Unlock document.
This document is partially blurred.
Unlock all pages and 1 million more documents.
Get Access
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 21
Chapter 21
Cost-Volume-Profit Analysis
QUESTIONS
1. A variable cost is one that varies proportionately with the volume of activity. For
2. Variable costs per unit stay the same (remain constant) when output volume
3. Fixed costs per unit decrease when output volume increases. This is because the
4. Cost-volume-profit analysis is especially useful in the planning phase for a
5. A step-wise cost remains constant over a limited range of output activity, outside of
6. Contribution margin ratio means that for each sales dollar a specified percent is
7. Definition: Contribution margin ratio = Contribution margin / Sales price per unit.
8. Definition: Unit contribution margin = Sales price per unit - Variable costs per unit.
9. A CVP analysis for a manufacturing company is simplified by assuming that the
10. The first is that although individual costs classified as fixed or variable might not
behave precisely in those patterns, some variations of individual components in the
11. By assuming a relevant range for operating activity, management can more
justifiably assume either fixed or variable relations between costs and volume, and
12. Three common methods for measuring cost behavior are: the scatter diagram, the
high-low method, and least-squares regression.
13. A scatter diagram is used to display the relation between past costs and sales
15. This line represents total cost, which equals the sum of the fixed and variable costs
17. Company A has a contribution margin of 50% [($20,000 – $10,000) / ($20,000)] and
Company B has a contribution margin of 80% [($20,000 – $4,000) / ($20,000)]. This
19. Apple’s primary variable costs in making tablet computers are: labor, energy,
manufacturing and inventory-related costs. The costs of operating the plant and
20. Apple designs, manufactures, and markets mobile communication and media
devices, personal computers, and portable digital music players, and sells a variety
21. A 65% increase in sales of a popular smartphone model of Samsung is likely viewed
as a substantial increase. When this occurs, the sales and cost structures are likely
to change. Specifically, the selling price per unit, fixed costs, and variable costs are
1149
22. If units produced equals units sold, no conversion is necessary. If production
exceeds sales, absorption costing income can be determined by adding [increase in
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 21
1150
QUICK STUDIES
Quick Study 21-1 (10 minutes)
Quick Study 21-2 (10 minutes)
Quick Study 21-3 (10 minutes)
Quick Study 21-4 (15 minutes)
1. Estimated line of cost behavior
1151
Quick Study 21-4 (Concluded)
2. Estimated cost components
Fixed costs = $3,000
Quick Study 21-5 (10 minutes)
Quick Study 21-6 (10 minutes)
Quick Study 21-7 (10 minutes)
Quick Study 21-8 (10 minutes)
1152
Quick Study 21-9 (5 minutes)
Quick Study 21-10 (5 minutes)
Quick Study 21-11 (10 minutes)
Quick Study 21-12 (10 minutes)
ZHAO CO.
Contribution Margin Income Statement (at Expected Sales Level)
For Year Ended December 31, 2017
Sales (10,000 x $175) ..........................................................................
$1,750,000
Quick Study 21-13 (5 minutes)
Quick Study 21-14 (10 minutes)
Quick Study 21-15 (10 minutes)
CVP Chart
1154
Quick Study 21-16 (10 minutes)
1.
Contribution margin ..........................................................................
$960,000
2. If sales increase by 15%, income will increase by 4.0 x 15% = 60%, or,
Quick Study 21-17 (10 minutes)
Cost per unit using absorption costing
Quick Study 21-18 (10 minutes)
Cost per unit using variable costing
Per unit
1155
Quick Study 21-19 (15 minutes)
ACES INC.
Variable Costing Income Statement
Sales (4,900 units x $90 per unit)………………..
$441,000
Variable expenses
Quick Study 21-20 (10 minutes)
ACES INC.
Absorption Costing Income Statement
Sales (4,900 units x $90 per unit)………………………
$441,000
1156
Quick Study 21-21 (10 minutes)
BMW Automotive Group
Contribution Margin Statement (in € millions)
Sales ................................................................................................
€92,175.00
Variable costs:
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 21
EXERCISES
Exercise 21-1 (15 minutes)
1. Graph #1 Variable cost
2. a. Graph #5
Exercise 21-2 (10 minutes)
1. A
Exercise 21-3 (15 minutes)
Series A Variable cost
1158
Exercise 21-4 (20 minutes)
The scatter diagram and its estimated line of cost behavior appear below.
$14,000
$16,000
$18,000
Cost of sales
1159
Exercise 21-5 (20 minutes)
The scatter diagram and its estimated line of cost behavior appear below.
$600
$700
1160
Exercise 21-6 (20 minutes)
The scatter diagram and line of estimated cost behavior appear below.
Selecting 0 and 2,400 units sold as the activity levels yields $2,500 as the
estimate of fixed costs and the following estimate of variable costs per
unit:
Exercise 21-7A (20 minutes)
Exercise 21-8 (10 minutes)
(1) Contribution margin = Selling price – Variable costs
Exercise 21-9 (30 minutes)
(a) Contribution margin per unit = $180 – $135 = $45 per unit
Exercise 21-10 (15 minutes)
$3,500,000
$4,000,000
Sales
1162
Exercise 21-11 (20 minutes)
1.
BLANCHARD COMPANY
Contribution Margin Income Statement (at Break-Even)
2. Sales (in dollars) to break even with increased fixed costs
1163
Exercise 21-12 (25 minutes)
1. Unit sales at target income =
Fixed + Target
2. Dollar sales at target income = costs income
Contribution margin ratio
Exercise 21-13 (20 minutes)
BLANCHARD COMPANY
Forecasted Contribution Margin Income Statement
Sales (40,000 x $200) ..........................................................................
$8,000,000
Fixed Target
costs income
Contribution margin/unit
+
1164
Exercise 21-14 (10 minutes)
1. Fixed costs + Target pretax income
Dollar sales = Contribution margin ratio
2.
Sales ....................................................
$1,296,000
Exercise 21-15 (30 minutes)
(a) Total expected variable costs
(b) To solve, set up a brief contribution margin income statement
Sales (given) .............................................................................
$17,000,000
1165
Exercise 21-16 (10 minutes)
1. Break-even in units = Fixed costs / Contribution margin per unit
Exercise 21-17 (15 minutes)
1. Dollar sales for target income = Fixed costs + Target income
2. Margin of safety (%) = Expected sales – breakeven sales
Exercise 21-18 (15 minutes)
HUDSON CO.
Forecasted Contribution Margin Income Statement
For Year Ended December 31, 2018
Sales (9,600 x $225) ...........................................................................
$2,160,000
1166
Exercise 21-19 (10 minutes)
1. Revised contribution margin per unit = $240 - $180 = $60
Exercise 21-20 (15 minutes)
HUDSON CO.
Forecasted Contribution Margin Income Statement
For Year Ended December 31, 2018
Sales (11,000 x $225) .........................................................................
$2,475,000
Exercise 21-21 (20 minutes)
1. Pretax income = Sales – Variable costs – Fixed costs
2. Instructor note: Use equation in Exhibit 21.23;
