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Solutions Manual, Chapter 5 21
Exercise 5-11 (20 minutes)
1.
Division
Total
Company
East
Central
West
Sales ..............................
$1,000,000
$250,000
$400,000
$350,000
Variable expenses ...........
390,000
130,000
120,000
140,000
Contribution margin ........
610,000
120,000
280,000
210,000
Traceable fixed expenses .
535,000
160,000
200,000
175,000
Divisional segment
margin.........................
75,000
$(40,000)
$ 80,000
$ 35,000
Common fixed expenses
not traceable to
divisions* ....................
90,000
Net operating loss ...........
$ (15,000)
*$625,000 – $535,000 = $90,000.
2.
Incremental sales ($350,000 × 20%) .......
$70,000
Contribution margin ratio
($210,000 ÷ $350,000) .........................
× 60%
Incremental contribution margin ..............
$42,000
Less incremental advertising expense .......
15,000
Incremental net operating income ............
$27,000
Yes, the advertising program should be initiated.
22 Managerial Accounting for Managers, 4th Edition
Exercise 5-12 (20 minutes)
1.
Sales (35,000 units × $25 per unit) ................
$875,000
Variable expenses:
Variable cost of goods sold
(35,000 units × $12 per unit*) ..................
$420,000
Variable selling and administrative expenses
(35,000 units × $2 per unit) .....................
70,000
490,000
Contribution margin .......................................
385,000
Fixed expenses:
Fixed manufacturing overhead .....................
160,000
Fixed selling and administrative expenses .....
210,000
370,000
Net operating income ....................................
$ 15,000
*
Direct materials .............................
$ 5
Direct labor ...................................
6
Variable manufacturing overhead ....
1
Total variable manufacturing cost ....
$12
2. The difference in net operating income can be explained by the $20,000
in fixed manufacturing overhead deferred in inventory under the
absorption costing method:
= $20,000
Variable costing net operating income ......................
$15,000
Add fixed manufacturing overhead cost deferred in
inventory under absorption costing ........................
20,000
Absorption costing net operating income ..................
$35,000
Solutions Manual, Chapter 5 23
Exercise 5-13 (20 minutes)
1. The company is using variable costing. The computations are:
Variable
Costing
Absorption
Costing
Direct materials ...........................
$ 9
$ 9
Direct labor .................................
10
10
Variable manufacturing overhead .
5
5
Fixed manufacturing overhead
($150,000 ÷ 25,000 units) ........
—
6
Unit product cost .........................
$24
$30
Total cost, 3,000 units .................
$72,000
$90,000
purposes.
overhead cost that is allocated to the 3,000 unsold units under
Exercise 5-14 (30 minutes)
1. Under variable costing, only the variable manufacturing costs are
included in product costs.
Direct materials............................
$ 50
Direct labor..................................
80
Variable manufacturing overhead ..
20
Variable costing unit product cost ..
$150
2. The variable costing income statement appears below:
Sales ...........................................................
$3,990,000
Variable expenses:
Variable cost of goods sold (19,000 units ×
$150 per unit) .........................................
$2,850,000
Variable selling and administrative expenses
(19,000 units × $10 per unit) ...................
190,000
3,040,000
Contribution margin ......................................
950,000
Fixed expenses:
Fixed manufacturing overhead ....................
700,000
Fixed selling and administrative expenses ....
285,000
985,000
Net operating loss ........................................
$ (35,000)
3. The break-even point in units sold can be computed using the
contribution margin per unit as follows:
Selling price per unit ..............
$210
Variable cost per unit .............
160
Contribution margin per unit ..
$ 50
Fixed expenses
Unit sales to break even = Unit contribution margin
$985,000
= = 19,700 units
$50 per unit
Solutions Manual, Chapter 5 25
Exercise 5-15 (20 minutes)
1. Under absorption costing, all manufacturing costs (variable and fixed)
are included in product costs.
Direct materials .............................................
$ 50
Direct labor ...................................................
80
Variable manufacturing overhead ...................
20
Fixed manufacturing overhead
($700,000 ÷ 20,000 units) ..........................
35
Absorption costing unit product cost ...............
$185
2. The absorption costing income statement appears below:
Sales (19,000 units × $210 per unit) ......................
$3,990,000
Cost of goods sold (19,000 units × $185 per unit) ...
3,515,000
Gross margin ........................................................
475,000
Selling and administrative expenses
($285,000 + 19,000 units × $10 per unit) ............
475,000
Net operating income ............................................
$ 0
prepared using absorption costing.
26 Managerial Accounting for Managers, 4th Edition
Exercise 5-16 (20 minutes)
Dollar sales for company
to break even
=
Traceable fixed expenses + Common fixed expenses
Overall CM ratio
=
$126,000 + $63,000
0.50
=
$189,000
0.50
=
$378,000
The break-even point for the Chicago office is computed as follows:
Dollar sales for a
segment to break even
=
Segment traceable fixed expenses
Segment CM ratio
=
$78,000
0.70
=
$111,429 (rounded)
Solutions Manual, Chapter 5 27
Exercise 5-16 (continued)
Dollar sales for a
segment to break even
=
Segment traceable fixed expenses
Segment CM ratio
=
$48,000
0.40
=
$120,000
segment break-even calculations.
a whole will not change, the entire $30,000 would result in increased
net operating income for the company.
they would not be fixed.
28 Managerial Accounting for Managers, 4th Edition
Exercise 5-16 (continued)
3. a. The segmented income statement follows:
Segments
Total Company
Chicago
Minneapolis
Amount
%
Amount
%
Amount
%
Sales ..........................
$500,000
100.0
$200,000
100
$300,000
100
Variable expenses .......
240,000
48.0
60,000
30
180,000
60
Contribution margin ....
260,000
52.0
140,000
70
120,000
40
Traceable fixed
expenses .................
126,000
25.2
78,000
39
48,000
16
Office segment
margin.....................
134,000
26.8
$ 62,000
31
$ 72,000
24
Common fixed
expenses not
traceable to
segments .................
63,000
12.6
Net operating income ..
$ 71,000
14.2
b. The segment margin ratio rises and falls as sales rise and fall due to
the presence of fixed costs. The fixed costs are spread over a larger
base as sales increase.
In contrast to the segment ratio, the contribution margin ratio is
stable so long as there is no change in either the variable expenses or
the selling price per unit of service.
Solutions Manual, Chapter 5 29
Exercise 5-17 (15 minutes)
computations are:
Medical
Dental
Increased sales .............................................
$40,000
$35,000
Market CM ratio .............................................
× 36%
× 48%
Incremental contribution margin .....................
$14,400
$16,800
Less cost of the campaign ..............................
5,000
5,000
Increased segment margin and net operating
income for the company as a whole .............
$ 9,400
$11,800
2. The $48,000 in traceable fixed expenses in the previous exercise is now
partly traceable and partly common. When we segment Minneapolis by
30 Managerial Accounting for Managers, 4th Edition
Problem 5-18 (45 minutes)
contribution margin per unit as follows:
Selling price per unit .....................
$58
Variable cost per unit ....................
38
Contribution margin per unit .........
$20
2 a. Under variable costing, only the variable manufacturing costs are
included in product costs.
Year 1
Year 2
Year 3
Direct materials ....................................
$20
$20
$20
Direct labor ..........................................
12
12
12
Variable manufacturing overhead ..........
4
4
4
Variable costing unit product cost ..........
$36
$36
$36
