Accounting: What the Numbers Mean
11th Edition
ISBN: 9781259535314
Author: David Marshall, Wayne William McManus, Daniel Viele
Publisher: McGraw-Hill Education
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Textbook Question
Chapter 12, Problem 12.26P
Problem 12.26
LO 8. 9, 10, 11
CYP application-eliminate product from operations? Muscle Beach, Inc., makes three models of high-performance weight-training benches. Current operating data are summarized here:
| MegaMuscle | PowerGym | ProForce | |
| Selling price per unit | $ 170 | $ 220 | $ 310 |
| Contribution margin per unit | 51 | 77 | 62 |
| Monthly sales volume-units | 4,000 | 3,000 | 1,000 |
| Fixed expenses per month | Total of $468,000 | ||
Required:
- Calculate the contribution margin ratio of each product.
- Calculate the firm’s overall contribution margin ratio.
- Calculate the firm’s monthly break-even point in sales dollars.
- Calculate the firm’s monthly operating income.
- Management is considering the elimination of the ProForce model due to its low sales volume and low contribution margin ratio. As a result, total fixed expenses can be reduced to $420,000 per month. Assuming that this change would not affect the other models, would you recommend the elimination of the ProForce model? Explain your answer.
- Assume the same facts as in part e. Assume also that the sales volume for the PowerGym model will increase by 500 units per month if the ProForce model is eliminated. Would you recommend eliminating the ProForce model? Explain your answer.
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CVP application—eliminate product from operations? Muscle Beach, Inc.,makes three models of high-performance weight-training benches. Current operating data are summarized here: MegaMuscle PowerGym ProForceSelling price per unit $ 170 $ 220 $ 310Contribution margin per unit 51 77 62Monthly sales volume—units 4,000 3,000 1,000Fixed expenses per month Total of $468,000
Required:a. Calculate the contribution margin ratio of each product.b. Calculate the firm’s overall contribution margin ratio.c. Calculate the firm’s monthly break-even point in sales dollars.d. Calculate the firm’s monthly operating income.e. Management is considering the elimination of the ProForce model due to its low sales volume and low contribution margin ratio. As a result, total fixed expenses can be reduced to $420,000 per month. Assuming that this change would not affect the other models, would you recommend the elimination of the ProForce model? Explain your answer.f. Assume the same facts as in part e. Assume…
point that you computed in requirement 27
PROBLEM S-20 CVP Applications Break Even Analysie Cost Structure; Target Sales LOS-1, LOS-3,
LOS-4, LOS-, LOS-6, LOS-8
Northwood Company manufactures baskethalls. The company has a ball that sells for 525.
Al present, the ball is manufactured in a small plant that relies heavily on direct labor workers.
Th, variable expenses are high, totaling $15 per ball, of which 60% is direct labor cost.
Last year, the company sold 30,000 of these balls, with the following results:
Sales (30,000 balls)
Variable expenses.
$750,000
450,000
Contribution margin
Fixed expenses..
300,000
210.000
$ 90.000
Net operating income.
Reguired:
Compute (a n
a pon
ext year
Refer to the original data. The company is discussing the construction of a new, automated
5.
manufacturing plant. The new plant would slash variable expenses per ball by 40%, but it
would cause fixed expenses per year to double. If the new plant is built, what would be the
company's new CM ratio and new…
PROBLEM S-20 CVP Applications: Break Even Analysis; Cost Structure: Target Safes LOS-1, LOS-3.
LOS-4, LOS-S, LOS-6, LOS-8
Northwood Company manufactures basketballs. The company has a ball that sells for $25.
Al present, the ball is manufactured in a small plant that relies heavily on direct labor workers.
T, variable expenses are high, totaling $15 per ball, of which 60% is direct labor cost.
Last
the company sold 30,000 of these balls, with the following results:
year,
$750,000
450,000
Sales (30,000 balls)
Variable expenses.
300,000
210.000
Contribution margin
Fixed expenses
$ 90.000
Net operating income.
Required:
1. Compute (a) last year's CM ratio and the break-even point in balls, and (b) the degree of oper
ating leverage at last year's sales level.
2.
Due to an increase in labor rates, the company estimates that next year's variable expenses
will increase by $3 per ball. If this change takes place and the selling price per ball remains
constant at $25, what will be next year's…
Chapter 12 Solutions
Accounting: What the Numbers Mean
Ch. 12 - Prob. 12.1MECh. 12 - Prob. 12.2MECh. 12 - Prob. 12.3MECh. 12 - Prob. 12.4MECh. 12 - Prob. 12.5MECh. 12 - Prob. 12.6MECh. 12 - Exercise 12.7 LO 3 Cost classifications For each...Ch. 12 - Exercise 12.8 LO 3 Cost classifications For each...Ch. 12 - Prob. 12.9ECh. 12 - Prob. 12.10E
Ch. 12 - Prob. 12.11ECh. 12 - Prob. 12.12ECh. 12 - Prob. 12.13ECh. 12 - Prob. 12.14ECh. 12 - Exercise 12.15
LO 8, 9
Special promotion—effects...Ch. 12 - Prob. 12.16ECh. 12 - Problem 12.17 LO 6 High-low method A department of...Ch. 12 - Problem 12.18
LO 6
High-low method—missing amounts...Ch. 12 - Prob. 12.19PCh. 12 - Prob. 12.20PCh. 12 - Prob. 12.21PCh. 12 - Prob. 12.22PCh. 12 - Prob. 12.23PCh. 12 - Prob. 12.24PCh. 12 - Prob. 12.25PCh. 12 - Problem 12.26 LO 8. 9, 10, 11 CYP...Ch. 12 - Prob. 12.27PCh. 12 - Prob. 12.28PCh. 12 - Prob. 12.29CCh. 12 - Prob. 12.30CCh. 12 - Prob. 12.31CCh. 12 - Case 12.32 LO 12 Understanding the effects of...Ch. 12 - Prob. 12.33C
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