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*PROBLEM 22-6A (Continued)
JACKSON COMPANY
Income Statement
For the Year Ended December 31, 2017
Absorption Costing
Sales (4,000 tons X $2,000) ..................
Cost of goods sold
Inventory, January 1 .....................
Cost of goods manufactured.........
Cost of goods available for sale ...
Inventory, December 31 ................
$ 500,000
3,850,000
4,350,000
–0–
(1)
$8,000,000
(c) The variable costing and the absorption costing net income can be
reconciled as follows:
2016
2017
Variable costing net income
Fixed manufacturing overhead
expensed with variable costing
$2,800,000
$1,950,000
$2,800,000
$2,700,000
*PROBLEM 22-6A (Continued)
(d) Income parallels sales under variable costing as seen in the increase
in net income in 2017 when 500 additional units were sold. In contrast,
CD22 CURRENT DESIGNS
(a) $250 + $100 + $170 + $420 + $400 = $1,340 total variable costs
(b) Contribution margin per unit = $2,000 – $1,340 = $660
BYP 22-1 DECISION-MAKING ACROSS THE ORGANIZATION
(a)
(1) Capital-Intensive
(2) Labor-Intensive
Fixed manufacturing costs $2,524,000
Fixed manufacturing costs $1,550,000
Selling price $32.00
Variable costs
Direct materials $5.00
Selling price $32.00
Variable costs
Direct materials $5.50
Total fixed costs (1) $3,026,000
Total fixed costs (1) $2,052,000
(b) Creative Ideas Company would be indifferent between the two manufac-
turing methods at the volume (X) where total costs are equal.
(c) Creative Ideas should employ the capital-intensive manufacturing
method if annual sales are expected to exceed 243,500 units and the
BYP 22-2 MANAGERIAL ANALYSIS
(a) The variable costs per unit are:
Cost of goods sold ($600,000 ÷ 240,000) ..................... $2.50
Selling expenses ($117,600 ÷ 240,000) ........................ .49
The break-even points are:
X = ($3.24 ÷ $5.00) X + $452,400
X = .65X + $452,400
.35X = $452,400
(b) Variable unit cost of goods sold = $2.75
($600,000 ÷ 240,000 = $2.50; $2.50 + $.25)
Net income computation:
Sales ....................................................... $1,575,000
Variable expenses
BYP 22-2 (Continued)
Fixed expenses
Cost of goods sold ........................ $200,000
Selling expenses ............................ 162,400
Administrative expenses ............... 90,000
(c) Sales [384,000 (1) X ($5.00 – $.25)] ............... $1,824,000
Variable expenses
Cost of goods sold
(384,000 X $2.50) ................................. $960,000
Selling expenses (384,000 X $.59) ......... 226,560
Contribution margin ...................................... 541,440
Fixed expenses
Cost of goods sold ................................. $200,000
(1) Sales volume = 240,000 X 160% = 384,000
X = ($1,282,560 ÷ $1,824,000)X + $492,400
(d) Peri’s plan should be accepted. It produces a higher net income and
a lower break-even point than Paul’s plan.
BYP 22-3 REAL-WORLD FOCUS
(a) Sweeteners and packaging are a variable cost to Coca-Cola because
their use is directly proportional to the amount of product produced. If
the unit cost of a variable cost item increases, the contribution margin
(b) This description makes the marketing expenditures sound like they are
a variable cost, since it suggests that they vary with the amount of units
sold. However, unlike variable costs, the relationship of marketing costs
(c) The first measure, gallon shipments of concentrates and syrups, is the
activity index, since it best reflects the company’s production and sales
BYP 22-4 REAL-WORLD FOCUS
(a) Barnes and Noble has 1,362 stores with a total of 18.8 million square
(b) Barnes and Noble’s big advantage (which enabled it to put lots of
small independent book sellers out of business), was that each of its
(c) The authors say that the arrival of Apple’s iPad has huge implications
for e-books. ITunes has more than 125 million customers. They represent
a very wide potential audience for e-books.
(d) Barnes and Noble earns about $12.50 on a $25 hardcover book. The
(e) Barnes and Noble was one of the first companies to have an e-reader,
called the Rocket e-book. However, it abandoned its e-reader in 2003
BYP 22-5 COMMUNICATION ACTIVITY
To: My Roommate
From: Your Roommate
Subject: Cost-Volume-Profit Questions
In response to your request for help, I provide you the following:
(a) The mathematical formula for break-even sales is:
Break-even Sales = Variable Costs + Fixed Costs
(b) The formulas for unit contribution margin and contribution margin
ratio differ as shown below:
Unit Selling Price – Unit Variable Costs = Unit Contribution Margin
(c) When contribution margin is used to determine break-even sales, total
BYP 22-5 (Continued)
The formula for determining break-even sales in dollars is:
Fixed Costs ÷ Contribution Margin Ratio = Break-even Sales in Dollars
BYP 22-6 ETHICS CASE
(a) The stakeholders in this situation are:
Scott Bestor, accountant of Westfield Company.
The senior management who made the decision.
(b) Scott is hiding an error and is knowingly deceiving the company’s
management with inaccurate data.
(c) Scott’s alternatives are:
BYP 22-7 ALL ABOUT YOU
(a) The variable gasoline cost of going one mile in the hybrid car would
(b) The savings per mile of driving the hybrid vehicle would be $0.03
($0.12 – $0.09).
