MANAGERIAL ACCOUNTING W/CONNECT
15th Edition
ISBN: 9781259732454
Author: Garrison
Publisher: MCGRAW-HILL CUSTOM PUBLISHING
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Textbook Question
Chapter 5, Problem 12E
EXERCISE 5-12 Multiproduct Break-Even Analysis LO5-9
Olongapo Sports Corporation distributes two premium golf balls—Flight Dynamic and Sure Shot. Monthly sales and the contribution margin ratios for the two products follow:
Fixed expenses total $183,750 per month.
Required:
- Prepare a contribution format income statement for the company as a whole. Carry computations to one decimal place.
- What is the company's break-even point in dollar sales based on the current sales mix?
- If sales increase by $100,000 a month, by how much would you expect the monthly net operating income to increase? What are your assumptions?
Expert Solution & Answer
To determine
Break-even analysis: It is an analysis of sales revenue or unit where a company is neither earning profits nor incurring any loss.
The preparation of contribution format income statement and break-even analysis.
Answer to Problem 12E
Solution:
1) Contribution formal income statement for the company as a whole. Carry computations to one decimal place is shown below:-
| Product | |||
| Fight Dynamic | Sure Shot | Total | |
| Sales | $150,000 | $250,000 | $400,000 |
| CM ratio | 80% | 36% | 52.5% |
| Olongapo Sports Corporation’s Contribution format income statement | |
| Total | |
| Sales | $400,000 |
| Variable expenses | $190,000 |
| Contribution Margin | $210,000 |
| Fixed expenses | $183,750 |
| Net operating income | $26,250 |
2) The Break-even point in dollar sales based on the current sales mix is $ 350,000
3) The contribution format income statement with increase in sales by $ 100,000 is shown below:-
| Olongapo Sports Corporation’s Contribution format income statement | |
| Total | |
| Sales | $500,000 |
| Variable expenses | $237,500 |
| Contribution Margin | $262,500 |
| Fixed expenses | $183,750 |
| Net operating income | $78,750 |
It is assume that when sales increase by $100,000, the variable expense increase by 25% and the net operating income increases by 200%.
Explanation of Solution
Given:
| Product | |||
| Fight Dynamic | Sure Shot | Total | |
| Sales | $150,000 | $250,000 | $400,000 |
| CM ratio | 80% | 36% | ? |
Fixed expenses total $183,750 per month.
Conclusion
Hence it is concluded that the Mauro Products will neither earn profit nor incur loss at $350,000sales revenue. But if the company earns beyond this point, it will make profit and if it falls below the point, the company will suffer loss. A break-even point is technique used the companies to predict the outcome of a decision based on the analysis. It shows the exact point where a company will neither make profit nor suffer loss.
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Question 2
Style photo sells only one product. The statement of comprehensive income for 2021 is provided below:
Sales
60,000
Less variable expenses
-30,000
Contribution margini
30,000
Less fixed expenses
-22,500
Net income
7,500
Required:
Calculate with workings:
a. The contribution margin ratio in percentage.
b. Three breakeven point in total sales ringgits.
Question 2
Style photo sells only one product. The statement of comprehensive income for 2021 is provided below:
Sales
60,000
Less variable expenses
-30,000
Contribution margin
30,000
Less fixed expenses
-22,500
Net income
7,500
Required:
Calculate with workings:
The contribution margin ratio in percentage.
Three breakeven point in total sales ringgits.
The sales in RM if the company wants to achieve RM40,000 in net income.
Q3
Menlo Company distributes a single product. The company's sales and expenses for last month follow:
Total
$486,000
Per Unit
$30
12
194,400
Sales
Variable expenses
Contribution margin
Fixed expenses
Operating income
Required:
1. What is the monthly break-even point in unit sales and in dollar sales? (Do not round intermediate calculations.)
Break-even point in unit sales
Break-even point in sales dollars
Total contribution margin
2. Without resorting to computations, what is the total contribution margin at the break-even point?
Units sold
3-a. How many units would have to be sold each month to earn a target profit of $97,200? Use the formula method.
291,600 $18
233,280
$ 58,320
units
Menlo Company
Contribution Income Statement.
Total
3-b. Verify your answer by preparing a contribution format income statement at the target sales level.
Unit sales required
units
units
Per unit
4. Refer to part 3 and now assume that the tax rate is 30%. How many units would need to be sold each month…
Chapter 5 Solutions
MANAGERIAL ACCOUNTING W/CONNECT
Ch. 5 - Prob. 1QCh. 5 - Often the most direct route to a business decision...Ch. 5 - Prob. 3QCh. 5 - What is the meaning of operating leverage?Ch. 5 - What is the meaning of break-even point?Ch. 5 - 5-6 In response to a request from your immediate...Ch. 5 - Prob. 7QCh. 5 - Prob. 8QCh. 5 - Prob. 9QCh. 5 - Prob. 1AE
Ch. 5 - Prob. 2AECh. 5 - Prob. 3AECh. 5 - Prob. 4AECh. 5 - Prob. 5AECh. 5 - Prob. 1F15Ch. 5 - Prob. 2F15Ch. 5 - Prob. 3F15Ch. 5 - Prob. 4F15Ch. 5 - Prob. 5F15Ch. 5 - Prob. 6F15Ch. 5 - Prob. 7F15Ch. 5 - Prob. 8F15Ch. 5 - Prob. 9F15Ch. 5 - Prob. 10F15Ch. 5 - Prob. 11F15Ch. 5 - Prob. 12F15Ch. 5 - Prob. 13F15Ch. 5 - Prob. 14F15Ch. 5 - Prob. 15F15Ch. 5 - Prob. 1ECh. 5 - Prob. 2ECh. 5 - Prob. 3ECh. 5 - Prob. 4ECh. 5 - Prob. 5ECh. 5 - Prob. 6ECh. 5 - Prob. 7ECh. 5 - Prob. 8ECh. 5 - Prob. 9ECh. 5 - EXERCISE 5-10 Multiproduct Break-Even Analysis...Ch. 5 - Prob. 11ECh. 5 - EXERCISE 5-12 Multiproduct Break-Even Analysis...Ch. 5 - EXERCISE 5-13 Changes in Selling Price, Sales...Ch. 5 - Prob. 14ECh. 5 - Prob. 15ECh. 5 - Prob. 16ECh. 5 - Prob. 17ECh. 5 - Prob. 18ECh. 5 - Prob. 19PCh. 5 - PROBLEM 5-20 CVP Applications: Break-Even...Ch. 5 - PROBLEM 5-21 Sales Mix; Multiproduct Break-Even...Ch. 5 - Prob. 22PCh. 5 - Prob. 23PCh. 5 - Prob. 24PCh. 5 -
PROBLEM 5-25 Changes in Fixed and Variable Costs;...Ch. 5 -
PROBLEM 5-26 CVP Applications; Break-Even...Ch. 5 - Prob. 27PCh. 5 - Prob. 28PCh. 5 - Prob. 29PCh. 5 - Prob. 30PCh. 5 -
PROBLEM 5-31 Interpretive Questions on the CVP...Ch. 5 -
CASE 5-32 Break-Even Analysis for Individual...Ch. 5 - Prob. 33C
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