Chapter 20 Homework Administrative Expenses 270000 20 Total Variable Costs

CHAPTER 20

Cost-Volume-Profit Analysis: Additional Issues

ASSIGNMENT CLASSIFICATION TABLE

Learning Objectives

Questions

Brief

Exercises

Do It!

Exercises

A

Problems

1. Apply basic CVP concepts.

1, 2, 3, 4, 5,

6

1, 2, 3, 4, 5,

6

1

1, 2, 3, 4, 5

1A, 2A, 6A

2. Explain the term sales mix and

its effects on break-even sales.

7, 8, 9

7, 8, 9, 10

2

6, 7, 8, 9, 10

3A

3. Determine sales mix when a

company has limited resources.

10, 11

3

11, 12, 13

4A

4. Indicate how operating leverage

affects profitability.

12, 13, 14,

15, 16

4

14, 15, 16

5A, 6A

costing.

ASSIGNMENT CHARACTERISTICS TABLE

Problem

Number

Description

Difficulty

Level

Time

Allotted (min.)

1A

Compute break-even point under alternative courses of

action.

Moderate

20–30

2A

Compute break-even point and margin of safety ratio, and

prepare a CVP income statement before and after changes

in business environment.

Moderate

20–30

3A

Determine break-even sales under alternative sales

strategies and evaluate results.

Moderate

20–30

Determine sales mix with limited resources.

impact of operating leverage on financial results.

6A

Determine contribution margin, break-even point, target

sales, and degree of operating leverage.

Moderate

20–30

Prepare income statements under absorption costing and

variable costing for a company with beginning inventory,

and reconcile differences.

Moderate

20–30

costing income statements when sales level and production

level change. Discuss relative usefulness of absorption

costing versus variable costing.

BLOOM’ S TAXONOMY TABLE

Correlation Chart between Bloom’s Taxonomy, Learning Objectives and End–of-Chapter Exercises and Problems

Learning Objective

Knowledge

Comprehension

Application

Analysis

Synthesis

Evaluation

*1. Apply basic CVP concepts.

Q20-1

Q20-3

Q20-2

Q20-4

Q20-5

Q20-6

BE20-2

BE20-3

BE20-4

BE20-5

BE20-6

DI20-1

E20-1

E20-2

E20-3

E20-4

E20-5

P20–6A

BE20-1

P20-1A

P20–2A

P20–6A

*4. Understand how operating

leverage affects profitability.

Q20–12

Q20–13

Q20–15

Q20–14

Q20–16

BE20–13

BE20–14

BE20–15

E20–14

E20-15

E20–16

P20-5A

P20-6A

DI20-4

E20–14

E20–15

E20–16

P20-5A

P20–6A

*2. Explain the term sales mix and

Q20-7

Q20-8

BE20-7

BE20-8

BE20-9

BE20–10

DI20-2

E20-6

E20-7

E20-8

E20-9

E20–10

P20–3A

E20-6

E20-7

E20-8

P20–3A

Q20–11

Q20–10

BE20–11

E20–11

P20–4A

E20–11

P20–4A

ANSWERS TO QUESTIONS

5. WHEAT COMPANY

CVP Income Statement

8. The 150,000-mile tire has a higher unit contribution margin, that is, each tire sold covers a larger

Questions Chapter 20 (Continued)

16. Pine’s degree of operating leverage of 8 versus Fir’s measure of 4 tells us that Pine will

Questions Chapter 20 (Continued)

*20. If production equals sales in any given period, the net incomes under both methods will be equal.

SOLUTIONS TO BRIEF EXERCISES

BRIEF EXERCISE 20-1

BRIEF EXERCISE 20-2

HAMBY INC.

Income Statement

For the Quarter Ended March 31, 2017

BRIEF EXERCISE 20-3

BRIEF EXERCISE 20-4

BRIEF EXERCISE 20-5

BRIEF EXERCISE 20-6

BRIEF EXERCISE 20-7

$38.50

BRIEF EXERCISE 20-9

BRIEF EXERCISE 20–10

BRIEF EXERCISE 20–11

BRIEF EXERCISE 20-12

BRIEF EXERCISE 20-13

BRIEF EXERCISE 20-14

BRIEF EXERCISE 20-15

*BRIEF EXERCISE 20-16

*BRIEF EXERCISE 20-17

*BRIEF EXERCISE 20-18

*BRIEF EXERCISE 20-19

MEMO

To: Chief financial officer

From: Student

Re: Absorption and variable costing

SOLUTIONS TO DO IT! REVIEW EXERCISES

DO IT! 20-1

DO IT! 20-2

(a) The sales mix percentages as a function of units sold is:

DO IT! 20-2 (Continued)

DO IT! 20-3

DO IT! 20-4

(a)

Contribution

Margin



Net Income

=

Degree of operating

Leverage

SOLUTIONS TO EXERCISES

EXERCISE 20-1

EXERCISE 20-2

EXERCISE 20-2 (Continued)

EXERCISE 20-3

EXERCISE 20-4

EXERCISE 20-5

(a) CAREY COMPANY

CVP Income Statement

For the Year Ended December 31, 2017

(b) CAREY COMPANY

CVP Income Statement

For the Year Ended December 31, 2017

EXERCISE 20-6

Sales Mix

Percentage

Unit contribution

Margin

Weighted-Average

Contribution Margin

$ 187,500

EXERCISE 20-7

(a)

Sales Mix

Contribution

Weighted-Average

Contribution

Oil changes

X

=

(b)

EXERCISE 20-8

Oil changes

X

=

EXERCISE 20-8 (Continued)

(b)

Sales Mix

Percentage

Contribution

Margin Ratio

Weighted-Average

Contribution

Margin Ratio

Percentage

Total sales

EXERCISE 20-9

Percentage

Total sales

EXERCISE 20-9 (Continued)

EXERCISE 20–10

EXERCISE 20–11

EXERCISE 20-11 (Continued)

EXERCISE 20–12

EXERCISE 20–13

EXERCISE 20–14

EXERCISE 20-14 (Continued)

(b)

EXERCISE 20–15

(a)

Contribution

Margin

÷

Net Income

=

Degree of

Operating Leverage

÷

=

EXERCISE 20-15 (Continued)

(c)

(Actual Sales

–

Break-even Sales)

÷

Actual Sales

=

Margin of Safety Ratio

–

÷

=

*EXERCISE 20–16

*EXERCISE 20-16 (Continued)

(b)

% Change

in Sales

X

Degree of

Operating

Leverage

=

% Change in

Net Income

*EXERCISE 20–17

15% decrease:

Traditional Yams

Auto-Yams

X

=

Traditional Yams

Auto-Yams

X

=

*EXERCISE 20-17 (Continued)

(b)

SIREN COMPANY

Income Statement

For the Year Ended December 31, 2017

Variable Costing

Sales (80,000 lures X $25)

Contribution margin

Fixed manufacturing overhead

Net Income (loss)

*EXERCISE 20–18

*EXERCISE 20–19

(a)

Utility Expense

*EXERCISE 20-19 (Continued)

Variable Costing

(b)

Absorption Costing

SOLUTIONS TO PROBLEMS

PROBLEM 20–1A

PROBLEM 20–2A

(a)

(1)

Fixed Costs

Total fixed costs

PROBLEM 20-2A (Continued)

PROBLEM 20-3A

(a)

Sales Mix

Percentage

X

Contribution

Margin Ratio

=

Weighted-Average

Contribution

Margin Ratio

(b)

Sales Mix

Percentage

X

Contribution

Margin Ratio

=

Desserts

Beverages

X

=

Desserts

Beverages

X

=

X

=

Main entrees

Desserts

Beverages

X

=

PROBLEM 20-3A (Continued)

(c)

PROBLEM 20-4A

PROBLEM 20–5A

(a) To determine the break-even point in dollars we must first calculate

the contribution margin ratio for each company.

(b)

(c)

PROBLEM 20-5A (Continued)

PROBLEM 20–6A

PROBLEM 20-6A (Continued)

*PROBLEM 20–7A

(a) JACKSON COMPANY

Income Statement

For the Year Ended December 31, 2016

Variable Costing

*PROBLEM 20-7A (Continued)

JACKSON COMPANY

Income Statement

For the Year Ended December 31, 2017

Variable Costing

(b) JACKSON COMPANY

Income Statement

For the Year Ended December 31, 2016

Absorption Costing

*PROBLEM 20-7A (Continued)

JACKSON COMPANY

Income Statement

For the Year Ended December 31, 2017

Absorption Costing

(c) The variable costing and the absorption costing net income can be

reconciled as follows:

*PROBLEM 20-7A (Continued)

*PROBLEM 20–8A

(a)

DILITHIUM BATTERIES DIVISION

Income Statement

For the Year Ended December 31, 2017

Absorption Costing

(b)

DILITHIUM BATTERIES DIVISION

Income Statement

For the Year Ended December 31, 2017

Variable Costing

*PROBLEM 20-8A (Continued)

CD20 CURRENT DESIGNS

(a)

Weighted

Average Unit

Contribution

(d) CVP Income Statement

(e) Degree of Operating Leverage

BYP 20-1 DECISION-MAKING ACROSS THE ORGANIZATION

(a) Sales (10,000 seats X $500) $5,000,000

BYP 20-2 MANAGERIAL ANALYSIS

(a) The contribution margin ratios under each approach are:

BYP 20-2 (Continued)

(e) In order to solve for the sales level where net income would be equal

under either approach, set the two CVP equations equal to each other

and solve for sales:

BYP 20-3 REAL-WORLD FOCUS

(b)

BYP 20-4 REAL-WORLD FOCUS

(c)

(i)

BYP 20-5 REAL-WORLD FOCUS

BYP 20-6 COMMUNICATION ACTIVITY

MEMO

To: Bjorn Borg—CEO

From: Student

Re: Best use of limited resources

*BYP 20-7 ETHICS CASE

BYP 20-8 ALL ABOUT YOU

BYP 20-9 CONSIDERING PEOPLE, PLANET, AND PROFIT