Fundamental Managerial Accounting Concepts
Fundamental Managerial Accounting Concepts
8th Edition
ISBN: 9781259569197
Author: Thomas P Edmonds, Christopher Edmonds, Bor-Yi Tsay, Philip R Olds
Publisher: McGraw-Hill Education
Question
Book Icon
Chapter 3, Problem 23PSA

a.

To determine

Calculate the contribution margin per unit.

a.

Expert Solution
Check Mark

Explanation of Solution

The calculation of contribution margin per unit is as follows:

Contribution margin per unit=Sales priceVariable cost=$87$24=$63

Hence, the contribution margin per unit is $63.

b.

To determine

Calculate the break-even points in dollars and units and prepare income statement using contribution margin format.

b.

Expert Solution
Check Mark

Explanation of Solution

The calculation of break-even points in units is as follows:

Break-even point in units=Fixed costContribution margin per unit=$315,000$63=5,000 units

Hence, the break-even units is 5,000 units.

The calculation of break-even point in dollars is as follows:

Break-even in dollars=Break-even units×Sales price=5,000 units×$87 per unit=$435,000

Hence, the break-even in dollars is $435,000.

The calculation of income statement is as follows:

Fundamental Managerial Accounting Concepts, Chapter 3, Problem 23PSA , additional homework tip  1

(Table 1)

Working note:

The calculation of variable cost is as follows:

Variable cost=Number of units×Variable cost per unit=5,000 units×$24=$120,000

Hence, the variable cost is $120,000.

(1)

c.

To determine

Calculate the sales volume in units and dollars that is required to earn profit and prepare income statement.

c.

Expert Solution
Check Mark

Explanation of Solution

The calculation of sales volume in units is as follows:

Sales volume in units=Fixed cost+Target profitContribution margin per unit=$315,000+$252,000$63=$567,000$63=9,000 units

Hence, the sales volume in units is 9,000 units.

The calculation of sales volume in dollars is as follows:

Sales volume in dollars=Sales volume in units×Sales price=9,000 units×$87 per unit=$783,000

Hence, the sales volume in dollars is $783,000.

The calculation of income statement is as follows:

Fundamental Managerial Accounting Concepts, Chapter 3, Problem 23PSA , additional homework tip  2

(Table 2)

Working note:

The calculation of variable cost is as follows:

Variable cost=Number of units×Variable cost per unit=9,000 units×$24=$216,000

Hence, the variable cost is $216,000.

(2)

d.

To determine

Calculate the level of sales that is necessary to earn profit in case of drop in sales price.

d.

Expert Solution
Check Mark

Explanation of Solution

The calculation of sales volume in units is as follows:

Sales volume in units=Fixed cost+Target profitContribution margin per unit=$315,000+$252,000$56 (3)=$567,000$56=10,125 units

Hence, the sales volume in units is 10,125 units.

The calculation of sales volume in dollars is as follows:

Sales volume in dollars=Sales volume in units×Sales price=10,125 units×$80 per unit=$810,000

Hence, the sales volume in dollars is $810,000.

The calculation of income statement is as follows:

Fundamental Managerial Accounting Concepts, Chapter 3, Problem 23PSA , additional homework tip  3

(Table 3)

Working note:

The calculation of contribution margin per unit is as follows:

Contribution margin per unit=Sales priceVariable cost=$80$24=$56

Hence, the contribution margin per unit is $56.

(3)

The calculation of variable cost is as follows:

Variable cost=Number of units×Variable cost per unit=10,125 units×$24=$243,000

Hence, the variable cost is $243,000.

(4)

e.

To determine

Calculate the level of sales that is necessary to earn profit in case of drop in fixed cost.

e.

Expert Solution
Check Mark

Explanation of Solution

The calculation of sales volume in units is as follows:

Sales volume in units=Fixed cost+Target profitContribution margin per unit=$280,000+$252,000$56 (3)=$532,000$56=9,500 units

Hence, the sales volume in units is 9,500 units.

The calculation of sales volume in dollars is as follows:

Sales volume in dollars=Sales volume in units×Sales price=9,500 units×$80 per unit=$760,000

Hence, the sales volume in dollars is $760,000.

The calculation of income statement is as follows:

Fundamental Managerial Accounting Concepts, Chapter 3, Problem 23PSA , additional homework tip  4

(Table 4)

Working note:

The calculation of variable cost is as follows:

Variable cost=Number of units×Variable cost per unit=9,500 units×$24=$228,000

Hence, the variable cost is $228,000.

(5)

f.

To determine

Calculate the level of sales that is necessary to earn profit in case of drop in variable cost.

f.

Expert Solution
Check Mark

Explanation of Solution

The calculation of sales volume in units is as follows:

Sales volume in units=Fixed cost+Target profitContribution margin per unit=$280,000+$252,000$50 (6)=$532,000$50=10,640 units

Hence, the sales volume in units is 10,640 units.

The calculation of sales volume in dollars is as follows:

Sales volume in dollars=Sales volume in units×Sales price=10,640 units×$80 per unit=$851,200

Hence, the sales volume in dollars is $851,200.

The calculation of income statement is as follows:

Fundamental Managerial Accounting Concepts, Chapter 3, Problem 23PSA , additional homework tip  5

(Table 5)

Working note:

The calculation of contribution margin per unit is as follows:

Contribution margin per unit=Sales priceVariable cost=$80$30=$50

Hence, the contribution margin per unit is $50.

(6)

The calculation of variable cost is as follows:

Variable cost=Number of units×Variable cost per unit=10,640 units×$30=$319,200

Hence, the variable cost is $319,200.

(7)

g.

To determine

Calculate the margin of safety in dollars, units and as a percentage.

g.

Expert Solution
Check Mark

Explanation of Solution

The calculation of break-even points in units is as follows:

Break-even point in units=Fixed costContribution margin per unit=$280,000$50 (6)=5,600 units

Hence, the break-even units is 5,600 units.

The calculation of margin of safety in dollars and units is as follows:

Fundamental Managerial Accounting Concepts, Chapter 3, Problem 23PSA , additional homework tip  6

(Table 6)

The calculation of margin of safety in percentage is as follows:

Margin of safety in percentage=Margin of safety in dollarsBudgeted sales=$352,000$800,000=0.44=44%

Hence, the margin of safety in percentage is 44%

h.

To determine

Draw a break-even graph using the data in requirement (g).

h.

Expert Solution
Check Mark

Explanation of Solution

The break-even graph is as follows:

Fundamental Managerial Accounting Concepts, Chapter 3, Problem 23PSA , additional homework tip  7

(Figure 1)

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Chapter 3 Solutions

Fundamental Managerial Accounting Concepts

Knowledge Booster
Background pattern image
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education