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Solutions Manual, Chapter 3 51
Problem 3-25 (45 minutes)
1. The contribution margin per unit on the first 16,000 units is:
Per Unit
Sales price ..........................
$3.00
Variable expenses ................
1.25
Contribution margin .............
$1.75
The contribution margin per unit on anything over 16,000 units is:
Per Unit
Sales price ..........................
$3.00
Variable expenses ................
1.40
Contribution margin .............
$1.60
Thus, for the first 16,000 units sold, the total amount of contribution
margin generated would be:
contribution margin above is not enough to permit the company to
the additional sales are:
Fixed costs on the first 16,000 units .......................
$35,000
Less contribution margin from the first 16,000 units
28,000
Remaining unrecovered fixed costs .........................
7,000
Add monthly rental cost of the additional space
needed to produce more than 16,000 units ..........
1,000
Total fixed costs to be covered by remaining sales ...
$ 8,000
Problem 3-25 (continued)
The additional sales of units required to cover these fixed costs would
be:
Total remaining fixed costs $8,000
= = 5,000 units
Unit CM on added units $1.60
total sales of:
2.
Target profit $12,000
= = 7,500 units
Unit CM $1.60
month to reach the target profit.
3. If a bonus of $0.10 per unit is paid for each unit sold in excess of the
Problem 3-26 (60 minutes)
1.
Profit
= Unit CM × Q − Fixed expenses
$0
= ($30 − $18) × Q − $150,000
$0
= ($12) × Q − $150,000
$12Q
= $150,000
Q
= $150,000 ÷ $12
Q
= 12,500 pairs
Alternative solution:
Fixed expenses
Unit sales to =
break even Unit CM
$150,000
= = 12,500 pairs
$12.00
Fixed expenses
Dollar sales to =
break even CM ratio
$150,000
= = $375,000 in sales
0.40
2. See the graph on the following page.
3. The simplest approach is:
Break-even sales ........................
12,500 pairs
Actual sales ...............................
12,000 pairs
Sales short of break-even ...........
500 pairs
500 pairs × $12 contribution margin per pair = $6,000 loss
Alternative solution:
Sales (12,000 pairs × $30.00 per pair) ....
$360,000
Variable expenses
(12,000 pairs × $18.00 per pair) ..........
216,000
Problem 3-26 (continued)
Problem 3-26 (continued)
4. The variable expenses will now be $18.75 ($18.00 + $0.75) per pair,
and the contribution margin will be $11.25 ($30.00 – $18.75) per pair.
Profit
= Unit CM × Q − Fixed expenses
$0
= ($30.00 − $18.75) × Q − $150,000
$0
= ($11.25) × Q − $150,000
$11.25Q
= $150,000
Q
= $150,000 ÷ $11.25
Q
= 13,333 pairs (rounded)
13,333 pairs × $30.00 per pair = $400,000 in sales
Alternative solution:
Fixed expenses
Unit sales to =
break even CM per unit
$150,000
= = 13,333 pairs
$11.25
Fixed expenses
Dollar sales to =
break even CM ratio
$150,000
= = $400,000 in sales
0.375
5. The simplest approach is:
Actual sales ................................
15,000 pairs
Break-even sales .........................
12,500 pairs
Excess over break-even sales ......
2,500 pairs
2,500 pairs × $11.50 per pair* = $28,750 profit
*$12.00 present contribution margin – $0.50 commission = $11.50
Alternative solution:
56 Managerial Accounting for managers, 4th Edition
Problem 3-26 (continued)
6. The new variable expenses will be $13.50 per pair.
Profit
= Unit CM × Q − Fixed expenses
$0
= ($30.00 − $13.50) × Q − $181,500
$0
= ($16.50) × Q − $181,500
$16.50Q
= $181,500
Q
= $181,500 ÷ $16.50
Q
= 11,000 pairs
11,000 pairs × $30.00 per pair = $330,000 in sales
Although the change will lower the break-even point from 12,500 pairs
follow that this would improve the company’s profit.
Solutions Manual, Chapter 3 57
Problem 3-27 (45 minutes)
1.
a.
Hawaiian
Fantasy
Tahitian
Joy
Total
Amount
%
Amount
%
Amount
%
Sales ..........................
$300,000
100%
$500,000
100%
$800,000
100%
Variable expenses .......
180,000
60%
100,000
20%
280,000
35%
Contribution margin ....
$120,000
40%
$400,000
80%
520,000
65%
Fixed expenses ...........
475,800
Net operating income ..
$ 44,200
b.
Fixed expenses $475,800
Dollar sales to = = = $732,000
break even CM ratio 0.65
Margin of safety = Actual sales - Break-even sales
= $800,000 - $732,000 = $68,000
Margin of safety Margin of safety in dollars
=
percentage Actual sales
$68,000
= = 8.5%
$800,000
58 Managerial Accounting for Managers, 4th Edition
Problem 3-27 (continued)
2.
a.
Hawaiian
Fantasy
Tahitian
Joy
Samoan
Delight
Total
Amount
%
Amount
%
Amount
%
Amount
%
Sales .................
$300,000
100%
$500,000
100%
$450,000
100%
$1,250,000
100.0%
Variable
expenses .........
180,000
60%
100,000
20%
360,000
80%
640,000
51.2%
Contribution
margin ............
$120,000
40%
$400,000
80%
$ 90,000
20%
610,000
48.8%
Fixed expenses ..
475,800
Net operating
income ............
$ 134,200
Solutions Manual, Chapter 3 59
analysis when the company has more than one product. The analyst
must be very careful of his or her assumptions regarding sales mix,
including the addition (or deletion) of new products.
It should be pointed out to the president that even though the break-
60 Managerial Accounting for Managers, 4th Edition
Problem 3-28 (60 minutes)
1.
Carbex, Inc.
Income Statement For April
Standard
Deluxe
Total
Amount
%
Amount
%
Amount
%
Sales ............................
$240,000
100
$150,000
100
$390,000
100.0
Variable expenses:
Production .................
60,000
25
60,000
40
120,000
30.8
Sales commission .......
36,000
15
22,500
15
58,500
15.0
Total variable expenses .
96,000
40
82,500
55
178,500
45.8
Contribution margin ......
$144,000
60
$ 67,500
45
$211,500
54.2
Fixed expenses:
Advertising ................
105,000
Depreciation ..............
21,700
Administrative ............
63,000
Total fixed expenses ......
189,700
Net operating income ....
$ 21,800
Carbex, Inc.
Income Statement For May
Standard
Deluxe
Total
Amount
%
Amount
%
Amount
%
Sales ..............................
$60,000
100
$375,000
100
$435,000
100.0
Variable expenses:
Production ...................
15,000
25
150,000
40
165,000
37.9
Sales commission .........
9,000
15
56,250
15
65,250
15.0
Total variable expenses ....
24,000
40
206,250
55
230,250
52.9
Contribution margin ........
$36,000
60
$168,750
45
204,750
47.1
Fixed expenses:
Advertising...................
105,000
Depreciation ................
21,700
Administrative ..............
63,000
Total fixed expenses ........
189,700
Net operating income ......
$ 15,050
