MANAGERIAL ACCOUNTING FUND. W/CONNECT
MANAGERIAL ACCOUNTING FUND. W/CONNECT
5th Edition
ISBN: 9781259688713
Author: Wild
Publisher: MCG
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Chapter 5, Problem 5PSB

1.

To determine

To identify: Break- even point of sales in dollars for each product.

1.

Expert Solution
Check Mark

Explanation of Solution

Product BB

Given,
Fixed cost is $100,000.

Calculated values,
Contribution margin ratio is 20% or 0.2 (from working note).

Formula to calculate break-even point of sales in dollars,

    Breakeven point= Fixedcost Contribution margin ratio

Substitute $125,000 for fixed cost and 0.2 for contribution margin ratio.

    Breakeven point= $125,000 0.2 =$625,000

Working note:

Calculation of selling price per unit,

    Sellingpriceperunit= Sales Unitssold = $800,000 50,000 =$16

Calculation of variable cost per unit,

    Variablecostperunit= Variablecost Unitssold = $560,000 50,000 =$11.20

Calculation of contribution margin ratio,

    Contribution margin ratio= Contributionmargin Sales ×100 = $240,000 $800,000 ×100 =30%

Hence, contribution margin ratio is 30%.

Product TT

Given,
Fixed cost is $560,000.

Calculated values,
Contribution margin ratio is 87.5% or 0.875 (from working note).

Formula to calculate break-even point of sales in dollars,

    Breakeven point= Fixedcost Contribution margin ratio

Substitute $560,000 for fixed cost and 0.875 for contribution margin ratio.

    Breakeven point= $560,000 0.875 =$640,000

Working note:

Calculation of selling price per unit,

    Sellingpriceperunit= Sales Unitssold = $800,000 50,000 =$16

Calculation of variable cost per unit,

    Variablecostperunit= Variablecost Unitssold = $100,000 50,000 =$2

Calculation of contribution margin ratio,

    Contribution margin ratio= Contributionmargin Sales ×100 = $700,000 $800,000 ×100 =87.5%

Hence, contribution margin ratio is 87.5%.

Hence, break-even point of sale of Product BB is $625,000 and Product TT is $640,000.

2.

To determine

To prepare: A forecasted contribution margin income statement for the company.

2.

Expert Solution
Check Mark

Explanation of Solution

Statement to show the contribution margin income statement,

Company S

Income Statement

For the Year Ended December 31, 20XX

Particulars

Product BB Amount

($)

Product TT Amount

($)

Sales

528,000

528,000

Less: Variable Cost

369,600

66,000

Contribution Margin

158,400

462,000

Less: Fixed Cost

100,000

560,000

Pre Tax Income

58,400

(98,000)

Tax

18,688

(31,360)

Net Income

39,712

(66,640)

Table(1)

Working note:

Given,
The numbers of units sold is 33,000.
The selling price is $16 of both products.
Variable cost per unit of Product BB is $11.20.
Variable cost per unit of Product TT is $2.

Calculation of total sales,

    Totalsales=Numbersofunits×Salesprice =33,000units×$16 =$528,000

The total sales are $528,000.

Product BB

Calculation of total variable cost,

    Totalvariable cost=Numbersofunits×Variablecost per unit =33,000units×$11.20 =$369,600

The total variable cost is $369,600.

Product TT

Calculation of total variable cost,

    Totalvariable cost=Numbersofunits×Variablecost per unit =33,000units×$2 =$66,000

The total variable cost is $66,000.

Product BB

Calculation of tax,

` Tax=Pretaxincome×Taxrate =$584,000×32% =$186,880

Product TT

Calculation of tax,

` Tax=Pretaxincome×Taxrate =( $98,000 )×32% =( $31,360 )

Hence, the net income of Company S is $39,712 from Product BB and net loss $66,640 from Product TT.

3.

To determine

To prepare: A forecasted contribution margin income statement for the company.

3.

Expert Solution
Check Mark

Explanation of Solution

Statement to show the contribution margin income statement

Company S

Income Statement

For the Year Ended December 31, 20XX

Particulars

Product BB Amount

($)

Product TT Amount

($)

Sales

1,024,000

1,024,000

Less: Variable Cost

716,800

128,000

Contribution Margin

307,200

896,000

Less: Fixed Cost

100,000

560,000

Pre Tax Income

207,200

336,000

Tax

66,304

107,520

Net Income

140,896

228,480

Table(2)

Working note:

Given,
The numbers of units sold is 64,000.
The selling price is $16 of both products.
Variable cost per unit of Product BB is $11.20.
Variable cost per unit of Product TT is $2.

Calculation of total sales,

    Totalsales=Numbersofunits×Salesprice =64,000units×$16 =$1,024,000

The total sales are $1,024,000.

Product BB

Calculation of total variable cost,

    Totalvariable cost=Numbersofunits×Variablecost per unit =64,000units×$11.20 =$716,800

The total variable cost is $716,800.

Product TT

Calculation of total variable cost,

    Totalvariable cost=Numbersofunits×Variablecost per unit =64,000units×$2 =$128,000

The total variable cost is $128,000.

Product BB

Calculation of tax,

` Tax=Pretaxincome×Taxrate =$207,200×32% =$66,304

Product TT

Calculation of tax,

` Tax=Pretaxincome×Taxrate =$33,600×32% =$10,752

Hence, the net income of Company S is $140,896 from Product BB and $228,480 from Product TT.

4.

To determine

To identify: The product that would greatly experience loss when sales decreases.

4.

Expert Solution
Check Mark

Explanation of Solution

  • The Product TT will experience greater loss when sales decreases.
  • Per unit variable cost is low of Product TT therefore, contribution is highly affected due to decrease in sales.
  • Fixed cost is high of product TT therefore; when sales highly decrease the product TT have to suffer huge losses.

Hence, product that would greatly experience loss when sales decreases is product TT as its fixed expenses are higher.

5.

To determine

To identify: The factors that might have created the different cost structure for the two products.

5.

Expert Solution
Check Mark

Explanation of Solution

The factors that might have created the different cost structure for the two products:

  • Labor cost: It may affect the cost structure as it is one of the important parts of total cost it includes the wages paid to the workers.
  • Machinery cost: It may affect the cost structure as it is one of the important parts of total cost it includes the cost incurred to install machinery.
  • Salary of staff: It may affect the cost structure as it is one of the important parts of total cost it depends on the number of staff working in the organization.
  • Raw material cost: It may affect the cost structure as it is one of the important parts of total cost, raw material required may be more or less costly therefore, it also affect a product’s cost.

Hence, raw material cost, salary structure, machinery required etc are the factors that might have created the different cost structure for the two products.

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Chapter 5 Solutions

MANAGERIAL ACCOUNTING FUND. W/CONNECT

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