AFM123 Lecture 12: WEEK 12

33 views9 pages

amaranthlizard249

26 Oct 2015

School

University of Waterloo

Department

Accounting & Financial Management

Course

AFM123

Professor

Peter Blake

For unlimited access to Class Notes, a Class+ subscription is required.

Document Summary

Operating income over 3 years item sales cogs gross margin selling expenses admin operating income. Contribution margin / unit (how much you make on every) contribution margin = sales - variable costs item sales cogs / units. If costs were purely fixed, the total dollar amount would be same in every year. Therefore, calculate the variable portion and the fixed portion. = change in cash over change in units this tells us the variable cost per unit fixed component high. 100,000 = 5,000 x 10 + a(fixed cost) a = 50,000 low. 80,000 = 3,000 x 10 + a a = 50,000. Therefore, variable selling / unit = / unit and the fixed selling is ,000 / year variable = per unit fixed = per year variable admin / unit high 150,000 low. Contribution margin / unit = selling price - variable. = 100 - 40cogs - 10 selling - 6admin.

Related Questions

1.Gonyo Inc., which produces and sells a single product, hasprovided the following contribution format income statement forDecember appears below: Sales (5,000 units) $ 310,000 Variableexpenses 125,000 Contribution margin 185,000 Fixed expenses 104,500Net operating income $ 80,500 Redo the company's contributionformat income statement assuming that the company sells 5,200units.

Net Operating Income:

2.The contribution margin ratio of Donath Corporation's onlyproduct is 67%. The company's monthly fixed expense is $454,500 andthe company's monthly target profit is $40,500. Required: Determinethe dollar sales to attain the company's target profit. (Round youranswer to the nearest dollar amount.)

3. A manufacturing company that produces a single product hasprovided the following data concerning its most recent month ofoperations: Selling price $150 Units in beginning inventory 0 Unitsproduced 3,290 Units sold 2,870 Units in ending inventory 420Variable costs per unit: Direct materials $47 Direct labor $21Variable manufacturing overhead $14 Variable selling andadministrative $17 Fixed costs: Fixed manufacturing overhead$115,150 Fixed selling and administrative expenses $31,570 Thetotal gross margin for the month under absorption costing is:

$94,710

$14,350

$135,570

$146,370

4. Bartelt Inc., which produces a single product, has providedthe following data for its most recent month of operations: Numberof units produced 10,300 Variable costs per unit: Direct materials$90 Direct labor $71 Variable manufacturing overhead $4 Variableselling and administrative expense $12 Fixed costs: Fixedmanufacturing overhead $360,500 Fixed selling and administrativeexpense $813,700 There were no beginning or ending inventories. Theabsorption costing unit product cost was:

$161 per unit

$200 per unit

$165 per unit

$291 per unit

violeteagle158

Phoenix Companyâs 2017 master budget included the following fixed budget report. It is based on an expected production and sales volume of 15,000 units.

PHOENIX COMPANY
Fixed Budget Report
For Year Ended December 31, 2017

Machinery repairs (variable cost)

45,000

DepreciationâPlant equipment (straight-line)

300,000

Utilities ($45,000 is variable)

195,000

Plant management salaries

Sales salary (fixed annual amount)

235,000

430,000

General and administrative expenses

Entertainment expense

85,000

440,000

Income from operations

370,000

Prepare flexible budgets for the company at sales volumes of 14,000 and 16,000 units and classify all items listed in the fixed budget as variable or fixed.

PHOENIX COMPANY
Fixed Budget Report
For Year Ended December 31, 2017
	Flexible Budget		Flexible Budget for:
	Variable Amount per Unit	Total Fixed Cost	Units Sales of 14,000	Unit Sales of 16,000

Variable costs









Fixed costs

The companyâs business conditions are improving. One possible result is a sales volume of 18,000 units. The company president is confident that this volume is within the relevant range of existing capacity. How much would operating income increase over the 2017 budgeted amount of $370,000 if this level is reached without increasing capacity?

PHOENIX COMPANY
Forecasted Contribution Margin Income Statement
For Year Ended December 31, 2017
Sales (in units)	15,000	18,000
Contribution margin (per unit)
Contribution margin
Fixed costs
Operating income

An unfavorable change in business is remotely possible; in this case, production and sales volume for 2017 could fall to 12,000 units. How much income (or loss) from operations would occur if sales volume falls to this level? (Enter any loss with minus sign.)

PHOENIX COMPANY
Forecasted Contribution Margin Income Statement
For Year Ended December 31, 2017
Sales (in units)	15,000	12,000
Contribution margin (per unit)
Contribution margin
Fixed costs
Operating income (loss)

byzantiumscorpion900

Financial and Managerial Accounting, 13th Edition Carl S.Warren, James M. Reeve, Jonathan E. Duchac

Contribution Margin and Contribution Margin Ratio

For a recent year, McDonald's company-owned restaurants had thefollowing sales and expenses (in millions):

Sales	$18,602.5
Food and packaging	$ 6,318.2
Payroll	4,710.3
Occupancy (rent, depreciation, etc.)	4,195.2
General, selling, and administrative expenses	2,445.2
	17,668.9
Income from operations	$ 933.6

Assume that the variable costs consist of food and packaging,payroll, and 40% of the general, selling, and administrativeexpenses.

a. What is McDonald's contribution margin?Round to the nearest tenth of a million (one decimal place).
$ million

b. What is McDonald's contribution marginratio? Round to one decimal place.
%

c. How much would income from operationsincrease if same-store sales increased by $900 million for thecoming year, with no change in the contribution margin ratio orfixed costs? Round your answer to the nearest tenth of a million(one decimal place).
$ million

Break-Even Sales and Sales to Realize Income from Operations

For the current year ended March 31, Benatar Company expectsfixed costs of $1,250,000, a unit variable cost of $100, and a unitselling price of $140.

a. Compute the anticipated break-even sales(units).
units

b. Compute the sales (units) required torealize income from operations of $150,000.
units

Feedback

a. Fixed costs divided by the unit contribution margin equalsbreak-even point in units.

b. (Fixed costs + Target profit) divided by unit contributionmargin = sales units.

Learning Objective 3.

Beck Inc. and Bryant Inc. have the following operating data:

	Beck Inc.	Bryant Inc.
Sales	$1,250,000	$2,000,000
Variable costs	750,000	1,250,000
Contribution margin	$500,000	$750,000
Fixed costs	400,000	450,000
Income from operations	$100,000	$300,000

a. Compute the operating leverage for Beck Inc.and Bryant Inc. If required, round to one decimal place.

Beck Inc.
Bryant Inc.

b. How much would income from operationsincrease for each company if the sales of each increased by 20%? Ifrequired, round answers to nearest whole number.

	Dollars	Percentage
Beck Inc.	$	%
Bryant Inc.	$	%

c. The difference in the of income fromoperations is due to the difference in the operating leverages.Beck Inc.'s operating leverage means that its fixed costs are apercentage of contribution margin than are Bryant Inc.'s.

champagneguinea-pig139

AFM123 Lecture 12: WEEK 12

Document Summary

Get access

Related Documents

AFM123 Lecture Notes - Lecture 10: Vending Machine, Net Present Value, Earnings Before Interest And Taxes

AFM123 Lecture 10: WEEK 10

ACCT 2200 Study Guide - Midterm Guide: Earnings Before Interest And Taxes, Contribution Margin, Gross Margin

Related Questions