mathematically. Do you agree with this line of reasoning? Explain.
What is the relationship between cost-volume-profit analysis and the relevant range?
Adair Corporation produces products that it sells for $12 each. Variable costs per unit are $5, and annual fixed costs are $140,000. Adair desires to earn a profit of $21,000. Requireda. Use the equation method to determine the break-even point in units and dollars. b. Determine the sales volume in
SConnor Corporation sells products for $25 each that have variable costs of $13 per unit. Connor’s annual fixed cost is $264,000. Required Use the per-unit contribution margin approach to determine the break-even point in units and dollars.
Garcia Company incurs annual fixed costs of $60,000. Variable costs for Garcia’s product are $22.75 per unit, and the sales price is $35.00 per unit. Garcia desires to earn an annual profit of $45,000. Required Use the contribution margin ratio approach to determine the sales volume in dollars
Kennedy Company produces a product that sells for $37 per unit and has a variable cost of $22 per unit. Kennedy incurs annual fixed costs of $75,000. Required a. Determine the sales volume in units and dollars required to break even.b. Calculate the break-even point assuming fixed costs increase to
Mote Enterprises produces a product with fixed costs of $36,000 and variable cost of $2.50 per unit. The company desires to earn a $20,000 profit and believes it can sell 10,000 units of the product. Requireda. Based on this information, determine the target sales price. b. Assume a competitor is
Laya Corporation produced 200,000 watches that it sold for $16 each during 2012. The company determined that fixed manufacturing cost per unit was $7 per watch. The company reported an $800,000 gross margin on its 2012 financial statements. Required Determine the variable cost per unit, the total
Contribution margin per unit approach for break-even and desired profit Information concerning a product produced by Salter Company appears here:RequiredDetermine the following:a. Contribution margin per unit.b. Number of units that Salter must sell to break even.c. Sales level in units that Salter
Pettigrew Company produces a product that has a variable cost of $13 per unit; the product sells for $28 per unit. The company’s annual fixed costs total $375,000; it had net income of $75,000 in the previous year. In an effort to increase the company’s market share, management is considering
Use the cost data presented in Exercise 3-8A but assume that in addition to increasing its market share by lowering its selling price to $25, Pettigrew desires to increase its net income by $36,000 Required Determine the number of units the company must sell to earn the desired income.
Components of break-even graph .:.Required Match the numbers shown in the graph with the following items. a. Fixed cost line b. Total cost linec. Break-e v en point d. Area of profit e. Revenue line f. Area of loss
Naylor Company currently produces and sells 6,400 units annually of a product that has a variable cost of $18 per unit and annual fixed costs of $161,400. The company currently earns a $69,000 annual profit. Assume that Naylor has the opportunity to invest in new labor-saving production equipment
Jensen Company makes a product that sells for $38 per unit. The company pays $16 per unit for the variable costs of the product and incurs annual fixed costs of $176,000. Jensen expects to sell 21,000 units of product. Required Deter mine Jensen’s margin of safety expressed as a percentage.
Cost-volume-profit relationship Feskin Corporation is a manufacturing company that makes small electric motors it sells for $36 per unit. The variable costs of production are $22 per motor, and annual fixed costs of production are $196,000. Required a. How many units of product must Feskin make and
Complexities of CVP Analysis in Multinational Companies Pinero Barrels, Inc. (PBI), manufactures oak barrels for the wine industry at its facility in the United States. One of the raw materials used for some of its barrels is French oak lumber. The company fabricates the oak lumber into the
The marketing manager of Ross Corporation has determined that a market exists for a telephone with a sales price of $19 per unit. The production manager estimates the annual fixed costs of producing between 40,000 and 80,000 telephones would be $344,000. Required Assume that Ross desires to earn a
Multiple product break-even analysis Eaton Company manufactures two products. The budgeted per-unit contribution margin for each product follows:Eaton expects to incur annual fixed costs of $145,160. The relative sales mix of the products is 80 percent for Super and 20 percent for Supreme.
Determining the break-even point and preparing a contribution margin income statement Inman Manufacturing Company makes a product that it sells for $60 per unit. The company incurs variable manufacturing costs of $24 per unit. Variable selling expenses are $12 per unit, annual fixed manufacturing
Determining the break-even point and preparing a break-even graph Whitaker Company is considering the production of a new product. The expected variable cost is $48.75 per unit. Annual fixed costs are expected to be $650,000. The anticipated sales price is $65 each.RequiredDetermine the break-even
Effect of converting variable to fixed costs Yule Manufacturing Company reported the following data regarding a product it manufactures and sells. The sales price is $42.Required a. Use the per-unit contribution margin approach to determine the break-even point in units and dollars. b. Use the
Analyzing change in sales price using the contribution margin ratio Hugh Company reported the following data regarding the product it sells:RequiredUse the contribution margin ratio approach and consider each requirement separately. a. What is the break-even point in dollars? In units? b. To
Analyzing sales price and fixed cost using the equation method Tainan Company is considering adding a new product. The cost accountant has provided the following data.The administrative vice president has provided the following estimates. The manager has decided that any new product must at least
Santiago Company is considering the addition of a new product to its cosmetics line. The company has three distinctly different options: a skin cream, a bath oil, or a hair coloring gel. Relevant information and budgeted annual income statements for each of the products
Borysko Company makes and sells products with variable costs of $47 each. Borysko incurs annual fixed costs of $22,400. The current sales price is $63. RequiredThe following requirements are interdependent. For example, the $4,800 desired profit introduced in Requirement c also applies to
Assessing simultaneous changes in CVP relationships Braun Corporation sells hammocks; variable costs are $75 each, and the hammocks are sold for $125 each. Braun incurs $240,000 of fixed operating expenses annually. Requireda. Determine the sales volume in units and dollars required to attain
Determining the break-even point and margin of safety for a company with multiple products Tottori Company produces two products. Budgeted annual income statements for the two products are provided here: .:.Requireda. Based on budgeted sales, determine the relative sales mix between the two
Jade Corporation manufactures products that it sells for $57 each. Variable costs are $32 per unit, and annual fixed costs are $750,000. Jade desires to earn a profit of $200,000. Requireda. Use the equation method to determine the break-even point in units and dollars.b. Determine the sales volume
Kemeth Corporation manufactures products that have variable costs of $43 per unit. Its fixed cost amounts to $84,000. It sells the products for $78 each. Required Use the per-unit contribution margin approach to determine the break-even point in units and dollars.
Lambert Company incurs annual fixed costs of $960,000. Variable costs for Lambert’s product are $36 per-unit, and the sales price is $60 per unit. Lambert desires to earn a profit of $240,000. Required Use the contribution margin ratio approach to determine the sales volume in dollars and units
Wava Company manufactures a product that sells for $125 per unit. It incurs fixed costs of $198,000. Variable cost for its product is $81 per unit. Requireda. Determine the sales volume in units and dollars required to earn the desired profit.b. Calculate the break-even point assuming fixed costs
Weng Company is considering the production and sale of a new product with fixed costs of $35,000 and variable cost of $4 per unit. Based on its normal profit margins, Weng desires to earn a $40,000 profit and believes it can sell 5,000 units of the product. Requireda. Based on this information
Sohail Corporation produced 80,000 tires and sold them for $100 each during 2011. The company determined that fixed manufacturing cost per unit was $25 per tire. The company reported gross profit of $1,440,000 on its 2011 financial statements.RequiredDetermine the variable cost per unit, the total
Contribution margin per unit approach for break-even and desired profit Information concerning a product produced by Agar Company appears here:Required Determine the following:a. Contribution margin per unit.b. Number of units Agar must sell to break even.c. Sales level in units that Agar must
Mendez Company manufactures a product that has a variable cost of $30 per unit. The company’s fixed costs total $750,000. Mendez had net income of $90,000 in the previous year. Its product sells for $50 per unit. In an effort to increase the company’s market share, management is considering
Use the cost data presented in Exercise 3-8B but assume that in addition to increasing its market share by lowering its selling price to $46, Mendez desires to increase its net income by $42,000. RequiredDetermine the number of units that Mendez must sell to earn the desired income.
Jimmy, a 10-year-old boy, wants to sell lemonade on a hot summer day. He hopes to make enough money to buy a new iPod. Sam, his elder brother, tries to help him compute his prospect of doing so. The following is the relevant information:The following graph depicts the dollar amount of cost or
Evaluating simultaneous changes in fixed and variable costs Kasmira Company currently produces and sells 10,000 units of a telephone per year that has a variable cost of $13 per unit and a fixed cost of $380,000. The company currently earns a $120,000 annual profit. Assume that Kasmira has the
Conway Company manufactures scanners that sell for $250 each. The company pays $130 per unit for the variable costs of the product and incurs fixed costs of $3,600,000. Conway expects to sell 54,000 scanners. Required Determine Conway’s margin of safety expressed as a percentage.
Dalton Corporation manufactures faucets. The variable costs of production are $27 per faucet. Fixed costs of production are $600,000. Dalton sells the faucets for a price of $52 per unit. Requireda. How many faucets must Dalton make and sell to break even?b. How many faucets must Dalton make and
Castillo Wood Products (CWP) manufactures disposable chopsticks for the restaurant industry at its highly automated production facility in China. The main raw material used to produce the chopsticks is wood that is purchased in bulk from suppliers in the United States. In September 2007, the
After substantial marketing research, Ewing Corporation management believes that it can make and sell a new battery with a prolonged life for laptop computers. Management expects the market demand for its new battery to be 12,000 units per year if the battery is priced at $90 per unit. A team of
Harvey Company makes two products. The budgeted per-unit contribution margin for each product follows:Harvey expects to incur fixed costs of $115,000. The relative sales mix of the products is 60 percent for Deluxe and 40 percent for Luxury. Requireda. Determine the total number of products (units
Determining the break-even point and preparing a contribution margin income statement Nickolas Company manufactures radio and cassette players and sells them for $100 each. According to the company’s records, the variable costs, including direct labor and direct materials, are $50. Factory
Determining the break-even point and preparing a break-even graph Executive officers of Vaclar Company are assessing the profitability of a potential new product. They expect that the variable cost of making the product will be $54 per unit and fixed manufacturing cost will be $720,000. The
Souta Company manufactures and sells its own brand of digital cameras. It sells each camera for $32. The company€™s accountant prepared the following data:Requireda. Use the per-unit contribution margin approach to determine the break-even point in units and dollars.b. Use the per-unit
Analyzing change in sales price using the contribution margin ratio Kaito Company reported the following data regarding the one product it sells:RequiredUse the equation method and consider each requirement separately.a. If the sales price is set at $48, how many units must Salazar sell to break
Analyzing sales price and fixed cost using the equation method Salazar Company is analyzing whether its new product will be profitable. The following data are provided for analysis:The company has decided that any new product must at least break even in the first year.RequiredUse the equation
Margin of safety and operating leverage Meier Company has three distinctly different options available as it considers adding a new product to its automotive division: engine oil, coolant, or windshield washer. Relevant information and budgeted annual income statements for each product
Dunlop Company makes a product that it sells for $200. Dunlop incurs annual fixed costs of $250,000 and variable costs of $160 per unit. RequiredThe following requirements are interdependent. For example, the $50,000 desired profit introduced in Requirement c also applies to subsequent
Assessing simultaneous changes in CVP relationships Haas Company sells tennis racquets; variable costs for each are $45, and each is sold for $135. Haas incurs $540,000 of fixed operating expenses annually. Requireda. Determine the sales volume in units and dollars required to attain a
Determining the break-even point and margin of safety for a company with multiple products Executive officers of Pena Company have prepared the annual budgets for its two products, Washer and Dryer, as follows. .:.Requireda. Based on the number of units budgeted to be sold, determine the
In July 2009, Apple Inc. announced that its revenues for the third quarter of its 2009 fiscal year rose 11.7 percent, causing its earnings to increase by 14.6 percent compared with the third quarter of 2008. Sales for this period were $8.34 billion. In July 2007, the company had announced that a 24
In a month when it sold 200 units of product, Queen Manufacturing Company (QMC) produced the following internal income statement: .:.QMC has the opportunity to alter its operations in one of the following ways:1. Increasing fixed advertising costs by $1,600, thereby increasing sales by 120
Use the 2008 Form 10-K for Southwest Airlines to complete the requirements below. To obtain the Form 10-K you can use either the EDGAR system following the instructions in Appendix A, or it can be found under “Investor Relations” which is under the “About Southwest” link on the company’s
Operating leverage, margin of safety, and cost behavior In the early years of the 21st century the housing market in the United States was booming. Housing prices were increasing rapidly, new houses were being constructed at a record pace, and companies doing business in the construction and home
Opportunity to manipulate earnings Sherwin-Williams and PPG Industries are both companies that produce wall coverings, such as paint, among other products. Although they uses similar assets to conduct their businesses, the estimated lives they use to depreciate those assets vary, as shown in the
Using Excel Bishop Company has provided the estimated data that appear in rows 4 to 8 of the following spreadsheetRequiredConstruct a spreadsheet as follows that would allow you to determine net income, break-even in units, and operating leverage for the estimates at the top of the spreadsheet, and
Build the spreadsheet pictured in Exhibit 3.3. Be sure to use formulas that will automatically calculate profitability if fixed cost, variable cost, or sales volume is changed.Spreadsheet Tip1. The shading in column D and in row 6 can be inserted by first highlighting a section to be shaded,
Use the same transaction data for Magnificant Modems, Inc., as was used in Chapter 1.Requireda. Use the following partially completed form to prepare an income statement using the contribution margin formb. Determine the break-even point in units and in dollars.c. Assume that next year’s sales
Why did traditional costing systems base allocations on a single companywide cost driver?
Why are labor hours ineffective as a companywide allocation base in many industries today?
What is the difference between volume based cost drivers and activity-based cost drivers?
Why do activity-based cost drivers provide more accurate allocations of overhead in an automated manufacturing environment?
When would it be appropriate to use volume based cost drivers in an activity-based costing system?
Martinez Manufacturing makes two products, one of which is produced at a significantly higher volume than the other. The low-volume product consumes more of the company’s engineering resources because it is technologically complex. Even so, the company’s cost accountant chose to allocate
Briefly describe the activity-based costing allocation process.
Tom Rehr made the following comment: “Facility-level costs should not be allocated to products because they are irrelevant for decision-making purposes.” Do you agree or disagree with this statement? Justify your response.
To facilitate cost tracing, a company’s activities can be subdivided into four hierarchical categories. What are these four categories? Describe them and give at least two examples of each category.
Beth Nelson, who owns and runs a small sporting goods store, buys most of her merchandise directly from manufacturers. Ms. Nelson was shocked at the $7.50 charge for a container of three ping-pong balls. She found it hard to believe that it could have cost more than $1.00 to make the balls. When
If each patient in a hospital is considered a cost object, what are examples of unit-, batch- product- and facility-level costs that would be allocated to this object using an activity-based costing system?
Milken Manufacturing has three product lines. The company’s new accountant, Marvin LaSance, is responsible for allocating facility-level costs to these product lines. Mr. LaSance is finding the allocation assignment a daunting task. He knows there have been disagreements among the product
Why would machine hours be an inappropriate allocation base for batch-level costs?
Alisa Kamuf’s company has reported losses from operations for several years. Industry standards indicate that prices are normally set at 30 percent above manufacturing cost, which Ms. Kamuf has done. Assuming that her other costs are in line with industry norms, how could she continue to lose
Issacs Corporation produces two lines of pocket knives. The Arrowsmith product line involves very complex engineering designs; the Starscore product line involves relatively simple designs. Since its introduction, the low-volume Arrowsmith products have gained market share at the expense of the
What is the relationship between activity-based management and just-in-time inventory?
Humphrey Manufacturing is developing an activity-based costing system to improve overhead cost allocation. One of the first steps in developing the system is to classify the costs of performing production activities into activity cost pools. RequiredUsing your knowledge of the four categories
Provide at least one example of an appropriate cost driver (allocation base) for each of the following activities.a. Maintenance is performed on manufacturing equipment.b. Sales commissions are paid.c. Direct labor is used to change machine configurations.d. Production equipment is set up for new
Fairfield Manufacturing incurred the following costs during 2011 to produce its high-quality precision instruments. The company used an activity-based costing system and identified the following activities.1. Inspection of each batch produced.2. Salaries of receiving clerks.3. Setup for each batch
Context-sensitive nature of activity classificationRequiredDescribe a set of circumstances in which the cost of painting could be classified as a unit-level, a batch-level, a product-level, or a facility-level cost.
Wayne Company makes two types of circuit boards. One is a high-caliber board designed to accomplish the most demanding tasks; the other is a low-caliber board designed to provide limited service at an affordable price. During its most recent accounting period, Wayne incurred $170,000 of inspection
Roebuck Industries produces two electronic decoders, P and Q. Decoder P is more sophisticated and requires more programming and testing than does Decoder Q. Because of these product differences, the company wants to use activity-based costing to allocate overhead costs. It has identified four
Use the information in Exercise 5-6A to complete the following requirements. Assume that before shifting to activity-based costing, Roebuck Industries allocated all overhead costs based on direct labor hours. Direct labor data pertaining to the two decoders follow. .:.Requireda. Compute the
Wykle Company produces commercial gardening equipment. Since production is highly automated, the company allocates its overhead costs to product lines using activity-based costing. The costs and cost drivers associated with the four overhead activity cost pools follow. Production of 800 sets
Swartz Publishing identified the following overhead activities, their respective costs, and their cost drivers to produce the three types of textbooks the company publishes.Deluxe textbooks are made with the finest-quality paper, six-color printing, and many photographs. Moderate texts are made
Gamble Manufacturing produces two modems, one for laptop computers and the other for desktop computers. The production process is automated, and the company has found activity-based costing useful in assigning overhead costs to its products. The company has identified five major activities involved
Jacob Boards produces two kinds of skateboards. Selected unit data for the two boards for the last quarter follow. Jacob allocates production overhead using activity-based costing. It allocates delivery expense and sales commissions, which amount to $54,000 per quarter, to the two products
Quality cost components and relationshipsRequiredThe preceding graph depicts the relationships among the components of total quality cost.a. Label the lines identified as A, B, and C.b. Explain the relationships depicted in the graph.
Peck Electronics produces video games in three market categories, commercial, home, and miniature. Peck has traditionally allocated overhead costs to the three products using the companywide allocation base of direct labor hours. The company recently implemented an ABC system when it installed

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