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Accounting Tools for business decision making 4th Edition Kimmel, weygandt, kieso - Solutions

Distinguish between a traditional income statement and a CVP income statement.
Describe the features of a CVP income statement that make it more useful for management decision making than the traditional income statement that is prepared for external users.
The traditional income statement for Kent Company shows sales $900,000, cost of goods sold $500,000, and operating expenses $200,000. Assuming all costs and expenses are 70% variable and 30% fixed, prepare a CVP income statement through contribution margin.
If management chooses to reduce its selling price to match that of a competitor, how will the break-even point be affected?
What is meant by the term sales mix? How does sales mix affect the calculation of the break-even point?
Tobias Company sells two types of radial tires. The lower-priced model is guaranteed for only 40,000 miles; the higher-priced model is guaranteed for 100,000 miles. The unit contribution margin on the higher-priced tire is twice as high as that of the lower-priced tire. If the sales mix shifts so
What approach should be used to calculate the breakeven point of a company that has many products?
What is the theory of constraints? Provide some examples of possible constraints for a manufacturer.
What is meant by “cost structure?” Explain how a company’s cost structure affects its break-even point.
What is operating leverage? How does a company increase its operating leverage?
How does the replacement of manual labor with automated equipment affect a company’s cost structure? What implications does this have for its operating leverage and break-even point?
What is a measure of operating leverage, and how is it calculated?
Kosko Company has a degree of operating leverage of 8. Ace Company has a degree of operating leverage of 4. Interpret these measures.
Knott Corporation sells one product, its waterproof hiking boot. It began operations in the current year and had an ending inventory of 10,500 units. The company sold 20,000 units throughout the year. Fixed manufacturing overhead is $5 per unit, and total manufacturing cost per unit is $20
If production equals sales, what, if any, is the difference between net income under absorption costing versus under variable costing?
If production is greater than sales, how does absorption costing net income differ from variable costing net income?
In the long run, will net income be higher or lower under variable costing compared to absorption costing?
Hernandez Manufacturing Inc. has sales of $1,800,000 for the first quarter of 2012. In making the sales, the company incurred the following costs and expenses.Prepare a CVP income statement for the quarter ended March 31,2012.
Molle Corp. had total variable costs of $170,000, total fixed costs of $120,000, and total revenues of $250,000. Compute the required sales in dollars to break even.
Haag Company has a unit selling price of $400, variable costs per unit of $260, and fixed costs of $210,000. Compute the break-even point in units using (a) The mathematical equation and (b) Contribution margin per unit.
For Ortega Company, variable costs are 70% of sales, and fixed costs are $210,000. Management’s net income goal is $60,000. Compute the required sales needed to achieve management’s target net income of $60,000. (Use the mathematical equation approach.)
For Markowitz Company, actual sales are $1,200,000 and break-even sales are $900,000. Compute (a) The margin of safety in dollars and (b) The margin of safety ratio.
Dilts Corporation sells three different models of mosquito “zapper.” Model A12 sells for $50 and has variable costs of $40. Model B22 sells for $100 and has variable costs of $70. Model C124 sells for $400 and has variable costs of $300. The sales mix of the three models is: A12, 60%; B22, 25%;
Information for Dilts Corporation is given in BE19-7. If the company has fixed costs of $199,500, how many units of each model must the company sell in order to break even?
Briggs Candle Supply makes candles. The sales mix (as a percent of total dollar sales) of its three product lines is: birthday candles 30%, standard tapered candles 50%, and large scented candles 20%. The contribution margin ratio of each candle type is shown below.(a) What is the weighted-average
Quality Furniture Co. consists of two divisions, Bedroom Division and Dining Room Division. The results of operations for the most recent quarter are:(a) Determine the company's sales mix.(b) Determine the company's weighted-average contribution marginratio.
In Wesland Company, data concerning two products are: Contribution margin per unit—Product A $10, Product B $12; machine hours required for one unit—Product A requires 2 hours, Product B requires 3 hours. Compute the Contribution margin per unit of limited resource for each product.
Mark’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 $160,000 to $240,000. Net income is expected to be the same
Presented below are variable costing income statements for Mallon Company and Russell Company. They are in the same industry, with the same net incomes, but different cost structures.Compute the break-even point in dollars for each company and comment on yourfindings.
The degree of operating leverage for Astoria Corp. and STL Co. are 1.4 and 5.6, respectively. Both have net incomes of $50,000. Determine their respective contribution margins.
Fry Corporation manufactures two products with the following characteristics.If Fry€™s machine hours are limited to 2,000 per month, determine which product it shouldproduce.
Montana Company produces basketballs. It incurred the following costs during the year.Direct materials ........... $14,490Direct labor .............. $25,530Fixed manufacturing overhead ..... $10,000Variable manufacturing overhead .... $32,420Selling costs ............. $21,000What are the total
Information concerning Montana Company is provided in BE19-16. What are the total product costs for the company under absorption costing?
Gore Manufacturing incurred the following costs during the year: direct materials $20 per unit; direct labor $12 per unit; variable manufacturing overhead $15 per unit; variable selling and administrative costs $8 per unit; fixed manufacturing overhead $120,000; and fixed selling and administrative
Logan Company’s fixed overhead costs are $3 per unit, and its variable overhead costs are $8 per unit. In the first month of operations, 50,000 units are produced, and 47,000 units are sold. Write a short memo to the chief financial officer explaining which costing approach will produce the
Burham Manufacturing Inc. sold 8,000 units and recorded sales of $400,000 for the first month of 2012. In making the sales, the company incurred the following costs and expenses.(a) Prepare a CVP income statement for the month ended January 31, 2012.(b) Compute the contribution margin per unit.(c)
Queensland Company reports the following operating results for the month of April.Management is considering the following course of action to increase net income: Reduce the selling price by 10%, with no changes to unit variable costs or fixed costs. Management is confident that this change will
Mountain Springs produces and sells water filtration systems for homeowners. Information regarding its three models is shown below.The company's total fixed costs to produce the filtration systems are $140,000.(a) Determine the sales mix as a function of units sold for the three products.(b)
Spencer Corporation manufactures and sells three different types of binoculars. They are referred to as Good, Better, and Best binoculars. Grinding and polishing time is limited. More time is required to grind and polish the lenses used in the Better and Best binoculars. Additional information is
The Bozeman Inn is trying to determine its break-even point. The inn has 75 rooms that are rented at $50 a night. Operating costs are as follows.Salaries ..........$8,500 per monthUtilities ..........2,000 per monthDepreciation .........1,000 per monthMaintenance .........500 per monthMaid service
In the month of June, Kathy’s Beauty Salon gave 3,500 haircuts, shampoos, and permanents at an average price of $30. During the month, fixed costs were $16,800 and variable costs were 80% of sales.Instructions(a) Determine the contribution margin in dollars, per unit and as a ratio.(b) Using the
Dalton Company reports the following operating results for the month of August: Sales $300,000 (units 5,000); variable costs $210,000; and fixed costs $70,000. Management is considering the following independent courses of action to increase net income.1. Increase selling price by 10% with no
Mideast Airways, Inc., a small two-plane passenger airline, has asked for your assistance in some basic analysis of its operations. Both planes seat 10 passengers each, and they fly commuters from Mideast's base airport to the major city in the state, Metropolis. Each month 40 round-trip flights
Vancey Company had sales in 2012 of $1,500,000 on 60,000 units. Variable costs totaled $720,000, and fixed costs totaled $400,000. A new raw material is available that will decrease the variable costs per unit by 25% (or $3.00). However, to process the new raw material, fixed operating costs will
Crown Turf manufactures lawnmowers, weed-trimmers, and chainsaws. Its sales mix and contribution margin per unit are as follows.Crown Turf has fixed costs of $4,600,000.InstructionsCompute the number of units of each product that Crown Turf must sell in order to break even under this productmix.
Quick Auto 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 65% of its sales and provide a contribution margin ratio of 20%. Brake repair represents 35% of its sales and
Rathke Delivery is a rapidly growing delivery service. Last year, 80% of its revenue came from the delivery of mailing “pouches” and small, standardized delivery boxes (which provides a 10% contribution margin). The other 20% of its revenue came from delivering non-standardized boxes (which
Green Golf Accessories sells golf shoes, gloves, and a laser-guided range-finder that measures distance. Shown below are unit cost and sales data.Fixed costs are $620,000.Instructions(a) Compute the break-even point in units for the company.(b) Determine the number of units to be sold at the
Lake Electronix sells television sets and DVD players. The business is divided into two divisions along product lines. CVP income statements for a recent quarter's activity are presented below.Instructions(a) Determine sales mix percentage and contribution margin ratio for each division.(b)
Shore Company manufactures and sells three products. Relevant per unit data concerning each product are given below.Instructions(a) Compute the contribution margin per unit of the limited resource (machine hours) for each product.(b) Assuming 1,500 additional machine hours are available, which
Billings Inc. produces and sells three products. Unit data concerning each product is shown below.The company has 2,000 hours of labor available to build inventory in anticipation of the company€™s peak season. Management is trying to decide which product should be produced. The direct
Feld Company manufactures and sells two products. Relevant per unit data concerning each product follow.Instructions(a) Compute the contribution margin per machine hour for each product.(b) If 1,000 additional machine hours are available, which product should Feld manufacture?(c) Prepare an
The CVP income statements shown below are available for Hoffman Company and Tolan Company.Instructions(a) Compute the degree of operating leverage for each company and interpret your results.(b) Assuming that sales revenue increases by 10%, prepare a variable costing income statement for each
Imagen Arquitectonica of Tijuana, Mexico, is contemplating a major change in its cost structure. Currently, all of its drafting work is performed by skilled draftsmen. Alfredo Ayala, Imagen€™s owner, is considering replacing the draftsmen with a computerized drafting system. However,
An investment banker is analyzing two companies that specialize in the production and sale of candied apples. Old-Fashion Apples uses a labor-intensive approach, and Mech-Apple uses a mechanized system. CVP income statements for the two companies are shown below.The investment banker is interested
Polk Company builds custom fishing lures for sporting goods stores. In its first year of operations, 2012, the company incurred the following costs.Variable Cost per UnitDirect materials ................ $7.50Direct labor ................. $2.45Variable manufacturing overhead
Langdon Company produced 10,000 units during the past year, but only 9,000 of the units were sold. The following additional information is also available.Direct materials used ............. $90,000Direct labor incurred .............. $30,000Variable manufacturing overhead ......... $24,000Fixed
Pearson Inc. produces wooden crates used for shipping products by ocean liner. In 2012, Pearson incurred the following costs.Wood used in crate production ............... $54,000Nails (considered insignificant and a variable expense) ....... $ 340Direct labor ........................ $37,000
Denny Manufacturing had a bad year in 2012. For the first time in its history, it operated at a loss. The company’s income statement showed the following results from selling 80,000 units of product: Net sales $1,600,000; total costs and expenses $1,740,000; and net loss $140,000. Costs and
Casper Corporation has collected the following information after its first year of sales. Net sales were $1,600,000 on 100,000 units; selling expenses $240,000 (40% variable and 60% fixed); direct materials $511,000; direct labor $285,000; administrative expenses $280,000 (20% variable and 80%
Gardner Industries manufactures and sells three different models of wet-dry shop vacuum cleaners. Although the shop vacs vary in terms of quality and features, all are good sellers. Gardner is currently operating at full capacity with limited machine time. Sales and production information relevant
The Desert Inn is a restaurant in Tucson, Arizona. It specializes in southwestern-style meals in a moderate price range. Jack Feld, the manager of Desert Inn, has determined that during the last 2 years the sales mix and contribution margin ratio of its offerings are as follows.Jack is considering
The following CVP income statements are available for Red Company and Blue Company.Instructions(a) Compute the break-even point in dollars and the margin of safety ratio for each company.(b) Compute the degree of operating leverage for each company and interpret your results.(c) Assuming that sales
Long Beauty Corporation manufactures cosmetic products that are sold through a network of sales agents. The agents are paid a commission of 18% of sales. The income statement for the year ending December 31, 2012, is as follows.The company is considering hiring its own sales staff to replace the
Coswell Company produces plastic that is used for injection-molding applications such as gears for small motors. In 2011, the first year of operations, Coswell produced 4,000 tons of plastic and sold 3,000 tons. In 2012, the production and sales results were exactly reversed. In each year, the
Tanck Electric Motors is a division of Tanck Electric Products Corporation. The division manufactures and sells an electric motor used in a wide variety of applications. During the coming year it expects to sell 50,000 units for $30 per unit. Kerry Starr is the division manager. She is considering
Keppel Manufacturing had a bad year in 2012, operating at a loss for the first time in its history. The company€™s income statement showed the following results from selling 200,000 units of product: net sales $2,000,000; total costs and expenses $2,120,000; and net loss $120,000. Costs
McCune Corporation has collected the following information after its first year of sales. Net sales were $1,000,000 on 50,000 units; selling expenses $200,000 (30% variable and 70% fixed); direct materials $300,000; direct labor $170,000; administrative expenses $250,000 (30% variable and 70%
Lorge Corporation manufactures and sells three different models of exterior doors. Although the doors vary in terms of quality and features, all are good sellers. Lorge is currently operating at full capacity with limited machine time. Sales and production information relevant to each model is
The Cubbie Inn is a restaurant in DeKalb, Illinois. It specializes in deluxe sandwiches in a moderate price range. Bill Michael, the manager of Cubbie Inn, has determined that during the last 2 years the sales mix and contribution margin ratio of its offerings are as follows.Bill is considering a
The following variable costing income statements are available for American Company and National Company.Instructions(a) Compute the break-even point in dollars and the margin of safety ratio for each company.(b) Compute the degree of operating leverage for each company and interpret your
Huber Beauty Corporation manufactures cosmetic products that are sold through a network of sales agents. The agents are paid a commission of 15% of sales. The income statement for the year ending December 31, 2012, is as follows.The company is considering hiring its own sales staff to replace the
WKU produces fabrics that are used for clothing and other applications. In 2012, the first year of operations, WKU produced 500,000 yards of fabric and sold 400,000 yards. In 2013, the production and sales results were exactly reversed. In each year, selling price per yard was $2, variable
Electricswitch is a division of Harclerode Products Corporation. The division manufactures and sells an electric switch used in a wide variety of applications. During the coming year it expects to sell 200,000 units for $8 per unit. Mike Short is the division manager. He is considering producing
ComfortCraft manufactures swivel seats for customized vans. It currently manufactures 10,000 seats per year, which it sells for $480 per seat. It incurs variable costs of $180 per seat and fixed costs of $2,200,000. It is considering automating the upholstery process, which is now largely manual.
For nearly 20 years, Grenke Coatings has provided painting and galvanizing services for manufacturers in its region. Manufacturers of various metal products have relied on the quality and quick turnaround time provided by Grenke Coatings and its 20 skilled employees. During the last year, as a
In a recent report, the Del Monte Foods Company reported three separate operating segments: consumer products (which includes a variety of canned foods including tuna, fruit, and vegetables); pet products (which includes pet food and snacks and veterinary products); and soup and infant-feeding
The external financial statements published by publicly traded companies are based on absorption cost accounting. As a consequence, it is very difficult to gain an understanding of the relative composition of the companies’ fixed and variable costs. It is possible, however, to learn about a
Mortonson Corporation makes two different boat anchors—a traditional fishing anchor and a high-end yacht anchor—using the same production machinery. The contribution margin of the yacht anchor is three times as high as that of the other product. The company is currently operating at full
Jerry Cooper was hired during January 2012 to manage the home products division of Advanced Techno. As part of his employment contract, he was told that he would get $5,000 of additional bonus for every 1% increase that the division€™s profits exceeded those of the previous year. Soon
Many of you will some day own your own business. One rapidly growing opportunity is nofrills workout centers. Such centers attract customers who want to take advantage of state-of-the-art fitness equipment but do not need the other amenities of full-service health clubs. One way to own your own
Your roommate, Tom Jones, contends that accounting contributes to most of the steps in management’s decision-making process. Is your roommate correct? Explain.
Mike Greer asks your help concerning the relevance of variable and fixed costs in incremental analysis. Help Mike with his problem.
Finney Company has an opportunity to buy parts at $7 each that currently cost $10 to make. What manufacturing costs are relevant to this make-or-buy decision?
Your roommate, Janet Nelson, is confused about sunk costs. Explain to your roommate the meaning of sunk costs and their relevance to a decision to retain or replace equipment.
Marcus Inc. has one product line that is unprofitable. What circumstances may cause overall company net income to be lower if the unprofitable product line is eliminated?
Your classmate, Susan Menke, is confused about the factors that are included in the annual rate of return technique. What is the formula for this technique?
Mario Diaz is trying to understand the term “cost of capital.” Define the term, and indicate its relevance to the decision rule under the annual rate of return technique.
Jack Nieman claims the formula for the cash payback technique is the same as the formula for the annual rate of return technique. Is Jack correct? What is the formula for the cash payback technique?
Michener Company uses the internal rate of return method. What is the decision rule for this method?
Timo Company is considering two alternatives. Alternative A will have sales of $150,000 and costs of $100,000. Alternative B will have sales of $180,000 and costs of $120,000. Compare Alternative A to Alternative B showing incremental revenues, costs, and net income.
In Harley Company it costs $30 per unit ($20 variable and $10 fixed) to make a product that normally sells for $45. A foreign wholesaler offers to buy 4,000 units at $23 each. Harley will incur special shipping costs of $1 per unit. Assuming that Harley has excess operating capacity, indicate the
Vintech Manufacturing incurs unit costs of $8 ($5 variable and $3 fixed) in making a subassembly part for its finished product. A supplier offers to make 10,000 of the part at $5.30 per unit. If the offer is accepted, Vintech will save all variable costs but no fixed costs. Prepare an analysis
Martell Inc. makes unfinished bookcases that it sells for $60. Production costs are $30 variable and $10 fixed. Because it has unused capacity, Martell is considering finishing the bookcases and selling them for $72. Variable finishing costs are expected to be $8 per unit with no increase in fixed
Ridley Company has a factory machine with a book value of $90,000 and a remaining useful life of 4 years. A new machine is available at a cost of $200,000. This machine will have a 4-year useful life with no salvage value. The new machine will lower annual variable manufacturing costs from $600,000
Rivto, Inc. manufactures golf clubs in three models. For the year, the Eagle line has a net loss of $20,000 from sales $200,000, variable expenses $180,000, and fixed expenses $40,000. If the Eagle line is eliminated, $34,000 of fixed costs will remain. Prepare an analysis showing whether the Eagle
In Morgan Company, data concerning two products are: Contribution margin per unit—Product A $11, Product B $12; machine hours required for one unit—Product A 2, Product B 2.5. Compute the Contribution margin per unit of limited resource for each product.
Foley Company is considering purchasing new equipment for $300,000. It is expected that the equipment will produce annual net income of $10,000 over its 10-year useful life. Annual depreciation will be $30,000. Compute the cash payback period.
Quayle Oil Company is considering investing in a new oil well. It is expected that the oil well will increase annual revenues by $130,000 and will increase annual expenses by $80,000 including depreciation. The oil well will cost $490,000 and will have a $10,000 salvage value at the end of its
Dobbs Company is considering two different, mutually exclusive capital expenditure proposals. Project A will cost $395,000, has an expected useful life of 10 years, a salvage value of zero, and is expected to increase net annual cash flows by $70,000. Project B will cost $270,000, has an expected

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