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Principles of Accounting, Volume 2: Managerial Accounting

Exercise Set A

Principles of Accounting, Volume 2: Managerial AccountingExercise Set A
EA 1.

LO 3.1Calculate the per-unit contribution margin of a product that has a sale price of $200 if the variable costs per unit are $65.

EA 2.

LO 3.1Calculate the per-unit contribution margin of a product that has a sale price of $400 if the variable costs per unit are $165.

EA 3.

LO 3.1A product has a sales price of $150 and a per-unit contribution margin of $50. What is the contribution margin ratio?

EA 4.

LO 3.1A product has a sales price of $250 and a per-unit contribution margin of $75. What is the contribution margin ratio?

EA 5.

LO 3.2Maple Enterprises sells a single product with a selling price of $75 and variable costs per unit of $30. The company’s monthly fixed expenses are $22,500.

  1. What is the company’s break-even point in units?
  2. What is the company’s break-even point in dollars?
  3. Construct a contribution margin income statement for the month of September when they will sell 900 units.
  4. How many units will Maple need to sell in order to reach a target profit of $45,000?
  5. What dollar sales will Maple need in order to reach a target profit of $45,000?
  6. Construct a contribution margin income statement for Maple that reflects $150,000 in sales volume.
EA 6.

LO 3.2Marlin Motors sells a single product with a selling price of $400 with variable costs per unit of $160. The company’s monthly fixed expenses are $36,000.

  1. What is the company’s break-even point in units?
  2. What is the company’s break-even point in dollars?
  3. Prepare a contribution margin income statement for the month of November when they will sell 130 units.
  4. How many units will Marlin need to sell in order to realize a target profit of $48,000?
  5. What dollar sales will Marlin need to generate in order to realize a target profit of $48,000?
  6. Construct a contribution margin income statement for the month of February that reflects $200,000 in sales revenue for Marlin Motors.
EA 7.

LO 3.3Flanders Manufacturing is considering purchasing a new machine that will reduce variable costs per part produced by $0.15. The machine will increase fixed costs by $18,250 per year. The information they will use to consider these changes is shown here.

Current information: Units Sold 216,000, Sales Price per Unit $2.15, Variable Cost per Unit $1.75, Contribution Marin per Unit $0.40, Fixed Costs $56,000, Break-Even (in units) 140,000, Break-Even (in dollars) $301,000, Sales $464,400, Variable Costs $378,000, Contribution Margin $86,400, Fixed Costs $56,000, Net Income $30,400.
EA 8.

LO 3.3Marchete Company produces a single product. They have recently received the results of a market survey that indicates that they can increase the retail price of their product by 8% without losing customers or market share. All other costs will remain unchanged. Their most recent CVP analysis is shown. If they enact the 8% price increase, what will be their new break-even point in units and dollars?

Current information: Units Sold 950, Sales Price per Unit $125, Variable Cost per Unit $98, Contribution Marin per Unit $27, Fixed Costs $23,000, Break-Even (in units) 852, Break-Even (in dollars) $106,481, Sales $118,750, Variable Costs $93,100, Contribution Margin $25,650, Fixed Costs $23,000, Net Income 2,650.
EA 9.

LO 3.3Brahma Industries sells vinyl replacement windows to home improvement retailers nationwide. The national sales manager believes that if they invest an additional $25,000 in advertising, they would increase sales volume by 10,000 units. Prepare a forecasted contribution margin income statement for Brahma if they incur the additional advertising costs, using this information:

Sales (6,500 units at $115 per unit) $747,500 les Variable costs (6,500 units at $69 per unit) 448,500 equals Contribution Margin 299,000. Subtract Fixed Cost 19,500 equals Net Income $279,500.
EA 10.

LO 3.4Salvador Manufacturing builds and sells snowboards, skis and poles. The sales price and variable cost for each are shown:

Product, Selling Price per Unit, Variable Cost per Unit (respectively): Snowboards, $320, 170; Skis 400, 225; Poles 50, 20.

Their sales mix is reflected in the ratio 7:3:2. What is the overall unit contribution margin for Salvador with their current product mix?

EA 11.

LO 3.4Salvador Manufacturing builds and sells snowboards, skis and poles. The sales price and variable cost for each follows:

Product, Selling Price per Unit, Variable Cost per Unit (respectively): Snowboards, $320, 170; Skis 400, 225; Poles 50, 20.

Their sales mix is reflected in the ratio 7:3:2. If annual fixed costs shared by the three products are $196,200, how many units of each product will need to be sold in order for Salvador to break even?

EA 12.

LO 3.4Use the information from the previous exercises involving Salvador Manufacturing to determine their break-even point in sales dollars.

EA 13.

LO 3.5Company A has current sales of $10,000,000 and a 45% contribution margin. Its fixed costs are $3,000,000. Company B is a service firm with current service revenue of $5,000,000 and a 20% contribution margin. Company B’s fixed costs are $500,000. Compute the degree of operating leverage for both companies. Which company will benefit most from a 25% increase in sales? Explain why.

EA 14.

LO 3.5Marshall & Company produces a single product and recently calculated their break-even point as shown.

Current information: Units Sold 400, Sales Price per Unit $525, Variable Cost per Unit 375, Contribution margin per Unit $150, Fixed Costs 3,500, Break-Even in units 23, Contribution Margin Ratio 0.29, Break-Even in Dollars $12,250.

What would Marshall’s target margin of safety be in units and dollars if they required a $14,000 margin of safety?

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