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 |
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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 |
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Total | Per Unit | |||
$ | $ | |||
$ | ||||
$ |
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(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?
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(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?
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( 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.
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(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 |
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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 |
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Total | Per Unit | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
$ | $ | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||
$ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
$ | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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(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.
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(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.