978-1337119207 Chapter 20 Part 2

subject Type Homework Help
subject Pages 7
subject Words 3055
subject Authors Carl Warren, James M. Reeve, Jonathan Duchac & 0 more

Unlock document.

This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
page-pf1
Chapter 20(6) Variable Costing for Management Analysis 379
WRITING EXERCISEPricing Products and Production Planning
After completing the group activity above, ask your students to write a memo to management explaining
why Webster Manufacturing should accept the special order, even though the selling price for the special
order will be below the products cost under absorption costing.
Possible response: As evidence by the analysis provided in TM 20(6)-7 accepting the special order will
increase projected income from operations by $30,000. The additional order will not affect current
projected sales, negatively impact production capacity to meet projected sales or increase fixed cost.
Contribution margins will be higher since the $7 price exceeds variable costs by $3 per unit. This
recommendation is a win-win for all parties; I highly recommend approval of the special order.
As an alternative, ask your students to write an answer to the following question [TM 20(6)-8]:
Should Webster Manufacturing decrease the selling price of its product to $7 for all of its
customers? The marketing manager has argued that this pricing strategy would allow the
company to attract new customers and capture a greater share of its market.
Possible response: Although fixed cost can be ignored in the short run to justify the special order
cost of $7 per unit, these cost cannot be ignored over the long run. At $7 per unit an additional
8,334 (breakeven = fixed cost/contribution margin or $175,000/$3 = 58,334) units would have to
be sold to breakeven. To get back to a model that would exceed existing projections for income
from operations, at $7 per unit Webster would have to sell over 100,000 units to increase income
from operations over the existing pricing model. This significant increase in production would
most likely increase fixed cost further adding to the argument against this pricing level.
OBJECTIVE 4
Use variable costing for analyzing market segments, including product, territories, and
salespersons segments.
SYNOPSIS
Objective 4 demonstrates the usefulness of variable costing for short-term analysis of market segments.
[Long-term analysis is covered in Chapter 25(11).] Variable costing-based market segment performance
reports are used for product pricing and deciding whether to discontinue a product. Companies also
prepare segment reports for geographic areas, customers, distribution channels, and salespersons. Camelot
Fragrance Company is used to illustrate sales territory reports (Exhibit 10), product line reports (Exhibit
11), and salespersons reports (Exhibit 12).
Key Terms and Definitions
Sales MixThe relative distribution of sales among the various products available for sale.
page-pf2
Chapter 20(6) Variable Costing for Management Analysis 380
Relevant Check Up Corner and Exhibits
Exhibit 10Contribution Margin by Sales Territory Report
Exhibit 11Contribution Margin by Product Line Report
Exhibit 12Contribution Margin by Salesperson Report
SUGGESTED APPROACH
Variable costing allows managers to evaluate the profitability of sales territories, products, or
salespersons. This is accomplished by computing the contribution margin and the contribution margin
ratio by territory, product, and/or salesperson. Since the text illustrates each of these profitability analyses,
ask your students to apply the same technique to a slightly different scenario: customer profitability.
GROUP LEARNING ACTIVITYCustomer Profitability
remind them of the following formula:
Contribution Margin
Contribution Margin Ratio Sales Revenue
OBJECTIVE 5
Use variable costing for analyzing and explaining changes in contribution margin as a result
of quantity and price factors.
SYNOPSIS
Objective 5 demonstrates the usefulness of contribution margin analysis in planning and controlling
Key Terms and Definitions
Contribution Margin AnalysisThe systematic examination of the differences between
planned and actual contribution margins.
page-pf3
Chapter 20(6) Variable Costing for Management Analysis 381
© 2018 Cengage Learning. All Rights Reserved. May not be scanned, copied or duplicated, or posted to a publicly accessible website, in whole or in part.
Quantity FactorThe effect of a difference in the number of units sold assuming no change in
unit sales price or unit cost.
Unit Price (Cost) FactorThe effect of a difference in unit sales price or unit cost on the
number of units sold.
Relevant Check Up Corner and Exhibits
Exhibit 13Contribution Margin Analysis
Exhibit 14Contribution Margin Analysis Report
Check Up Corner 20(6)-4 Contribution Margin Analysis
SUGGESTED APPROACH
DEMONSTRATION PROBLEMAnalyzing Contribution Margins
The following demonstration problem is provided in TM 20(6)-17.
Case A: Assume that a manufacturing company had budgeted sales of $120,000 (10,000 units at $12).
Actual sales were $103,500 (9,000 units at $11.50).
Case B: Assume that the same manufacturing company had budgeted its variable cost of goods sold at
$50,000 (10,000 units at $5.00). Actual variable manufacturing costs totaled $46,080 (9,000 units at
$5.12).
price factor.
The solution is provided in TM 20(6)-18.
OBJECTIVE 6
Describe and illustrate contribution margin analysis for service businesses.
SYNOPSIS
page-pf4
Chapter 20(6) Variable Costing for Management Analysis 382
contribution margin report for the company based on air routes (using data provided in Exhibit 17).
Finally, Exhibit 19 explores the impact of a decrease in the ticket price of its Chicago to Atlanta flight.
Relevant Check Up Corner and Exhibits
Exhibit 15Costs of Blue Skies Airlines Inc.
Exhibit 17Service Industry Market Segments
Exhibit 18Contribution Margin by Segment Report for a Service Company
Exhibit 19Contribution Margin Analysis ReportService Company
SUGGESTED APPROACH
This learning objective applies the concepts illustrated in the chapter to a service organization. Therefore,
it provides an excellent review opportunity.
20(6)-16.
ADM OBJECTIVE
Describe and illustrate the use of segment analysis and Earnings Before Interest, Taxes,
SYNOPSIS
The financial statements of public companies include footnote disclosure of selected segment
information. This information can be used to identify strengths and weaknesses among segments.
Key Terms and Definitions
EBITDAEarnings before interest, taxes, depreciation and amortization.
Relevant Check Up Corner and Exhibits
Make a Decision Segment Analysis and EBITDA.
page-pf5
Handout 20(6)-1
Contribution Margin Reporting and Analysis for Service Firms
Music for All Occasions is a service business that provides musical groups to play at parties, wedding
they want the band to perform.
Big Band
Jazz Combo
Rock Band
Number of Musicians
15
4
5
Price per Hour
$650
$185
$200
Last year, Music for All Occasions performed the following jobs:
Big Band
Rock Band
Number of Jobs
32
88
Total Number of Hours for All Jobs
105
370
Perform the following analysis for Music for All Occasions:
base for the variable costs.
year.
4. Prepare a contribution margin analysis report for only the Big Band for this year comparing planned
performance under the old price structure ($650 per hour with 15 musicians) and the actual
performance under the reduced price structure ($575 per hour with 12 musicians).
page-pf6
Type Item Description Video Excel CLGL LO(s) Difficulty Time Est BUSPROG AICPA ACBSP - Primary Bloom's
ADM Service Real World
Writing
Ethics
MC 1 1 Easy 5 min. Analytic FN - Measurement Managerial Accounting Features/Costs Applying
MC 2 2 Easy 5 min. Analytic FN - Measurement Managerial Accounting Features/Costs Remembering
MC 3 2 Easy 5 min. Analytic FN - Measurement Managerial Accounting Features/Costs Applying
MC 4 2 Easy 5 min. Analytic FN - Measurement Managerial Accounting Features/Costs Applying
MC 5 5 Easy 5 min. Analytic FN - Measurement Managerial Accounting Features/Costs Applying
LREX 1 Variable Costing x 1 Easy 10 min. Analytic FN - Measurement Managerial Accounting Features/Costs Applying
LREX 2 Variable Costing - production exceeds sales x 1 Easy 10 min. Analytic FN - Measurement Managerial Accounting Features/Costs Applying
LREX 3 Variable Costing - sales exceed production x 1 Easy 10 min. Analytic FN - Measurement Managerial Accounting Features/Costs Applying
LREX 4 Analyzing income under absorption and variable costing x 2 Easy 10 min. Analytic FN - Measurement Managerial Accounting Features/Costs Applying
LREX 5 Contribution margin by segment x 4 Easy 15 min. Analytic FN - Measurement Managerial Accounting Features/Costs Applying
LREX 6 Contribution margin analysis x 5 Easy 15 min. Analytic FN - Measurement Managerial Accounting Features/Costs Applying
PP Problem n/a Moderate 30 min. Analytic FN - Measurement Managerial Accounting Features/Costs Applying
DQ 1 n/a Easy 5 min. Analytic FN - Measurement Managerial Accounting Features/Costs Remembering
DQ 2 n/a Easy 5 min. Analytic FN - Measurement Managerial Accounting Features/Costs Remembering
DQ 3 n/a Easy 5 min. Analytic FN - Measurement Managerial Accounting Features/Costs Applying
DQ 4 n/a Easy 5 min. Analytic FN - Measurement Managerial Accounting Features/Costs Remembering
DQ 5 n/a Easy 5 min. Analytic FN - Measurement Managerial Accounting Features/Costs Remembering
DQ 6 n/a Easy 5 min. Analytic FN - Measurement Managerial Accounting Features/Costs Remembering
DQ 7 n/a Easy 5 min. Analytic FN - Measurement Managerial Accounting Features/Costs Remembering
DQ 8 n/a Easy 5 min. Analytic FN - Measurement Managerial Accounting Features/Costs Remembering
DQ 9 n/a Easy 5 min. Analytic FN - Measurement Managerial Accounting Features/Costs Remembering
BE 5 Contribution margin by segment x 4 Easy 15 min. Analytic FN - Measurement Managerial Accounting Features/Costs Applying
BE 6 Contribution margin analysis x 5 Easy 15 min. Analytic FN - Measurement Managerial Accounting Features/Costs Applying
EX 1 Inventory valuation under absorption costing and variable costing 1 Easy 10 min. Analytic FN - Measurement Managerial Accounting Features/Costs Applying
EX 2 Income statements under absorption costing and variable costing x 1 Moderate 20 min. Analytic FN - Measurement Managerial Accounting Features/Costs Applying x
EX 9 Variable and absorption costing 1 Moderate 20 min. Analytic FN - Measurement Managerial Accounting Features/Costs Applying x
EX 10 Variable and absorption costing - three products 2,3 Moderate 25 min. Analytic FN - Measurement Managerial Accounting Features/Costs Applying x
EX 11 Change in sales mix and contribution margin 4 Moderate 25 min. Analytic FN - Measurement Managerial Accounting Features/Costs Applying
EX 12 Product profitability analysis 4 Moderate 25 min. Analytic FN - Measurement Managerial Accounting Features/Costs Applying x
EX 16 Segment contribution margin analysis 4,6 Moderate 30 min. Analytic FN - Measurement Managerial Accounting Features/Costs Applying x
EX 17 Contribution margin analysis x 5 Moderate 25 min. Analytic FN - Measurement Managerial Accounting Features/Costs Applying x
EX 18 Contribution margin analysis - sales x 5 Moderate 30 min. Analytic FN - Measurement Managerial Accounting Features/Costs Applying
PR 3A
Absorption and variable costing income statements for tw o month
x 1,2 Challenging 40 min. Analytic FN - Measurement Managerial Accounting Features/Costs Applying x
PR 4A Salespersons' report and analysis 4 Challenging 40 min. Analytic FN - Measurement Managerial Accounting Features/Costs Applying x
PR 5A
Segment variable costing income statement and effect on income of cha
x 4 Challenging 40 min. Analytic FN - Measurement Managerial Accounting Features/Costs Applying x
PR 6A Contribution margin analysis x 5 Challenging 40 min. Analytic FN - Measurement Managerial Accounting Features/Costs Applying x
PR 2B Income statements under absorption costing and variable costing 1,2 Challenging 40 min. Analytic FN - Measurement Managerial Accounting Features/Costs Applying x
PR 3B
Absorption and variable costing income statements for tw o month
x 1,2 Challenging 40 min. Analytic FN - Measurement Managerial Accounting Features/Costs Applying x
PR 4B Salespersons' report and analysis 4 Challenging 40 min. Analytic FN - Measurement Managerial Accounting Features/Costs Applying x
PR 5B
Variable costing income statement and effect on income of change in op
x 4 Challenging 40 min. Analytic FN - Measurement Managerial Accounting Features/Costs Applying x
PR 6B Contribution margin analysis x 5 Challenging 40 min. Analytic FN - Measurement Managerial Accounting Features/Costs Applying x
ADM 1 Yum! Brands: sales and EBITDA analysis ADM Moderate 30 min. Analytic FN - Measurement Managerial Accounting Features/Costs Analyzing x x x
ADM 2 Walt Disney: Segment revenue analysis ADM Moderate 30 min. Analytic FN - Measurement Managerial Accounting Features/Costs Analyzing x x x
ADM 3 Apple Inc.: Segment revenue analysis ADM Moderate 20 min. Analytic FN - Measurement Managerial Accounting Features/Costs Analyzing x x
TIF 1 Ethics in action n/a Moderate 20 min. Ethics FN - Reporting Managerial Accounting Features/Costs Synthesizing x x
TIF 2 Team activity n/a Moderate 20 min. Analytic FN - Measurement Managerial Accounting Features/Costs Applying
Focus
Assoc Assets
Tagging

Trusted by Thousands of
Students

Here are what students say about us.

Copyright ©2022 All rights reserved. | CoursePaper is not sponsored or endorsed by any college or university.