Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 18
Chapter 18
Cost Behavior and
Cost-Volume-Profit Analysis
QUICK STUDIES
Quick Study 18-1 (10 minutes)
Type of Cost
Series 1
Variable cost
Series 2
Fixed cost
Quick Study 18-2 (10 minutes)
1. Variable 4. Fixed 7. Variable
Quick Study 18-3 (10 minutes)
Direct labor ……………………………………….
Variable
Depreciation on factory equipment ……
Fixed
Direct materials …………………………………
Variable
Rent on factory building ……………………
Fixed
Salesperson compensation ……………….
Mixed
Fixed
Mixed
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Quick Study 18-4 (10 minutes)
Variable costs = = $25 per unit
Quick Study 18-5 (15 minutes)
1. Mixed cost. Explanation: Total costs are greater than zero even if zero
Quick Study 18-6 (10 minutes)
Contribution margin: $5,000 – $3,000 = $2,000
$8,100 – $3,600
240 – 60
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Quick Study 18–7 (15 minutes)
Answers are shaded. Supporting calculations follow the table.
Case
Variable costs
per unit
Contribution
margin per unit
Contribution
margin ratio
1
$ 16
$ 4
20%
20%
a. Contribution margin per unit = Sales price – Variable costs
= $20 – $16 = $4
e. Contribution margin ratio = Contribution margin per unit = $50 = 20%
Sales price per unit ?
➔Sales price = $250
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Quick Study 18-8 (10 minutes)
Quick Study 18–9 (10 minutes)
1. Contribution margin ratio = = 60%
Quick Study 18–11 (10 minutes)
ZHAO CO.
Contribution Margin Income Statement
For Year Ended December 31
Sales (10,000 x $175) …………………………………………………
$1,750,000
$ 236,000
$54
$90
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Quick Study 18–12 (10 minutes)
Answers are shaded. Supporting calculations follow table.
Case
Sales price
per unit
Variable costs
per unit
Total
Fixed costs
Break–even
in units
1
$20
$ 16
$ 40,000
10,000
3
Supporting calculations:
Break-even = Fixed costs
Contribution margin per unit
a. $40,000/($20 – $16) = 10,000 units
Quick Study 18-13 (5 minutes)
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Quick Study 18–14 (5 minutes)
1. Break-even point: c 4. Profit area: a
Quick Study 18–15 (5 minutes)
1. 1,000 units on the horizontal axis; where lines d and e intersect
Quick Study 18–16 (10 minutes)
a.
b.
Change
Break-Even in Units will:
1. Fixed costs increase to $225,000 ……………….
Increase
2. Variable costs decrease to $26 per unit ……..
Decrease
3. Selling price per unit decreases to $80 ………
Increase
4. Variable costs increase to $58 per unit ………
Increase
5. Fixed costs decrease to $150,000 ………………
6. Selling price per unit increases to $120 ……..
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Quick Study 18-17 (5 minutes)
Quick Study 18–18 (10 minutes)
a.
Sales at expected level (10,000 x $175) ……….
$1,750,000
b. Margin of safety (%) = $700,000 / $1,750,000 = 40%
Quick Study 18-19 (5 minutes)
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Quick Study 18–20 (20 minutes)
Contribution Margin Income Statements
For Year Ended December 31
10,200 units sold
9,800 units sold
Sales ($10 per unit) ………………………
$102,000
$98,000
Quick Study 18–21 (10 minutes)
Break-even point in units = $500,000 / $125 = 4,000 units
Quick Study 18–22 (10 minutes)
1.
Contribution margin ……………………………………
$960,000
2. Degree of operating leverage = $960,000/$240,000 = 4.0
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Quick Study 18–23B (10 minutes)
Using absorption costing:
Per unit
Direct materials ………………………………………
$10
Variable overhead ……………………………………
Fixed overhead ($160,000/20,000 units) …..
Quick Study 18–24 B (10 minutes)
Using variable costing:
Per unit
Direct materials …………………………………….
$10
Variable overhead …………………………………
Quick Study 18–25B (15 minutes)
ACES INC.
Income Statement (Variable Costing)
Sales (4,900 units x $90 per unit) …………………………………..
$441,000
Variable expenses
Variable cost of goods sold (4,900 units x $25*) ……….
$122,500
Fixed expenses
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Quick Study 18-26B (10 minutes)
ACES INC.
Income Statement (Absorption Costing)
Sales (4,900 units x $90 per unit) ……………………………………………..
$441,000
$254,800
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 18
EXERCISES
Exercise 18-1 (15 minutes)
1. Graph I Variable cost
2. a. Graph IV (step-wise)
Exercise 18-2 (10 minutes)
Cost classification Definition
a. Total cost 1
Exercise 18-3 (15 minutes)
Series A Variable cost
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Exercise 18–4 (10 minutes)
1. Factory supervisor salary, $4,000 per month ……………………..
Fixed
2. Utilities, $50 per month plus $0.05 per unit produced …………
Mixed
3. Assembly worker hourly wages …………………………..…………….
Variable
4. Factory equipment depreciation, $2,000 per month ……………
Fixed
5. Salesperson pay, $2,000 per month plus 5% of dollar sales ……
Mixed
6. Factory insurance, $1,500 per month …………………………………
Fixed
7. Screws to assemble hoops ………………………………………………..
Variable
8. Factory rent, $3,000 per month ………………………………………….
Fixed
9. Metal for rims ……………………………………………………………………
Variable
Variable
11. Office salaries, $3,000 per month …………………………..…………..
Fixed
Exercise 18-5 (20 minutes)
1. Using the high-low method results in variable costs per unit of:
2. If 3,000 units are produced, the estimated total cost is:
$2,500 + ($1.50 per unit x 3,000 units) = $7,000
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Exercise 18-7 (10 minutes)
1. Contribution margin per unit = Selling price – Variable costs
= $205 – $164 = $41 per unit
Exercise 18-8 (25 minutes)
Company A
a. Units sold = $208,000/$65 = 3,200
Company B
f. Sales = $43,450 + $39,500 = $82,950
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Exercise 18-9 (15 minutes)
a. Contribution margin per unit = $180 – $135 = $45 per unit
Exercise 18-10 (20 minutes)
1.
SUNN CO.
Contribution Margin Income Statement (at Break-Even)*
Sales (12,500 x $180) ………………………………………
$2,250,000
2. Sales (in dollars) to break even with increased fixed costs
Exercise 18–11 (10 minutes)
1. Break-even in units = Fixed costs / Contribution margin per unit
= $324,000 / ($225 – $180) = 7,200 units
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Exercise 18–12 (15 minutes)
1. Dollar sales for target income = Fixed costs + Target income
Contribution margin ratio
= $324,000 + $162,000 = $2,430,000
20%*
*Computed as $45/$225
Exercise 18-13 (25 minutes)
1. Unit sales at target income =
= $562,500 + $1,012,500
$45
= 35,000 units
Exercise 18-14 (20 minutes)
SUNN CO.
Contribution Margin Income Statement
Sales (40,000 x $200) ………………………………….
$8,000,000
Fixed costs + Target income
Contribution margin per unit
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Exercise 18–15 (10 minutes)
1. Fixed costs + Target income
Dollar sales = Contribution margin ratio
$160,000 + $164,000
= 25%
= $1,296,000
Exercise 18–16 (20 minutes)
a. Expected variable costs
= Variable costs per unit x units produced and sold
b. Expected fixed costs
Set up a contribution margin income statement
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Exercise 18–17 (15 minutes)
HUDSON CO.
Contribution Margin Income Statement
For Year Ended December 31
Sales (11,000 x $225) …………………………...
$2,475,000
Variable costs (11,000 x $180)………………
Fixed costs ($324,000 + $81,000) ………….
Exercise 18–18 (10 minutes)
1. Revised contribution margin per unit = $240 – $180 = $60
Exercise 18–19 (15 minutes)
HUDSON CO.
Contribution Margin Income Statement
For Year Ended December 31
Sales (9,600 x $225) ………………………………..
$2,160,000
Variable costs (9,600 x $171*) ………………….
Fixed costs ($324,000 + $40,500) …………….
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Exercise 18–20 (20 minutes)
1. Units produced and sold increases to 10,400 units and fixed costs
increase by $5,000.
Contribution Margin Income Statement
Sales (10,400 x $10) ……………………………………………..
$104,000
2. Unit selling price decreases by 5% and units produced and sold
increase by 8%.
Contribution Margin Income Statement
Sales [(10,000 x 1.08) x ($10 x 0.95)] ……………………..
$102,600
3. Fixed costs increase by $20,000, variable costs per unit decrease by $2,
and units produced and sold increase by 500.
Contribution Margin Income Statement
Sales (10,500 x $10) ……………………………………………..
$105,000
42,000
50,000
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Exercise 18–21 (20 minutes)
1. Income = Sales – Variable costs – Fixed costs
Exercise 18-22 (25 minutes)
1. Weighted-average contribution margin = ($75 x 80%) + ($150 x 20%) = $90
3. Unit sales of windows and doors at break-even point
Wild and Shaw, Financial & Managerial Accounting 9e Solutions Manual: Chapter 18
Exercise 18-23 (25 minutes)
1. Weighted-average contribution margin
= ($20 x 50%) + ($50 x 30%) + ($175 x 20%) = $60
2. Break-even point in units
3. Unit sales of Easy, Moderate, and Business returns at break-even
Exercise 18-24 (15 minutes)
Instructor note: Compute Income = Contribution margin – Fixed costs; for both companies
1. Degree of operating leverage
2. Skittles Co.
▪ For Skittles, a 20% increase in sales should generate a 72% increase
in income (computed as 3.6 x 20%).