BYP 6-3 (Continued)
(e) In order to solve for the sales level where net income would be equal
under either approach, set the two CVP equations equal to each other
and solve for sales:
Sales – ((1 – .75) X Sales) – $380,000 = Sales – ((1 – .5) X Sales) – $800,000
When sales are equal to $1,680,000 the company would make the same
amount of income under either approach.
is the decision to lay-off 15 employees, many of whom have likely been
with the company for a long time. Also, the company should carefully
evaluate whether the automated system will be able to attain the same
level of quality as the skilled employees. Perhaps the automated
BYP 6-4 REAL-WORLD FOCUS
(a)
($ in millions)
Consumer
Products
Pet
Products
Sales
Variable costs
Contribution margin
Contribution margin
÷ Sales
Contribution margin ratio
Division sales
÷ Total sales
Sales mix percentage
$1,031.8
610.0
$ 421.8
$ 421.8
1,031.8
40.9%
$1,031.8
2,171.1
47.5%
$ 837.3
350.0
$ 487.3
$ 487.3
837.3
58.2%
$ 837.3
2,171.1
38.6%
(b)
Sales Mix
Percentage
X
Contribution
Margin Ratio
=
Weighted–Average
Contribution
Margin Ratio
Consumer products
Pet products
Soup and infant-feeding
products
47.5%
38.6%
13.9%
40.9%
58.2%
66.9%
.194
.225
.093
.512
Break-even point
in dollars = $860,300,000 ÷ .512 = $1,680,273,438
Sales Mix
Percentage
X
Total Sales
=
Sales from
Each Product*
Consumer products
Pet products
Soup and infant-
feeding products
Total sales
47.5%
38.6%
13.9%
X
X
X
$1,680,273,438
$1,680,273,438
$1,680,273,438
=
=
=
$ 798,129,883
648,585,547
233,558,008
$1,680,273,438
BYP 6-5 REAL-WORLD FOCUS
(a) The four primary product lines are FedEx Express (provides express
and ability to match operating costs to shifting volumes.
(b)
FEDEX GROUND
Income Statement
For the Year Ended May 31, 2008
Variable Costing
(In Millions)
____________________________________________________________
Revenues ……………………………………………… $ 6,751
Variable costs:
Salaries and employee benefits …………. $1,073
Purchased transportation …………………. 2,691
Fixed costs:
Rentals …………………………………………….. 189
Depreciation and amortization …………… 305
Contribution
Margin
÷
Revenues
=
Contribution
Margin Ratio
$1,983
÷
$6,751
=
29.4%
Fixed Costs
÷
Contribution
Margin Ratio
=
Break-even Point
in Dollars
$1,247
÷
.294
=
$4,241.5 million
BYP 6-5 (Continued)
(c)
(i)
2008
2006
FedEx Express
FedEx Ground
FedEx Freight
FedEx Services
$24,421 ÷ $38,244 = 63.9%
6,751 ÷ $38,244 = 17.6%
4,934 ÷ $38,244 = 12.9%
2,138 ÷ $38,244 = 5.6%
$21,446 ÷ $32,485 = 66.0%
5,306 ÷ $32,485 = 16.3%
3,645 ÷ $32,485 = 11.2%
2,088 ÷ $32,485 = 6.4%
Total
$38,244
$32,485
(ii)
2008
2006
FedEx Express
FedEx Ground
FedEx Freight
FedEx Services
7.8%
10.9%
6.7%
(41.7%)*
8.2%
13.3%
13.3%
____
*$(891) ÷ $2,138
and 5.6%) but increased its sales mix percentage for FedEx Ground
(16.3% to 17.6%) and FedEx Freight (11.2% to 12.9%). Thus, during this
period two of the company’s divisions became more profitable, and
BYP 6-6 REAL-WORLD FOCUS
(a) Smart Balance relies very heavily on outsourcing. It keeps it employees
has very low fixed costs.
(b) The company keeps new-product development and marketing in house.
(c) The potential advantage of having very low fixed costs is that the
failure.
(d) The potential disadvantage of this approach is that its low fixed costs
means that the company has low operating leverage. If the company’s
BYP 6-7 COMMUNICATION ACTIVITY
MEMO
To: Bjorn Borg—CEO
From: Student
Re: Best use of limited resources
fishing anchor, thus one might logically assume that we should shift our
production toward producing the yacht anchor. However, this assumption
ignores an element that is critical to the decision. In order to make a proper
decision, we would need to know the contribution margin per unit of limited
two anchor types.
In addition, at the same time that this study is being undertaken, I propose
that the marketing department undertake a study of the demand for each
anchor type. This is important so that we don’t produce anchors that we
can’t sell.
would be appropriate.
*BYP 6-8 ETHICS CASE
(b) In 2013 the number of units produced and sold were equal. When this
occurs variable costing and absorption costing provide the same
results. Thus, in 2013, net income under variable costing would have
been $300,000. In 2014, units produced exceeded units sold by 5,000
would equal its 2013 income of $300,000.
(c) In part (b) it was determined that the division’s net income would have
been $300,000 in 2014 under variable costing. Since this is the same as
2013 net income, Brett would not receive a bonus.
“stock–outs.” If that was the case, there would be options available
to the company other than totally giving up on just–in-time practices. In
order to eliminate any potential conflicts of interest between Brett and
the company, and to ensure that his actions are in the best interest of the
for other internal management decision making.
BYP 6-9 ALL ABOUT YOU
(a) Using a common equation for CVP analysis,
($26 X 300) = Variable Costs + ($4,000 + $1,460) + $0
$7,800 = Variable Costs + $5,460 + $0
$2,340 = Variable Costs (in total)
or $7.80 (variable costs/member/month) = $2,340 ÷ 300
margin must be calculated.
Contribution Margin = Sales – Variable Costs
Contribution Margin = $7,800 – $2,340
Required Sales in Units
=
(Fixed Costs +
Target Net Income)
/Contribution Margin
per Unit
Using the contribution margin ratio,
Required Sales in Dollars
=
(Fixed Costs +
Target Net Income)
/Contribution
Margin Ratio
wages, utilities, supplies, and maintenance.
(d) Answers will vary.
BYP 6-10 CONSIDERING CORPORATE SOCIAL RESPONSIBILITY
Discussion Guide: If reduction of greenhouse gas emissions is a goal, then
emissions. However, as suggested in the “No” response, many believe that,
to be effective and fair, an enforceable international agreement on such an
approach would be necessary. In the United States, companies currently
participate on a voluntary basis; in some other countries, participation is
cost-benefit analyses.