EXERCISE 22-13
(a)
$3,200
Sales Line
Fixed Cost Line
2,800
2,400
Total Cost Line
Break-even Point
2,000
1,600
1,200
(b) 1. Break-even sales in units:
$4X = $2.50X + $600,000
2. Break-even sales in dollars:
X = .625X + $600,000
(c) 1. Margin of safety in dollars: $2,000,000 – $1,600,000 = $400,000
EXERCISE 22-14
(a) CAREY COMPANY
CVP Income Statement
For the Year Ended December 31, 2017
Total
Per Unit
Sales (60,000 X $26) ………………………………..
$1,560,000
$26
(b) CAREY COMPANY
CVP Income Statement
For the Year Ended December 31, 2017
Total
Per Unit
Sales [(60,000 X 105%) X $24.50*] …………….
Variable costs (63,000 X $12.00**) …………….
$1,543,500
756,000
$24.50
12.00
*EXERCISE 22-15
(a)
Utility Expense
Months in
a year
X
Kilowatt
hours
X
Hourly
Charge
=
Variable
Utilities
*EXERCISE 22-15 (Continued)
Variable Costing
Labor:
Crate builders
$43,000
Material:
Wood
54,000
Variable Overhead:
Utilities
Nails
Total manufacturing costs
(b)
Absorption Costing
Labor:
Crate builders
$ 43,000
Material:
Wood
54,000
Variable overhead:
Utilities
Nails
Fixed overhead:
Utilities
18,000
Rent
Total manufacturing costs
(c) The entire difference in costs between the two methods is due to the
*EXERCISE 22-16
(a) MONTIER CORPORATION
Income Statement
For the Month Ended October 31, 2017
(Absorption Costing)
Sales (20,000 X $50) …………………………..………………… $1,000,000
Cost of goods sold (20,000 X $32*)……………………….. 640,000
(b) MONTIER CORPORATION
Income Statement
For the Month Ended October 31, 2017
(Variable Costing)
(c) Under variable costing, all fixed manufacturing costs ($225,000) are
SOLUTIONS TO PROBLEMS
PROBLEM 22–1A
(a)
Variable costs (per haircut)
Fixed costs (per month)
Total fixed $7,000
Barbers’ commission $4.50
Barber supplies .30
Barbers’ salaries $5,000
Manager’s extra salary 500
(c)
18
Sales Line
6
15
Break-even Point
Total Cost Line
12
9
PROBLEM 22–2A
(a) JORGE COMPANY
CVP Income Statement (Estimated)
For the Year Ending December 31, 2017
Sales …………………………………………………….. $1,800,000
Variable expenses
Cost of goods sold ………………………….. $1,170,000 *
Selling expenses …………………………….. 70,000
(b) Variable costs = 70% of sales ($1,260,000 ÷ $1,800,000) or $.35 per
bottle ($.50 X 70%). Total fixed costs = $405,000.
1. $.50X = $.35X + $405,000
(c) Contribution margin ratio = ($.50 – $.35) ÷ $.50
= 30% (or 1 – .70)
PROBLEM 22–3A
(a) Sales were $2,500,000, variable expenses were $1,750,000 (70% of sales),
and fixed expenses were $850,000. Therefore, the break-even point in
dollars is:
(b) 1. The effect of this alternative is to increase the selling price per unit
to $6 ($5 X 120%). Total sales become $3,000,000 (500,000 X $6).
Thus, the contribution margin ratio changes to 42% [($3,000,000 –
$1,750,000) ÷ $3,000,000]. The new break-even point is:
Alternative 1 is the recommended course of action because it has a
lower break-even point.
PROBLEM 22–4A
(a) Current break-even point: $40X = $24X + $270,000
(where X = pairs of shoes)
(b) Current margin of safety ratio =
(20,000 X $40) – (16,875 X $40)
(20,000 X $40)
(24,000 X $38) – (21,000 X $38)
(24,000 X $38)
(c) BARGAIN SHOE STORE
CVP Income Statement
Current
New
Sales (20,000 X $40)
Variable expenses (20,000 X $24)
Contribution margin
$800,000
480,000
320,000
$912,000
576,000
336,000
(24,000 X $38)
(24,000 X $24)
PROBLEM 22–5A
(a)
(1)
Current Year
Variable costs
Direct materials
Direct labor
490,000
290,000
Current Year
Projected Year
Sales
Variable costs
Direct materials
Direct labor
$1,600,000
490,000
290,000
X 1.1
X 1.1
X 1.1
$1,760,000
539,000
319,000
(2)
Fixed Costs
Current Year
Projected year
Manufacturing overhead ($380,000 X .30)
$114,000
$114,000
PROBLEM 22-5A (Continued)
(b) Unit selling price = $1,600,000 ÷ 100,000 = $16
Unit variable cost = $1,200,000 ÷ 100,000 = $12
Break-even point in units
=
Fixed costs
÷
Unit contribution margin
120,000 units
=
$480,000
÷
$4
Fixed costs
÷
Contribution margin ratio
÷
.25
(c) Sales dollars
required for
=
(Fixed costs
+
Target net income)
÷
Contribution margin ratio
target net
income
+
÷
=
÷
*PROBLEM 22–6A
(a) JACKSON COMPANY
Income Statement
For the Year Ended December 31, 2016
Variable Costing
Sales (3,500 tons X $2,000) …………………….
Variable cost of goods sold
Inventory, January 1 ……………………….
Variable cost of goods manufactured
$ –0–
$7,000,000
*PROBLEM 22-6A (Continued)
JACKSON COMPANY
Income Statement
For the Year Ended December 31, 2017
Variable Costing
Sales (4,000 tons X $2,000) ………………………
Variable cost of goods sold
Inventory, January 1 …………………………
Variable cost of goods manufactured
[3,500 tons X ($2,000 X .15)] …………..
$ 150,000
1,050,000
$8,000,000
(b) JACKSON COMPANY
Income Statement
For the Year Ended December 31, 2016
Absorption Costing
Sales (3,500 tons X $2,000) ………………….
Cost of goods sold
Inventory, January 1 …………………….
$ –0–
$7,000,000