...Chapter 7 Variable Costing: A Tool for Management Solutions to Questions 7-1 Absorption and variable costing differ in how they handle fixed manufacturing overhead. Under absorption costing, fixed manufacturing overhead is treated as a product cost and hence is an asset until products are sold. Under variable costing, fixed manufacturing overhead is treated as a period cost and is expensed on the current period’s income statement. 7-2 Selling and administrative expenses are treated as period costs under both variable costing and absorption costing. 7-3 Under absorption costing, fixed manufacturing overhead costs are included in product costs, along with direct materials, direct labor, and variable manufacturing overhead. If some of the units are not sold by the end of the period, then they are carried into the next period as inventory. When the units are finally sold, the fixed manufacturing overhead cost that has been carried over with the units is included as part of that period’s cost of goods sold. 7-4 Absorption costing advocates argue that absorption costing does a better job of matching costs with revenues than variable costing. They argue that all manufacturing costs must be assigned to products to properly match the costs of producing units of product with the revenues from the units when they are sold. They believe that no distinction should be made between variable and fixed manufacturing costs for the purposes of matching costs and revenues. ...
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...1) 2) Variable Cost: Fixed Cost: Mixed Cost: with Variable and Fixed: cell phone bill which is $50 a month and additional 20 cents per message. Chapter 6: Cost Behavior: Analysis and Use LOOK AT CHAPTER 6 SLIDES Budget project: How many units do you need to break even. Also a cost volume profit graph. ON EXAM Mixed Costs Total Cost= Total fixed cost + Variable per unit * units ON EXAM: High-Low Method Ex: High hours of maintenance – Low hours / High Total Maintenance cost – Low Total Maintenance cost Predict Costs: 1) Account Analysis 2) High-Low Method Contribution Margin: Sales -Variable Costs = Contribution Margin -Fixed Costs =Net Operating Income Used for external reporting Used by management Sensitivity analysis: if sales are down 10% or If sales are up by 10% what’s your income. Can be checked by CM Contribution Margin Ratio: Total CM/ Total Sales In terms of Units: CM Ratio: Unit CM/ Unit SP Break even point in Units Sold: FC/ CM per Unit Break even point in total sales dollars: FC / CM Ratio Operating Leverage: Degree of Operating Leverage = Contribution Margin/ Net Operating Income 1) 2) Variable Cost: Fixed Cost: Mixed Cost: with Variable and Fixed: cell phone bill which is $50 a month and additional 20 cents per message. Chapter 6: Cost Behavior: Analysis and Use LOOK AT CHAPTER 6 SLIDES Budget project: How many units do you need to break even. Also...
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...Chapter 6 Problem 6-16 (45 minutes) 1. a. The unit product cost under absorption costing is: Direct materials | $15 | Direct labor | 7 | Variable manufacturing overhead | 2 | Fixed manufacturing overhead (640,000 ÷ 40,000 units) | 16 | Absorption costing unit product cost | $40 | | | b. The absorption costing income statement is: | Sales (35,000 units × $60 per unit) | $2,100,000 | | Cost of goods sold (35,000 units × $40 per unit) | 1,400,000 | | Gross margin | 700,000 | | Selling and administrative expenses (35,000 units × $2 per unit) + $560,000 | 630,000 | | Net operating income | $ 70,000 | | | | 2. a. The unit product cost under variable costing is: Direct materials | $15 | Direct labor | 7 | Variable manufacturing overhead | 2 | Variable costing unit product cost | $24 | | | b. The variable costing income statement is: Sales (35,000 units × $60 per unit) | | $2,100,000 | Variable expenses: | | | Variable cost of goods sold ($35,000 × $24 per unit) | $840,000 | | Variable selling expense (35,000 units × $2 per unit) | 70,000 | 910,000 | Contribution margin | | 1,190,000 | Fixed expenses: | | | Fixed manufacturing overhead | 640,000 | | Fixed selling and administrative expense | 560,000 | 1,200,000 | Net operating loss | | $ (10,000) | | | | Problem 6-16 (continued) ...
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...Frince Chevy B. BSCS 3A Units of Perfume that has been Sold and Remitted: 7 Units of Perfume (Php 140.00) = Php 980.00 2 Units of Perfume (Php 150.00) = Php 300.00 Total 9 Units of Perfume = Php 1280.00 Total Sales in Siomai of the whole group: Siomai: 890 pieces of Siomai Sales: Php 4450.00 Net Income: Php 2085.50 Tuyugon, Dexter John A. BSCS 3A Units of Perfume that has been Sold and Remitted: 1 Units of Perfume (Php 150.00) = Php 150.00 Total 1 Units of Perfume = Php 150.00 Total Sales in Siomai of the whole group: Siomai: 890 pieces of Siomai Sales: Php 4450.00 Net Income: Php 2085.50 Jimenez, Jake Angelo C. BSCS 3A Units of Perfume that has been Sold and Remitted: 1 Units of Perfume (Php 140.00) = Php 140.00 1 Units of Perfume (Php 150.00) = Php 150.00 Total 2 Units of Perfume = Php 290.00 Total Sales in Siomai of the whole group: Siomai: 890 pieces of Siomai Sales: Php 4450.00 Net Income: Php 2085.50 Briones, Ronnie BSCS 3A Units of Perfume that has been Sold and Remitted: 1 Units of Perfume (Php 150.00) = Php 150.00 Total 1 Units of Perfume = Php 150.00 Total Sales in Siomai of the whole group: Siomai: 890 pieces of Siomai Sales: Php 4450.00 Net Income: Php 2085.50 ...
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...MKT 6100 Pre-Case Assignment 2 1. A. Contribution per CD Unit Selling Price | $9.00 | CD Package and Disc | ($1.25) | Songwriters' Royalties | ($0.35) | Recording Artists' Royalties | ($1.00) | Contribution per CD unit | $6.40 | B. Break-Even volume in CD units Fixed Cost: | | | | | | Advertising | $275,000 | | Break-Even in Units | | Overhead | $250,000 | | $525,000 | = 82031.25 | units | Total | $525,000 | | $6.40 | | | | | | | | | Contribution per CD Unit | $6.40 | | | | | Break-Even Volume in Dollars Break-Even (Units) * Selling Price | 82.031.25 * $ 9.00 = | $738,281.25 | C. Net profit if 1 million CDs are sold $ 9.00 * $1,000,000 | $9,000,000 | $ 6.40 * $1,000,000 | ($6,400,000) | Fixed Cost | ($525,000) | Net Profit | $2,075,000 | D. Necessary CD unit volume to achieve a $200,000 profit $525,000 + $200,000 | = 113,281.25 | necessary CD unit volume | 6.40 | | | 2. A. VCI's unit contribution and contribution margin Unit contribution | | X | = 40% | $20 | | | | X = $8 required return | | | | Variable Costs per Unit | Reproduction | $4.00 | Labels and packaging | $0.50 | Royalties | $0.50 | Required Return | $8.00 | Total | $13.00 | | | Unit Contribution = Selling Price - Variable Cost | $20 - $13 | = $7.00 | | | Contribution Margin = | Selling Price - VC | | Selling Price | | | $20-$13 | =...
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...schedule for Item J, indicate the correct net requirements, planned order receipts, and planned order releases to meet the gross requirements. Lead-time is one week. Item: JOH: 40LT: 1SS: 0Q: L4L | | Week Number | | Item J | 0 | 1 | 2 | 3 | 4 | 5 | | Gross requirements | | | 75 | | 50 | 70 | | Scheduled receipts | | | | | | | | On Hand | 40 | 40 | 0 | 0 | 0 | | | Net requirements | 0 | 35 | | 50 | 70 | | | Planned order receipts | | 35 | | 50 | 70 | | | Planned order releases | 35 | | 50 | 70 | | | 11. Assume that Product Z is made of two units of A and four units of B. A is made of three units of C and four of D. D is made of two units of E. Lead times for purchase or fabrication of each unit to final assembly are: Z takes two weeks; A, B, C, and D take one week each; and E takes three weeks. Fifty units are required in Period 10. (Assume that there is currently no inventory on hand of any of these items) a. Show the bill-of-material. (Product Structure Tree) b. Develop an MRP planning schedule showing gross and net requirements and order release and order receipt dates. | Period: | 1 | 2 | 3 | 4 | 5 | 6 | 7 | 8 | 9 | 10 | Item: | Z | Gross requirements | | | | | | | | | | 50 | OH: | 0 | Scheduled receipts | | | | | | | | | | | LT: | 2 | On-Hand Inventory from Prior Period | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | 0 | SS: | 0 | Net requirements | | | | | | | | | ...
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...Unit III - Consolidation Subsequent to Acquisition Date Key Concepts: Recording on the cost basis requires additional calculations of Ps net income and consolidated retained earnings Under the equity method, the Parent’s net income and retained earnings equals consolidated net income and consolidated retained earnings Preparation of consolidated statements – cost and equity methods - Exhibit 5.16, page 205 Impairment testing for intangible assets with definite useful lives: two step process (page 176): o step 1: is the asset impaired? o step 2: if so, calculate impairment loss as the difference between the recoverable amount f the asset and its carrying value Impairment testing for intangible assets with indefinite useful lives (example: goodwill): as singlestep process; i.e., if the recoverable amount is less than carrying value, asset is impaired by the difference – note that goodwill is no longer amortized but tested for impairment. Key Objectives: Prepare consolidated financial statements for the first and subsequent year ends after acquisition for a parent and its wholly owned (or non-wholly owned) subsidiary when the parent uses the cost method or the equity method. Resources Text pages 170 - 206 Practice Exercises within the unit iStudy Website Unit Assignment Before you begin your reading, review the key points, learning objectives and unit overview/notes. It is useful to keep the learning objectives in mind as you proceed through the...
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...Avalanche Corporation Bayesian Analysis Case Question 1. Determine the break-even volume for the two production options(bath and line) Suppose the break-even volume should be x units total cost for batch flow production equals 475,000+ 75x total cost for line flow production equals 900,000+60x if 475,000+75x = 900,000+60x , we will have x= 28,334 units. if more than 28,334 units are produced, the cost of batch flow production will be higher than that of line flow production, and the line production should be used; otherwise, when the volume is lower than 28,334 units, the batch flow production should be used. Question 2. Determine the net income for each of the six demand and production options 2a. Draw an appropriate decision tree. Please refer to the lower half of the decision-tree hardcopy handout. Thanks 2b. To maximize the expected value, what is the production decision . There are three production levels: A. 15,000 units B. 30,000 units C. 40,000 units From Question 1 we know that the break-even volume is 28,334 units. Therefore, for option A, batch flow production is adopted; while for option B and C, line production method is adopted. And there are two sales forecast scenarios for Avalanche Racer: a) 35,000 units with probability of 0.6 b) 25,000 units with probability of 0.4. Other factors include the selling price of Avalanche Racer is $125, and if and only if demand exceeds production, an outside vendor...
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...Ratio Formula Current Assets Current Liabilities Short term Investments Current Receivables Current Liabilities Net sales Average accounts receivable Cost of goods sold Average inventory 365 365 Net Sales Average total assets Total liabilities Total assets Total equity Total assets Total liabilities Total equity Income before interest expense and income taxes Interest Expense Net Income Net Sales Cost of goods sold Net Sales Net Income Average total assets Net income Preferred dividents Average common stockholders equity Net Sales Measure of Short‐term debt‐paying ability (2:1 guideline) Immediate short‐term debt‐paying ability (1:1 guideline) Efficiency of collection (bigger is better) Efficiency of inventory management (higher is better) Liquidity of receivables (not exceeding 1 1/3 times the days Liquidity of inventory Efficiency of assets in producing sales Creditor financing and leverage (1 is all debt, .50 means half of the assets are through debt) Owner financing Debt versus equity financing Protection in meeting interest payments (large ratio means less risky to creditors) Net income in each sales dollar (10‐15% for appliance and 1% or 2% for supermarket) Gross margin in each sales dollar Overall profitability of assets Profitability of owner investment Liquidity and Efficiency Current Ratio Acid‐test ratio Accounts receivable turnover Inventory turnover Days’ sales uncollected Days’ sales in inventory ...
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...SOLUTIONS TO EXERCISES EXERCISE 22-1 (a) The determination as to whether a cost is variable, fixed, or mixed can be made by comparing the cost in total and on a per-unit basis at two different levels of production. | |Variable Costs | |Vary in total but remain constant on a per-unit basis. | | |Fixed Costs | |Remain constant in total but vary on a per-unit basis. | | |Mixed Costs | |Contain both a fixed element and a variable element. Vary both in total and on a per-unit basis. | (b) Using these criteria as a guideline, the classification is as follows: | |Direct materials | |Variable | |Rent | |Fixed | | |Direct labor | |Variable | |Maintenance | |Mixed | | |Utilities | |Mixed | |Supervisory salaries | |Fixed | EXERCISE 22-2 (a) Maintenance Costs: [pic] = [pic] = $5 variable cost per machine hour | | | |800 | |300 | | | ...
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...gross margin ← prepare and interpret a contribution income statement ← compute a break even point in total birrs and total units using the contribution margin approach and the equation approach ← Prepare a cost-volume –profit graph, and explain how it is used. ← Applying CVP analysis to determine the effect on profit of changes in fixed expenses, variable expenses, sales prices, and sales volume. ← Explain the role of cost structure and operating leverage in CVP analysis. ← List and discuss the key assumption of CVP analysis. ← compute the break even point and prepare a profit-volume graph for multiproduct enterprise ← explain the effects of sales mix on profit ← calculate sales volume in total birrs and total units to reach a target profit 1. INTRODUCTION Cost-volume-profit (CVP) analysis is one of the most powerful tool that help managers as they make decisions by facilitating quick estimation of net income at different levels of activity. In other words, it helps them to understand the interrelationship between cost, volume, and profit in an organization by focusing on interactions between the following five elements: prices of products, volume or level of activity, per unit variable costs, total fixed costs, and mix of products sold. Because CVP analysis helps managers understand the interrelationship between...
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...CHAPTER 19 Cost-Volume-Profit Analysis: Additional Issues ASSIGNMENT CLASSIFICATION TABLE Brief Exercises 1, 2, 3, 4, 5, 6 A Problems 1A, 2A B Problems 1B, 2B Study Objectives 1. Describe the essential features of a cost-volume-profit income statement. Apply basic CVP concepts. Questions 1, 2, 3, 4 Do It! 1 Exercises 2. 2, 4, 5, 6 1, 2, 3, 4, 5, 6 7, 8, 9, 10 11, 15 2 1, 2, 3, 4, 5 6, 7, 8, 9, 10 11, 12, 13 1A, 2A, 4A, 6A 4A 1B, 2B, 4B, 6B 4B 3. Explain the term sales mix and its effects on break-even sales. Determine sales mix when a company has limited resources. Understand how operating leverage affects profitability. Explain the difference between absorption costing and variable costing. Discuss net income effects under absorption costing versus variable costing. Discuss the merits of absorption versus variable costing for management decision making. 7, 8, 9 3 4. 10, 11 4 3A 3B 5. 12, 13, 14, 15, 16 17 12, 13, 14 14, 15, 16 5A, 6A 5B, 6B *6. 16, 17, 18 17, 18, 19 7A, 8A 7B, 8B *7. 19, 20, 21, 22 19 18 7A, 8A 7B, 8B *8. 18 8A 8B Copyright © 2011 John Wiley & Sons, Inc. Kimmel, Accounting, 4/e, Solutions Manual (For Instructor Use Only) 19-1 ASSIGNMENT CHARACTERISTICS TABLE Problem Number 1A 2A Description Compute break-even point under alternative courses of action. Compute break-even point and margin of safety ratio, and prepare a CVP...
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...ACC212 Chapter 22 1. We sell peaches that sell for different amounts based on their quality. #1 sell for $1.50 per lb.; #2 sell for $1.00 per lb. and #3 sell for $0.20 per lb. We can sell 300,000 Ibs. of#1, 300,000 Ibs. of #2 and 750,000 Ibs. of #3. Our total costs of producing the peaches are $472,500. Required: a. How much of the cost should be allocated to each quality of peach? b. How much is the cost per pound of peaches? 2. Alpha company has 4 departments. A & B are support departments, 1 & 2 are selling departments. Use the following information to complete the Departmental Expenses Allocation Spreadsheet and the supporting schedules. Sales Payroll expenses Square footage # of employees Dept. A $10,000 200 De t. B $20,000 200 Dept. 1 $200,000 $30,000 1,200 10 Dept. 2 $300,000 $40,000 1,400 15 Utilities expense for the year is $50,000 that is allocated to the departments based on square footage. Department A costs are allocated based on sales and Department B costs are allocated based on # of employees. Payroll expenses are considered to be direct expenses and utilities are indirect expenses. pg. "1 3. Alexander Bruce and Jonathon Wayne are managers of two product lines for Gotham Incorporated. One of them is a candidate for promotion based on performance. Using the following data: Revenue Costs Average assets Bruce ...
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...1. Calculate the following: a. Contribution per CD unit b. Break-even volume in CD units and dollars c. Net profit if 1 million CDs are sold d. Necessary CD unit volume to achieve a $200,000 profit A. Retail price per unit -Variable cost per unit Retail = $ 9.00 Variable cost per unit = $1.25 CD package + Royalties 0.35 + 1.00= $2.60 9.00-2.60= $6.40 Contribution per CD unit= $6.40 B. Break-even point in units = total fixed costs / contribution per unit Total fixed cost = 275,000 advertising + 250,000 overhead = 525,000 Contribution margin = $6.40 525,000 / 6.40 = 82,032 Units Break-even point in units = 82,032 Units Break-even point in dollars = breakeven point in units x sales price per unit Break even Units = 82,032 Sale price per unit = $9 82,032 x $9 = $738,288. Break-even point in dollars = $738,288 C. Total contribution margin – fixed costs Total contribution = 1,000,000 x $6.40 contribution per unit = $6,400,000 Total fixed cost = 275,000 advertising + 250,000 overhead = $525,000 $6,400,000 - $525,000 = $5,875,000 Net profit if 1 million CD's are sold = $5,875,000 D. Profit desired/ contribution margin Profit desired = $200,000 Contribution Margin = $6.40 $200,000/$6.40 = 31,250 units =82,032 + 31,250 = 113,282 CDs Necessary CD unit volume to achieve a $200,000 profit = 113,282 units 2. ` A. price $20 * retail ($8) = selling price $12 Varible cost...
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...CHAPTER 7 Cost-Volume-Profit Analysis ANSWERS TO REVIEW QUESTIONS 7-1 a. In the contribution-margin approach, the break-even point in units is calculated using the following formula: [pic] b. In the equation approach, the following profit equation is used: |[pic] |fixed expenses |[pic] | This equation is solved for the sales volume in units. c. In the graphical approach, sales revenue and total expenses are graphed. The break-even point occurs at the intersection of the total revenue and total expense lines. 7-2 The term unit contribution margin refers to the contribution that each unit of sales makes toward covering fixed expenses and earning a profit. The unit contribution margin is defined as the sales price minus the unit variable expense. 7-3 In addition to the break-even point, a CVP graph shows the impact on total expenses, total revenue, and profit when sales volume changes. The graph shows the sales volume required to earn a particular target net profit. The firm's profit and loss areas are also indicated on a CVP graph. 7-4 The safety margin is the amount by which budgeted sales revenue exceeds break-even sales revenue. 7-5 An increase in the fixed expenses of any enterprise will increase its break-even point. In a travel agency, more clients must be served before the fixed expenses are covered...
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