Q1. LISt below' are nine technical accounting terms introduced in this chapter
Venable costs Relevant range Contnbutton margin
Break-even point Fixed costs SannanaNe fogs
Economics of scale Sales mix Unit contnbution margin
Each of the following statements may (or may not) descnbe one of these technical terms. For each gatemen. indicate the accounting tarn described. or answer -None-if the statement does not cor¬rectly descnbe any of the tams
a. The level of sales at which revenue away equals cats and aperzes
b. Costs that remain unehmged depute changes in sales solume
c. The span a CT which output Is likely to vary and as-sampans% about 03,4 behaszor generally rem:unsaid
d. Sales revenue less satiable costs and accrues
r. Unit sales price minus unable cog per unit
f. The reduction in unit eon aches al from a higher kvel Matra
B Costs thu respan to changes in saks volume by less than a proportionate amain
h. Operating income less Satiable Costs
Q 2. MURDER TO CO! writes and manufactures murder mystery parlor games that it sells to retail stores The following is per-unit information relating to the manufacture and sale of this product:
Unit sales price $ 30
Tranatite cost per at 6
Fixed costs per year 360.000
Chapter 20 Cost-Volume-Profit Analysis
Iktemaine the following. showing as pan of your answer the formula that you used in your compu¬tation. For example. the formula used to determine the contribution margin ratio (pail a) is:
Contribution Margin Ratio - Unit Sales Price - Variable Costs per Unit Unit Sales Price
a. Contribution margin ratio.
b. Sales volume fin dollars) required to break even.
c. Sales volume (in dollars) required to cam an annual operating income of 5440.000.
d. The margin of safety (in dollars) if annual sales total 60.000 units
c. Operating income if annual sales total 60.000 units.
Q 3. Read the footnote in Appendix A referring to I lame lit pot's decision to close all of its remaining big box gores in China Witte a short paragraph identifying the incremental. sunk. and opportunity costs associated with this decision Assume that any cost savings will be invested elsewhere in more productive stores
Q4. The cost to Swank Company of manufacturing 15.000 nuts of a particular pan is 5135.060, of which $60.000 is fixed and 575000 is salable The comp's. can buy the pan from an outside supplier for $6 per unit Fixed cogs will remain the same regardless of Swanks decision Should the company buy the pan or continue to manufacture it? Prepare a comparative schedule in the format illustrated in Wail 21 6
Q5. The president of Cold Moo Ice Cream Company. a awn of ice cream stores in the Midwest. was unhappy with the actual sn-month profit figures for the company recently prepared by the CEO The president asked the CEO for a profit breakdown. by More. of the actual six-nand results When the president reamed the report. he was extremely upset and called the CFO into his office The prudent gated. "These reports show that each gore in the chain is profitable, hid our cons pony results are unprofitable MIA' can this be' TheCEO pointed out that each More was allowed to set prices for ice cream based on its cost structure [loaner. the stores' cost structures did rot include hcadetunert costs or the costs of ads Liaising and delnery of products
What are the three characteristics for operating a successful responsibility accounting s)stem? Consider whether the accounting system at Cold Moo Ice Cream Company includes the three CRAP socnsacs of a successful responsibility accounting system I low could the responsibility account¬ing system at Cold Moo be improved'
Q6. Chocolatiers Company produces two products: Solid chocolate and powdered chocolate. Cost and revenue data for each product line for the current month are as follows:
| |
Product Ones |
|
|
Sold
|
Powdered
|
|
saies..........................................................................
|
5850.000
|
$870.060
|
|
Contribution margin as a pettentage Of MIS...........................
|
45%
|
55%
|
|
Fixed costs traceable to product lines.....................................
|
$175.000
|
$250.600
|
In addition, fixed cogs that are common to both product lino amotmt to $125,000. instructions
a. Prepare Chocolatiers5 responsibility income statement for the current month Report the responsibility margin for each product line and income from operations for the company as a w hole Also include columns showing all dollar amounts as percentages of salts
b. According to the analysis performed in pan a. which product line is more profitable? Should the common fixed costs be considered w hen determining the profitability of individual prod¬uct lines? Why or why not?
c. Chocolatiers has 515.000tobe used in advertising for one of the two product Is nes and apes that this txpenchture w ill result in additional sales of $50.000 How should the company decide which product line to advertise?