ACC 560
ACC 560 – Homework Chapter 5 & 6
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Chapter 5: Exercises 8, 13, 14, and 17; Problems 1 and 5
Chapter 6: Exercises 5, 10, 13, and 14; Problems 1 and 5
Exercise 58 
All That Blooms provides environmentally friendly lawn services for homeowners. Its operating costs are as follows.
Depreciation  $1,400  per month  
Advertising  $200  per month  
Insurance  $2,000  per month  
Weed and feed materials  $12  per lawn  
Direct labor  $10  per lawn  
Fuel  $2  per lawn 
All That Blooms charges $60 per treatment for the average singlefamily lawn.
Determine the company’s breakeven point in (a) number of lawns serviced per month and (b) dollars.
(a)  Breakeven point  lawns  
(b)  Breakeven point  $ 
Exercise 513 
Cannes Company has the following information available for September 2014.
Unit selling price of video game consoles  $400  
Unit variable costs  $275  
Total fixed costs  $52,000  
Units sold  600 
(a) Compute the contribution margin per unit.
Contribution margin per unit 
(b) Prepare a CVP income statement that shows both total and per unit amounts.
CANNES COMPANY CVP Income Statement For the Month Ended September 30, 2014 

Total  Per Unit  
$  $  
$  
$ 
(c) Compute Cannes’ breakeven point in units.
Breakeven point in units  units 
(d) Prepare a CVP income statement for the breakeven point that shows both total and per unit amounts.
CANNES COMPANY CVP Income Statement For the Month Ended September 30, 2014 

Total  Per Unit  
$  $  
$  
$ 


(b) Compute the number of units that would have to be sold in 2014 to reach the stockholders desired profit level
(c ) Assume that Naylor Company sells the same number of units in 2014 as it did in 2013. What would the selling price have to be in order to reach the stockholders desired profit level?


(b) What is the breakeven point in dollars?
(c ) What is the margin of safety in dollars and as a ratio?
(d) If the company wishes to increase its total dollar contribution margin by 30% in 2014, by how much
will it need to increase its sales if all other factors remain constant?


( b) Compute the breakeven point in units and dollars.
(c ) Prepare a CVP graph, assuming a maximum of 1,800 haircuts in a month. Use increments of 300 haircuts on the horizontal axis and $3,000 on the vertical axis.


(b) Compute the breakeven point in units and sales dollars for the current year.
(c ) The company has a target net income of $200,000. What is the required sales in dollars for the company to meet its target?
(d) If the company meets its target net income number, by what percentage could its sales fall before it is operating at a loss? That is, what is its margin of safety ratio?
Chapter 6 homework Chapter 6: Exercises 5, 10, 13, and 14; Problems 1 and 5
Exercise 65 
Hall Company had sales in 2014 of $1,560,000 on 60,000 units. Variable costs totaled $720,000, and fixed costs totaled $500,000.
A new raw material is available that will decrease the variable costs per unit by 25% (or $3). However, to process the new raw material, fixed operating costs will increase by $150,000. Management feels that onehalf of the decline in the variable costs per unit should be passed on to customers in the form of a sales price reduction. The marketing department expects that this sales price reduction will result in a 5% increase in the number of units sold.
(a) Prepare a projected CVP income statement for 2014, assuming the changes have not been made. (Round per unit cost to 2 decimal places, e.g. 5.25 and all other answers to 0 decimal places, e.g. 1,225.)
HALL COMPANY CVP Income Statement For the Year Ended December 31, 2014 

Total  Per Unit  
$  $  
$  
$ 
(b) Prepare a projected CVP income statement for 2014, assuming that changes are made as described. (Round per unit cost to 2 decimal places, e.g. 5.25 and all other answers to 0 decimal places, e.g. 1,225.)
HALLCOMPANY CVP Income Statement For the Year Ended December 31, 2014 

Total  Per Unit  
$  $  
$  
$  



(b) Calculate the company’s weightedaverage contribution margin ratio.
(c ) Calculate the company’s breakeven point in dollars.
(d) Determine the sales level in dollars for each division at the breakeven point.


(b) Prepare an analysis showing the total contribution margin if the additional hours are:
(1) Divided equally between the products
(2) Allocated entirely to the product identified in part (b)
Exercise 614 
The CVP income statements shown below are available for Armstrong Company and Contador Company.
Armstrong Co.  Contador Co.  
Sales  $500,000  $500,000  
Variable costs  240,000  50,000  
Contribution margin  260,000  450,000  
Fixed costs  160,000  350,000  
Net income  $100,000  $100,000 
(a) 
Compute the degree of operating leverage for each company. (Round answers to 3 decimal places, e.g. 1.150.)
Degree of Operating Leverage  
Armstrong  
Contador 
(b) Assuming that sales revenue increase by 10%, prepare a variable costing income statement for each company.
Problem 61A 
Fredonia Inc. had a bad year in 2013. For the first time in its history, it operated at a loss. The company’s income statement showed the following results from selling 80,000 units of product: Net sales $2,000,000; total costs and expenses $2,135,000; and net loss $135,000. Costs and expenses consisted of the following.
Total  Variable  Fixed  
Cost of goods sold  $1,468,000  $950,000  $518,000  
Selling expenses  517,000  92,000  425,000  
Administrative expenses  150,000  58,000  92,000  
$2,135,000  $1,100,000  $1,035,000 
Management is considering the following independent alternatives for 2014.
1.  Increase unit selling price 25% with no change in costs and expenses.  
2.  Change the compensation of salespersons from fixed annual salaries totaling $200,000 to total salaries of $40,000 plus a 5% commission on net sales.  
3.  Purchase new hightech factory machinery that will change the proportion between variable and fixed cost of goods sold to 50:50. 
(a) Compute the breakeven point in dollars for 2014. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final answers to 0 decimal places, e.g. 2,510.)
Breakeven point  $ 
(b) Compute the breakeven point in dollars under each of the alternative courses of action. (Round contribution margin ratio to 4 decimal places e.g. 0.2512 and final answers to 0 decimal places, e.g. 2,510.)
Breakeven point  
1.  Increase selling price  $  
2.  Change compensation  $  
3.  Purchase machinery  $ 
Which course of action do you recommend?
Problem 65A 
The following CVP income statements are available for Viejo Company and Nuevo Company.
Viejo Company  Nuevo Company  
Sales  $500,000  $500,000  
Variable costs  280,000  180,000  
Contribution margin  220,000  320,000  
Fixed costs  180,000  280,000  
Net income  $40,000  $40,000 
(a1) 
Calculate Contribution margin ratio. (Round answers to 2 decimal places, e.g. 0.32.)
Contribution Margin Ratio  
Viejo Company  
Nuevo Company 
 Compute the breakeven point in dollars and the margin of safety ration for each company.
 Compute the degree of operating leverage for each company and interpret your results
 Assuming that sales revenue increase by 20%, prepare a CVP income statement for each company.
 Assuming that sales revenue decreases by 20%, prepare a CVP income statement for each company
 Discuss how the cost structure of these two companies affects their operating leverage and profitability.