Cost-Volume-Profit Analysis: It is a method followed to analyze the relationship between the sales, costs, and the related profit or loss at various levels of units sold. In other words, it shows the effect of the changes in the cost and the sales volume on the operating income of the company. To prepare: an estimated income statement for 2016.

Question

Want to see more full solutions like this?

Answer 1

Question

Chapter 19, Problem 19.6BPR

1.

To determine

Cost-Volume-Profit Analysis: It is a method followed to analyze the relationship between the sales, costs, and the related profit or loss at various levels of units sold. In other words, it shows the effect of the changes in the cost and the sales volume on the operating income of the company.

To prepare: an estimated income statement for 2016.

1.

Expert Solution

Answer to Problem 19.6BPR

Prepare an estimated income statement for 2016.

Company B
Estimated Income Statement
For the year ended December 31, 2016
Particulars	Amount ($)	Amount ($)	Amount ($)
Sales (1)			2,880,000
Less: Cost of Goods sold:
Direct Materials (2)		600,000
Direct Labor (3)		360,000
Factory Overhead (4)		422,000
Cost of Goods Sold			(1,382,000)
Gross Profit			1,498,000
Less: Expenses:
Selling expenses:
Sales salaries and commissions (5)	388,000
Advertising	116,000
Travel	4,000
Miscellaneous selling expense (6)	14,300
Total selling expenses		522,300
Administrative expenses:
Office and Officers’ salaries	325,000
Supplies (7)	54,000
Miscellaneous administrative expenses (8)	20,700
Total administrative expenses		399,700
Total expenses			(922,000)
Income from operations			576,000

Table (1)

Explanation of Solution

Working notes:

Determine sales.

Number of units to be sold =12,000 units

Selling price per unit =$240 per unit

$Sales =(Number of units to be sold)×(Selling price per unit)=12,000 units×$240 per unit=$2,880,000$ (1)

Determine the cost of direct materials.

Number of units to be sold =12,000 units

Direct Materials cost per unit =$50 per unit

$Direct Materials =(Number of units to be sold)×(Direct Materials cost per unit)=12,000 units×$50 per unit=$600,000$ (2)

Determine the cost of direct labor.

Number of units to be sold =12,000 units

Direct labor cost per unit =$30 per unit

$Direct Labor =(Number of units to be sold)×(Direct Labor cost per unit)=12,000 units×$30 per unit=$360,000$ (3)

Determine the cost of factory overhead.

Factory overhead-Fixed =$350,000

Number of units to be sold =12,000 units

Factory overhead-Variable cost per unit =$6 per unit

$Factory overhead =[Factory overhead-Fixed cost]+[(Number of units to be sold)×(Factory overhead-Variable cost per unit)]=$350,000+[12,000 units×$6 per unit]=$350,000+$72,000=$422,000$ (4)

Determine the sales salaries and commissions.

Sales salaries and commissions-Fixed =$340,000

Number of units to be sold =12,000 units

Sales salaries and commissions-Variable cost per unit =$4 per unit

$Sales salaries and commissions] =[Sales salaries and commissions-Fixed cost]+[(Number of units to be sold)×(Sales salaries and commissions-Variable cost per unit)]=$340,000+[12,000 units×$4 per unit]=$340,000+$48,000=$388,000$ (5)

Determine the miscellaneous selling expense.

Miscellaneous selling expense-Fixed =$2,300

Number of units to be sold =12,000 units

Miscellaneous selling expense-Variable cost per unit =$1 per unit

$Miscellaneous selling expense] =[Miscellaneous selling expense-Fixed cost]+[(Number of units to be sold)×(Miscellaneous selling expense-Variable cost per unit)]=$2,300+[12,000 units×$1 per unit]=$2,300+$12,000=$14,300$ (6)

Determine the supplies.

Supplies-Fixed =$6,000

Number of units to be sold =12,000 units

Supplies-Variable cost per unit =$4 per unit

$Supplies =[Supplies-Fixed cost]+[(Number of units to be sold)×(Supplies-Variable cost per unit)]=$6,000+[12,000 units×$4 per unit]=$6,000+$48,000=$54,000$ (7)

Determine the miscellaneous administrative expense.

Miscellaneous administrative expense-Fixed =$8,700

Number of units to be sold =12,000 units

Miscellaneous administrative expense-Variable cost per unit =$1 per unit

$Miscellaneous administrative expense] =[Miscellaneous administrative expense-Fixed cost]+[(Number of units to be sold)×(Miscellaneous administrative expense-Variable cost per unit)]=$8,700+[12,000 units×$1 per unit]=$8,700+$12,000=$20,700$ (8)

2.

To determine

the expected contribution margin ratio.

2.

Expert Solution

Explanation of Solution

Determine the expected contribution margin ratio.

Sales =$2,880,000 (1)

Variable cost =$1,152,000 (9)

$Contribution Margin Ratio =Contribution MarginSales×100=Sales−Variable costSales×100=$2,880,000−$1,152,000$2,880,000×100=$1,728,000$2,880,000×100=60%$

Working note:

Determine the variable cost.

Number of units to be sold =12,000 units

Variable cost per unit =$96 per unit

$Variable cost =(Number of units to be sold)×(Variable cost per unit)=12,000 units×$96 per unit=$1,152,000$ (9)

Conclusion

Therefore, the expected contribution margin ratio is 60%.

3.

To determine

the break-even sales in units and dollars.

3.

Expert Solution

Explanation of Solution

Determine the break-even sales in units.

Fixed cost =$1,152,000

Contribution margin per unit =$144 per unit (10)

$Break-even point in Sales(units) =Fixed CostsContribution Margin per unit=$1,152,000$144=8,000 units$

Working note:

Compute the contribution margin per unit.

Selling price per unit =$240 per unit

Variable cost per unit =$96 per unit

$Contribution Margin per unit =(Selling price per unit)−(Variable cost per unit)=$240 per unit−$96 per unit=$144 per unit$ (10)

Determine the break-even sales in dollars.

Fixed cost =$1,152,000

Contribution margin ratio =60% (refer Part 2)

$Break-even point in Sales(Dollars) =Fixed CostsContribution Margin ratio=$1,152,00060%=$1,152,000×10060=$1,920,000$

Conclusion

Therefore, the break-even sales in units is 8,000 units and dollars is $1,920,000.

4.

To determine

To construct: a cost-volume-profit chart indicating the break-even sales.

4.

Expert Solution

Answer to Problem 19.6BPR

Construct a cost-volume-profit chart indicating the break-even sales.

Bundle: Financial & Managerial Accounting, 13th + Working Papers, Volume 1, Chapters 1-15 For Warren/reeve/duchac’s Corporate Financial Accounting, ... 13th + Cengagenow™v2, 2 Terms Access Code, Chapter 19, Problem 19.6BPR

Figure (1)

Explanation of Solution

The volume in units of sales is shown on the horizontal axis. The maximum relevant range is 18,000 units. The sales and the total costs (fixed cost and variable cost) in dollars is shown on the vertical axis. The maximum relevant range of sales and total costs is $4,500,000.

The total sales line is drawn right upward by connecting the first point at $0 to the second point at $4,320,000 $[18,000 units×$240 per unit]$ for 18,000 units (maximum relevant range on the horizontal axis).

The total cost line is drawn right upward by connecting the first point at $1,152,000 (fixed cost) on the vertical axis to the second point at $$2,880,000[$1,152,000+$1,728,000]$ to the end of the relevant range. The variable cost is $$1,728,000(18,000 units×$96 per unit)$ .

The break-even point is the intersection point where the total sales line and total cost line meet. The vertical dotted line drawn downward from the intersection point reaches at 8,000 units. It indicates the break-even sales (units). The horizontal line drawn to the left towards the vertical axis reaches at $1,920,000. It indicates the break-even sales (dollars). Refer Part 3 for the break-even values.

The operating profit area is the area where the total sales line exceeds the total cost line. However, the operating loss area is the area where the total cost exceeds the total sales line.

5.

To determine

the expected margin of safety in dollars and as a percentage of sales.

5.

Expert Solution

Explanation of Solution

Determine the expected margin of safety in dollars.

Sales =$2,880,000 (1)

Sales at break-even point =$1,920,000 (refer Part 3)

$Margin of Safety(Dollars)=Sales−Sales at Break-Even Point=$2,880,000−$1,920,000=$960,000$

Determine the expected margin of safety as a percentage of sales.

Sales =$2,880,000 (1)

Margin of Safety in dollars =$960,000

$Margin of Safety(%)=Margin of Safety in dollars Sales×100=$960,000$2,880,000×100=33.3%$

Conclusion

Therefore, the expected margin of safety in dollars is $960,000 and as a percentage of sales is 33.3%.

6.

To determine

the operating leverage.

6.

Expert Solution

Explanation of Solution

Determine the operating leverage.

Contribution margin =$1,728,000 (11)

Income from operations =$576,000 (refer Table 1)

$Operating leverage=Contribution Margin Income from operations=$1,728,000$576,000=3$

Working note:

Determine the contribution margin

Sales =$2,880,000 (1)

Variable cost =$1,152,000 (9)

$Contribution Margin =Sales−Variable cost=$2,880,000−$1,152,000=$1,728,000$ (11)

Conclusion

Therefore, the operating leverage is 3.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Students have asked these similar questions

What effect will acceptance of the offer have on net income

4 POINTS

Apparel boutique for the year?

Answer 2

Question

Chapter 19, Problem 19.6BPR

1.

To determine

Cost-Volume-Profit Analysis: It is a method followed to analyze the relationship between the sales, costs, and the related profit or loss at various levels of units sold. In other words, it shows the effect of the changes in the cost and the sales volume on the operating income of the company.

To prepare: an estimated income statement for 2016.

1.

Expert Solution

Answer to Problem 19.6BPR

Prepare an estimated income statement for 2016.

Company B
Estimated Income Statement
For the year ended December 31, 2016
Particulars	Amount ($)	Amount ($)	Amount ($)
Sales (1)			2,880,000
Less: Cost of Goods sold:
Direct Materials (2)		600,000
Direct Labor (3)		360,000
Factory Overhead (4)		422,000
Cost of Goods Sold			(1,382,000)
Gross Profit			1,498,000
Less: Expenses:
Selling expenses:
Sales salaries and commissions (5)	388,000
Advertising	116,000
Travel	4,000
Miscellaneous selling expense (6)	14,300
Total selling expenses		522,300
Administrative expenses:
Office and Officers’ salaries	325,000
Supplies (7)	54,000
Miscellaneous administrative expenses (8)	20,700
Total administrative expenses		399,700
Total expenses			(922,000)
Income from operations			576,000

Table (1)

Explanation of Solution

Working notes:

Determine sales.

Number of units to be sold =12,000 units

Selling price per unit =$240 per unit

$Sales =(Number of units to be sold)×(Selling price per unit)=12,000 units×$240 per unit=$2,880,000$ (1)

Determine the cost of direct materials.

Number of units to be sold =12,000 units

Direct Materials cost per unit =$50 per unit

$Direct Materials =(Number of units to be sold)×(Direct Materials cost per unit)=12,000 units×$50 per unit=$600,000$ (2)

Determine the cost of direct labor.

Number of units to be sold =12,000 units

Direct labor cost per unit =$30 per unit

$Direct Labor =(Number of units to be sold)×(Direct Labor cost per unit)=12,000 units×$30 per unit=$360,000$ (3)

Determine the cost of factory overhead.

Factory overhead-Fixed =$350,000

Number of units to be sold =12,000 units

Factory overhead-Variable cost per unit =$6 per unit

$Factory overhead =[Factory overhead-Fixed cost]+[(Number of units to be sold)×(Factory overhead-Variable cost per unit)]=$350,000+[12,000 units×$6 per unit]=$350,000+$72,000=$422,000$ (4)

Determine the sales salaries and commissions.

Sales salaries and commissions-Fixed =$340,000

Number of units to be sold =12,000 units

Sales salaries and commissions-Variable cost per unit =$4 per unit

$Sales salaries and commissions] =[Sales salaries and commissions-Fixed cost]+[(Number of units to be sold)×(Sales salaries and commissions-Variable cost per unit)]=$340,000+[12,000 units×$4 per unit]=$340,000+$48,000=$388,000$ (5)

Determine the miscellaneous selling expense.

Miscellaneous selling expense-Fixed =$2,300

Number of units to be sold =12,000 units

Miscellaneous selling expense-Variable cost per unit =$1 per unit

$Miscellaneous selling expense] =[Miscellaneous selling expense-Fixed cost]+[(Number of units to be sold)×(Miscellaneous selling expense-Variable cost per unit)]=$2,300+[12,000 units×$1 per unit]=$2,300+$12,000=$14,300$ (6)

Determine the supplies.

Supplies-Fixed =$6,000

Number of units to be sold =12,000 units

Supplies-Variable cost per unit =$4 per unit

$Supplies =[Supplies-Fixed cost]+[(Number of units to be sold)×(Supplies-Variable cost per unit)]=$6,000+[12,000 units×$4 per unit]=$6,000+$48,000=$54,000$ (7)

Determine the miscellaneous administrative expense.

Miscellaneous administrative expense-Fixed =$8,700

Number of units to be sold =12,000 units

Miscellaneous administrative expense-Variable cost per unit =$1 per unit

$Miscellaneous administrative expense] =[Miscellaneous administrative expense-Fixed cost]+[(Number of units to be sold)×(Miscellaneous administrative expense-Variable cost per unit)]=$8,700+[12,000 units×$1 per unit]=$8,700+$12,000=$20,700$ (8)

2.

To determine

the expected contribution margin ratio.

2.

Expert Solution

Explanation of Solution

Determine the expected contribution margin ratio.

Sales =$2,880,000 (1)

Variable cost =$1,152,000 (9)

$Contribution Margin Ratio =Contribution MarginSales×100=Sales−Variable costSales×100=$2,880,000−$1,152,000$2,880,000×100=$1,728,000$2,880,000×100=60%$

Working note:

Determine the variable cost.

Number of units to be sold =12,000 units

Variable cost per unit =$96 per unit

$Variable cost =(Number of units to be sold)×(Variable cost per unit)=12,000 units×$96 per unit=$1,152,000$ (9)

Conclusion

Therefore, the expected contribution margin ratio is 60%.

3.

To determine

the break-even sales in units and dollars.

3.

Expert Solution

Explanation of Solution

Determine the break-even sales in units.

Fixed cost =$1,152,000

Contribution margin per unit =$144 per unit (10)

$Break-even point in Sales(units) =Fixed CostsContribution Margin per unit=$1,152,000$144=8,000 units$

Working note:

Compute the contribution margin per unit.

Selling price per unit =$240 per unit

Variable cost per unit =$96 per unit

$Contribution Margin per unit =(Selling price per unit)−(Variable cost per unit)=$240 per unit−$96 per unit=$144 per unit$ (10)

Determine the break-even sales in dollars.

Fixed cost =$1,152,000

Contribution margin ratio =60% (refer Part 2)

$Break-even point in Sales(Dollars) =Fixed CostsContribution Margin ratio=$1,152,00060%=$1,152,000×10060=$1,920,000$

Conclusion

Therefore, the break-even sales in units is 8,000 units and dollars is $1,920,000.

4.

To determine

To construct: a cost-volume-profit chart indicating the break-even sales.

4.

Expert Solution

Answer to Problem 19.6BPR

Construct a cost-volume-profit chart indicating the break-even sales.

Bundle: Financial & Managerial Accounting, 13th + Working Papers, Volume 1, Chapters 1-15 For Warren/reeve/duchac’s Corporate Financial Accounting, ... 13th + Cengagenow™v2, 2 Terms Access Code, Chapter 19, Problem 19.6BPR

Figure (1)

Explanation of Solution

The volume in units of sales is shown on the horizontal axis. The maximum relevant range is 18,000 units. The sales and the total costs (fixed cost and variable cost) in dollars is shown on the vertical axis. The maximum relevant range of sales and total costs is $4,500,000.

The total sales line is drawn right upward by connecting the first point at $0 to the second point at $4,320,000 $[18,000 units×$240 per unit]$ for 18,000 units (maximum relevant range on the horizontal axis).

The total cost line is drawn right upward by connecting the first point at $1,152,000 (fixed cost) on the vertical axis to the second point at $$2,880,000[$1,152,000+$1,728,000]$ to the end of the relevant range. The variable cost is $$1,728,000(18,000 units×$96 per unit)$ .

The break-even point is the intersection point where the total sales line and total cost line meet. The vertical dotted line drawn downward from the intersection point reaches at 8,000 units. It indicates the break-even sales (units). The horizontal line drawn to the left towards the vertical axis reaches at $1,920,000. It indicates the break-even sales (dollars). Refer Part 3 for the break-even values.

The operating profit area is the area where the total sales line exceeds the total cost line. However, the operating loss area is the area where the total cost exceeds the total sales line.

5.

To determine

the expected margin of safety in dollars and as a percentage of sales.

5.

Expert Solution

Explanation of Solution

Determine the expected margin of safety in dollars.

Sales =$2,880,000 (1)

Sales at break-even point =$1,920,000 (refer Part 3)

$Margin of Safety(Dollars)=Sales−Sales at Break-Even Point=$2,880,000−$1,920,000=$960,000$

Determine the expected margin of safety as a percentage of sales.

Sales =$2,880,000 (1)

Margin of Safety in dollars =$960,000

$Margin of Safety(%)=Margin of Safety in dollars Sales×100=$960,000$2,880,000×100=33.3%$

Conclusion

Therefore, the expected margin of safety in dollars is $960,000 and as a percentage of sales is 33.3%.

6.

To determine

the operating leverage.

6.

Expert Solution

Explanation of Solution

Determine the operating leverage.

Contribution margin =$1,728,000 (11)

Income from operations =$576,000 (refer Table 1)

$Operating leverage=Contribution Margin Income from operations=$1,728,000$576,000=3$

Working note:

Determine the contribution margin

Sales =$2,880,000 (1)

Variable cost =$1,152,000 (9)

$Contribution Margin =Sales−Variable cost=$2,880,000−$1,152,000=$1,728,000$ (11)

Conclusion

Therefore, the operating leverage is 3.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 3

Question

Chapter 19, Problem 19.6BPR

1.

To determine

Cost-Volume-Profit Analysis: It is a method followed to analyze the relationship between the sales, costs, and the related profit or loss at various levels of units sold. In other words, it shows the effect of the changes in the cost and the sales volume on the operating income of the company.

To prepare: an estimated income statement for 2016.

1.

Expert Solution

Answer to Problem 19.6BPR

Prepare an estimated income statement for 2016.

Company B
Estimated Income Statement
For the year ended December 31, 2016
Particulars	Amount ($)	Amount ($)	Amount ($)
Sales (1)			2,880,000
Less: Cost of Goods sold:
Direct Materials (2)		600,000
Direct Labor (3)		360,000
Factory Overhead (4)		422,000
Cost of Goods Sold			(1,382,000)
Gross Profit			1,498,000
Less: Expenses:
Selling expenses:
Sales salaries and commissions (5)	388,000
Advertising	116,000
Travel	4,000
Miscellaneous selling expense (6)	14,300
Total selling expenses		522,300
Administrative expenses:
Office and Officers’ salaries	325,000
Supplies (7)	54,000
Miscellaneous administrative expenses (8)	20,700
Total administrative expenses		399,700
Total expenses			(922,000)
Income from operations			576,000

Table (1)

Explanation of Solution

Working notes:

Determine sales.

Number of units to be sold =12,000 units

Selling price per unit =$240 per unit

$Sales =(Number of units to be sold)×(Selling price per unit)=12,000 units×$240 per unit=$2,880,000$ (1)

Determine the cost of direct materials.

Number of units to be sold =12,000 units

Direct Materials cost per unit =$50 per unit

$Direct Materials =(Number of units to be sold)×(Direct Materials cost per unit)=12,000 units×$50 per unit=$600,000$ (2)

Determine the cost of direct labor.

Number of units to be sold =12,000 units

Direct labor cost per unit =$30 per unit

$Direct Labor =(Number of units to be sold)×(Direct Labor cost per unit)=12,000 units×$30 per unit=$360,000$ (3)

Determine the cost of factory overhead.

Factory overhead-Fixed =$350,000

Number of units to be sold =12,000 units

Factory overhead-Variable cost per unit =$6 per unit

$Factory overhead =[Factory overhead-Fixed cost]+[(Number of units to be sold)×(Factory overhead-Variable cost per unit)]=$350,000+[12,000 units×$6 per unit]=$350,000+$72,000=$422,000$ (4)

Determine the sales salaries and commissions.

Sales salaries and commissions-Fixed =$340,000

Number of units to be sold =12,000 units

Sales salaries and commissions-Variable cost per unit =$4 per unit

$Sales salaries and commissions] =[Sales salaries and commissions-Fixed cost]+[(Number of units to be sold)×(Sales salaries and commissions-Variable cost per unit)]=$340,000+[12,000 units×$4 per unit]=$340,000+$48,000=$388,000$ (5)

Determine the miscellaneous selling expense.

Miscellaneous selling expense-Fixed =$2,300

Number of units to be sold =12,000 units

Miscellaneous selling expense-Variable cost per unit =$1 per unit

$Miscellaneous selling expense] =[Miscellaneous selling expense-Fixed cost]+[(Number of units to be sold)×(Miscellaneous selling expense-Variable cost per unit)]=$2,300+[12,000 units×$1 per unit]=$2,300+$12,000=$14,300$ (6)

Determine the supplies.

Supplies-Fixed =$6,000

Number of units to be sold =12,000 units

Supplies-Variable cost per unit =$4 per unit

$Supplies =[Supplies-Fixed cost]+[(Number of units to be sold)×(Supplies-Variable cost per unit)]=$6,000+[12,000 units×$4 per unit]=$6,000+$48,000=$54,000$ (7)

Determine the miscellaneous administrative expense.

Miscellaneous administrative expense-Fixed =$8,700

Number of units to be sold =12,000 units

Miscellaneous administrative expense-Variable cost per unit =$1 per unit

$Miscellaneous administrative expense] =[Miscellaneous administrative expense-Fixed cost]+[(Number of units to be sold)×(Miscellaneous administrative expense-Variable cost per unit)]=$8,700+[12,000 units×$1 per unit]=$8,700+$12,000=$20,700$ (8)

2.

To determine

the expected contribution margin ratio.

2.

Expert Solution

Explanation of Solution

Determine the expected contribution margin ratio.

Sales =$2,880,000 (1)

Variable cost =$1,152,000 (9)

$Contribution Margin Ratio =Contribution MarginSales×100=Sales−Variable costSales×100=$2,880,000−$1,152,000$2,880,000×100=$1,728,000$2,880,000×100=60%$

Working note:

Determine the variable cost.

Number of units to be sold =12,000 units

Variable cost per unit =$96 per unit

$Variable cost =(Number of units to be sold)×(Variable cost per unit)=12,000 units×$96 per unit=$1,152,000$ (9)

Conclusion

Therefore, the expected contribution margin ratio is 60%.

3.

To determine

the break-even sales in units and dollars.

3.

Expert Solution

Explanation of Solution

Determine the break-even sales in units.

Fixed cost =$1,152,000

Contribution margin per unit =$144 per unit (10)

$Break-even point in Sales(units) =Fixed CostsContribution Margin per unit=$1,152,000$144=8,000 units$

Working note:

Compute the contribution margin per unit.

Selling price per unit =$240 per unit

Variable cost per unit =$96 per unit

$Contribution Margin per unit =(Selling price per unit)−(Variable cost per unit)=$240 per unit−$96 per unit=$144 per unit$ (10)

Determine the break-even sales in dollars.

Fixed cost =$1,152,000

Contribution margin ratio =60% (refer Part 2)

$Break-even point in Sales(Dollars) =Fixed CostsContribution Margin ratio=$1,152,00060%=$1,152,000×10060=$1,920,000$

Conclusion

Therefore, the break-even sales in units is 8,000 units and dollars is $1,920,000.

4.

To determine

To construct: a cost-volume-profit chart indicating the break-even sales.

4.

Expert Solution

Answer to Problem 19.6BPR

Construct a cost-volume-profit chart indicating the break-even sales.

Bundle: Financial & Managerial Accounting, 13th + Working Papers, Volume 1, Chapters 1-15 For Warren/reeve/duchac’s Corporate Financial Accounting, ... 13th + Cengagenow™v2, 2 Terms Access Code, Chapter 19, Problem 19.6BPR

Figure (1)

Explanation of Solution

The volume in units of sales is shown on the horizontal axis. The maximum relevant range is 18,000 units. The sales and the total costs (fixed cost and variable cost) in dollars is shown on the vertical axis. The maximum relevant range of sales and total costs is $4,500,000.

The total sales line is drawn right upward by connecting the first point at $0 to the second point at $4,320,000 $[18,000 units×$240 per unit]$ for 18,000 units (maximum relevant range on the horizontal axis).

The total cost line is drawn right upward by connecting the first point at $1,152,000 (fixed cost) on the vertical axis to the second point at $$2,880,000[$1,152,000+$1,728,000]$ to the end of the relevant range. The variable cost is $$1,728,000(18,000 units×$96 per unit)$ .

The break-even point is the intersection point where the total sales line and total cost line meet. The vertical dotted line drawn downward from the intersection point reaches at 8,000 units. It indicates the break-even sales (units). The horizontal line drawn to the left towards the vertical axis reaches at $1,920,000. It indicates the break-even sales (dollars). Refer Part 3 for the break-even values.

The operating profit area is the area where the total sales line exceeds the total cost line. However, the operating loss area is the area where the total cost exceeds the total sales line.

5.

To determine

the expected margin of safety in dollars and as a percentage of sales.

5.

Expert Solution

Explanation of Solution

Determine the expected margin of safety in dollars.

Sales =$2,880,000 (1)

Sales at break-even point =$1,920,000 (refer Part 3)

$Margin of Safety(Dollars)=Sales−Sales at Break-Even Point=$2,880,000−$1,920,000=$960,000$

Determine the expected margin of safety as a percentage of sales.

Sales =$2,880,000 (1)

Margin of Safety in dollars =$960,000

$Margin of Safety(%)=Margin of Safety in dollars Sales×100=$960,000$2,880,000×100=33.3%$

Conclusion

Therefore, the expected margin of safety in dollars is $960,000 and as a percentage of sales is 33.3%.

6.

To determine

the operating leverage.

6.

Expert Solution

Explanation of Solution

Determine the operating leverage.

Contribution margin =$1,728,000 (11)

Income from operations =$576,000 (refer Table 1)

$Operating leverage=Contribution Margin Income from operations=$1,728,000$576,000=3$

Working note:

Determine the contribution margin

Sales =$2,880,000 (1)

Variable cost =$1,152,000 (9)

$Contribution Margin =Sales−Variable cost=$2,880,000−$1,152,000=$1,728,000$ (11)

Conclusion

Therefore, the operating leverage is 3.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 4

Question

Chapter 19, Problem 19.6BPR

1.

To determine

Cost-Volume-Profit Analysis: It is a method followed to analyze the relationship between the sales, costs, and the related profit or loss at various levels of units sold. In other words, it shows the effect of the changes in the cost and the sales volume on the operating income of the company.

To prepare: an estimated income statement for 2016.

1.

Expert Solution

Answer to Problem 19.6BPR

Prepare an estimated income statement for 2016.

Company B
Estimated Income Statement
For the year ended December 31, 2016
Particulars	Amount ($)	Amount ($)	Amount ($)
Sales (1)			2,880,000
Less: Cost of Goods sold:
Direct Materials (2)		600,000
Direct Labor (3)		360,000
Factory Overhead (4)		422,000
Cost of Goods Sold			(1,382,000)
Gross Profit			1,498,000
Less: Expenses:
Selling expenses:
Sales salaries and commissions (5)	388,000
Advertising	116,000
Travel	4,000
Miscellaneous selling expense (6)	14,300
Total selling expenses		522,300
Administrative expenses:
Office and Officers’ salaries	325,000
Supplies (7)	54,000
Miscellaneous administrative expenses (8)	20,700
Total administrative expenses		399,700
Total expenses			(922,000)
Income from operations			576,000

Table (1)

Explanation of Solution

Working notes:

Determine sales.

Number of units to be sold =12,000 units

Selling price per unit =$240 per unit

$Sales =(Number of units to be sold)×(Selling price per unit)=12,000 units×$240 per unit=$2,880,000$ (1)

Determine the cost of direct materials.

Number of units to be sold =12,000 units

Direct Materials cost per unit =$50 per unit

$Direct Materials =(Number of units to be sold)×(Direct Materials cost per unit)=12,000 units×$50 per unit=$600,000$ (2)

Determine the cost of direct labor.

Number of units to be sold =12,000 units

Direct labor cost per unit =$30 per unit

$Direct Labor =(Number of units to be sold)×(Direct Labor cost per unit)=12,000 units×$30 per unit=$360,000$ (3)

Determine the cost of factory overhead.

Factory overhead-Fixed =$350,000

Number of units to be sold =12,000 units

Factory overhead-Variable cost per unit =$6 per unit

$Factory overhead =[Factory overhead-Fixed cost]+[(Number of units to be sold)×(Factory overhead-Variable cost per unit)]=$350,000+[12,000 units×$6 per unit]=$350,000+$72,000=$422,000$ (4)

Determine the sales salaries and commissions.

Sales salaries and commissions-Fixed =$340,000

Number of units to be sold =12,000 units

Sales salaries and commissions-Variable cost per unit =$4 per unit

$Sales salaries and commissions] =[Sales salaries and commissions-Fixed cost]+[(Number of units to be sold)×(Sales salaries and commissions-Variable cost per unit)]=$340,000+[12,000 units×$4 per unit]=$340,000+$48,000=$388,000$ (5)

Determine the miscellaneous selling expense.

Miscellaneous selling expense-Fixed =$2,300

Number of units to be sold =12,000 units

Miscellaneous selling expense-Variable cost per unit =$1 per unit

$Miscellaneous selling expense] =[Miscellaneous selling expense-Fixed cost]+[(Number of units to be sold)×(Miscellaneous selling expense-Variable cost per unit)]=$2,300+[12,000 units×$1 per unit]=$2,300+$12,000=$14,300$ (6)

Determine the supplies.

Supplies-Fixed =$6,000

Number of units to be sold =12,000 units

Supplies-Variable cost per unit =$4 per unit

$Supplies =[Supplies-Fixed cost]+[(Number of units to be sold)×(Supplies-Variable cost per unit)]=$6,000+[12,000 units×$4 per unit]=$6,000+$48,000=$54,000$ (7)

Determine the miscellaneous administrative expense.

Miscellaneous administrative expense-Fixed =$8,700

Number of units to be sold =12,000 units

Miscellaneous administrative expense-Variable cost per unit =$1 per unit

$Miscellaneous administrative expense] =[Miscellaneous administrative expense-Fixed cost]+[(Number of units to be sold)×(Miscellaneous administrative expense-Variable cost per unit)]=$8,700+[12,000 units×$1 per unit]=$8,700+$12,000=$20,700$ (8)

2.

To determine

the expected contribution margin ratio.

2.

Expert Solution

Explanation of Solution

Determine the expected contribution margin ratio.

Sales =$2,880,000 (1)

Variable cost =$1,152,000 (9)

$Contribution Margin Ratio =Contribution MarginSales×100=Sales−Variable costSales×100=$2,880,000−$1,152,000$2,880,000×100=$1,728,000$2,880,000×100=60%$

Working note:

Determine the variable cost.

Number of units to be sold =12,000 units

Variable cost per unit =$96 per unit

$Variable cost =(Number of units to be sold)×(Variable cost per unit)=12,000 units×$96 per unit=$1,152,000$ (9)

Conclusion

Therefore, the expected contribution margin ratio is 60%.

3.

To determine

the break-even sales in units and dollars.

3.

Expert Solution

Explanation of Solution

Determine the break-even sales in units.

Fixed cost =$1,152,000

Contribution margin per unit =$144 per unit (10)

$Break-even point in Sales(units) =Fixed CostsContribution Margin per unit=$1,152,000$144=8,000 units$

Working note:

Compute the contribution margin per unit.

Selling price per unit =$240 per unit

Variable cost per unit =$96 per unit

$Contribution Margin per unit =(Selling price per unit)−(Variable cost per unit)=$240 per unit−$96 per unit=$144 per unit$ (10)

Determine the break-even sales in dollars.

Fixed cost =$1,152,000

Contribution margin ratio =60% (refer Part 2)

$Break-even point in Sales(Dollars) =Fixed CostsContribution Margin ratio=$1,152,00060%=$1,152,000×10060=$1,920,000$

Conclusion

Therefore, the break-even sales in units is 8,000 units and dollars is $1,920,000.

4.

To determine

To construct: a cost-volume-profit chart indicating the break-even sales.

4.

Expert Solution

Answer to Problem 19.6BPR

Construct a cost-volume-profit chart indicating the break-even sales.

Bundle: Financial & Managerial Accounting, 13th + Working Papers, Volume 1, Chapters 1-15 For Warren/reeve/duchac’s Corporate Financial Accounting, ... 13th + Cengagenow™v2, 2 Terms Access Code, Chapter 19, Problem 19.6BPR

Figure (1)

Explanation of Solution

The volume in units of sales is shown on the horizontal axis. The maximum relevant range is 18,000 units. The sales and the total costs (fixed cost and variable cost) in dollars is shown on the vertical axis. The maximum relevant range of sales and total costs is $4,500,000.

The total sales line is drawn right upward by connecting the first point at $0 to the second point at $4,320,000 $[18,000 units×$240 per unit]$ for 18,000 units (maximum relevant range on the horizontal axis).

The total cost line is drawn right upward by connecting the first point at $1,152,000 (fixed cost) on the vertical axis to the second point at $$2,880,000[$1,152,000+$1,728,000]$ to the end of the relevant range. The variable cost is $$1,728,000(18,000 units×$96 per unit)$ .

The break-even point is the intersection point where the total sales line and total cost line meet. The vertical dotted line drawn downward from the intersection point reaches at 8,000 units. It indicates the break-even sales (units). The horizontal line drawn to the left towards the vertical axis reaches at $1,920,000. It indicates the break-even sales (dollars). Refer Part 3 for the break-even values.

The operating profit area is the area where the total sales line exceeds the total cost line. However, the operating loss area is the area where the total cost exceeds the total sales line.

5.

To determine

the expected margin of safety in dollars and as a percentage of sales.

5.

Expert Solution

Explanation of Solution

Determine the expected margin of safety in dollars.

Sales =$2,880,000 (1)

Sales at break-even point =$1,920,000 (refer Part 3)

$Margin of Safety(Dollars)=Sales−Sales at Break-Even Point=$2,880,000−$1,920,000=$960,000$

Determine the expected margin of safety as a percentage of sales.

Sales =$2,880,000 (1)

Margin of Safety in dollars =$960,000

$Margin of Safety(%)=Margin of Safety in dollars Sales×100=$960,000$2,880,000×100=33.3%$

Conclusion

Therefore, the expected margin of safety in dollars is $960,000 and as a percentage of sales is 33.3%.

6.

To determine

the operating leverage.

6.

Expert Solution

Explanation of Solution

Determine the operating leverage.

Contribution margin =$1,728,000 (11)

Income from operations =$576,000 (refer Table 1)

$Operating leverage=Contribution Margin Income from operations=$1,728,000$576,000=3$

Working note:

Determine the contribution margin

Sales =$2,880,000 (1)

Variable cost =$1,152,000 (9)

$Contribution Margin =Sales−Variable cost=$2,880,000−$1,152,000=$1,728,000$ (11)

Conclusion

Therefore, the operating leverage is 3.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!

Answer 5

Chapter 19, Problem 19.6BPR

1.

To determine

Cost-Volume-Profit Analysis: It is a method followed to analyze the relationship between the sales, costs, and the related profit or loss at various levels of units sold. In other words, it shows the effect of the changes in the cost and the sales volume on the operating income of the company.

To prepare: an estimated income statement for 2016.

1.

Expert Solution

Answer to Problem 19.6BPR

Prepare an estimated income statement for 2016.

Company B
Estimated Income Statement
For the year ended December 31, 2016
Particulars	Amount ($)	Amount ($)	Amount ($)
Sales (1)			2,880,000
Less: Cost of Goods sold:
Direct Materials (2)		600,000
Direct Labor (3)		360,000
Factory Overhead (4)		422,000
Cost of Goods Sold			(1,382,000)
Gross Profit			1,498,000
Less: Expenses:
Selling expenses:
Sales salaries and commissions (5)	388,000
Advertising	116,000
Travel	4,000
Miscellaneous selling expense (6)	14,300
Total selling expenses		522,300
Administrative expenses:
Office and Officers’ salaries	325,000
Supplies (7)	54,000
Miscellaneous administrative expenses (8)	20,700
Total administrative expenses		399,700
Total expenses			(922,000)
Income from operations			576,000

Table (1)

Explanation of Solution

Working notes:

Determine sales.

Number of units to be sold =12,000 units

Selling price per unit =$240 per unit

$Sales =(Number of units to be sold)×(Selling price per unit)=12,000 units×$240 per unit=$2,880,000$ (1)

Determine the cost of direct materials.

Number of units to be sold =12,000 units

Direct Materials cost per unit =$50 per unit

$Direct Materials =(Number of units to be sold)×(Direct Materials cost per unit)=12,000 units×$50 per unit=$600,000$ (2)

Determine the cost of direct labor.

Number of units to be sold =12,000 units

Direct labor cost per unit =$30 per unit

$Direct Labor =(Number of units to be sold)×(Direct Labor cost per unit)=12,000 units×$30 per unit=$360,000$ (3)

Determine the cost of factory overhead.

Factory overhead-Fixed =$350,000

Number of units to be sold =12,000 units

Factory overhead-Variable cost per unit =$6 per unit

$Factory overhead =[Factory overhead-Fixed cost]+[(Number of units to be sold)×(Factory overhead-Variable cost per unit)]=$350,000+[12,000 units×$6 per unit]=$350,000+$72,000=$422,000$ (4)

Determine the sales salaries and commissions.

Sales salaries and commissions-Fixed =$340,000

Number of units to be sold =12,000 units

Sales salaries and commissions-Variable cost per unit =$4 per unit

$Sales salaries and commissions] =[Sales salaries and commissions-Fixed cost]+[(Number of units to be sold)×(Sales salaries and commissions-Variable cost per unit)]=$340,000+[12,000 units×$4 per unit]=$340,000+$48,000=$388,000$ (5)

Determine the miscellaneous selling expense.

Miscellaneous selling expense-Fixed =$2,300

Number of units to be sold =12,000 units

Miscellaneous selling expense-Variable cost per unit =$1 per unit

$Miscellaneous selling expense] =[Miscellaneous selling expense-Fixed cost]+[(Number of units to be sold)×(Miscellaneous selling expense-Variable cost per unit)]=$2,300+[12,000 units×$1 per unit]=$2,300+$12,000=$14,300$ (6)

Determine the supplies.

Supplies-Fixed =$6,000

Number of units to be sold =12,000 units

Supplies-Variable cost per unit =$4 per unit

$Supplies =[Supplies-Fixed cost]+[(Number of units to be sold)×(Supplies-Variable cost per unit)]=$6,000+[12,000 units×$4 per unit]=$6,000+$48,000=$54,000$ (7)

Determine the miscellaneous administrative expense.

Miscellaneous administrative expense-Fixed =$8,700

Number of units to be sold =12,000 units

Miscellaneous administrative expense-Variable cost per unit =$1 per unit

$Miscellaneous administrative expense] =[Miscellaneous administrative expense-Fixed cost]+[(Number of units to be sold)×(Miscellaneous administrative expense-Variable cost per unit)]=$8,700+[12,000 units×$1 per unit]=$8,700+$12,000=$20,700$ (8)

2.

To determine

the expected contribution margin ratio.

2.

Expert Solution

Explanation of Solution

Determine the expected contribution margin ratio.

Sales =$2,880,000 (1)

Variable cost =$1,152,000 (9)

$Contribution Margin Ratio =Contribution MarginSales×100=Sales−Variable costSales×100=$2,880,000−$1,152,000$2,880,000×100=$1,728,000$2,880,000×100=60%$

Working note:

Determine the variable cost.

Number of units to be sold =12,000 units

Variable cost per unit =$96 per unit

$Variable cost =(Number of units to be sold)×(Variable cost per unit)=12,000 units×$96 per unit=$1,152,000$ (9)

Conclusion

Therefore, the expected contribution margin ratio is 60%.

3.

To determine

the break-even sales in units and dollars.

3.

Expert Solution

Explanation of Solution

Determine the break-even sales in units.

Fixed cost =$1,152,000

Contribution margin per unit =$144 per unit (10)

$Break-even point in Sales(units) =Fixed CostsContribution Margin per unit=$1,152,000$144=8,000 units$

Working note:

Compute the contribution margin per unit.

Selling price per unit =$240 per unit

Variable cost per unit =$96 per unit

$Contribution Margin per unit =(Selling price per unit)−(Variable cost per unit)=$240 per unit−$96 per unit=$144 per unit$ (10)

Determine the break-even sales in dollars.

Fixed cost =$1,152,000

Contribution margin ratio =60% (refer Part 2)

$Break-even point in Sales(Dollars) =Fixed CostsContribution Margin ratio=$1,152,00060%=$1,152,000×10060=$1,920,000$

Conclusion

Therefore, the break-even sales in units is 8,000 units and dollars is $1,920,000.

4.

To determine

To construct: a cost-volume-profit chart indicating the break-even sales.

4.

Expert Solution

Answer to Problem 19.6BPR

Construct a cost-volume-profit chart indicating the break-even sales.

Bundle: Financial & Managerial Accounting, 13th + Working Papers, Volume 1, Chapters 1-15 For Warren/reeve/duchac’s Corporate Financial Accounting, ... 13th + Cengagenow™v2, 2 Terms Access Code, Chapter 19, Problem 19.6BPR

Figure (1)

Explanation of Solution

The volume in units of sales is shown on the horizontal axis. The maximum relevant range is 18,000 units. The sales and the total costs (fixed cost and variable cost) in dollars is shown on the vertical axis. The maximum relevant range of sales and total costs is $4,500,000.

The total sales line is drawn right upward by connecting the first point at $0 to the second point at $4,320,000 $[18,000 units×$240 per unit]$ for 18,000 units (maximum relevant range on the horizontal axis).

The total cost line is drawn right upward by connecting the first point at $1,152,000 (fixed cost) on the vertical axis to the second point at $$2,880,000[$1,152,000+$1,728,000]$ to the end of the relevant range. The variable cost is $$1,728,000(18,000 units×$96 per unit)$ .

The break-even point is the intersection point where the total sales line and total cost line meet. The vertical dotted line drawn downward from the intersection point reaches at 8,000 units. It indicates the break-even sales (units). The horizontal line drawn to the left towards the vertical axis reaches at $1,920,000. It indicates the break-even sales (dollars). Refer Part 3 for the break-even values.

The operating profit area is the area where the total sales line exceeds the total cost line. However, the operating loss area is the area where the total cost exceeds the total sales line.

5.

To determine

the expected margin of safety in dollars and as a percentage of sales.

5.

Expert Solution

Explanation of Solution

Determine the expected margin of safety in dollars.

Sales =$2,880,000 (1)

Sales at break-even point =$1,920,000 (refer Part 3)

$Margin of Safety(Dollars)=Sales−Sales at Break-Even Point=$2,880,000−$1,920,000=$960,000$

Determine the expected margin of safety as a percentage of sales.

Sales =$2,880,000 (1)

Margin of Safety in dollars =$960,000

$Margin of Safety(%)=Margin of Safety in dollars Sales×100=$960,000$2,880,000×100=33.3%$

Conclusion

Therefore, the expected margin of safety in dollars is $960,000 and as a percentage of sales is 33.3%.

6.

To determine

the operating leverage.

6.

Expert Solution

Explanation of Solution

Determine the operating leverage.

Contribution margin =$1,728,000 (11)

Income from operations =$576,000 (refer Table 1)

$Operating leverage=Contribution Margin Income from operations=$1,728,000$576,000=3$

Working note:

Determine the contribution margin

Sales =$2,880,000 (1)

Variable cost =$1,152,000 (9)

$Contribution Margin =Sales−Variable cost=$2,880,000−$1,152,000=$1,728,000$ (11)

Conclusion

Therefore, the operating leverage is 3.

Answer 6

Chapter 19, Problem 19.6BPR

1.

To determine

Cost-Volume-Profit Analysis: It is a method followed to analyze the relationship between the sales, costs, and the related profit or loss at various levels of units sold. In other words, it shows the effect of the changes in the cost and the sales volume on the operating income of the company.

To prepare: an estimated income statement for 2016.

1.

Expert Solution

Answer to Problem 19.6BPR

Prepare an estimated income statement for 2016.

Company B
Estimated Income Statement
For the year ended December 31, 2016
Particulars	Amount ($)	Amount ($)	Amount ($)
Sales (1)			2,880,000
Less: Cost of Goods sold:
Direct Materials (2)		600,000
Direct Labor (3)		360,000
Factory Overhead (4)		422,000
Cost of Goods Sold			(1,382,000)
Gross Profit			1,498,000
Less: Expenses:
Selling expenses:
Sales salaries and commissions (5)	388,000
Advertising	116,000
Travel	4,000
Miscellaneous selling expense (6)	14,300
Total selling expenses		522,300
Administrative expenses:
Office and Officers’ salaries	325,000
Supplies (7)	54,000
Miscellaneous administrative expenses (8)	20,700
Total administrative expenses		399,700
Total expenses			(922,000)
Income from operations			576,000

Table (1)

Explanation of Solution

Working notes:

Determine sales.

Number of units to be sold =12,000 units

Selling price per unit =$240 per unit

$Sales =(Number of units to be sold)×(Selling price per unit)=12,000 units×$240 per unit=$2,880,000$ (1)

Determine the cost of direct materials.

Number of units to be sold =12,000 units

Direct Materials cost per unit =$50 per unit

$Direct Materials =(Number of units to be sold)×(Direct Materials cost per unit)=12,000 units×$50 per unit=$600,000$ (2)

Determine the cost of direct labor.

Number of units to be sold =12,000 units

Direct labor cost per unit =$30 per unit

$Direct Labor =(Number of units to be sold)×(Direct Labor cost per unit)=12,000 units×$30 per unit=$360,000$ (3)

Determine the cost of factory overhead.

Factory overhead-Fixed =$350,000

Number of units to be sold =12,000 units

Factory overhead-Variable cost per unit =$6 per unit

$Factory overhead =[Factory overhead-Fixed cost]+[(Number of units to be sold)×(Factory overhead-Variable cost per unit)]=$350,000+[12,000 units×$6 per unit]=$350,000+$72,000=$422,000$ (4)

Determine the sales salaries and commissions.

Sales salaries and commissions-Fixed =$340,000

Number of units to be sold =12,000 units

Sales salaries and commissions-Variable cost per unit =$4 per unit

$Sales salaries and commissions] =[Sales salaries and commissions-Fixed cost]+[(Number of units to be sold)×(Sales salaries and commissions-Variable cost per unit)]=$340,000+[12,000 units×$4 per unit]=$340,000+$48,000=$388,000$ (5)

Determine the miscellaneous selling expense.

Miscellaneous selling expense-Fixed =$2,300

Number of units to be sold =12,000 units

Miscellaneous selling expense-Variable cost per unit =$1 per unit

$Miscellaneous selling expense] =[Miscellaneous selling expense-Fixed cost]+[(Number of units to be sold)×(Miscellaneous selling expense-Variable cost per unit)]=$2,300+[12,000 units×$1 per unit]=$2,300+$12,000=$14,300$ (6)

Determine the supplies.

Supplies-Fixed =$6,000

Number of units to be sold =12,000 units

Supplies-Variable cost per unit =$4 per unit

$Supplies =[Supplies-Fixed cost]+[(Number of units to be sold)×(Supplies-Variable cost per unit)]=$6,000+[12,000 units×$4 per unit]=$6,000+$48,000=$54,000$ (7)

Determine the miscellaneous administrative expense.

Miscellaneous administrative expense-Fixed =$8,700

Number of units to be sold =12,000 units

Miscellaneous administrative expense-Variable cost per unit =$1 per unit

$Miscellaneous administrative expense] =[Miscellaneous administrative expense-Fixed cost]+[(Number of units to be sold)×(Miscellaneous administrative expense-Variable cost per unit)]=$8,700+[12,000 units×$1 per unit]=$8,700+$12,000=$20,700$ (8)

Answer 7

Chapter 19, Problem 19.6BPR

1.

To determine

Cost-Volume-Profit Analysis: It is a method followed to analyze the relationship between the sales, costs, and the related profit or loss at various levels of units sold. In other words, it shows the effect of the changes in the cost and the sales volume on the operating income of the company.

To prepare: an estimated income statement for 2016.

Answer 8

1.

Expert Solution

Answer to Problem 19.6BPR

Prepare an estimated income statement for 2016.

Company B
Estimated Income Statement
For the year ended December 31, 2016
Particulars	Amount ($)	Amount ($)	Amount ($)
Sales (1)			2,880,000
Less: Cost of Goods sold:
Direct Materials (2)		600,000
Direct Labor (3)		360,000
Factory Overhead (4)		422,000
Cost of Goods Sold			(1,382,000)
Gross Profit			1,498,000
Less: Expenses:
Selling expenses:
Sales salaries and commissions (5)	388,000
Advertising	116,000
Travel	4,000
Miscellaneous selling expense (6)	14,300
Total selling expenses		522,300
Administrative expenses:
Office and Officers’ salaries	325,000
Supplies (7)	54,000
Miscellaneous administrative expenses (8)	20,700
Total administrative expenses		399,700
Total expenses			(922,000)
Income from operations			576,000

Table (1)

Answer 9

1.

Expert Solution

Answer 10

1.

Expert Solution

Answer 11

Expert Solution

Answer 12

Explanation of Solution

Working notes:

Determine sales.

Number of units to be sold =12,000 units

Selling price per unit =$240 per unit

$Sales =(Number of units to be sold)×(Selling price per unit)=12,000 units×$240 per unit=$2,880,000$ (1)

Determine the cost of direct materials.

Number of units to be sold =12,000 units

Direct Materials cost per unit =$50 per unit

$Direct Materials =(Number of units to be sold)×(Direct Materials cost per unit)=12,000 units×$50 per unit=$600,000$ (2)

Determine the cost of direct labor.

Number of units to be sold =12,000 units

Direct labor cost per unit =$30 per unit

$Direct Labor =(Number of units to be sold)×(Direct Labor cost per unit)=12,000 units×$30 per unit=$360,000$ (3)

Determine the cost of factory overhead.

Factory overhead-Fixed =$350,000

Number of units to be sold =12,000 units

Factory overhead-Variable cost per unit =$6 per unit

$Factory overhead =[Factory overhead-Fixed cost]+[(Number of units to be sold)×(Factory overhead-Variable cost per unit)]=$350,000+[12,000 units×$6 per unit]=$350,000+$72,000=$422,000$ (4)

Determine the sales salaries and commissions.

Sales salaries and commissions-Fixed =$340,000

Number of units to be sold =12,000 units

Sales salaries and commissions-Variable cost per unit =$4 per unit

$Sales salaries and commissions] =[Sales salaries and commissions-Fixed cost]+[(Number of units to be sold)×(Sales salaries and commissions-Variable cost per unit)]=$340,000+[12,000 units×$4 per unit]=$340,000+$48,000=$388,000$ (5)

Determine the miscellaneous selling expense.

Miscellaneous selling expense-Fixed =$2,300

Number of units to be sold =12,000 units

Miscellaneous selling expense-Variable cost per unit =$1 per unit

$Miscellaneous selling expense] =[Miscellaneous selling expense-Fixed cost]+[(Number of units to be sold)×(Miscellaneous selling expense-Variable cost per unit)]=$2,300+[12,000 units×$1 per unit]=$2,300+$12,000=$14,300$ (6)

Determine the supplies.

Supplies-Fixed =$6,000

Number of units to be sold =12,000 units

Supplies-Variable cost per unit =$4 per unit

$Supplies =[Supplies-Fixed cost]+[(Number of units to be sold)×(Supplies-Variable cost per unit)]=$6,000+[12,000 units×$4 per unit]=$6,000+$48,000=$54,000$ (7)

Determine the miscellaneous administrative expense.

Miscellaneous administrative expense-Fixed =$8,700

Number of units to be sold =12,000 units

Miscellaneous administrative expense-Variable cost per unit =$1 per unit

$Miscellaneous administrative expense] =[Miscellaneous administrative expense-Fixed cost]+[(Number of units to be sold)×(Miscellaneous administrative expense-Variable cost per unit)]=$8,700+[12,000 units×$1 per unit]=$8,700+$12,000=$20,700$ (8)

Answer 13

2.

To determine

the expected contribution margin ratio.

2.

Expert Solution

Explanation of Solution

Determine the expected contribution margin ratio.

Sales =$2,880,000 (1)

Variable cost =$1,152,000 (9)

$Contribution Margin Ratio =Contribution MarginSales×100=Sales−Variable costSales×100=$2,880,000−$1,152,000$2,880,000×100=$1,728,000$2,880,000×100=60%$

Working note:

Determine the variable cost.

Number of units to be sold =12,000 units

Variable cost per unit =$96 per unit

$Variable cost =(Number of units to be sold)×(Variable cost per unit)=12,000 units×$96 per unit=$1,152,000$ (9)

Conclusion

Therefore, the expected contribution margin ratio is 60%.

Answer 14

2.

To determine

the expected contribution margin ratio.

Answer 15

2.

Expert Solution

Explanation of Solution

Determine the expected contribution margin ratio.

Sales =$2,880,000 (1)

Variable cost =$1,152,000 (9)

$Contribution Margin Ratio =Contribution MarginSales×100=Sales−Variable costSales×100=$2,880,000−$1,152,000$2,880,000×100=$1,728,000$2,880,000×100=60%$

Working note:

Determine the variable cost.

Number of units to be sold =12,000 units

Variable cost per unit =$96 per unit

$Variable cost =(Number of units to be sold)×(Variable cost per unit)=12,000 units×$96 per unit=$1,152,000$ (9)

Answer 16

2.

Expert Solution

Answer 17

2.

Expert Solution

Answer 18

Expert Solution

Answer 19

Conclusion

Therefore, the expected contribution margin ratio is 60%.

Answer 20

3.

To determine

the break-even sales in units and dollars.

3.

Expert Solution

Explanation of Solution

Determine the break-even sales in units.

Fixed cost =$1,152,000

Contribution margin per unit =$144 per unit (10)

$Break-even point in Sales(units) =Fixed CostsContribution Margin per unit=$1,152,000$144=8,000 units$

Working note:

Compute the contribution margin per unit.

Selling price per unit =$240 per unit

Variable cost per unit =$96 per unit

$Contribution Margin per unit =(Selling price per unit)−(Variable cost per unit)=$240 per unit−$96 per unit=$144 per unit$ (10)

Determine the break-even sales in dollars.

Fixed cost =$1,152,000

Contribution margin ratio =60% (refer Part 2)

$Break-even point in Sales(Dollars) =Fixed CostsContribution Margin ratio=$1,152,00060%=$1,152,000×10060=$1,920,000$

Conclusion

Therefore, the break-even sales in units is 8,000 units and dollars is $1,920,000.

Answer 21

3.

To determine

the break-even sales in units and dollars.

Answer 22

3.

Expert Solution

Explanation of Solution

Determine the break-even sales in units.

Fixed cost =$1,152,000

Contribution margin per unit =$144 per unit (10)

$Break-even point in Sales(units) =Fixed CostsContribution Margin per unit=$1,152,000$144=8,000 units$

Working note:

Compute the contribution margin per unit.

Selling price per unit =$240 per unit

Variable cost per unit =$96 per unit

$Contribution Margin per unit =(Selling price per unit)−(Variable cost per unit)=$240 per unit−$96 per unit=$144 per unit$ (10)

Determine the break-even sales in dollars.

Fixed cost =$1,152,000

Contribution margin ratio =60% (refer Part 2)

$Break-even point in Sales(Dollars) =Fixed CostsContribution Margin ratio=$1,152,00060%=$1,152,000×10060=$1,920,000$

Answer 23

3.

Expert Solution

Answer 24

3.

Expert Solution

Answer 25

Expert Solution

Answer 26

Conclusion

Therefore, the break-even sales in units is 8,000 units and dollars is $1,920,000.

Answer 27

4.

To determine

To construct: a cost-volume-profit chart indicating the break-even sales.

4.

Expert Solution

Answer to Problem 19.6BPR

Construct a cost-volume-profit chart indicating the break-even sales.

Bundle: Financial & Managerial Accounting, 13th + Working Papers, Volume 1, Chapters 1-15 For Warren/reeve/duchac’s Corporate Financial Accounting, ... 13th + Cengagenow™v2, 2 Terms Access Code, Chapter 19, Problem 19.6BPR

Figure (1)

Explanation of Solution

The volume in units of sales is shown on the horizontal axis. The maximum relevant range is 18,000 units. The sales and the total costs (fixed cost and variable cost) in dollars is shown on the vertical axis. The maximum relevant range of sales and total costs is $4,500,000.

The total sales line is drawn right upward by connecting the first point at $0 to the second point at $4,320,000 $[18,000 units×$240 per unit]$ for 18,000 units (maximum relevant range on the horizontal axis).

The total cost line is drawn right upward by connecting the first point at $1,152,000 (fixed cost) on the vertical axis to the second point at $$2,880,000[$1,152,000+$1,728,000]$ to the end of the relevant range. The variable cost is $$1,728,000(18,000 units×$96 per unit)$ .

The break-even point is the intersection point where the total sales line and total cost line meet. The vertical dotted line drawn downward from the intersection point reaches at 8,000 units. It indicates the break-even sales (units). The horizontal line drawn to the left towards the vertical axis reaches at $1,920,000. It indicates the break-even sales (dollars). Refer Part 3 for the break-even values.

The operating profit area is the area where the total sales line exceeds the total cost line. However, the operating loss area is the area where the total cost exceeds the total sales line.

Answer 28

4.

To determine

To construct: a cost-volume-profit chart indicating the break-even sales.

Answer 29

4.

Expert Solution

Answer to Problem 19.6BPR

Construct a cost-volume-profit chart indicating the break-even sales.

Bundle: Financial & Managerial Accounting, 13th + Working Papers, Volume 1, Chapters 1-15 For Warren/reeve/duchac’s Corporate Financial Accounting, ... 13th + Cengagenow™v2, 2 Terms Access Code, Chapter 19, Problem 19.6BPR

Figure (1)

Answer 30

4.

Expert Solution

Answer 31

4.

Expert Solution

Answer 32

Expert Solution

Answer 33

Explanation of Solution

The volume in units of sales is shown on the horizontal axis. The maximum relevant range is 18,000 units. The sales and the total costs (fixed cost and variable cost) in dollars is shown on the vertical axis. The maximum relevant range of sales and total costs is $4,500,000.

The total sales line is drawn right upward by connecting the first point at $0 to the second point at $4,320,000 $[18,000 units×$240 per unit]$ for 18,000 units (maximum relevant range on the horizontal axis).

The total cost line is drawn right upward by connecting the first point at $1,152,000 (fixed cost) on the vertical axis to the second point at $$2,880,000[$1,152,000+$1,728,000]$ to the end of the relevant range. The variable cost is $$1,728,000(18,000 units×$96 per unit)$ .

The break-even point is the intersection point where the total sales line and total cost line meet. The vertical dotted line drawn downward from the intersection point reaches at 8,000 units. It indicates the break-even sales (units). The horizontal line drawn to the left towards the vertical axis reaches at $1,920,000. It indicates the break-even sales (dollars). Refer Part 3 for the break-even values.

The operating profit area is the area where the total sales line exceeds the total cost line. However, the operating loss area is the area where the total cost exceeds the total sales line.

Answer 34

5.

To determine

the expected margin of safety in dollars and as a percentage of sales.

5.

Expert Solution

Explanation of Solution

Determine the expected margin of safety in dollars.

Sales =$2,880,000 (1)

Sales at break-even point =$1,920,000 (refer Part 3)

$Margin of Safety(Dollars)=Sales−Sales at Break-Even Point=$2,880,000−$1,920,000=$960,000$

Determine the expected margin of safety as a percentage of sales.

Sales =$2,880,000 (1)

Margin of Safety in dollars =$960,000

$Margin of Safety(%)=Margin of Safety in dollars Sales×100=$960,000$2,880,000×100=33.3%$

Conclusion

Therefore, the expected margin of safety in dollars is $960,000 and as a percentage of sales is 33.3%.

Answer 35

5.

To determine

the expected margin of safety in dollars and as a percentage of sales.

Answer 36

5.

Expert Solution

Explanation of Solution

Determine the expected margin of safety in dollars.

Sales =$2,880,000 (1)

Sales at break-even point =$1,920,000 (refer Part 3)

$Margin of Safety(Dollars)=Sales−Sales at Break-Even Point=$2,880,000−$1,920,000=$960,000$

Determine the expected margin of safety as a percentage of sales.

Sales =$2,880,000 (1)

Margin of Safety in dollars =$960,000

$Margin of Safety(%)=Margin of Safety in dollars Sales×100=$960,000$2,880,000×100=33.3%$

Answer 37

5.

Expert Solution

Answer 38

5.

Expert Solution

Answer 39

Expert Solution

Answer 40

Conclusion

Therefore, the expected margin of safety in dollars is $960,000 and as a percentage of sales is 33.3%.

Answer 41

6.

To determine

the operating leverage.

6.

Expert Solution

Explanation of Solution

Determine the operating leverage.

Contribution margin =$1,728,000 (11)

Income from operations =$576,000 (refer Table 1)

$Operating leverage=Contribution Margin Income from operations=$1,728,000$576,000=3$

Working note:

Determine the contribution margin

Sales =$2,880,000 (1)

Variable cost =$1,152,000 (9)

$Contribution Margin =Sales−Variable cost=$2,880,000−$1,152,000=$1,728,000$ (11)

Conclusion

Therefore, the operating leverage is 3.

Answer 42

6.

To determine

the operating leverage.

Answer 43

6.

Expert Solution

Explanation of Solution

Determine the operating leverage.

Contribution margin =$1,728,000 (11)

Income from operations =$576,000 (refer Table 1)

$Operating leverage=Contribution Margin Income from operations=$1,728,000$576,000=3$

Working note:

Determine the contribution margin

Sales =$2,880,000 (1)

Variable cost =$1,152,000 (9)

$Contribution Margin =Sales−Variable cost=$2,880,000−$1,152,000=$1,728,000$ (11)

Answer 44

6.

Expert Solution

Answer 45

6.

Expert Solution

Answer 46

Expert Solution

Answer 47

Conclusion

Therefore, the operating leverage is 3.

Answer 48

Ch. 19 - Describe how total variable costs and unit...Ch. 19 - Which of the following costs would be classified...Ch. 19 - Describe how total fixed costs and unit fixed...Ch. 19 - In applying the high-low method of cost estimation...Ch. 19 - If fixed costs increase, what would be the impact...Ch. 19 - Prob. 6DQ Ch. 19 - If the unit cost of direct materials is decreased,...Ch. 19 - Both Austin Company and Hill Company had the same...Ch. 19 - Prob. 9DQ Ch. 19 - Prob. 10DQ

Concept explainers

Videos

Answer to Problem 19.6BPR

Explanation of Solution

the expected contribution margin ratio.

Explanation of Solution

the break-even sales in units and dollars.

Explanation of Solution

To construct: a cost-volume-profit chart indicating the break-even sales.

Answer to Problem 19.6BPR

Explanation of Solution

the expected margin of safety in dollars and as a percentage of sales.

Explanation of Solution

the operating leverage.

Explanation of Solution

Want to see more full solutions like this?

Chapter 19 Solutions