管理會計答案

1-A1 (10-15min.)

Informationisoftenusefulformorethanonefunction,sothefollowingclassificationsforeachactivityarenotdefinitivebutserveasastartingpointfordiscussion:

1.

Scorekeeping.

Adepreciationscheduleisusedinpreparingfinancial

statementstoreporttheresultsofactivities.

Problemsolving. Helpsamanagerassesstheimpactofapurchasedecision.

2.

3.

Scorekeeping.

Reportsontheresultsofanoperation. Couldalsobe

attentiondirectingifscrapisanareathatmightrequiremanagementattention.Attentiondirecting. Focusesattentiononareasthatneedattention.

Attentiondirecting. Helpsmanagerslearnabouttheinformationcontainedinaperformancereport.

4.

5.

6.

Scorekeeping.

Thestatementreportswhathashappened. Couldalsobe

attentiondirectingifthereporthighlightsaproblemorissue.

Problemsolving. Assumingthecostcomparisonistohelpthemanagerdecidebetweentwoalternatives,thisisproblemsolving.

Attentiondirecting. Variancespointoutareaswhereresultsdifferfrom

7.

8.

expectations.differences.

Interpretingthemdirectsattentiontopossiblecausesofthe

9.

10.

Problemsolving.

Aidsadecisionaboutwheretomakeparts.

Attentiondirectingandproblemsolving. Budgetinginvolvesmakingdecisionsaboutplannedactivities--hence,aidingproblemsolving. Budgetsalsodirectattentiontoareasofopportunityorconcern--hence,directing

attention.

Reportingagainstthebudgetalsohasascorekeepingdimension.

1-B1

(15-20min.)

Informationisoftenusefulformorethanonefunction,sothefollowingclassificationsforeachactivityarenotdefinitivebutserveasastartingpointfordiscussion:

1.

Problemsolving. Providesinformationfordecidingbetweentwoalternativecoursesofaction.

2.

Scorekeeping.

Recordingwhathashappened. Ifamountsarecompared

withexpectations,thiscouldalsoserveanattention-directingfunction.Problemsolving.Helpsamanagerdecideamongalternatives.

Attentiondirecting. Directsattentiontotheuseofovertimelabor.Alsoscorekeeping.

Problemsolving. Providesinformationtomanagersfordecidingwhethertomovecorporateheadquarters.

Attentiondirecting. Directsattentiontowhynursingcostsincreased.Attentiondirecting. Directsattentiontoareaswhereactualresultsdifferedfromthebudget.

Problemsolving. Helpsthevice-presidentdecidewhichcourseofactionisbest.

3.

4.

5.

6.

7.

8.

9.

Problemsolving. Producesinformationtohelpthemarketingdepartmentmakeadecisionaboutamarketingcampaign.

10.

Scorekeeping.

Recordsactualovertimecosts. Ifresultsarecomparedwith

expectations,alsoattentiondirecting.

Attentiondirecting. Directsattentiontostoreswitheitherhighorlowratiosofadvertisingexpensestosales.

Attentiondirecting. Directsattentiontocausesofreturnsofthedrug.Attentiondirectingorproblemsolving,dependingontheuseoftheschedule.Ifitistoidentifyareasofhighfuelusageitisattentiondirecting. Ifitistoplanforpurchasesoffuel,itisproblemsolving.

11.

12.

13.

14.

Scorekeeping.

Recordsitemsneededforfinancialstatements.

1-1Internalmanagersandexternalpartiesuseaccountinginformation:

a.

Internalreportingisusedbymanagersforplanningandcontrollingoperations,specialdecision-making,andlong-rangeplanning.

Externalreportingisusedbystockholders,investors,taxingauthorities,governmentregulators,andotherinterestedparties.

Thebranchofaccountingdescribedinthequotationismanagement

b.

1-3

accounting.

1-26

Thefourmajorresponsibilitiesare:

(1)competence-developknowledge;

knowandobeylaws,regulations,andtechnicalstandards;andperformappropriateanalyses,(2)confidentiality-refrainfromdisclosingorusingconfidentialinformation,(3)integrity-avoidconflictsofinterest,refusegiftsthatmightinfluenceactions,recognizelimitations,andavoidactivitiesthatmightdiscredittheprofession,and(4)credibility-communicateinformationfairly,objectively,andcompletely,withinconfidentialityconstraints.

2-A2:answers

1.LetN=numberofunits

Sales=Fixedexpenses+Variableexpenses+Netincome

$1.00N=$6,000+$0.8N+0

N=30,000units

LetS=salesindollarsS=$6,000+$0.8S+0S=$30,000

2.(40,000-30,000)*$0.20=$2,000

$1.00*40,000-$0.8*40,000-6,000=$2,000

3.Fixedexpenses=$6,000+$1,552=$7,552

Thenumberofunitsinbreak-evenpoint=$7,552/$0.20=37,760unitsThesalesinbreak-evenpoint=$7,552/0.20=$37,760

4.

Newcontributionmarginis$0.18perunit

Thenumberofunitsinbreak-evenpoint=$6,000/$0.18=33,333unitsThesalesinbreak-evenpoint=$6,000/0.18=$33,333

5.Newcontributionmarginis$0.15perunitinexcessofthebreak-evenpointThenewincome=(40,000-30,000)*$0.15=$1500

Note:theslopeofthetotalcostlinewouldhaveakinkupwardbeginningatthebreak-evenpoint.

2-57:answersAnswersareinmillions1.

Sales

Variablecosts:

VariablecostsofgoodssoldVariableotheroperatingexpenses

$9,416

$5,847

$896

=$7,247-$1,400

=$2,896-$2,000

$6,743

$2,673

$2,673/$9,416=0.28387850or28.4%

ContributionmarginContributionmarginpercentage

Seepage74:Exhibit2-10

Contributionmargin=sales–totalvariablecosts=sales–(A+C)Grossmargin=sales–totalproductioncost=sales–(A+B)

Predictedsalesincrease=$9,416*0.10=$941.6Additionalcontributionmargin=$941.6*28.4%=$267.3Fixedcostsdonotchange

Predicted2009operatingloss=$(727)+$267.3=$(459.7)

Assumptionsinclude:

Feesorcostsaredividedintotwotypes:fixedandvariablecosts.

Thebehaviorofrevenuesandexpensescouldbeportrayedaccurately,Theywithinthescopeoftherelevantrangeislinear.

Efficiencyorproductionefficiencyremainsunchanged.Salesmixremainsunchanged

are

Thenumberofsalesisequaltothenumberofoutput.Changesininventorylevelsarenegligibleduringtheperiod.

3-A1

(20-25min.)

Someoftheseanswersarecontroversial,andreasonablecasescanbebuiltfor

alternativeclassifications.

Classdiscussionoftheseanswersshouldleadto

worthwhiledisagreementsaboutanticipatedcostbehaviorwithregardtoalternativecostdrivers.

1.

2.

3.

4.

5.

6.

7.

(b)Discretionaryfixedcost.

(e)Stepcost.

(a)Purelyvariablecostwithrespecttorevenue.

(a)Purelyvariablecostwithrespecttomilesflown.

(d)Mixedcostwithrespecttomilesdriven.

(c)Committedfixedcost.

(b)Discretionaryfixedcost.

8.

9.

10.

11.

(c)Committedfixedcost.

Purelyvariablecostwithrespecttocasesof7-Up.

Discretionaryfixedcost.

(b)Discretionaryfixedcost.

3-A3

(25-30min.)

1.

High-LowMethod:

SupportCost

$13,500

9,000

$ 4,500

MachineHours

1,750

850

900

Highmonth=SeptemberLowmonth=MayDifference

Variablecostpermachinehour

= Changeincost÷Changeincostdriver

=$4,500÷900=$5.00

Fixedsupportcostpermonth=Totalsupportcost-Variablesupportcost

Atthehighpoint:

=$13,500-$5.00×1,750

=$13,500-$8,750

=$

4,750

oratthelowpoint:

=$

=$

=$

9,000-$5.00×850

9,000-$4,250

4,750

Thehigh-lowmethodusesthehighandlowactivitylevelstodeterminethecostfunction.SincethenewOctoberdataformachinehoursdoesnotchangeeitherthehighorlowleveltherewouldbenochangeintheanalysis.

2.

3.

Theregressionanalysisresultsdifferfromtheresultsofthehigh-lowmethod.Asaresult,estimatesoftotalsupportcostmaydifferconsiderablydependingontheexpectedmachinehourusage. Forexample,considerthefollowingsupportcostestimatesatthreelevelsofmachinehourusage(allwithintherelevantrange):

MachineHourUsage

950Hours

1,200Hours

1,450Hours

High-Low:FixedVariable:

$4,7504,750

$

4,750

$ 4,750

$5.00×950

$5.00×1,200

$5.00×1,450

6,000

7,250

$12,000

Total

$9,500

$10,750

Regression:FixedVariable:

$3,3555,795

$

3,355

$ 3,355

$6.10× 950

$6.10×1,200

$6.10×1,450

7,320

8,845

$12,200

Total

$9,150

$10,675

Becausethehigh-lowmethodhasalowervariablecostestimate,theregression-basedpredictionsexceedthehigh-low-basedpredictionsathigherlevelsofmachineusage,whilethehigh-lowestimatesaregreateratlowerlevelsofusage. Thehigh-lowmethodusedonlytwodatapoints,sotheresultsmaynotbereliable. Fernandezwouldbeadvisedtousetheregressionresults,whicharebasedonallrelevantdata.

3-7

Committedfixedcostsarecoststhatareoftendrivenbytheplannedscaleof

operations.

Thesecoststypicallycannotbechangedeasilyorquickly

withoutdrasticallychangingtheoperationsoftheorganization. Typicalcommittedfixedcostsincludeleaseormortgagepayments,propertytaxes,andlong-termmanagementcompensation. Discretionaryfixedcostsarecoststhatmaybenecessarytoachievecertainoperationalgoals,buttherearenocontractualobligationstocontinuethesepayments. Typicaldiscretionaryfixedcostsincludeadvertising,researchanddevelopment,andemployeetrainingprograms. Thedistinctionbetweencommittedanddiscretionaryfixedcostsisthatdiscretionaryfixedcostsareflexibleandcouldbeincreased,decreased,oreliminatedentirelyonshortnoticeifnecessary,butcommittedfixedcostsusuallymustbeincurredforsometime--greatereffortisneededtochangeoreliminatethem.

3-16

Engineeringanalysisisamethodofidentifyingandmeasuringcostandcostdriverrelationshipsthatdoesnotrequiretheuseofhistoricaldata.

Engineeringanalysisproceedsbytheuseofinterviews,experimentation,andobservationofcurrentcostgeneratingactivities. Engineeringanalysiswillbemorereliableiftheorganizationhashadpastexperiencewiththeactivities.

R2isagoodness-of-fitstatisticthatdescribesthepercentageofvariationin

costexplainedbychangesinthecostdriver.

3-24

3-36

(10-15min.)

Theremaybesomedisagreementabouttheseclassifications,butreasonsforalternativeclassificationsshouldbeexplored.

Cost

Discretionary

Committed

AdvertisingDepreciation

CompanyhealthinsuranceManagementsalariesPaymentoflong-termdebtPropertytax

GroundsmaintenanceOfficeremodelingResearchanddevelopment

Totals

$22,000

$

47,000

21,000

85,000

50,000

32,000

9,000

21,000

46,000

$98,000

$235,000

3-39

(15-20min.)

Thetotalcostforthemonthis$1,570+(5×$1,600)=$9,570,basedonthefollowingcostfunctioninformation:

CostPhone

UtilitiesAdvertisingInsuranceMaterialsLaborTotals

Algebraically,

Fixedpermonth

Variablepercomputer

$

50

65

75

80

$1,500

100

$1,600percomputer

1,300

$1,570permonth

y=$1,570+$1,600x,

wherey=totalcostpermonth

x=numberofcomputers

3-40

(5min.)

Allofthefunctionsexcept(e)arelinearcostfunctions. Functions(c)and(d)and(f)aremixedcosts. Notethat(e)isnotlinearbecauseX1andX2are

multiplied.

3-50

(10-15min.)

1.

Variablecost/unit=($1,131-$649)?(136-71)=$482?65=$7.4154Fixedcost=$1,131-(136×7.4154)=$1,131-$1,008.49=$122.51

Predictedcostfor510units=($122.51×4)+(510×$7.4154)=$4,271.89

Noticethatthedataarequarterlyobservations. Thus,theannualfixedcostis4timesthecomputed(quarterly)fixedcost.

2.

Predictedcostfor510units=($355×4)+(510×$5.77)=$4,362.70

3.

Theregressionanalysisgivesbettercostestimatesbecauseitusesallthedatatoformacostfunction. Thetwopointsusedbythehigh-lowmethodmaynotberepresentativeofthegeneralrelationbetweencostsandvolume.

4-A4

(20-30min.)

1.

Thefirststepistodeterminethecostpercost-driverunitforeachactivity:

MonthlyManufacturingOverhead

$12,00020,000

16,000

$48,000

Cost-DriverActivity

$200,000

20

400,000

CostperDriverUnit

$0.061,000.00

0.04

Activity[Costdriver]

MaterialHandling[Directmaterialscost]Engineering[Engineeringchangenotices]Power[Kilowatthours]

TotalManufacturingOverhead

Next,thecostsofeachactivitycanbeallocatedtoeachofthethreeproducts:

PHYSICALFLOW/ALLOCATEDCOST

Cost

MaterialHandling125,000=$7,500

Engineering2,000

Power

Senior

$.06×25,000=$1,500

Basic

$.06×50,000=$3,000$.06

Deluxe

×

$1,000×13= 13,000

$1,000×5=

5,000$1,000

×2=

$.04×50,000=

2,000$.04×200,000=

8,000$.04×

150,000

=

Total

6,000

$16,500

$15,500

$16,000

2.

Overheadratebasedondirectlaborcosts:

Rate=Totalmanufacturingoverhead÷Totaldirectlaborcost

= $48,000÷$8,000=

$6.00/DL$

Overheadallocatedtoeachproductis:

Senior:Basic:

$6.00×4,000

$6.00×1,000

=

=

$24,000

6,000

Deluxe:Total

$6.00×3,000

=

18,000

$48,000

NoticethatmuchlessmanufacturingoverheadcostisallocatedtoBasicusingdirectlaborasacostdriver.Why?BecauseBasicusesonlyasmallamountoflaborbutlargeamountsofotherresources,especiallypower.

Theproductcostsinrequirement1aremoreaccurateifthecostdriversaregoodindicatorsofthecausesofthecosts--theyarebothplausibleandreliable.Forexample,kilowatthoursiscertainlyabettermeasureofthecostofpowercoststhanisdirectlaborhours.Therefore,theallocationofpowercostsinrequirement1iscertainlybetterthaninrequirement2.Materialshandling

3.

andengineeringarelikewisemoreplausible.

Amanagerwouldbemuch

moreconfidentinthemanufacturingoverheadallocatedtoproductsinrequirement1.Remember,however,thatthereareincrementalcostsofdatacollectionassociatedwiththemoreaccurateABCsystem.Thebenefit/costcriteriamustbeappliedindecidingwhichcostingsystemis“best.”

4-B2

(25-30min.)

1.

$1,080,000÷45,000hours=$24perdirect-laborhour

2.

(a)

(b)

$585,000÷15,000hours=$39perdirect-laborhour

$495,000÷30,000hours=$16.50perdirect-laborhour

3.

(a)

(b)

$585,000÷97,500hours=$6permachinehour

$495,000÷30,000hours=$16.50perdirect-laborhour

4.

(a)

$24×(1.0+14.0)=$360.00

$24×(1.5+

$24×(1.3+

3.0)=$108.00

8.0)=$223.20

(b)

($39×1.0)+($16.50×14.0)=$39.00+$231.00=$270.00

($39×1.5)+($16.50×($39×1.3)+($16.50×

3.0)=$58.50+$

49.50=$108.00

8.0)=$50.70+$132.00=$182.70

(c)

($6×12.0)+($16.50×14.0)=$

72.00+$231.00=$303.00

($6×17.0)+($16.50×($6×14.0)+($16.50×

3.0)=$102.00+$

49.50=$151.50

8.0)=$

84.00+$132.00=$216.00

Firstconsiderusingdepartmentalinsteadoffirm-widerates(partbvs.parta).Departmentalratesthatusedirect-laborhoursasthebasedecreasethecostappliedtounitsofAandCandleaveBunaffected.Otherproductsthatuserelativelylessassemblytimewillincreaseincost.Nowexaminechangingtoabaseofmachinehoursinmachining(partcvs.parta).ProductBistheonlyonewithanincreaseincostin(c)

(d)

comparedto(a).

Why? BecauseB'susesonly16%ofthedirectlabor

hoursusedforA,B,andC,soitisisallocatedonly16%ofthecosts

allocatedonthebasisofdirectlaborhours.

Butituses40%ofthe

machinehours,andthereisallocated40%ofcoststhatareallocatedonthebasisonmachinehours.Therefore,itreceivesrelativelymorecostswithabaseofmachinehoursthanwithabaseofdirect-laborhours.

4-B3 (30-35min.)

1.Theexistingsystemallocatesallcostsbasedondirectlaborcost.allocatingindirectproductioncostsis:

Theratefor

Estimatedindirectproductioncost÷Estimateddirectlaborcost

=￥24,500,000÷￥35,000,000=70%

Thatis,eachtime￥1isspentondirectlabor,Watanabeadds￥0.7ofindirectproductioncosttothecostoftheproduct.

2.

UnderanABCsystem,Watanabewouldallocateindirectproductioncosts

separatelyforeachactivity.

Thiswouldresultinthefollowingfourallocationrates:

Receiving:

Receivingcosts÷Directmaterialcost

=￥4,800,000÷60,000,000=￥0.08per￥1ofdir.mat.

Assemblycosts÷Numberofcontrolunits

=￥13,800,000÷92,000=￥150percontrolunitQualitycontrolcost÷QChours

=￥1,800,000÷600=￥3,000perQChour

Shippingcost÷#ofboxesshipped

=￥4,100,000÷8,200=￥500perboxshipped

Assembly:

Qual.Control:

Shipping:

3. (a) Thecostwillcontain3components(inthousandsofyen):

DirectmaterialDirectlabor

Indirectproductioncost(￥2,000×.7=1,400)Totalcost

Price(￥11,400×1.3)

￥

8,000

2,000

1,400

￥11,400

￥14,820

(b)

Thecostwillhave7components,4ofthemallocatingindirectproduction

costs(totalsinthousandsofyen):

Directmaterials

Directlabor

Receiving(￥0.08×8,000)Assembly(￥150×5,000)

￥ 8,000

2,000

￥640750

Qualitycontrol(￥3,000×50)Shipping(￥500×600)

TotalindirectproductioncostTotalcost

Price(11,840×1.3)

150

300

1,840

￥11,840

￥15,392

4.

TheorderfromNissanrequiresarelativelylargeamountofreceiving,quality

control,andshippingresourcescomparedtotherelativeamountoflaborrequired.Thismakesitsindirectproductioncostsarerelativelyexpensiverelativetothelaborrequired.Thefollowingillustrateswhyanallocationonthebasisoflaborcostresultsinlesscoststhanallocationsbasedonthefouractivities:

BudgetedCost-AllocationBas

60,000,000

35,000,000

60,000,000

92,000

600

8,200

NissanCost-AllocationBase8,000,000

2,000,000

8,000,000

5,000

50

600

NissanPercentage

13.3%

5.7

13.3

5.4

8.3

7.3

Activity

DirectmaterialsDirectlaborReceivingAssemblyQualitycontrolShipping

Usingthesingledirect-laborcost-allocationbase,thisorderwouldreceive5.7%ofallindirectproductioncosts.ThemainreasonthatindirectproductioncostsforthisorderundertheABCsystemarerelativelyhighisthelargerelativecostofmaterialsthatdrivesalargeallocation(13.3%)ofreceivingcoststothisorder.Theallocationsofbothqualitycontrolandshippingcostsareslightlylargerthattheywouldbeusingadirect-laborcost-allocationbase,whiletheallocationofassemblycostsisslightlysmaller.

4-1

Acostmanagementsystemisacollectionoftoolsandtechniquesthatidentifieshowmanagement’sdecisionsaffectcosts.ThethreepurposesofaCMSaretoprovide

1.

2.

3.

costinformationforoperationalcontrol,costinformationforstrategicdecisions,and

measuresofinventoryvalueandcostofgoodsmanufactured(orpurchased)forexternalreportingtoinvestors,creditors,andotherexternalstakeholders.

4-8

Managerscanspecificallyandexclusivelyidentifydirectcostswithagiven

costobject(thatis,directlytracethem)inaneconomicallyfeasibleway.Indirectcosts

cannotbesoidentified.

However,managerscanusuallyidentifyaplausibleand

reliablecostdrivertousetoallocateresourcecoststocostobjectsthatconsumethe

resources.

Whendirecttracingisnoteconomicallyfeasibleandaplausibleand

reliablecostdrivercannotbefound,costsshouldremainunallocated.

4-13

No.Thecostsinacostpoolarenotphysicallytracedtocostobjects.Only

directcostsaretracedtocostobjects.

Acostpoolcontainsindirectcoststhatare

allocatedtocostobjectsusingasinglecost-allocationbase.

4-21

Manufacturingisthetransformationofmaterialsintoothergoodsthroughthe

useoflaborandfactoryfacilities.Incontrast,merchandisingcompanies(retailersorwholesalers)sellgoodswithoutchangingtheirbasicforms.Manufacturingcompaniesdifferfrommerchandisingcompaniesinthewaytheyaccumulateandreportthecostofinventories.Merchandisingcompaniesshowinventoriesatthecosttheypayto

acquirethem.

Incontrast,manufacturingcompaniesclassifyproductioncostsas

either(1)directmaterial,(2)directlabor,or(3)indirectproductioncosts,andtheyusetheaccountingsystemtodeterminehowmuchcostofeachtypeshouldbeassignedtoproductinventories.

4-30

Thefourstepsare:

Step1.

DeterminethekeycomponentsoftheABCsystem(costobjects,keyactivities,resources,andrelatedcostdrivers).

Determinetherelationshipsamongcostobject,activities,andresources.Collectrelevantdataconcerningcostsandphysicalflowofcost-driverunitsamongresourcesandactivities.

Calculateandinterpretthenewactivity-basedcostinformation.

Step2.

Step3.

Step4.

4-36

(10min.)

Thisexerciseemphasizeshowagivencostitemmaybeseenfromdifferentviewpoints.Classroomuseofsuchexerciseswillgetstudentsthinkinginsteadofmemorizing.Surely,classroomdiscussionatthisearlystageofthecoursewillnotsettlethestudent'smindonmanyissues.Exceptionscanbecitedfornearlyeveryanswer.Theclasswillrarelybeabletodiscussmorethanhalftheitems.Thisshouldnotdisturbthe

instructor.

Toaccomplishthepurposeoftheseproblems,everyitemneednotbe

discussedinprolongeddetail.

ManufacturingCosts

Direct(D)orIndirect(I)

IID

Variable(V)or

Fixed(F)F

FV

1.

2.

3.

4.

5.

6.

7.

8.

9.

10.

IIIIIDI

FVVVVVV

4-39

(10min.)

UsingExhibit4-7andthechapterdiscussionoftheLopezPlasticsproductionandcostaccountingsystem,theclassificationofthesecostsandresourcesis:

1.

2.

3.

4.

5.

6.

7.

8.

IDII

IorUI

DU

4-51

(20-30min.)

ThisproblemreviewsChapters2through4.Itattemptstonaildownsometermsthatoftengivestudentstrouble.Sharpdistinctionsshouldbemadeamonggrossprofit,contributionmargin,manufacturingcostofgoodssoldandvariablemanufacturingcostofgoodssold.Thisproblemwasusedoriginallyasanexamquestion.

a,c,e.Answers(a),(c),and(e)canbecomputedwithoutknowingeitherthecontributionmarginorthebreak-evenpoint.Probablytheeasiestwaytocomputetheanswersistoprepareanincomestatement,fillingintheknown

items,andthensolvingfortheunknowns.ofdollars:

Thefollowingareinthousands

Sales

Costofgoodsmanufacturedandsold(i.e.,manufacturingcostofgoodssold):Directmaterial

Directlabor

VariablemanufacturingoverheadFixedmanufacturingoverhead

TotalmanufacturingcostofgoodssoldGrossprofit

$120

$35

25

5**

15

80*

40

Sellingandadministrativeexpenses:Variable

FixedNetprofit

13***

12

25

$15

*Answer(e)issimply120-40=80.

**Answer(c)is80-(35+25+15)=5.

***Totalsellingandadministrativeexpenses=40-15=25.

Thenanswer(a)is25-12=13.

b.

Sales

DirectmaterialsDirectlabor

VariablemanufacturingoverheadVariablesellingandadministrativeContributionmargin

$120

(35)

(25)

(5)

(13)

$42

d.

Contributionmargin%=$42÷$120=35%

Break-even=(FixedMfg.overhead+FixedSell.&Adm.)÷Contributionmargin%

=$27,000÷.35=$77,143

4-52

(30-40min.)

Thisproblemwasoriginallyusedasanexamquestion.Probablytheeasiestwaytocomputetheanswersistoprepareanincomestatement,fillingintheknownitems,andthensolvingfortheunknowns.

a.

Theansweris?16,000,computedasfollows,inthousandsofdollars:

Sales

Costofgoodssold:DirectmaterialDirectlabor

VariablemanufacturingoverheadFixedmanufacturingoverheadTotalcostofgoodssold

Grossprofit

a100-20=80.

b80-(29+30+5)=16.

?100

?29

30

5

16b

80a

? 20

b.

Theansweris?11,000,computedusingthefollowingdatainthousandsofdollars:

Sales

Variablecosts:DirectmaterialDirectlabor

VariablemanufacturingoverheadVariablesellingandadministrative

expenses

TotalvariablecostsContributionmargin

?100

?29

30

5

11b

75a

?25

a100-25=75.

b75-(29+30+5)=11.

Notethatthiscanbecomputedwithouthavingto

knowthegrossprofit,thebreak-evenpoint,orthefixedmanufacturingoverheadcomputedinpart(a).

Theansweris?3,000,computedasfollows:

c.

Break-evenpoint =Totalfixedcosts÷Contributionmarginpercentage

...Totalfixedcosts=Break-evenpoint×Contributionmarginpercentage

=?84,000×.25

=?21,000

Now,Totalfixedcosts=Fixedmfg.overhead+Fixedsellingandadmin.expense

?21,000=?16,000+X

X=?5,000

Therefore,theansweris?5,000.Alternatively,fullcreditcanbegivenforananswerequalto?21,000minustheanswerinpart(a),ifthathappenedtobewrong.

Analternateapproachtopart(c)is:

LetF=Totalfixedexpenses

Break-evenpointsales=Variableexpenses+Fixedexpenses

?84,000=.75(?84,000)+F

F=?84,000-?63,000

=?21,000

Thenthefixedexpensescanbeanalyzedasbefore.

4-53

(30-35min.)

Thisproblemwasfirstusedasanexaminationquestion.

Puttingfixedandvariablecostsintoanincomestatementformatandcomputingthemissingitemsprovidesaframeworkforthissolution.

InDollars

Sales

Variableexpenses:DirectmaterialsusedDirectlabor

VariablemanufacturingoverheadVariablesellingandadministrative

Expenses

Totalvariableexpenses(110,000-40,000)Contributionmargin

Fixedexpenses:

Fixedmanufacturingoverhead

FixedsellingandadministrativeexpensesTotalfixedexpenses(40,000-22,000)

Operatingincome

110,000

31,000

16,000

13,000

X

70,000

40,000

11,000

Y

18,000

22,000

1.

Sincetotalvariableexpensesare$70,000,variablesellingandadministrativeexpensesmustbe$10,000:

X

=70,000-(31,000+16,000+13,000)

=10,000

2.

Sincetotalfixedexpensesare$18,000,fixedsellingandadministrativeexpensesmustbe$7,000:

Y=18,000-11,000

=7,000

3.

Costofgoodssoldisthetotalproduction(ormanufacturing)costofthe1,000handbags:

31,000+16,000+13,000+11,000=71,000.

4.

a.

b.

($4,000+$11,000)÷($40,000÷1,000)=$15,000÷$40=375units

LetU=units

$40U-$15,000=$14,000

U=725units

LetP=sellingprice

Variablecostsperunit=$70,000÷1,000=$70

c.

Contributionmarginperunit

=P-$70

900(P-$70)-$15,000

900P-$63,000-$15,000

=$22,500

=$22,500

900P

=$100,500

P=$111.67

5-A1

(40-50min.)

1.

INDEPENDENCECOMPANY

ContributionIncomeStatementFortheYearEndedDecember31,2009

(inthousandsofdollars)

Sales

LessvariableexpensesDirectmaterialDirectlabor

Variablemanufacturingoverhead(Schedule1)

Totalvariablemanufacturingcostofgoodssold

VariablesellingexpensesVariableadministrativeexpensesTotalvariableexpenses

ContributionmarginLessfixedexpenses:

Fixedmanufacturingoverhead(Schedule2)Sellingexpenses

AdministrativeexpensesTotalfixedexpenses

Operatingincome

$2,200

$400330

150

$880

80

25

985

1,215

$

$345220

119

684

531

$

AbsorptionIncomeStatement

FortheYearEndedDecember31,2009(inthousandsofdollars)

Sales

Lessmanufacturingcostofgoodssold:Directmaterial

Directlabor

Manufacturingoverhead(Schedules1and2)Totalmanufacturingcostofgoodssold

GrossmarginLess:

SellingexpensesAdministrativeexpenses

Operatingincome

$2,200

$400330

495

1,225

975

$

$300144

444

531

$

INDEPENDENCECOMPANY

SchedulesofManufacturingOverheadFortheYearEndedDecember31,2009(inthousandsofdollars)

Schedule1: VariableCostsSupplies

Utilities,variableportionIndirectlabor,variableportion

Schedule2: FixedCostsUtilities,fixedportionIndirectlabor,fixedportionDepreciation

PropertytaxesSupervi