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Accounting 23rd Edition Carl S. Warren - Solutions
=+c. Electricity costs of $0.12 per kilowatt-hour
=+EX 21-28 Absorption costing income statement✔ Gross profit,$415,000 Problem Series A West Coast Apparel Co. manufactures a variety of clothing types for distribution to several major retail chains. The following costs are incurred in the production and sale of blue jeans:a. Salary of
=+Sales (100,000 units) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,650,000 Variable cost of goods sold:Variable cost of goods manufactured (120,000 units $12 per unit) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $1,440,000
=+EX 21-27 Variable costing income statement✔ Contribution margin, $531,000 On June 30, 2010, the end of the first month of operations, Smithey Manufacturing Co.prepared the following income statement, based on the variable costing concept:
=+Prepare a variable costing income statement, assuming that the fixed manufacturing costs were $48,000 and the variable selling and administrative expenses were $34,000.Appendix
=+EX 21-26 Items on variable costing income statement On July 31, 2010, the end of the first month of operations, Hilton Company prepared the following income statement, based on the absorption costing concept:Sales (20,000 units) . . . . . . . . . . . . . . . . . . . . . . . . . $1,400,000 Cost of
=+EX 21-25 Operating leverage obj. 5✔a. Varner, 3.00 988 Chapter 21 Cost Behavior and Cost-Volume-Profit Analysis In the following equations, based on the variable costing income statement, identify the items designated by “X”:a. Net Sales X Manufacturing Marginb. Manufacturing Margin X
=+c. Why is there a difference in the increase in income from operations for the two companies? Explain.
=+b. How much would income from operations increase for each company if the sales of each increased by 20%?
=+a. Compute the operating leverage for Varner Inc. and King Inc.
=+EX 21-24 Break-even and margin of safety relationships obj. 5 Varner Inc. and King Inc. have the following operating data:Varner King Sales $300,000 $600,000 Variable costs 120,000 360,000 ________ ________ Contribution margin $180,000 $240,000 Fixed costs 120,000 80,000 ________ ________ Income
=+For what reason would you question the validity of these data?
=+EX 21-23 Margin of safety obj. 5✔a. (2) 25%At a recent staff meeting, the management of Guthold Gaming Technologies, Inc., was considering discontinuing the Evegi line of electronic games from the product line. The chief financial analyst reported the following current monthly data for the
=+EX 21-22 Break-even sales and sales mix for a service company obj. 5✔a. 50 seatsa. If Fama Company, with a break-even point at $360,000 of sales, has actual sales of$480,000, what is the margin of safety expressed (1) in dollars and (2) as a percentage of sales?b. If the margin of safety for
=+b. How many business class and economy class seats would be sold at the break-even point?
=+a. Compute the break-even number of seats sold on a single round-trip flight for the overall product. Assume that the overall product is 20% business class and 80%economy class tickets.
=+EX 21-21 Sales mix and break-even sales obj. 5✔a. 10,000 units Southwest Blue Airways provides air transportation services between Seattle and San Diego. A single Seattle to San Diego round-trip flight has the following operating statistics:Fuel $7,000 Flight crew salaries 5,400 Airplane
=+b. How many units of each product, MP3 players and satellite radios, would be sold at the break-even point?
=+EX 21-20 Break-even chart obj. 4 Chapter 21 Cost Behavior and Cost-Volume-Profit Analysis 987 New Wave Technology Inc. manufactures and sells two products, MP3 players and satellite radios. The fixed costs are $300,000, and the sales mix is 40% MP3 players and 60% satellite radios. The unit
=+a Units of Sales 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000 fd ce b
=+EX 21-19 Break-even chart obj. 4 Name the following chart, and identify the items represented by the letters (a)through (f).$150,000$100,000$50,000 0$(50,000)$(100,000)$(150,000)Operating Profit(Loss)
=+Units of Sales 10,000 20,000 30,000 40,000 50,000 60,000 70,000 80,000 90,000 100,000 ac fe d b
=+EX 21-18 Profit-volume chart obj. 4✔b. $180,000 Name the following chart, and identify the items represented by the letters (a)through (f).Sales and Costs$200,000$150,000$100,000$50,000 0
=+EX 21-17 Cost-volume-profit chart obj. 4✔b. $360,000 986 Chapter 21 Cost Behavior and Cost-Volume-Profit Analysis Using the data for Paladin Inc. in Exercise 21-17, (a) determine the maximum possible operating loss, (b) compute the maximum possible income from operations, (c) construct a
=+c. What is the main advantage of presenting the cost-volume-profit analysis in graphic form rather than equation form?
=+b. Estimate the break-even sales (dollars) by using the cost-volume-profit chart constructed in part (a).
=+EX 21-16 Break-even analysis obj. 3 For the coming year, Paladin Inc. anticipates fixed costs of $120,000, a unit variable cost of $60, and a unit selling price of $90. The maximum sales within the relevant range are$900,000.a. Construct a cost-volume-profit chart.
=+b. How much revenue per account would be sufficient for Sprint Nextel to break even if the number of accounts remained constant?
=+a. What is Sprint Nextel’s break-even number of accounts, using the data and assumptions above? Round units to one decimal place (in millions).
=+Assume that 75% of the cost of revenue and 35% of the selling, general, and administrative expenses are variable to the number of direct subscribers (accounts).
=+EX 21-15 Break-even analysis obj. 3 Sprint Nextel is one of the largest digital wireless service providers in the United States.In a recent year, it had approximately 41.5 million direct subscribers (accounts) that generated revenue of $40,146 million. Costs and expenses for the year were as
=+service (including the two free months) 25 months Revenue per month per customer subscription $10.00 Variable cost per month per customer subscription $2.00 Determine the number of new customer accounts needed to break even on the cost of the promotional campaign. In forming your answer, (1)
=+EX 21-14 Break-even analysis obj. 3 Media outlets such as ESPN and Fox Sports often have Web sites that provide in-depth coverage of news and events. Portions of these Web sites are restricted to members who pay a monthly subscription to gain access to exclusive news and commentary. These Web
=+EX 21-13 Break-even sales obj. 3✔a. 10,500 units The Dash Club of Tampa, Florida, collected recipes from members and published a cookbook entitled Life of the Party. The book will sell for $25 per copy. The chairwoman of the cookbook development committee estimated that the club needed to sell
=+b. Compute the anticipated break-even sales (units), assuming that the unit selling price is increased and all costs remain constant.
=+a. Compute the current break-even sales (units).
=+EX 21-12 Break-even sales obj. 3✔a. 76,149,219 barrels Chapter 21 Cost Behavior and Cost-Volume-Profit Analysis 985 Rounding to the nearest cent:a. Compute the break-even sales (barrels) for the current year.b. Compute the anticipated break-even sales (barrels) for the following year.Currently,
=+*Before special items In addition, Anheuser-Busch sold 125 million barrels of beer during the year.Assume that variable costs were 75% of the cost of goods sold and 40% of marketing and distribution expenses. Assume that the remaining costs are fixed. For the following year, assume that
=+b. Compute the sales (units) required to realize income from operations of $90,000.
=+. Compute the anticipated break-even sales (units).
=+EX 21-10 Contribution margin and contribution margin ratio obj. 2✔b. 34.9%For the current year ending March 31, Jwork Company expects fixed costs of $440,000, a unit variable cost of $50, and a unit selling price of $75.
=+c. How much would income from operations increase if same-store sales increased by$500 million for the coming year, with no change in the contribution margin ratio or fixed costs?
=+b. What is McDonald’s contribution margin ratio? Round to one decimal place.
=+a. What is McDonald’s contribution margin? Round to the nearest million.
=+$15,881 Income from operations $ 202 _______ _______ Assume that the variable costs consist of food and packaging, payroll, and 40% of the general, selling, and administrative expenses.
=+EX 21-9 Contribution margin ratio obj. 2✔a. 84%For a recent year, McDonald’s company-owned restaurants had the following sales and expenses (in millions):Sales $16,083 _______ Food and packaging $ 5,350 Payroll 4,185 Occupancy (rent, depreciation, etc.) 4,006 General, selling, and
=+b. If the contribution margin ratio for Ernie Company is 40%, sales were $750,000, and fixed costs were $225,000, what was the income from operations?
=+✔ Fixed cost,$160,000a. Bert Company budgets sales of $1,250,000, fixed costs of $450,000, and variable costs of $200,000. What is the contribution margin ratio for Bert Company?
=+Determine the variable cost per gross-ton mile and the fixed cost.
=+EX 21-8 High-low method for service company obj. 1 984 Chapter 21 Cost Behavior and Cost-Volume-Profit Analysis Transportation Costs Gross-Ton Miles January $760,000 275,000 February 850,000 310,000 March 600,000 200,000 April 810,000 300,000 May 680,000 240,000 June 875,000 325,000
=+EX 21-7 High-low method obj. 1✔a. $16.00 per unit Blowing Rock Railroad decided to use the high-low method and operating data from the past six months to estimate the fixed and variable components of transportation costs. The activity base used by Blowing Rock Railroad is a measure of railroad
=+b. Based on part (a), estimate the total cost for 10,000 units of production.
=+a. Determine the variable cost per unit and the fixed cost.
=+✔a. $0.32 Shatner Inc. has decided to use the high-low method to estimate the total cost and the fixed and variable cost components of the total cost. The data for various levels of production are as follows:Units Total Produced Costs 7,500 $600,000 12,500 725,000 20,000 800,000
=+EX 21-6 Relevant range and fixed and variable costs obj. 1
=+Complete the cost schedule, identifying each cost by the appropriate letter (a) through (o).
=+EX 21-5 Identify fixed and variable costs obj. 1 Robo-Tech Inc. manufactures components for computer games within a relevant range of 200,000 to 320,000 disks per year. Within this range, the following partially completed manufacturing cost schedule has been prepared:Components produced . . . . .
=+h. CDs i. Packaging costs j. Salaries of software developers k. Wages of telephone order assistants l. User’s guides
=+b. Property taxes on general officesc. Straight-line depreciation of computer equipmentd. Salaries of human resources personnele. President’s salaryf. Advertising g. Sales commissions
=+d. Number of cars on hand h. Number of cars sold Intuit Inc. develops and sells software products for the personal finance market, including popular titles such as Quicken® and TurboTax®. Classify each of the following costs and expenses for this company as either variable or fixed to the
=+EX 21-4 Identify activity bases obj. 1 Chapter 21 Cost Behavior and Cost-Volume-Profit Analysis 983a. Dollar amount of cars solde. Dollar amount of cars orderedb. Number of cars receivedf. Dollar amount of cars receivedc. Dollar amount of cars on hand g. Number of cars ordered
=+EX 21-3 Identify activity bases obj. 1 From the following list of activity bases for an automobile dealership, select the base that would be most appropriate for each of these costs: (1) preparation costs (cleaning, oil, and gasoline costs) for each car received, (2) salespersons’ commission of
=+EX 21-2 Identify cost graphs obj. 1 For a major university, match each cost in the following table with the activity base most appropriate to it. An activity base may be used more than once, or not used at all.Cost: Activity Base:1. Housing personnel wagesa. Number of financial aid applications
=+e. Per-unit cost of straight-line depreciation on factory equipment$0 Total Units Produced$0 Total Units Produced Cost Graph One Cost Graph Two$0 Total Units Produced Cost Graph Three$0 Total Units Produced Cost Graph Four
=+c. Per-unit direct labor costd. Salary of quality control supervisor, $10,000 per month
=+behavior as the number of units produced increases.a. Total direct materials costb. Electricity costs of $2,000 per month plus $0.09 per kilowatt-hour
=+14. Property taxes, $100,000 per year on factory building and equipment 15. Salary of plant manager The following cost graphs illustrate various types of cost behavior:For each of the following costs, identify the cost graph that best illustrates its cost
=+EX 21-1 Classify costs obj. 1(continued)982 Chapter 21 Cost Behavior and Cost-Volume-Profit Analysis 11. Packaging 12. Rent on warehouse, $10,000 per month plus $10 per square foot of storage used 13. Plastic
=+8. Hourly wages of machine operators 9. Straight-line depreciation on the production equipment 10. Metal
=+property over $2,000,000 5. Janitorial costs, $4,000 per month 6. Pension cost, $0.80 per employee hour on the job 7. Computer chip (purchased from a vendor)
=+2. Hourly wages of inspectors 3. Electricity costs, $0.20 per kilowatt-hour 4. Property insurance premiums, $1,500 per month plus $0.006 for each dollar of
=+PE 21-7B Margin of safety obj. 5 EE 21-7 p. 971 Exercises Following is a list of various costs incurred in producing toy robotic helicopters. With respect to the production and sale of these toy helicopters, classify each cost as either variable, fixed, or mixed.1. Oil used in manufacturing
=+PE 21-7A Margin of safety obj. 5 EE 21-7 p. 971 Rejeski Company has sales of $400,000, and the break-even point in sales dollars is$240,000. Determine the company’s margin of safety as a percent of current sales.
=+PE 21-6B Operating leverage obj. 5 EE 21-6 p. 970 Rogan Inc. has sales of $750,000, and the break-even point in sales dollars is $675,000.Determine the company’s margin of safety as a percent of current sales.
=+Determine Saik Co.’s operating leverage.
=+PE 21-6A Operating leverage obj. 5 EE 21-6 p. 970 Saik Co. reports the following data:Sales $750,000 Variable costs 300,000 Contribution margin $450,000 Fixed costs 150,000 Income from operations $300,000
=+Determine Ruth Enterprises’s operating leverage.
=+PE 21-5B Sales mix and breakeven analysis obj. 5 EE 21-5 p. 968 Ruth Enterprises reports the following data:Sales $800,000 Variable costs 350,000 Contribution margin $450,000 Fixed costs 225,000 Income from operations $225,000
=+S 60 50 10 The sales mix for products R and S is 40% and 60%, respectively. Determine the breakeven point in units of R and S.
=+PE 21-5A Sales mix and breakeven analysis obj. 5 EE 21-5 p. 968 Chapter 21 Cost Behavior and Cost-Volume-Profit Analysis 981 Hackworth Company has fixed costs of $150,000. The unit selling price, variable cost per unit, and contribution margin per unit for the company’s two products are
=+The sales mix for products A and B is 80% and 20%, respectively. Determine the breakeven point in units of A and B.
=+PE 21-4B Target profit obj. 3 EE 21-4 p. 961 Dewi Inc. has fixed costs of $220,000. The unit selling price, variable cost per unit, and contribution margin per unit for the company’s two products are provided below.Product Selling Price Variable Cost per Unit Contribution Margin per Unit A $120
=+PE 21-4A Target profit obj. 3 EE 21-4 p. 961 Beets Company sells a product for $75 per unit. The variable cost is $65 per unit, and fixed costs are $100,000. Determine (a) the break-even point in sales units and (b) the break-even point in sales units if the company desires a target profit of
=+PE 21-3B Break-even point obj. 3 EE 21-3 p. 960 Steward Inc. sells a product for $40 per unit. The variable cost is $30 per unit, and fixed costs are $15,000. Determine (a) the break-even point in sales units and (b) the breakeven point in sales units if the company desires a target profit of
=+PE 21-3A Break-even point obj. 3 EE 21-3 p. 960 Grobe Inc. sells a product for $90 per unit. The variable cost is $75 per unit, while fixed costs are $45,000. Determine (a) the break-even point in sales units and (b) the breakeven point if the selling price were decreased to $85 per unit.
=+(b) the break-even point if the selling price were increased to $65 per unit.
=+PE 21-2B Contribution margin obj. 2 EE 21-2 p. 956 Frankel Enterprises sells a product for $60 per unit. The variable cost is $40 per unit, while fixed costs are $30,000. Determine (a) the break-even point in sales units and
=+PE 21-2A Contribution margin obj. 2 EE 21-2 p. 956 Carlin Company sells 14,000 units at $10 per unit. Variable costs are $9 per unit, and fixed costs are $5,000. Determine (a) the contribution margin ratio, (b) the unit contribution margin, and (c) income from operations.
=+PE 21-1B High-low method obj. 1 EE 21-1 p. 953 Rumpza Company sells 8,000 units at $50 per unit. Variable costs are $40 per unit, and fixed costs are $20,000. Determine (a) the contribution margin ratio, (b) the unit contribution margin, and (c) income from operations.
=+Using the high-low method, determine (a) the variable cost per unit and (b) the total fixed cost.The manufacturing costs of Sige Enterprises for the first three months of the year are provided below.Total Costs Production January $150,000 1,500 units February 200,000 2,500 March 180,000 2,000
=+The manufacturing costs of Nashbar Industries for three months of the year are provided below.Total Costs Production April $140,000 6,000 units May 300,000 16,000 June 380,000 18,000
=+17. What does operating leverage measure, and how is it computed?
=+16. How does the sales mix affect the calculation of the break-even point?
=+lower break-even point than Hill Company. Explain the reason for this difference in break-even points.
=+14. Both Austin Company and Hill Company had the same sales, total costs, and income from operations for the current fiscal year; yet Austin Company had a
=+13. If insurance rates are increased, what effect will this change in fixed costs have on the break-even point?
=+12. If the unit cost of direct materials is decreased, what effect will this change have on the break-even point?
=+(b) income from operations?
=+10. If fixed costs increase, what would be the impact on the (a) contribution margin?
=+(a) (b) Costs per Unit 0 Activity Base Costs per Unit 0 Activity Base
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