Académique Documents
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Selling price
Variable cost per unit
Contribution margin per unit
Fixed costs
Target operating income
3-33
1.
$7,500
6,300
$1,200
18.
20.
$1, 200
$7,500
2.
22.
=
24.
26.
3.
$570,000 $102,000
0.16
Breakeven (packages) =
Fixed costs
Breakeven (packages)
30.
= $4,200,000, or
25.
$570,000 $102,000
Fixed costs
Contribution margin per package
29.
= 16%
Revenue to achieve target income = (Fixed costs + target OI) Contribution margin ratio
23.
27.
28.
$589,000
475 tour packages
31. =
32.
33. Because the current variable cost per unit is $6,300, the unit variable cost will need to be
reduced by $40 ($6,300 $6,260) to achieve the breakeven point calculated in requirement 1.
34. Alternate Method: If fixed cost increases by $19,000, then total variable costs must be
reduced by $19,000 to keep the breakeven point of 475 tour packages.
35.
1.
36.
37.
38.
Therefore, the variable cost per unit reduction = $19,000 475 = $40 per tour package.
Contribution margin per package = $8,200 $6,300 = $1,900
Breakeven (packages) = Fixed costs Contribution margin per package
= $570,000 $1,900 per tour package = 300 tour packages
39. Breakeven point in dollars = $8,200 per package 300 tour packages = $2,460,000
40. The key question for the general manager is: Can Lifetime Escapes sell enough packages at
$8,200 per package to earn more total operating income than when selling packages at $7,500.
Lowering the breakeven point per se is not the objective.
41.
3.34
(30 min.) CVP, target operating income, service firm.
42.
43. 1.
Revenue per child
$400
44.
Variable costs per child
150
45.
Contribution margin per child
$250
46.
Fixed costs
Contributi on margin per child
47.
Breakeven quantity =
48.
$4,000
$250
49.
=
= 16 children
50.
Fixed costs Target operating income
Contributi on margin per child
51. 2.
Target quantity =
52.
$4,000 $5,000
$250
53.
54.
55.
56.
57.
58.
59.
60.
61.
62.
63.
64.
65.
66.
67.
68.
=
3.
= 36 children
$ 700
1,100
$1,800
36
$ 50
Therefore, the fee per child will increase from $400 to $450.
Alternatively,
= $300
New fee per child = Variable costs per child + New contribution margin per child
= $150 + $300 = $450
69.
3-35
1.
70.
71.
72.
Selling price
Variable costs per unit:
Contribution margin per unit (CMU)
73.
$206
24
$182
Fixed costs
Contribution margin per unit
74.
75.
$327,600
$182
76.
77.
78.
79.
80.
81.
82.
83.
84.
85.
86.
$224
24
$200
Fixed costs
Contribution margin per unit
88.
89.
$327,600
$200
90.
91.
92.
Margin of safety percentage = ($618,000 $366,912) $618,000 =
40.62%
93.
This change will not help Arvin achieve its desired margin of safety of
45%.
94.
95. 2b.
96.
97. Selling price
$206
98. Variable costs per unit:
24
99. Contribution margin per unit (CMU)
$182
100.
Fixed costs
Contribution margin per unit
101.
102.
$327,600
$182
103.
Breakeven point in units =
= 1,800 returns (units)
104.
105.
Breakeven revenues = $206 1,800 = $370,800
106.
107.
Budgeted revenues = $618,000 1.15 = $710,700
108.
Margin of safety percentage = ($710,700 $370,800) $710,700 =
47.8%
109.
This change will help Arvin achieve its desired margin of safety of 45%.
110.
111. 2c.
112. Selling price
$206
113. Variable costs per unit $24 $2):
22
114. Contribution margin per unit (CMU)
$184
115.
116. Fixed costs = $327,600 1.05 = $343,980
117.
Fixed costs
Contribution margin per unit
118.
Breakeven point in units =
119.
$343,980
$184
120.
Breakeven point in units =
= 1,870 returns/units
(rounded up)
121.
122.
Breakeven revenues = $206 1,870 units = $385,220
123.
Margin of safety percentage = ($618,000 $385,220) $618,000=
37.7%
124.
This change will not help Arvin achieve its desired margin of safety of
45%.
125.
126. Options 2a and 2b improve the margin of safety, but only option 2b exceeds the companys
desired margin of safety. Option 2c actually lowers the companys margin of safety.
127.
3-36
1.
1 0.40
X
0.60
$770,000 $407,000 $214,500 =
$462,000 $244,200 $128,700 = X
X = $89,100
Alternatively,
Operating income = Revenues Variable costs Fixed costs
= $770,000 $407,000 $214,500 = $148,500
3.
1 0.40
X
0.60
=
X
$181,500
4.
Let Q = Number of units to break even with new fixed costs of $146,250
$35.00Q $18.50Q $231,000
Q = $231,000 $16.50
Breakeven revenues = 14,000 $35.00
5.
0.60
=
X = $108,900
= 0
= 14,000 units
= $490,000
6.
133.
Sales revenues 5,000 $70
$350,000
134.
Variable costs 5,000 $30
(1 0.20)
120,000
135.
Contribution margin
230,000
136.
Fixed costs $100,000 1.15
115,000
137.
Operating income $115,000
138.
2. Increase advertising (fixed costs) by $30,000; Increase sales 20%
139.
Sales revenues 5,000 1.10 $70.00
$385,000
140.
Variable costs 5,000 1.10
$30.00
165,000
141.
Contribution margin
220,000
142.
Fixed costs ($100,000 + $25,000)
125,000
143.
Operating income $ 95,000
144.
145.
3. Increase selling price by $10.00; Sales decrease 20%; Variable costs increase by $8
146.
Sales revenues 5,000 0.80 ($70 + $10)
$320,000
147.
Variable costs 5,000 0.80
($30 + $8)
152,000
148.
Contribution margin
168,000
149.
Fixed costs
100,000
150.
Operating income $ 68,000
151.
4. Double fixed costs; Increase sales by 60%
152.
Sales revenues 5,000 1.60 $70
$560,000
153.
Variable costs 5,000 1.60 $30
240,000
154.
Contribution margin
320,000
155.
156.
$120,000
157.
158. Alternative 4 yields the highest operating income. Choosing alternative 4 will
give Derby a 20% increase in operating income [($120,000 $100,000)/$100,000 = 20%], which
is less than the companys 25% targeted increase. Alternative 1also generates more operating
income for Derby, but it too does not meet Derbys target of 25% increase in operating income.
Alternatives 2 and 3 actually result in lower operating income than under Derbys current cost
structure. There is no reason, however, for Derby to think of these alternatives as being mutually
exclusive. For example, Derby can combine actions 1 and 4, automate the machining process
and decrease variable costs by 20% while increasing fixed costs by 15%. This will result in a
38% increase in operating income as follows:
159.
160.
Sales revenue 5,000 1.60 $70
$560,000
161.
Variable costs 5,000 1.60 $30 (1 0.20)
192,000
162.
Contribution margin 368,000
163.
Fixed costs $200,000 1.15
230,000
164.
Operating income $138,000
165.
166. The point of this problem is that managers always need to consider broader rather
than narrower alternatives to meet ambitious or stretch goals.
167.
168.
169. 3-38 (2030 min.)
CVP analysis, shoe stores.
170.
171. 1. CMU (SP VCU = $60 $40)
$
20.00
172.
a. Breakeven units (FC CMU = $180,000 $20 per unit)
9,000
173.
b. Breakeven revenues
177.
Revenues, 8,000 $60
$480,000
178.
Total cost of shoes, 8,000 $37
296,000
179.
Total sales commissions, 8,000 $3
24,000
180.
181.
Contribution margin
160,000
182.
Fixed costs
180,000
183.
184.
185. 3.
186.
187.
188.
189.
190.
191.
192.
193.
Advertising
40,000
Other fixed costs
10,000
Total fixed costs
$ 195,500
194.
195.
196.
197.
198.
unit
199.
$60 per unit
200.
201. 4.
202.
Selling price
$ 60.00
Cost of shoes
37.00
Sales commissions
5.00
203.
204.
205.
206.
207.
208.
209.
10,000
210.
211.
212. 5.
$600,000
Pairs sold
12,000
213.
pair)
214.
444,000
$3 per pair)
27,000
216.
217.
15,000
218.
219.
234,000
220.
Fixed costs
180,000
221.
Operating income
$
54,000
222.
223. Alternative approach:
224.
225. Breakeven point in units = 9,000 pairs
226. Store manager receives commission of $2 on 3,000 (12,000 9,000) pairs.
227. Contribution margin per pair beyond breakeven point of 9,000 pairs =
$18 ($60 $40 $2) per pair.
228. Operating income = 3,000 pairs $18 contribution margin per pair = $54,000.
229.
230. 3-39 (30 min.) CVP analysis, shoe stores (continuation of 3-38).
231.
1. For an expected volume of 10,000 pairs, the owner would be inclined to choose the higherfixed-salaries-only plan because income would be higher by $14,500 compared to the salaryplus-commission plan.
232.
233. . Operating income for salary plan = $23 10,000 $195,500 = $34,500
234. Operating income under commission pan = $20 10,000 $180,000 = $20,000
235.
236. But it is likely that sales volume itself is determined by the nature of the compensation
plan. The salary-plus-commission plan provides a greater motivation to the salespeople,
and it may well be that for the same amount of money paid to salespeople, the salary-pluscommission plan generates a higher volume of sales than the fixed-salary plan.
237.
238. 2.
Let TQ = Target number of units
239.
240. For the salary-only plan,
241.
$60TQ $37TQ $195,500 = $69,000
242.
$23TQ= $264,500
243.
TQ= $264,500 $23
244.
TQ = 11,500 units
245. For the salary-plus-commission plan,
246.
$60TQ $40TQ $180,000 = $69,000
247.
$20TQ= $249,000
248.
TQ= $249,000 $20.00
249.
TQ = 12,450 units
250.
251. The decision regarding the salary plan depends heavily on predictions of demand. For
instance, the salary plan offers the same operating income at 11,500 units as the
commission plan offers at 12,450 units.
252.
253. 3.
254.
255.
256.
257.
258.
259.
260.
261.
$645,000
407,000
32,250
205,750
180,000
25,750
262. 3-40
263.
264. 1.
Contribution
margin per
page assuming current
fixed leasing agreement
20,000 pages
Contribution margin per page $0.06 per page
268.
269. Contribution margin per
page
270. = $0.15 $0.04a $0.04 $.05 = $0.02 per
assuming $20 per 500
page
page
commission agreement
271.
272. Fixed costs = $0
Fixed costs
$0
0 pages
Contribution margin per page $0.02 per page
273. Breakeven point =
274. (i.e., Deckle makes a profit no matter how few pages it sells)
275. a$20 500 pages = $0.04 per page
276.
x
277.
2.
Let denote the number of pages Deckle must sell for it to be indifferent
between the fixed leasing agreement and commission based agreement.
x
278. To calculate we solve the following equation.
x
x
x
x
x
x
279.
$0.15 $0.04 $0.05 $1,200 = $0.15 $0.04 $0.04 $.05
x
280.
281.
282.
$0.06
$1,200 = $0.02
x
$0.04 = $1,200
x
= $1,200 $0.04 = 30,000 pages
283.
284.
285.
288. Revenue
289. (2)
307. 20,000 $.15=$
290. Variable
291. Costs
292. (3)
308. 20,000 $.09=$
314.
3,000
30,000 $.15=$
1,800
315. 30,000 $.09=$
321.
4,500
40,000 $.15=$
2,700
322. 40,000 $.09=$
328.
6,000
50,000 $.15=$
3,600
329. 50,000 $.09=$
7,500
335. 60,000 $.15=$
4,500
336. 60,000 $.09=$
306. 20,000
313. 30,000
320. 40,000
327. 40,000
334. 60,000
341. Expected value of fixed leasing
agreement
346.
347.
9,000
342.
293. Fixe
d
294. Cost
s
295. (4)
309. $1,2
00
296. Operating
297. Income
298. (Loss)
299. (5) = (2)
(3) (4)
310. $
300. Proba
bility
301. (6)
350. Revenue
351. (2)
352. Variable
353. Costs
354. (3)
311. 0.20
312. $
317. $ 600
318. 0.20
319. 120
324. $1,200
325. 0.20
326. 240
331. $1,800
332. 0.20
333. 360
338. $2,400
339. 0.20
340.
316. $1,2
00
323. $1,2
00
330. $1,2
00
337. $1,2
00
5,400
343.
344.
355. Operating
Income
356. (4) = (2)
(3)
357. Proba
bility
358. (5)
480
345. $1,200
348. Pa
ges
Sol
d
349. (1)
302. Expecte
d
303. Operati
ng
304. Income
305. (7)=(5)
(6)
359. Expected
Operating
Income
360. (6)=(4)
(5)
361. 2
0,000
367. 3
0,000
373. 4
0,000
379. 5
0,000
3,000
368. 30,000 $.15=$
365. 0.20
366. $ 80
4,500
374. 40,000 $.15=$
371. 0.20
372. 120
6,000
380. 50,000 $.15=$
377. 0.20
378. 160
7,500
386. 60,000 $.15=$
383. 0.20
384. 200
389. 0.20
393.
390. 240
394. $800
385. 6
0,000
9,000
391. Expected value of commission based agreement
395.
396. Deckle should choose the fixed cost leasing agreement because the expected value is higher than under the commission-based
leasing agreement. The range of sales is high enough to make the fixed leasing agreement more attractive.
397.
398.
431. For sales between 0 and 500 sunglasses, SuperShades prefers to pay the 8% commission
x
x
because in this range, $13.40 $5,200 > $15 $6,000. For sales greater than 500
x
sunglasses, the company prefers to pay the monthly fixed rent of $800 because $15
x
$6,000 > $13.40 $5,200.
432.
433.
434. 3-42
(30 min.)
CVP analysis, income taxes, sensitivity.
435.
436. 1a.To breakeven, Carlisle Engine Company must sell 1,200 units. This amount represents
the point where revenues equal total costs.
437. Let Q denote the quantity of engines sold.
438. Revenue
=
Variable costs + Fixed costs
439. $4,000Q
=
$1000Q + $4,800,000
440. $3,000Q
=
$4,800,000
441. Q
=
1,600 units
442. Breakeven can also be calculated using contribution margin per unit.
443. Contribution margin per unit = Selling price Variable cost per unit = $4,000 $1,000 =
$3,000
444. Breakeven
= Fixed Costs Contribution margin per unit
445.
= $4,800,000 $3,000
446.
= 1,600 units
447.
448. 1b.
To achieve its net income objective, Carlisle Engine Company must sell 2,100
units. This amount represents the point where revenues equal total costs plus the
corresponding operating income objective to achieve net income of $1,200,000.
449.
450.
Revenue = Variable costs + Fixed costs + [Net income (1 Tax rate)]
451.
$4,000Q = $1,000Q + $4,800,000 + [$1,200,000 (1 0.20)]
452.
$4,000Q = $1,000Q + $4,800,000 + $1,500,000
453.
Q = 2,100 units
454.
455. 2.
None of the alternatives will help Carlisle Engineering achieve its net income
objective of $1,200,000. Alternative b, where variable costs are reduced by $300 and
selling price is reduced by $400 resulting in 1,750 additional units being sold through the
end of the year, yields the highest net income of $1,180,000. Carlisles managers should
examine how to modify Alternative b to further increase net income. For example, could
variable costs be decreased by more than $300 per unit or selling prices decreased by less
than $400? Calculations for the three alternatives are shown below.
456.
457. Alternative a
458. Revenues
=
($4,000 400) + ($3,400a 2,100) = $8,740,000
459. Variable costs =
$1,000 2,500b = $2,500,000
460. Operating income
=
$8,740,000 $2,500,000 $4,800,000 = $1,440,000
461. Net income
=
$1,440,000 (1 0.20) = $1,152,000
a
462. $4,000 ($4,000 0.15) ; b400 units + 2,100 units.
463.
464.
465.
466.
467.
468.
469.
470.
471.
472.
473.
474.
475.
476.
477.
478.
479.
480.
Alternative b
Revenues
=
($4,000 400) + ($3,600a 1,750) = $7,900,000
Variable costs =
($1,000 400) + (700b 1,750) = $1,625,000
Operating income
=
$7,900,000 $1,625,000 $4,800,000 = $1,475,000
Net income
=
$1,475,000 (1 0.20) = $1,180,000
a
b
$4,000 400 ; $1,000 $300.
Alternative c
Revenues
=
($4,000 400) + ($2,800a 2,200) = $7,760,000
Variable costs =
$1,000 2,600b = $2,600,000
Operating income
=
$7,760,000 $2,600,000 $4,320,000c = 840,000
Net income
=
$840,000 (1 0.20) = $672,000
a
$4,000 ($4,000 0.30); b400 units + 2,200nits; c$4,800,000 ($4,800,000 0.10)
481. 3-43
(30 min.) Choosing between compensation plans, operating leverage.
482.
483. 1. We can recast BioPharms income statement to emphasize contribution margin, and then
use it to compute the required CVP parameters.
484.
485. BioPharm Corporation
486.
489.
492.
497.
502.
507.
512.
517.
522.
527.
532.
537.
542.
547.
548.
555.
556.
487. Income Statement for the Year Ended December 31, 2014
488.
491. Using Own Sales
490. Using Sales Agents
Force
494. $32,0
496. $32,0
00,00
00,00
Revenues
493.
0 495.
0
Variable Costs
498.
499.
500.
501.
503. $12,1
505. $12,1
60,00
60,00
Cost of goods soldvariable
0 504.
0 506.
509. 18,5
511. 16,3
508. 6,40
60,00 510. 4,16
20,00
Marketing commissions
0,000
0
0,000
0
514. 13,44
516. 15,68
Contribution margin
513.
0,000 515.
0,000
Fixed Costs
518.
519.
520.
521.
523. 3,750,
525. 3,750,
Cost of goods soldfixed
000 524.
000 526.
529.
7,4
528. 3,66
10,00 530. 5,90 531. 9,65
Marketingfixed
0,000
0
0,000
0,000
534. $
536. $
6,030,
6,030,
Operating income
533.
000 535.
000
538.
539.
540.
541.
Contribution margin
543.
percentage ($13,440,000
$32,000,000; $15,680,000
$32,000,000)
544. 42%
545.
546. 49%
550.
553.
Breakeven revenues
$17,6
$19,6
42,85
93,87
($7,410,000 0.42; $9,650,000
7
8
0.49)
549.
551.
552.
554.
Degree of operating leverage
557.
($13,440,000 $6,030,000;
558.
560.
$15,680.000 $6,030,000)
2.23
559.
2.60
561.
562. 2. The calculations indicate that at sales of $32,000,000, a percentage change in sales and
contribution margin will result in 2.23 times that percentage change in operating income if
BioPharm continues to use sales agents and 2.60 times that percentage change in operating
income if BioPharm employs its own sales staff. The higher contribution margin per dollar
of sales and higher fixed costs gives BioPharm more operating leverage, that is, greater
benefits (increases in operating income) if revenues increase but greater risks (decreases in
operating income) if revenues decrease. BioPharm also needs to consider the skill levels
and incentives under the two alternatives. Sales agents have more incentive compensation
and, hence, may be more motivated to increase sales. On the other hand, BioPharms own
sales force may be more knowledgeable and skilled in selling the companys products. That
is, the sales volume itself will be affected by who sells and by the nature of the
compensation plan.
563.
564. 3.
565. Fixed marketing costs
567. Denote the revenues required to earn $6,030,000 of operating income by R, then
568.
= 0
= $255,000
=
15,000 ($255,000 $17) units of A
=
75,000 units of B
=
60,000 units of C
= 150,000 units
593. 2.
Contribution margin:
A: 20,000
$ 60,000
B: 100,000 $2
C: 80,000
80,000
Contribution margin
Fixed costs
594.
$3
200,000
$1
$340,000
255,000
Operating income $ 85,000
3.
Contribution margin
A: 20,000 $3
$ 60,000
B: 80,000 $2
160,000
C: 100,000 $1
100,000
Contribution margin
$320,000
Fixed costs
255,000
595.
Operating income
$ 65,000
596.
597.
Sales of A, B, and C are in ratio 20,000 : 80,000 : 100,000. So for every 1 unit of A,
4 (80,000 20,000) units of B and 5 (100,000 20,000) units of C are sold.
598.
599.
Contribution margin of the bundle = 1 $3 + 4 $2 + 5 $1 = $3 + $8 + $5 = $16
$255,000
$16
600.
Breakeven point in bundles =
= 15,938 bundles (rounded up)
601.
Breakeven point in units is:
602. Product 603. 15,938 bundles 1 unit per
A:
bundle
604. 15,938 units
605. Product 606. 15,938 bundles 4 units per
B:
bundle
607. 63,752 units
608. Product 609. 15,938 bundles 5 units per
610.
79,690
C:
bundle
units
611. Total number of units to breakeven
612. 159,380
units
613.
614.
Alternatively,
Let Q = Number of units of A to break even
4Q = Number of units of B to break even
5Q = Number of units of C to break even
Contribution margin Fixed costs = Breakeven point
$3Q + $2(4Q) + $1(5Q) $255,000
$16Q
Q
4Q
5Q
Total
= 0
= $255,000
=
15,938 ($255,000 $16) units of A (rounded up)
=
63,752 units of B
=
79,690 units of C
= 159,380 units
Breakeven point increases because the new mix contains less of the higher contribution
margin per unit, product B, and more of the lower contribution margin per unit, product C.
615.
616.
630.
So contribution margin of a bundle = 2 $65 + 3 $90 = $400
631.
632.
Breakeven
Fixed costs
$1, 200, 000
point in
=
3, 000 bundles
Contribution
margin
per
bundle
$400
bundles
633.
634.
635.
636.
637.
638.
639.
640.
641.
642.
643.
644.
$1,200,000
15, 000 units
$80
2
15,000 units = 6,000 units
5
3
Pitcher-cum-filter: 15, 000 units 9, 000 units
5
Faucet filter:
(2 $65) + (3 $90)
= $80
5
646.
647.
2. Faucet filter:
648.
Selling price
$100
649.
Variable cost per unit
30
650.
Contribution margin per unit
$ 70
651.
Pitcher-cum-filter:
652.
Selling price
$120
653.
Variable cost per unit
20
654.
Contribution margin per unit $100
655.
656.
Each bundle contains two faucet models and three pitcher models.
657.
658.
So contribution margin of a bundle = 2 $70 + 3 $100 = $440
659.
660.
Breakeven
Fixed costs
$1, 200, 000 $208, 000
point in
=
3, 200 bundles
Contribution
margin
per
bundle
$440
bundles
661.
662.
663.
664.
665.
666.
667.
668.
669.
670.
671.
$1,200,000 + $208,000
16, 000 units
$88
(2 $70) + (3 $100)
= $88
5
2
16,000 units = 6,400 units
5
3
Pitcher-cum-filter: 16, 000 units 9, 600 units
5
Faucet filter:
x
3. Let be the number of bundles for Crystal Clear Products to be indifferent between
the old and new production equipment.
675.
x
676.
Operating income using old equipment = $400 $1,200,000
677.
x
678.
Operating income using new equipment = $440 $1,200,000
$208,000
679.
680.
At point of indifference:
x
x
681.
$400 $1,200,000 = $440 $1,408,000
x
x
682.
$440 $400 = $1,408,000 $1,200,000
x
683.
$40 = $208,000
x
684.
= $208,000 $40 = 5,200 bundles
685.
686.
687.
688.
689.
690.
Let x be the number of bundles,
691.
692.
When total sales are less than 26,000 units (5,200 bundles), $400x $1,200,000 >
$440x $1,408,000,
693.
so Crystal Clear Products is better off with the old
equipment.
694.
695.
When total sales are greater than 26,000 units (5,200 bundles), $440x $1,408,000 >
$400x $1,200,000,
700.
$400 4,800 $1,200,000 = $720,000 is greater than $440 4,800
$1,408,000 = $704,000.
701.
702. 3-46
(2025 min.) Sales mix, two products.
703.
1.
Sales of standard and deluxe carriers are in the ratio of 187,500 : 62,500. So for every 1
unit of deluxe, 3 (187,500 62,500) units of standard are sold.
Contribution margin of the bundle = 3 $10 + 1 $20 = $30 + $20 = $50
$2, 250, 000
$50
705.
Breakeven point in bundles =
= 45,000 bundles
706.
Breakeven point in units is:
707. Standard
708. 45,000 bundles 3 units per
709. 135,000
carrier:
bundle
units
710. Deluxe
711. 45,000 bundles 1 unit per
712. 45,000
carrier:
bundle
units
713. Total number of units to breakeven
714. 180,000
units
704.
Alternatively,
Let Q = Number of units of Deluxe carrier to break even
3Q
0
$2,250,000
$2,250,000
45,000 units of Deluxe
135,000 units of Standard
The breakeven point is 135,000 Standard units plus 45,000 Deluxe units, a total of 180,000
units.
2a.
Unit contribution margins are: Standard: $28 $18 = $10; Deluxe: $50 $30 = $20
715.
If only Standard carriers were sold, the breakeven point would be:
716.
$2,250,000 $10 = 225,000 units.
717. 2b.
If only Deluxe carriers were sold, the breakeven point would be:
$2,250,000 $20 = 112,500 units
3. Operating income = Contribution margin of Standard + Contribution margin of Deluxe - Fixed costs
Alternatively,
Let Q = Number of units of Deluxe product to break even
4Q = Number of units of Standard product to break even
$28(4Q) + $50Q $18(4Q) $30Q $2,250,000
$112Q + $50Q $72Q $30Q
= 0
= $2,250,000
$60Q = $2,250,000
Q = 37,500 units of Deluxe
4Q = 150,000 units of Standard
The breakeven point is 150,000 Standard +37,500 Deluxe, a total of 187,500 units.
The major lesson of this problem is that changes in the sales mix change breakeven points
and operating incomes. In this example, the budgeted and actual total sales in number of units
were identical, but the proportion of the product having the higher contribution margin declined.
Operating income suffered, falling from $875,000 to $750,000. Moreover, the breakeven point
rose from 180,000 to 187,500 units.
729.
730.
731. 3-47
732.
733.
734.
735.
736.
737.
738.
739.
740.
741.
742.
1.
Ticket sales ($24 525 attendees)
$12,600
743. 2.
744.
a
b
10,975
$ (5,200)
1,050 attendees)
$25,200
$12,600
745.
1,050
746.
747.
9,000
748.
1,975
749.
750.
751. 3-48
(30 min.)
Ethics, CVP analysis.
752.
753. 1.
Contribution margin percentage =
Revenues Variable costs
Revenues
$4, 000, 000 $2, 400, 000
$4,000,000
754.
=
$1,600,000
$4,000,000
755.
756.
Fixed costs
Contributi on margin percentage
757.
758.
6,825
5,775
=
= 40%
Breakeven revenues
=
$1,728,000
0.40
= $4,320,000
13,650
11,550
10,975
$ 575
759. 2.
760.
Fixed costs
Contributi on margin percentage
761.
Breakeven revenues
=
$1,728,000
0.48
762.
=
= $3,600,000
763.
764. 3.
Revenues
$4,000,000
765. Variable costs (0.52 $4,000,000)
2,080,000
766. Fixed costs
1,728,000
767. Operating income
$ 192,000
768.
769. 4.
Incorrect reporting of environmental costs with the goal of continuing operations
is unethical. In assessing the situation, the specific Standards of Ethical Conduct for
Management Accountants (described in Exhibit 1-7) that the management accountant should
consider are listed below.
770.
771. Competence
772. Clear reports using relevant and reliable information should be prepared. Preparing reports
on the basis of incorrect environmental costs to make the companys performance look better
than it is violates competence standards. It is unethical for Madden not to report environmental
costs to make the plants performance look good.
773.
774. Integrity
775. The management accountant has a responsibility to avoid actual or apparent conflicts of
interest and advise all appropriate parties of any potential conflict. Madden may be tempted to
report lower environmental costs to please Buckner and Hewitt and save the jobs of his
colleagues. This action, however, violates the responsibility for integrity. The Standards of
Ethical Conduct require the management accountant to communicate favorable as well as
unfavorable information.
776.
777. Credibility
778. The management accountants Standards of Ethical Conduct require that information
should be fairly and objectively communicated and that all relevant information should be
disclosed. From a management accountants standpoint, underreporting environmental costs to
make performance look good would violate the standard of objectivity.
779.
780. Madden should indicate to Buckner that estimates of environmental costs and liabilities
should be included in the analysis. If Buckner still insists on modifying the numbers and
reporting lower environmental costs, Madden should raise the matter with one of Buckners
superiors. If after taking all these steps, there is continued pressure to understate environmental
costs, Madden should consider resigning from the company and not engage in unethical
behavior.
781.
782.
783. 3-49
784.
(35 min.)
785.
786. Peoria
787. Moline
790. $150.0
792. $150.
789.
0791.
00
794. 795.
796. 797.
799. $72.00800.
801. $88.00802.
805.
86.0
807. 102.
804. 14.00
0
806. 14.00
00
809.
810. 64.00
811. 812. 48.00
814. 815.
816. 817.
819. 30.00820.
821. 15.00822.
825.
49.0
827.
29.
824. 19.00
0
826. 14.50
50
830. $
832. $
829.
15.00
831.
18.50
834. 835.
836. 837.
839.
845.
850.
855.
840. $64841.
842. $48
846. 61847.
852.
857.
848. 40
853.
858.
851.
856.
Normal annual
862. $4,704,0
00863.
864. $2,265,600865.
869.
47,
200 870. units
874.
875.
879.
880.
884. 96,000885.
890.
76,800891.
895.
19,200896.
901. $3,686,400902.
907.
768,000908.
912. 4,454,400913.
917. 2,265,600918.
00
920. $1,440,0
00921.
922. $2,188,800923.
926. $3,628,
925.
800927.
928.
929.
930. 3.
The optimal production plan is to produce 120,000
units at the Peoria plant and 72,000 units at the Moline plant. The full capacity of the
Peoria plant, 120,000 units (400 units 300 days), should be used because the contribution
from these units is higher at all levels of production than is the contribution from units
produced at the Moline plant.
931.