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 5-8

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 single-family lawn.

Determine the company’s break-even point in (a) number of lawns serviced per month and (b) dollars.

 (a) Break-even point lawns (b) Break-even point \$

 Exercise 5-13

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’ break-even point in units.

 Break-even point in units units

(d) Prepare a CVP income statement for the break-even point that shows both total and per unit amounts.

 CANNES COMPANY CVP Income Statement For the Month Ended September 30, 2014 Total Per Unit \$ \$ \$ \$

 Exercise 5-14

Naylor Company had \$210,000 of net income in 2013 when the selling price per unit was \$150, the variable costs per unit were \$90, and the fixed costs were \$570,000. Management expects per unit data and total fixed costs to remain the same in 2014. The president of Naylor Company is under pressure from stockholders to increase net income by \$52,000 in 2014.

 (a)

Compute the number of units sold in 2013.

 units

(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?

 Exercise 5-17

Oak Bucket Co., a manufacturer of wood buckets, had the following data for 2013.

 Sales 2,600 units Sales price \$40 per unit Variable costs \$16.00 per unit Fixed costs \$19,500

 (a)

What is the contribution margin ratio?

 Contribution margin ratio %

(b) What is the break-even 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?

 Problem 5-1A

Telly Savalas owns the Bonita Barber Shop. He employs 4 barbers and pays each a base rate of \$1,000 per month. One of the barbers serves as the manager and receives an extra \$500 per month. In addition to the base rate, each barber also receives a commission of \$4.50 per haircut.

Other costs are as follows.

 Advertising \$200 per month Rent \$1,100 per month Barber supplies \$0.30 per haircut Utilities \$175 per month plus \$0.20 per haircut Magazines \$25 per month

Telly currently charges \$10 per haircut.

 (a)

Determine the variable cost per haircut and the total monthly fixed costs. (Round variable costs to 2 decimal places, e.g. 2.25.)

 Total variable cost per haircut \$ Total fixed \$

( b) Compute the break-even 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.

 Problem 5-5A

Mozena Corporation has collected the following information after its first year of sales. Sales were \$1,500,000 on 100,000 units; selling expenses \$250,000 (40% variable and 60% fixed); direct materials \$511,000; direct labor \$290,000; administrative expenses \$270,000 (20% variable and 80% fixed); manufacturing overhead \$350,000 (70% variable and 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the coming year. It has projected that unit sales will increase by 10% next year.

 (a)

Compute (1) the contribution margin for the current year and the projected year, and (2) the fixed costs for the current year. (Assume that fixed costs will remain the same in the projected year.)

 (1) Contribution margin for current year \$ Contribution margin for projected year \$ (2) Fixed Costs

(b) Compute the break-even 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 6-5

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 one-half 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
\$ \$

\$

\$
 Exercise 6-10

Personal Electronix sells television iPads and iPods. The business is divided into two divisions along product lines. CVP income statements for a recent quarter’s activity are presented below.

 iPad Division iPod Division Total Sales \$600,000 \$400,000 \$1,000,000 Variable costs 420,000 260,000 680,000 Contribution margin \$180,000 \$140,000 320,000 Fixed costs 120,000 Net income \$200,000

 (a)

Determine sales mix percentage and contribution margin ratio for each division. (Round answers to 0 decimal places, e.g. 15%.)

 Sales Mix Percentage iPad division % iPod division %

 Contribution Margin Ratio iPad division % iPod division %

(b) Calculate the company’s weighted-average contribution margin ratio.

(c ) Calculate the company’s break-even point in dollars.

(d)  Determine the sales level in dollars for each division at the break-even point.

 Exercise 6-13

Billings Company manufactures and sells two products. Relevant per unit data concerning each product follow.

 Product Basic Deluxe Selling price \$40 \$52 Variable costs \$20 \$22 Machine hours 0.5 0.8

 (a)

(1) Compute the contribution margin per machine hour for each product.

 Basic Deluxe Contribution margin per machine hour \$ \$

(2) If 1,000 additional machine hours are available, which product should Billings manufacture?

(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 6-14

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 6-1A

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 high-tech factory machinery that will change the proportion between variable and fixed cost of goods sold to 50:50.

(a) Compute the break-even 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.)

 Break-even point \$

(b) Compute the break-even 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.)

 Break-even point 1. Increase selling price \$ 2. Change compensation \$ 3. Purchase machinery \$

Which course of action do you recommend?

 Problem 6-5A

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 break-even 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.

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