Determine the company’s break-even point in number of lawns serviced per month.

ACC 560 – Homework Chapter 5 & 6

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

image1.png

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

image2.png image3.wmf

lawns

(b)

Break-even point

$image4.png image5.wmf

Exercise 5-13

image6.png

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

image7.png image8.wmf

(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

image9.png image10.wmf

$image11.png image12.wmf

$image13.png image14.wmf

image15.png image16.wmf

image17.png image18.wmf

image19.png image20.wmf

image21.png image22.wmf

image23.png image24.wmf

$image25.png image26.wmf

image27.png image28.wmf

image29.png image30.wmf

image31.png image32.wmf

$image33.png image34.wmf

(c) Compute Cannes' break-even point in units.

Break-even point in units

image35.png image36.wmf

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

image37.png image38.wmf

$image39.png image40.wmf

$image41.png image42.wmf

image43.png image44.wmf

image45.png image46.wmf

image47.png image48.wmf

image49.png image50.wmf

image51.png image52.wmf

$image53.png image54.wmf

image55.png image56.wmf

image57.png image58.wmf

image59.png image60.wmf

$image61.png image62.wmf

Exercise 5-14

image63.png

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.

image64.png

image65.png

image66.png

(a)

image68.png

Compute the number of units sold in 2013.

image69.png image70.wmf

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

image71.png

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

image72.png

image73.png

image74.png

(a)

image76.png

What is the contribution margin ratio?

Contribution margin ratio

image77.png image78.wmf

%

(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

image79.png

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.

image80.png

image81.png

image82.png

(a)

image84.png

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

$image85.png image86.wmf

Total fixed

$image87.png image88.wmf

( 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

image89.png

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.

image90.png

image91.png

image92.png

(a)

image94.png

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

$image95.png image96.wmf

Contribution margin for projected year

$image97.png image98.wmf

(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

image99.png

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

image100.png image101.wmf

$image102.png image103.wmf

$image104.png image105.wmf

image106.png image107.wmf

image108.png image109.wmf

image110.png image111.wmf

image112.png image113.wmf

image114.png image115.wmf

$image116.png image117.wmf

image118.png image119.wmf

image120.png image121.wmf

image122.png image123.wmf

$image124.png image125.wmf

(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

image126.png image127.wmf

$image128.png image129.wmf

$image130.png image131.wmf

image132.png image133.wmf

image134.png image135.wmf

image136.png image137.wmf

image138.png image139.wmf

image140.png image141.wmf

$image142.png image143.wmf

image144.png image145.wmf

image146.png image147.wmf

image148.png image149.wmf

$image150.png image151.wmf

Exercise 6-10

image152.png

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

image153.png

image154.png

image155.png

(a)

image157.png

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

image158.png image159.wmf

%

iPod division

image160.png image161.wmf

%

Contribution Margin Ratio

iPad division

image162.png image163.wmf

%

iPod division

image164.png image165.wmf

%

(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

image166.png

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

image167.png

image168.png

image169.png

(a)

image171.png

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

Basic

Deluxe

Contribution margin per machine hour

$image172.png image173.wmf

$image174.png image175.wmf

(2) If 1,000 additional machine hours are available, which product should Billings manufacture? image176.png image177.wmf

(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

image178.png

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)

image179.png

Compute the degree of operating leverage for each company. (Round answers to 3 decimal places, e.g. 1.150.)

Degree of Operating Leverage

Armstrong

image180.png image181.wmf

Contador

image182.png image183.wmf

(b) Assuming that sales revenue increase by 10%, prepare a variable costing income statement for each company.

Problem 6-1A

image184.png

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

$image185.png image186.wmf

(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

$image187.png image188.wmf

2.

Change compensation

$image189.png image190.wmf

3.

Purchase machinery

$image191.png image192.wmf

Which course of action do you recommend? image193.png image194.wmf

Problem 6-5A

image195.png

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)

image196.png

Calculate Contribution margin ratio. (Round answers to 2 decimal places, e.g. 0.32.)

Contribution Margin Ratio

Viejo Company

image197.png image198.wmf

Nuevo Company

image199.png image200.wmf

(a) Compute the break-even point in dollars and the margin of safety ration for each company.

(b) Compute the degree of operating leverage for each company and interpret your results

(c) Assuming that sales revenue increase by 20%, prepare a CVP income statement for each company.

(d) Assuming that sales revenue decreases by 20%, prepare a CVP income statement for each company

(e) Discuss how the cost structure of these two companies affects their operating leverage and profitability.

_1429075731.unknown

_1429075747.unknown

_1429075755.unknown

_1429075759.unknown

_1429075761.unknown

_1429075762.unknown

_1429075760.unknown

_1429075757.unknown

_1429075758.unknown

_1429075756.unknown

_1429075751.unknown

_1429075753.unknown

_1429075754.unknown

_1429075752.unknown

_1429075749.unknown

_1429075750.unknown

_1429075748.unknown

_1429075739.unknown

_1429075743.unknown

_1429075745.unknown

_1429075746.unknown

_1429075744.unknown

_1429075741.unknown

_1429075742.unknown

_1429075740.unknown

_1429075735.unknown

_1429075737.unknown

_1429075738.unknown

_1429075736.unknown

_1429075733.unknown

_1429075734.unknown

_1429075732.unknown

_1429075715.unknown

_1429075723.unknown

_1429075727.unknown

_1429075729.unknown

_1429075730.unknown

_1429075728.unknown

_1429075725.unknown

_1429075726.unknown

_1429075724.unknown

_1429075719.unknown

_1429075721.unknown

_1429075722.unknown

_1429075720.unknown

_1429075717.unknown

_1429075718.unknown

_1429075716.unknown

_1429075707.unknown

_1429075711.unknown

_1429075713.unknown

_1429075714.unknown

_1429075712.unknown

_1429075709.unknown

_1429075710.unknown

_1429075708.unknown

_1429075699.unknown

_1429075703.unknown

_1429075705.unknown

_1429075706.unknown

_1429075704.unknown

_1429075701.unknown

_1429075702.unknown

_1429075700.unknown

_1429075695.unknown

_1429075697.unknown

_1429075698.unknown

_1429075696.unknown

_1429075691.unknown

_1429075693.unknown

_1429075694.unknown

_1429075692.unknown

_1429075689.unknown

_1429075690.unknown

_1429075687.unknown

_1429075688.unknown

_1429075686.unknown

_1429075685.unknown

Applied Sciences

Architecture and Design

Biology

Business & Finance

Chemistry

Computer Science

Geography

Geology

Education

Engineering

English

Environmental science

Spanish

Government

History

Human Resource Management

Information Systems

Law

Literature

Mathematics

Nursing

Physics

Political Science

Psychology

Reading

Science

Social Science

Home

Blog

Archive

Contact

google+twitterfacebook

Copyright © 2019 HomeworkMarket.com