CHAPTER 20 Variable Costing for Management Analysis
Ex. 20–16 (FIN MAN); Ex. 5–16 (MAN)
a. Filmed
Entertainment Networks Publishing
Revenues……………………………
…
$14,204.0 $12,018.0 $3,436.0
V
ariable costs………………………
…
4,971.4 3,845.8 2,473.9
Contribution margin………………
…
$ 9,233 $ 8,172 $ 962
Contribution margin ratio………… 65% 68% 28%
b. The Filmed Entertainment and Networks segments sell an information or media
product that has a very small variable cost per unit. For example, the Networks
segment earns revenue monthly from each customer. However, the variable
cost of each customer is rather small. The cost of providing the service is
essentially fixed. The same holds true for the Filmed Entertainment segment.
The variable cost per ticket sold to a motion picture is rather small. The costs
of producing and promoting a new film are essentially fixed to the number of
c. The higher contribution margin ratios of the Filmed Entertainment and Networks
segments should not be interpreted as being the most profitable. The fixed costs
cannot be ignored. These segments will have high fixed costs. If the volume of
business is not sufficient to exceed the break-even point, then the segments would
20-21
CHAPTER 20 Variable Costing for Management Analysis
Ex. 20–17 (FIN MAN); Ex. 5–17 (MAN)
a.
Effect of change in sales:
b. The sales will increase by $31,875. If the variable cost per unit were $10, and
there were 3,750 more units than planned, then the variable cost will increase
by $37,500 due to the variable cost quantity factor. Thus, the contribution margin
will decrease by $5,625 ($37,500 – $31,875) as a result of the price reduction.
Ex. 20–18 (FIN MAN); Ex. 5–18 (MAN)
Effect of change in sales:
Sales quantity factor (38,000 – 41,000) × $200 $(600,000)
BUY BEST INC.
ROMERO PRODUCTS INC.
Contribution Margin Analysis—Sales
For the Year Ended December 31
Contribution Margin Analysis—Sales
For the Year Ended December 31
20-22
CHAPTER 20 Variable Costing for Management Analysis
Ex. 20–19 (FIN MAN); Ex. 5–19 (MAN)
Effect of changes in variable costs of goods sold:
Variable cost quantity factor (41,000 – 38,000) × $80 $ 240,000
Unit cost factor ($80 – $92) × 38,000 (456,000)
Total effect of change in variable cost of
ROMERO PRODUCTS INC.
Contribution Margin Analysis—Variable Costs
For the Year Ended December 31
20-23
CHAPTER 20 Variable Costing for Management Analysis
Ex. 20–20 (FIN MAN); Ex. 5–20 (MAN)
a.
Atlanta/ Baltimore/ Pittsburgh/
Baltimore Pittsburgh Atlanta Total
Revenues $255,000 $594,000 $542,080 $1,391,080
Variable costs:
Labor costs for loading
Revenues: Revenue per railcar × Number of railcars
Labor costs for loading and unloading railcars: $46.00 × Number of railcars
b. The Atlanta/Baltimore route performs significantly worse than do the other two routes.
A close examination of the operating statistics indicates that this route runs very few
railcars, combined with fairly high total mileage. This combination suggests that the
railroad is running many short trains on the railroad. That is, the railroad’s profitability
ratios of train-miles to railcars, indicating that their train sizes are larger.
Note to Instructors: Part (b) is somewhat subtle but a worthy discussion. The cost
behavior issues discussed in (b) are common in service companies. For example,
large classes in a university are inherently more profitable than small classes, dense
data traffic on a telecommunication system is more profitable than less traffic, full
EAST COAST RAILROAD
For the Month Ended April 30
Contribution Margin by Route
20-24
CHAPTER 20 Variable Costing for Management Analysis
Ex. 20–21 (FIN MAN); Ex. 5–21 (MAN)
a.
Revenues ($500 × 700 railcars) $350,000
Labor costs for loading and unloading railcars
($46.00 × 700 railcars) $ 32,200
Fuel costs ($12.40 × 12,835 train-miles) 159,154
b.
Planned contribution margin (from Exercise 20–20) $(29,291)
Effect of change in sales:
Sales quantity factor (700 – 425) × $600 $165,000
Unit price factor ($500 – $600) × 700 (70,000)
Total effect of change in sales 95,000
Contribution Margin Analysis—Atlanta/Baltimore Route
For the Month Ended May 31
EAST COAST RAILROAD
Contribution Margin for Atlanta/Baltimore Route
For the Month Ended May 31
EAST COAST RAILROAD
20-25
CHAPTER 20 Variable Costing for Management Analysis
Ex. 20–22 (FIN MAN); Ex. 5–22 (MAN)
a.
Revenue $7,254,000
Variable costs:
Registration, records, and marketing cost $1,237,500
Instructional costs 3,868,800
Supporting Calculations
Revenue: $120 × 60,450 credit hours
Registration, records, and marketing costs: $275 × 4,500 students
Instructional costs: $64 × 60,450 credit hours
b.
Planned contribution margin* $ 2,105,625
Effect of change in revenue:
Revenue quantity factor (60,450 – 43,200)
× $135 $ 2,328,750
Unit price factor ($120 – $135) × 60,450 (906,750)
× $275 $ (103,125)
Unit cost factor ($275 – $275) × 4,500 0
Total effect of changes in registration, (103,125)
records, and marketing costs
Effect of changes in instructional costs:
Contribution Margin Analysis
For the Fall 2016 Term
UNDERWATER UNIVERSITY
Variable Costing Income Statement
For the Fall 2016 Term
UNDERWATER UNIVERSITY
20-26
CHAPTER 20 Variable Costing for Management Analysis
Prob. 20–1A (FIN MAN); Prob. 5–1A (MAN)
1.
Sales $6,480,000
Cost of goods sold:
Cost of goods manufactured $5,760,000
Less inventory, May 31 (4,000 units × $144.00*) 576,000
*$5,760,000 ÷ 40,000 units = $144.00
2.
Sales $6,480,000
Variable cost of goods sold:
Variable cost of goods manufactured $5,200,000
Less inventory, May 31 (4,000 units × $130.00*) 520,000
Variable cost of goods sold 4,680,000
*$5,200,000 ÷ 40,000 units = $130.00
3. The income from operations reported under absorption costing exceeds the
income from operations reported under variable costing by $56,000 ($360,000 –
FROST POINT FRIDGE COMPANY
Variable Costing Income Statement
For the Month Ended May 31, 2016
PROBLEMS
FROST POINT FRIDGE COMPANY
Absorption Costing Income Statement
For the Month Ended May 31, 2016
20-27
CHAPTER 20 Variable Costing for Management Analysis
Prob. 20–2A (FIN MAN); Prob. 5–2A (MAN)
1.
Sales (3,200 units) $400,000
Cost of goods sold:
Direct materials $144,000
Direct labor 64,000
Variable manufacturing cost 51,200
2.
Sales (3,200 units) $400,000
Variable cost of goods sold:
Direct materials $144,000
Direct labor 64,000
3. $142,000. The loss from operations from temporarily closing the portion of the plant
4. Production of solvent should be continued. Temporary suspension of production
would result in an operating loss of $142,000 [from (3) above], compared with a loss
MAC ‘N CHEESE INDUSTRIES INC.
Estimated Income Statement—Absorption Costing—Solvent
For the Month Ending May 31, 2016
For the Month Ending May 31, 2016
Estimated Income Statement—Variable Costing—Solvent
MAC ‘N CHEESE INDUSTRIES INC.
20-28
CHAPTER 20 Variable Costing for Management Analysis
Prob. 20–3A (FIN MAN); Prob. 5–3A (MAN)
1. a.
Sales $771,750
Cost of goods sold:
Cost of goods manufactured $715,950
*$715,950 ÷ 55,500 units = $12.90
b.
Sales $771,750
Cost of goods sold:
Inventory, April 1 (4,050 units × $12.90) $ 52,245
2. a.
Sales $771,750
Variable cost of goods sold:
Variable cost of goods manufactured $660,450
Less inventory, March 31 (4,050 units × $11.90*) 48,195
Variable cost of goods sold 612,255
HIP AND CONSCIOUS CLOTHING COMPANY
Absorption Costing Income Statement
For the Month Ended March 31, 2016
HIP AND CONSCIOUS CLOTHING COMPANY
For the Month Ended March 31, 2016
HIP AND CONSCIOUS CLOTHING COMPANY
Absorption Costing Income Statement
For the Month Ended April 30, 2016
Variable Costing Income Statement
20-29
CHAPTER 20 Variable Costing for Management Analysis
Prob. 20–3A (FIN MAN); Prob. 5–3A (MAN) (Concluded)
2. b.
Sales $771,750
Variable cost of goods sold:
Inventory, April 1 (4,050 units × $11.90) $ 48,195
Variable cost of goods manufactured 564,060
Variable cost of goods sold 612,255
3. a. For March, the income from operations reported under absorption costing
exceeds the income from operations reported under variable costing by
$4,050. This difference is due to including $4,050 of fixed manufacturing
variable costing.
b. For April, the income from operations reported under absorption costing
is less than the income from operations reported under variable costing by
$4,050. This difference is due to including $4,050 of fixed manufacturing
4. The Hip and Conscious Clothing Company was equally profitable in March and
April under the variable costing concept. Sales and the variable cost per unit
were the same for both March and April. The difference in income reported
HIP AND CONSCIOUS CLOTHING COMPANY
Variable Costing Income Statement
For the Month Ended April 30, 2016
20-30
CHAPTER 20 Variable Costing for Management Analysis
Prob. 20–4A (FIN MAN); Prob. 5–4A (MAN)
1.
Variable
Variable Cost Selling
of Goods Sold Expenses Contribution
Contribution as a Percent as a Percent Margin
Salesperson Margin of Sales of Sales Ratio
Case $231,800 44.0% 18.0% 38.0%
Dix 265,320 40.0% 16.0% 44.0%
2. Orcas has the highest contribution margin and contribution margin ratio for the
year. This is because of two factors. First, Orcas has the smallest variable cost
3. Other factors that should be considered in evaluating the performance of salespersons
WALTHMAN INDUSTRIES INC.
Salespersons’ Analysis
For the Year Ended December 31
20-31
CHAPTER 20 Variable Costing for Management Analysis
Prob. 20–5A (FIN MAN); Prob. 5–5A (MAN)
1.
S M L Total
Sales $668,000 $737,300 $956,160 $2,361,460
Variable cost of goods sold 300,000 357,120 437,760 1,094,880
2. Annual income from operations would be reduced below its present level by $146,360
if Size M were to be discontinued (Proposal 2), as indicated below:
Contribution margin for Size M $224,680
VALDESPIN COMPANY
For the Year Ended June 30, 2016
Variable Costing Income Statement
Size
20-32
CHAPTER 20 Variable Costing for Management Analysis
Prob. 20–5A (FIN MAN); Prob. 5–5A (MAN) (Concluded)
3.
S L Total
Sales $1,536,400 $956,160 $2,492,560
Variable cost of goods sold 690,000 437,760 1,127,760
4. $46,936. A comparison of the amount of income from operations under present
conditions, as indicated in (1), and under Proposal 3, as indicated in (3), suggests an
increase of $46,936 if Proposal 3 is accepted, as illustrated below.
Income from operations, Proposal 3 $132,726
Income from operations, present conditions 85,790
Increase in income from operations $ 46,936
Size
VALDESPIN COMPANY
For the Year Ended June 30, 2016
Variable Costing Income Statement
20-33
CHAPTER 20 Variable Costing for Management Analysis
Prob. 20–6A (FIN MAN); Prob. 5–6A (MAN)
1.
Planned contribution margin $1,386,000
Effect of change in sales:
Sales quantity factor (19,250 – 22,000) × $125 $(343,750)
Unit price factor ($144 – $125) × 19,250 365,750
Total effect of change in sales 22,000
2. The president’s first statement appears correct taken at face value. The president is
incorrect regarding variable cost of goods sold. The majority of the decrease in the
$4.00, which more than offset the favorable variable cost quantity factor, resulting
in an overall decrease in the contribution margin. The increase in the variable selling
DOZIER INDUSTRIES INC.
Contribution Margin Analysis
For the Year Ended December 31