1184
Problem 21-2B (45 minutes)
Parts 1 and 2
The scatter diagram and its estimated line of cost behavior appear below.
Sales and cost amounts are in thousands of dollars.
Part 2 Calculation of variable and fixed costs
Part 3
The estimates in Part 2 can be used to predict the total costs that will be
incurred at sales levels of 100 and 170 (both in thousands).
(‘000s)
Predictions
Sales units (given) ……………………………………………………….
100
170
Sun Company
0
20
40
60
$120
0
50
100
150
200
250
Sales(Units)
Total
Costs
$110 – $58
1185
Problem 21-3B (40 minutes)
Part 1
(a) Instructor note: Use the equation in Exhibit 21.11
Break-even in unit sales = Fixed costs / Contribution margin per unit
(b) Instructor note: Use the equation in Exhibit 21.12
Break-even in dollar sales = Fixed costs / Contribution margin ratio
1186
Problem 21-3B (Continued)
Part 2
Part 3
HIP-HOP CO.
Contribution Margin Income Statement (at Break-Even) — Keyboards
Sales (300 x $350) ……………………………………………………………………..
$105,000
Variable costs (300 x $210) ……………………………………………………….
Fixed costs (given) ……………………………………………………………………
Hip-Hop Company CVP chart
$150,000
$200,000
$250,000
Sales
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 21
1187
Problem 21-4B (75 minutes)
Part 1 Instructor note: Use the equation in Exhibit 21.12
2017 break-even in dollar sales = Fixed costs / Contribution margin ratio
Part 2 Instructor note: Use equation in Exhibit 21.12 with predicted numbers
2018 break-even in dollar sales = Fixed costs / Contribution margin ratio
Part 3
RIVERA COMPANY
Forecasted Contribution Margin Income Statement
For Year Ended December 31, 2018
Sales (20,000 x $37.50) …………………………………………………………………
$750,000
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Problem 21-4B (Continued)
Part 4 Instructor note: Use equations in Exhibit 21.22 and 21.23 with predicted
numbers
(Fixed costs + Pretax income)
Required sales in dollars = Contribution margin ratio
= ($350,000* + $200,000) / 60%**
Part 5
RIVERA COMPANY
Forecasted Contribution Margin Income Statement
For Year Ended December 31, 2018
Sales (24,445 units x $37.50) ……………………………………………….
$916,688
Variable costs (24,445 units x $15) ………………………………………
Fixed costs (from part 2) ……………………………………………………..
Income before income taxes* ………………………………………………
$200,013
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Problem 21-5B (65 minutes)
Part 1 Instructor note: Use the equation in Exhibit 21.12
Break-even in dollar sales = Fixed costs / Contribution margin ratio
Product BB:
= $100,000 / 30%*
Part 2
Forecasted contribution margin income statements for each product
assuming sales decline to 33,000 units with no change in unit sales price
STAM CO.
Forecasted Contribution Margin Income Statement
Product BB
Product TT
Sales* …………………………………………………………………
$528,000
$ 528,000
Problem 21-5B (Continued)
Forecasted contribution margin income statements for each product
assuming sales increase to 64,000 units with no change in unit sales price:
STAM CO.
Forecasted Contribution Margin Income Statement
Product BB
Product TT
Sales* …………………………………………………………………
$1,024,000
$1,024,000
Part 4
If sales were to greatly increase, Product TT would experience the greater
Part 5
Factors that could cause Product BB to have lower fixed costs include:
• Labor arrangement that pays workers for units produced.
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 21
1191
Problem 21-6B (45 minutes)
Part 1 Instructor note: Use the equation in Exhibit 21.12
Break-even in dollar sales = Fixed costs / Contribution margin ratio
Part 2
BEST COMPANY
Forecasted Contribution Margin Income Statement
Existing Strategy
New Strategy
Sales* …………………………………………………………………
$2,000,000
$2,880,000
Problem 21-7B (50 minutes)
Part 1 BREAK–EVEN ANALYSIS ASSUMING USE OF SAME MATERIALS
Step 1: Compute break-even in composite units—Use equation in Exhibit 21.29
Break-even in composite units = Fixed costs/Contribution margin per composite unit
* To compute the contribution margin per composite unit
Unit Sales Price
Unit Variable Costs
6 units of Product 1
@ $40 per unit…………………………………………..
$240
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Problem 21-7B (Continued)
Part 2 BREAK–EVEN ANALYSIS ASSUMING USE OF NEW MATERIALS
Step 1: Compute break-even in composite units—Use equation in Exhibit 21.29
Break-even in composite units = Fixed costs/Contribution margin per composite unit
*To compute the contribution margin per composite unit
Unit Sales Price
Unit Variable Costs
4 units of Product 2
6 units of Product 1
Step 2: Compute break-even in individual product unit sales
Part 3
When a business invests in fixed assets, as in this case, there is an increase
in its risk level (more fixed costs must be recovered). However, investments
in fixed assets can lower variable costs (as is the case here), which lowers its
break-even point, making it easier to make a profit with less sales.
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 21
SERIAL PROBLEM — SP 21
Serial Problem, Business Solutions (50 minutes)
1. Selling price per composite unit
2. Variable costs per composite unit
3. Break-even point in composite units
Fixed costs
= Contribution margin per composite unit
4. Unit sales of desk units and chairs at break-even point
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 21
1195
Reporting in Action — BTN 21-1
1. Some of the costs of Apple’s repair services department are:
• Variable: Parts used to repair electronic devices, direct labor used to
2. As revenues grow, the variable costs will increase in total, as will the
mixed costs. Total fixed costs should not change in total. Since the
3. Since variable costs are not likely to increase with volume increases by
Comparative Analysis — BTN 21-2
1.
Apple
Google
Average selling price per unit………….
$ 550
$ 470
Average variable cost per unit…………
Average contribution margin per unit..
$ 300
Total fixed costs ($ millions)……………
2. As unit sales decline, Apple’s operating profits will fall by $300 per unit
versus Google’s decline in operating profits of $200 per unit. Thus,
operating profit will decline more for Apple than for Google as unit sales
decline.
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 21
1196
Ethics Challenge — BTN 21-3
Instructor note: This question can serve to generate class discussion on
cost analysis and estimation. Discussion can focus on accounting,
business, and other ethical concerns.
MEMORANDUM
To: “Mechanics” and “Owners”
From: Your name
RE: Analysis of labor costs for survey
Date: Current date
The memorandum should include many of the following points:
Objectivity: A statement about the need to be objective in the analysis. Both
ethical and professional concerns should motivate the preparer’s desire for
objectivity.
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 21
1197
Communicating in Practice — BTN 21-4
Instructor note: Reports will vary, but a typical report would likely include
assumptions similar to the following.
1. Revenue (salary) assumptions
• Find job that pays a specified amount.
2. Cost assumptions
• Find living accommodations at a specified amount.
Taking It to the Net — BTN 21-5
The site offers many tools for an entrepreneur in assessing costs, sales,
and profits. Specifically, a spreadsheet file is provided that allows an
entrepreneur to identify the start-up costs of the business. A new business
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 21
Teamwork in Action — BTN 21-6
(a) Questions for school administrators (others are possible)
• Number of students that would attend the theater.
(b) Questions for owners (others are possible)
• List of other potential markets for theater showings during school
days.
Entrepreneurial Decision — BTN 21-7
1. Costs that won’t change regardless of how much salad Sweetgreen
3. Nic, Jon, and Nate can use CVP techniques to manage their company.
Focusing on contribution margins enables the company to set selling
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 21
Hitting the Road — BTN 21-8
1. There is no set solution for this problem. Answers will vary because each
student will make different estimates for groups, costs, and volume. The
instructor should make certain the student follows the correct steps in
preparing a multiproduct break-even analysis. This activity is designed to
show the student that several estimates are required in this type of CVP
analysis.
One simple example with crucial facts:
Product
Estimated
Selling
Price per
unit
Estimated
CM ratio
Estimated
CM
per unit
Estimated
Sales
Mix
Estimated CM
for each
component in
composite unit
Burgers …………………………..
$2.00
0.75
$1.50
3.5
$ 5.25
$1.00
$1.00
$0.50
0.40
$0.20
1.2
$0.80
Unit sales of individual products per year required to break-even:
Burgers …………………………..
40,388 x 3.5 =
141,358 units
201,940 units
141,358 units
40,388 x 1.2 =
2. The report should properly interpret the analysis from part 1. This
question is also designed to show students that a fast food restaurant
Wild, Shaw, Chiappetta, FAP 23e Solutions Manual: Chapter 21
Global Decision — BTN 21-9
1. Managers at Samsung likely use multiproduct CVP analysis when
planning. Samsung designs, manufactures, and markets many different
2. If Samsung adds a new product line to their offerings, they will have to
consider its selling price and any variable costs, such as the cost of the