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Principles of Accounting, Volume 2: Managerial Accounting

Exercise Set B

Principles of Accounting, Volume 2: Managerial AccountingExercise Set B
EB 1.

LO 3.1Calculate the per-unit contribution margin of a product that has a sale price of $150 if the variable costs per unit are $40.

EB 2.

LO 3.1Calculate the per-unit contribution margin of a product that has a sale price of $350 if the variable costs per unit are $95.

EB 3.

LO 3.1A product has a sales price of $175 and a per-unit contribution margin of $75. What is the contribution margin ratio?

EB 4.

LO 3.1A product has a sales price of $90 and a per-unit contribution margin of $30. What is the contribution margin ratio?

EB 5.

LO 3.2Cadre, Inc., sells a single product with a selling price of $120 and variable costs per unit of $90. The company’s monthly fixed expenses are $180,000.

  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 October when they will sell 10,000 units.
  4. How many units will Cadre need to sell in order to realize a target profit of $300,000?
  5. What dollar sales will Cadre need to generate in order to realize a target profit of $300,000?
  6. Construct a contribution margin income statement for the month of August that reflects $2,400,000 in sales revenue for Cadre, Inc.
EB 6.

LO 3.2Kerr Manufacturing sells a single product with a selling price of $600 with variable costs per unit of $360. The company’s monthly fixed expenses are $72,000.

  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 January when they will sell 500 units.
  4. How many units will Kerr need to sell in order to realize a target profit of $120,000?
  5. What dollar sales will Kerr need to generate in order to realize a target profit of $120,000?
  6. Construct a contribution margin income statement for the month of June that reflects $600,000 in sales revenue for Kerr Manufacturing.
EB 7.

LO 3.2Delta Co. sells a product for $150 per unit. The variable cost per unit is $90 and fixed costs are $15,250. Delta Co.’s tax rate is 36% and the company wants to earn $44,000 after taxes.

  1. What would be Delta’s desired pre-tax income?
  2. What would be break-even point in units to reach the income goal of $44,000 after taxes?
  3. What would be break-even point in sales dollars to reach the income goal of $44,000 after taxes?
  4. Create a contribution margin income statement to show that the break-even point calculated in B, generates the desired after-tax income.
EB 8.

LO 3.3Shonda & Shonda is a company that does land surveys and engineering consulting. They have an opportunity to purchase new computer equipment that will allow them to render their drawings and surveys much more quickly. The new equipment will cost them an additional $1,200 per month, but they will be able to increase their sales by 10% per year. Their current annual cost and break-even figures are as follows:

Current information: Units Sold 1,400, Sales Price per Unit $225, Variable Cost per Unit $145, Fixed Costs $52,000, Break-Even (in units) 650, Contribution Margin per Unit $0.36, Break-Even (in dollars) $146,250, Sales $315,000, Variable Costs $203,000, Fixed Costs $52,000, Net Income $60,000.
  1. What will be the impact on the break-even point if Shonda & Shonda purchases the new computer?
  2. What will be the impact on net operating income if Shonda & Shonda purchases the new computer?
  3. What would be your recommendation to Shonda & Shonda regarding this purchase?
EB 9.

LO 3.3Baghdad Company produces a single product. They have recently received the result of a market survey that indicates that they can increase the retail price of their product by 10% without losing customers or market share. All other costs will remain unchanged. If they enact the 10% price increase, what will be their new break-even point in units and dollars? Their most recent CVP analysis is:

Current information: Units Sold 1,450, Sales Price per Unit $90, Variable Cost per Unit $40, Contribution Marin per Unit $50, Fixed Costs $20,650, Break-Even (in units) 413, Break-Even (in dollars) $37,170, Sales $130,500, Variable Costs $58,000, Contribution Margin $72,500, Fixed Costs $20,650, Net Income $51,850.
EB 10.

LO 3.3Keleher Industries manufactures pet doors and sells them directly to the consumer via their web site. The marketing manager believes that if the company invests in new software, they will increase their sales by 10%. The new software will increase fixed costs by $400 per month. Prepare a forecasted contribution margin income statement for Keleher Industries reflecting the new software cost and associated increase in sales. The previous annual statement is as follows:

Sales (3,100 units at $250 per unit) $775,000 less Variable costs (3,100 units at $115 per unit) 356,500 equals Contribution Margin 418,500. Subtract Fixed Cost 19,500 equals Net Income $399,000.
EB 11.

LO 3.4JJ Manufacturing builds and sells switch harnesses for glove boxes. The sales price and variable cost for each follows:

Product, Selling Price per Unit, Variable Cost per Unit (respectively): Trunk Switch, $60, $28; Gas Door Switch $75, $33; Glove Box Light $40, $22.

Their sales mix is reflected in the ratio 4:4:1. What is the overall unit contribution margin for JJ Manufacturing with their current product mix?

EB 12.

LO 3.4JJ Manufacturing builds and sells switch harnesses for glove boxes. The sales price and variable cost for each follow:

Product, Selling Price per Unit, Variable Cost per Unit (respectively): Trunk Switch, $60, $28; Gas Door Switch, $75, $33; Glove Box Light, $40, $22.

Their sales mix is reflected in the ratio 4:4:1. If annual fixed costs shared by the three products are $18,840 how many units of each product will need to be sold in order for JJ to break even?

EB 13.

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

EB 14.

LO 3.5Company A has current sales of $4,000,000 and a 45% contribution margin. Its fixed costs are $600,000. Company B is a service firm with current service revenue of $2,800,000 and a 15% contribution margin. Company B’s fixed costs are $375,000. Compute the degree of operating leverage for both companies. Which company will benefit most from a 15% increase in sales? Explain why.

EB 15.

LO 3.5Best Wholesale recently calculated their break-even point for their Midwest operations. The national sales manager has asked them to include a $10,500 margin of safety in their calculations. Using the following information, recalculate Best Wholesale’s break-even point in units and dollars with the $10,500 margin of safety included.

Current information: Units Sold 1,200, Sales Price per Unit $765, Variable Cost per Unit 590, Contribution margin per Unit $175, Fixed Costs 97,000, Break-Even in units 554, Contribution Margin Ratio 0.23 Break-Even in Dollars $424,028.57.
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