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Solutions Manual, Chapter 3 21
Exercise 3-11 (20 minutes)
a.
Case #1
Case #2
Number of units sold ..
15,000
*
4,000
Sales ..........................
$180,000
*
$12
$100,000
*
$25
Variable expenses .......
120,000
*
8
60,000
15
Contribution margin ....
60,000
$ 4
40,000
$10
*
Fixed expenses ...........
50,000
*
32,000
*
Net operating income..
$ 10,000
$ 8,000
*
Case #3
Case #4
Number of units sold ..
10,000
*
6,000
*
Sales ..........................
$200,000
$20
$300,000
*
$50
Variable expenses .......
70,000
*
7
210,000
35
Contribution margin ....
130,000
$13
*
90,000
$15
Fixed expenses ...........
118,000
100,000
*
Net operating income (loss)..
$ 12,000
*
$ (10,000)
*
b.
Case #1
Case #2
Sales ..........................
$500,000
*
100%
$400,000
*
100%
Variable expenses .......
400,000
80%
260,000
*
65%
Contribution margin ....
100,000
20%
*
140,000
35%
Fixed expenses ...........
93,000
100,000
*
Net operating income ..
$ 7,000
*
$ 40,000
Case #3
Case #4
Sales .........................
$250,000
100%
$600,000
*
100%
Variable expenses ......
100,000
40%
420,000
*
70%
Contribution margin ....
150,000
60%
*
180,000
30%
Fixed expenses...........
130,000
*
185,000
Net operating income (loss).
$ 20,000
*
$ (5,000)
*
*Given
Exercise 3-12 (30 minutes)
1.
Flight Dynamic
Sure Shot
Total Company
Amount
%
Amount
%
Amount
%
Sales .................
$150,000
100
$250,000
100
$400,000
100.0
Variable
expenses .........
30,000
20
160,000
64
190,000
47.5
Contribution
margin ............
$120,000
80
$ 90,000
36
210,000
52.5*
Fixed expenses ..
183,750
Net operating
income ............
$ 26,250
*$210,000 ÷ $400,000 = 52.5%
2. The break-even point for the company as a whole is:
Fixed expenses
Dollar sales to =
break even Overall CM ratio
$183,750
= = $350,000
0.525
3. The additional contribution margin from the additional sales is computed
as follows:
Solutions Manual, Chapter 3 23
Exercise 3-13 (20 minutes)
Total
Per Unit
1.
Sales (20,000 units × 1.15 = 23,000 units) .....
$345,000
$ 15.00
Variable expenses .........................................
207,000
9.00
Contribution margin .......................................
138,000
$ 6.00
Fixed expenses .............................................
70,000
Net operating income ....................................
$ 68,000
2.
Sales (20,000 units × 1.25 = 25,000 units) .....
$337,500
$13.50
Variable expenses .........................................
225,000
9.00
Contribution margin .......................................
112,500
$ 4.50
Fixed expenses .............................................
70,000
Net operating income ....................................
$ 42,500
3.
Sales (20,000 units × 0.95 = 19,000 units) .....
$313,500
$16.50
Variable expenses .........................................
171,000
9.00
Contribution margin .......................................
142,500
$ 7.50
Fixed expenses .............................................
90,000
Net operating income ....................................
$ 52,500
4.
Sales (20,000 units × 0.90 = 18,000 units) .....
$302,400
$16.80
Variable expenses .........................................
172,800
9.60
Contribution margin .......................................
129,600
$ 7.20
Fixed expenses .............................................
70,000
Net operating income ....................................
$ 59,600
24 Managerial Accounting for Managers, 4th Edition
Exercise 3-14 (30 minutes)
2.
a.
Selling price ..........................
$40
100%
Variable expenses .................
28
70%
Contribution margin ..............
$12
30%
Profit
= Unit CM × Q − Fixed expenses
$0
= $12 × Q − $180,000
$12Q
= $180,000
Q
= $180,000 ÷ $12
Q
= 15,000 units
Alternative solution:
Profit
= CM ratio × Sales − Fixed expenses
$0
= 0.30 × Sales − $180,000
0.30 × Sales
= $180,000
Sales
= $180,000 ÷ 0.30
Sales
= $600,000
b.
Profit
= Unit CM × Q − Fixed expenses
$60,000
= $12 × Q − $180,000
$12Q
= $60,000 + $180,000
$12Q
= $240,000
Q
= $240,000 ÷ $12
Q
= 20,000 units
Solutions Manual, Chapter 3 25
Exercise 3-14 (continued)
Alternative solution:
Profit
= CM ratio × Sales − Fixed expenses
$60,000
= 0.30 × Sales − $180,000
0.30 × Sales
= $240,000
Sales
= $240,000 ÷ 0.30
Sales
= $800,000
c. The company’s new cost/revenue relation will be:
Selling price ..............................
$40
100%
Variable expenses ($28 – $4) .....
24
60%
Contribution margin ...................
$16
40%
Profit
= Unit CM × Q − Fixed expenses
$0
= ($40 − $24) × Q − $180,000
$16Q
= $180,000
Q
= $180,000 ÷ $16 per unit
Q
= 11,250 units
Alternative solution:
Profit
= CM ratio × Sales − Fixed expenses
$0
= 0.40 × Sales − $180,000
0.40 × Sales
= $180,000
Sales
= $180,000 ÷ 0.40
Sales
= $450,000
In unit sales: $450,000 ÷ $40 per unit = 11,250 units
Exercise 3-14 (continued)
3. a.
Fixed expenses
Unit sales to =
break even Unit contribution margin
$180,000
= = 15,000 units
$12 per unit
Alternative solution:
Fixed expenses
Dollar sales to =
break even CM ratio
$180,000
= = $600,000
0.30
b.
Fixed expenses + Target profit
Unit sales to attain
=
target profit Unit contribution margin
$180,000 + $60,000
= = 20,000 units
$12 per unit
In dollar sales: 20,000 units × $40 per unit =$800,000
Alternative solution:
Fixed expenses + Target profit
Dollar sales to attain =
target profit CM ratio
$180,000 + $60,000
= = $800,000
0.30
In unit sales: $800,000 ÷ $40 per unit = 20,000 units
Solutions Manual, Chapter 3 27
Exercise 3-14 (continued)
c.
Fixed expenses
Unit sales =
to break even Unit contribution margin
$180,000
= =11,250 units
$16 per unit
In dollar sales: 11,250 units × $40 per unit = $450,000
Alternative solution:
Fixed expenses
Break-even point =
in sales dollars CM ratio
$180,000
= =$450,000
0.40
In unit sales: $450,000 ÷ $40 per unit =11,250 units
Exercise 3-15 (15 minutes)
1.
Total
Per
Unit
Sales (15,000 games) .........
$300,000
$20
Variable expenses ...............
90,000
6
Contribution margin ............
210,000
$14
Fixed expenses ...................
182,000
Net operating income .........
$ 28,000
The degree of operating leverage is:
Contribution margin
Degree of operating =
leverage Net operating income
$210,000
= = 7.5
$28,000
b. The expected total dollar amount of net operating income for next
year would be:
Last year’s net operating income ......................
$28,000
Expected increase in net operating income next
year (150% × $28,000) ................................
42,000
Total expected net operating income ................
$70,000
Exercise 3-16 (30 minutes)
1. The contribution margin per person would be:
Price per ticket .....................................
$35
Variable expenses:
Dinner ...............................................
$18
Favors and program ...........................
2
20
Contribution margin per person .............
$15
point would be:
Profit
= Unit CM × Q − Fixed expenses
$0
= ($35 − $20) × Q − $6,000
$0
= ($15) × Q − $6,000
$15Q
= $6,000
Q
= $6,000 ÷ $15
Q
= 400 persons; or, at $35 per person, $14,000
Alternative solution:
Fixed expenses
Unit sales to=
break even Unit contribution margin
$6,000
= = 400 persons
$15
2.
Variable cost per person ($18 + $2) .................
$20
Fixed cost per person ($6,000 ÷ 300 persons) ..
20
Ticket price per person to break even ...............
$40
30 Managerial Accounting for Managers, 4th Edition
Exercise 3-16 (continued)
3. Cost-volume-profit graph:
$0
$2,000
$4,000
$6,000
$8,000
$10,000
$12,000
$14,000
$16,000
$18,000
$20,000
0100 200 300 400 500 600 700
Total Sales
Total
Expenses
Total
Fixed
Expenses
Total Sales
Break-even point:
400 persons or
$14,000 total sales
