ACCT I S 300 Chapter Notes - Chapter 1-7: International Accounting Standards Board, Fixed Cost, Income Statement
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GIVEN: X Company manufactures and sells Product IV. As part ofthe budgeting process, management made the following estimates for2016 related to the production and sale of 10,000 units of ProductIV. X Company maintains near zero inventory levels at year-end sothe total of all production costs approximates cost of goods sold.Product IV sells for $125 per unit.
| Estimated Fixed Costs | Estimated Variable Costs | ||||||
Production Costs: | |||||||
Direct Materials | $157,200 | ||||||
Direct Labor | $198,000 | ||||||
Factory Overhead | $60,000 | $28,400 | |||||
Selling & Administrative Costs: | |||||||
Salaries & Commissions | $168,000 | $110,800 | |||||
Advertising | $52,000 | ||||||
Miscellaneous selling & administrative | $20,000 | $5,600 | |||||
$300,000 | $500,000 | ||||||
REQUIRED: (Show supporting calculations.)
Part 1: Prepare an estimated product incomestatement for 2016 using the contribution margin format.
Part 2: Determine the expected contribution marginper unit and the contribution margin ratio.
Part 3: Determine the breakeven point in units anddollars.
Part 4: Determine the expected margin of safety indollars, units, and as a percentage of sales.
Part 5: Determine the degree of operatingleverage.
Part 6: Construct a cost-volume-profit graph for therange of 0 units to 10,000 units. Label the axes, lines andbreakeven point.
This is way beyond me, so if you can do it, it would help metremendously. Thank you for taking the time to look at this.
The Hampshire Company manufactures umbrellas that sell for$12.50 each. In 2014, the company made and sold 60,000 umbrellas.The company had fixed manufacturing costs of $216,000. It also hadfixed costs for administration of $79,525. The per-unit costs ofeach umbrella are as follows:
Direct Materials: $3.00
Direct Labor: $1.50
Variable Manufacturing Overhead: $0.40
Variable Selling Expenses: $1.10
Using the information above, perform a cost-volume-profit (CVP)analysis by completing the steps below.
1. Compute net income before tax.
2. Compute the unit contribution margin in dollars and thecontribution margin ratio for one umbrella.
3. Calculate the break-even point in units and dollars ofrevenue.
4. Calculate the margin of safety:
In units
In sales dollars
As a percentage
5. Calculate the degree of operating leverage.
6. Assume that sales will increase by 20% in 2015. Calculate thepercentage of before-tax income for this increase. Providecalculations to prove that your percentage increase is correctbased on the operating leverage calculated in step 5.
7. Compute the number of umbrellas that Hampshire is required tosell if it plans to earn $150,000 in income before taxes by usingthe target income formula. Proof your calculation.
8. A company that specializes in tours in England has offered topurchase 5,000 umbrellas at $11 each from Hampshire. The variableselling costs of these additional units will be $1.30 as opposed to$1.10 per unit. Also, this production activity will incur another$15,000 of fixed administrative costs. Should Hampshire agree tosell these additional 5,000 umbrellas to the touring business?Provide calculations to support your decision.
| Requirement 1 | ||||
| Units | Price | Totals | ||
| Sales | X | $ | $ | |
| Variable Costs | X | $ | $ | |
| Fixed Costs | $ | |||
| Net Income | $ | |||
| Requirement 2 | ||||
| Contribution Margin per Unitin Dollars = Selling Price â Variable Costs | ||||
| Selling Price | Variable Costs | Contribution Margin per Unit | ||
| Contribution Margin Ratio =Contribution Margin/Selling Price | ||||
| Contribution Margin | Selling Price | Contribution Margin Ratio | ||
| Requirement 3 | ||||
| Break-Even Point = Fixed Costs/ Contribution Margin | ||||
| Fixed Costs | Contribution Margin | Break-Even Point in Units (Rounded) | ||
| Break-Even Point in Units XSelling Price per Unit = Break-Even Point Sales | ||||
| Break-Even Point in Units | Selling Price per Unit | Break-Even Point in Sales (Rounded) | ||
| Requirement 4A | ||||
| Margin of Safety in Units =Current Unit Sales â Break-Even Point in Unit Sales | ||||
| Current Unit Sales | Break-Even Point in Sales | Margin of Safety in Units | ||
| Requirement 4B | ||||
| Margin of Safety in Dollars =Current Sales in Dollars â Break-Even Point Sales in Dollars | ||||
| Current Sales in Dollars | Break-Even Point in Dollars | Margin of Safety in Dollars | ||
| Requirement 4C | ||||
| Margin of Safety as aPercentage = Margin of Sales in Units / Current Unit Sales | ||||
| Margin of Safety in Units | Current Unit Sales | Margin of Safety Percentage | ||
| Requirement 5 | ||||
| Degree of Operating Leverage =Contribution Margin / Operating Income | ||||
| Contribution Margin | Operating Income | Operating Leverage | ||
| Requirement 6 | ||||
| Units | $ Per Unit | Totals | ||
| Sales | X | $ | $ | |
| Variable Costs | X | $ | $ | |
| Fixed Costs | $ | |||
| Net Income | $ | |||
| Operating Leverage | Times % Increase | Increase would be XX% | ||
| Prior Income | $ | From Part 1 | ||
| Increase | $ | Prior Income X XX% Above | ||
| Total | $ | |||
| Requirement 7 | ||||
| Targeted Income = (Fixed Costs+ Target Income) / Contribution Margin | ||||
| Fixed Costs + Target Income | Divided by Contribution Margin | # of Units (Rounded) | ||
| Fixed Costs | $ | |||
| Target Income | $ | |||
| Total | $ | $ | X | |
| # of Units Above X $ Per Unit | ||||
| Proof | Revenue | XX,XXX X $XX.XX | $ | |
| Variable Costs | XX,XXX X $X.XX | $ | ||
| Contribution Margin | $ | |||
| Fixed Costs | $ | |||
| Net Income | $ | |||
| Requirement 8 | ||||
| Sales Mix | ||||
| Current | Specialty | Total | ||
| Expected Sales Units | X | X | ||
| Revenue = Sales X Price | $ | $ | $ | |
| Variable Costs X Units | $ | $ | $ | |
| Contribution Margin | $ | $ | $ | |
| Fixed Costs | $ | $ | $ | |
| Operating Income | $ | |||
| Prior Net Income FromRequirement 1 | $ | |||
| Additional Operating Income | (Operating Income Above Less Prior Income) | $ | ||
| Decision With Explanation | ||||
1. Western Apparel Company owns two stores and management isconsidering eliminating the East store due to declining sales.Segmented contribution income statements are as follows and commonfixed costs are allocated on the basis of sales.
West | East | Total | |
Sales | $480,000 | 100,000 | $580,000 |
Variable costs | 262,500 | 55,000 | 315,500 |
Direct fixed costs | 62,500 | 25,000 | 87,500 |
Segment margin | 155,000 | 20,000 | 175,000 |
Allocated fixed costs | 137,500 | 35,000 | 172,500 |
Net Income | $17,500 | ($15,000) | $2,500 |
Western feels that if they eliminate the East store that salesin the West store will decline by 25%. If they close the Eaststore, overall company net income will:
Please show workingsâ¦â¦â¦â¦â¦â¦â¦.
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2. Maestro, a best-selling toy has a selling price of $15. Ifthe contribution margin ratio is 40% and if the fixed costs are$60,000, how many Maestros must the company sell to realize aprofit of $450,000?
Please show workingsâ¦â¦â¦â¦.
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3. Given a resource constraint, management should shift thefocus of cost-volume-profit analysis to:
A) Increasing labor productivity and reducing output.
B) The product with the lowest variable cost per sales dollar.
C) The contribution margin per unit of the constraint.
D) Decreasing the firmâs breakeven point by increasing the sellingprice.
