Fundamental Accounting Principles -Hardcover
Fundamental Accounting Principles -Hardcover
22nd Edition
ISBN: 9780077862275
Author: John J Wild, Ken Shaw Accounting Professor, Barbara Chiappetta Fundamental Accounting Principles
Publisher: McGraw-Hill Education
Question
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Chapter 21, Problem 4BPSB

Requirement 1

To determine

To compute:

Break-even point for the year 2015

Requirement 1

Expert Solution
Check Mark

Answer to Problem 4BPSB

Solution:

Break-even point for the year 2015 = $ 1,000,000

Explanation of Solution

The break-even point in dollars will be calculated as under −
Given,

  • Sales revenue = $ 750,000
  • Contribution margin = $ 150,000
  • Fixed costs = $ 200,000
  • First, we will calculate the contribution margin ratio −

      Contribution margin ratio =Contribution marginSalesX100Contribution margin ratio =$ 150,000$ 750,000X100Contribution margin ratio =20%

Now, the break-even point in units will be calculated as −

  Breakeven point (in dollars)=Fixed costContribution margin ratioBreakeven point (in dollars)=$ 200,00020 % Breakeven point (in dollars)=$ 1,000,000 

Conclusion

Thus, the break-even point in dollars has been calculated.

Requirement 2

To determine

To compute:

Predicted break-even point for the year 2016

Requirement 2

Expert Solution
Check Mark

Answer to Problem 4BPSB

Solution:

Predicted break-even point for the year 2016 = $ 583,333

Explanation of Solution

The break-even point in dollars will be calculated as under −
Given,

  • Sales revenue = $ 750,000
  • Variable costs = $ 300,000 (50 % reduced due to installation of machine i.e. = $ 600,000 X 50 %)
  • Fixed costs = $ 350,000 ($ 150,000 increased per year i.e. = $ 200,000 + $ 150,000)
  • The contribution margin will be calculated as −

      Contribution Margin = Sales revenue  Variable costsContribution Margin = $ 750,000  $ 300,000Contribution Margin = $ 450,000

The contribution margin ratio −

  Contribution margin ratio =Contribution marginSalesX100Contribution margin ratio =$ 450,000$ 750,000X100Contribution margin ratio =60%

Now, the break-even point in units will be calculated as −

  Breakeven point (in dollars)=Fixed costContribution margin ratioBreakeven point (in dollars)=$ 350,00060 % Breakeven point (in dollars)=$ 583,333 

Conclusion

Thus, the predicted break-even point in dollars has been calculated.

Requirement 3

To determine

To prepare:

A forecasted contribution margin income statement for Rivera Co. for the year ended on December 31, 2016.

Requirement 3

Expert Solution
Check Mark

Answer to Problem 4BPSB

Solution:

    Rivera Co
    Forecasted Contribution Margin Income statement
    For the year ended December 31, 2016
    Sales
    750,000
    Less: Variable costs
    300,000


    Contribution Margin
    450,000


    Less: Fixed Costs
    350,000


    Net Operating Income100,000

Explanation of Solution

The contribution income statement is prepared as under −
Given,

  • Sales price revenue = $ 750,000
  • Variable costs = $ 300,000 (50 % reduced due to installation of machine i.e. = $ 600,000 X 50 %)
  • Fixed costs = $ 350,000 ($ 150,000 increased per year i.e. = $ 200,000 + $ 150,000)

  1. The contribution margin is calculated as under −

  2.   Contribution Margin = Sales revenue  Total variable costsContribution Margin = $ 750,000  $ 300,000Contribution Margin = $ 450,000

  3. Fixed costs given as = $ 350,000
  4. The net operating income will be calculated as under −

  5.   Net Operating Income = Contribution Margin  Fixed costsNet Operating Income = $ 450,000  $ 350,000Net Operating Income = $ 100,000

The expected net operating income for Rivera Co. for the year ended December 31, 2016 = $ 100,000.

Conclusion

Thus, the forecasted contribution margin income statement for Rivera Co. for the year ended on December 31, 2016 has been prepared.

Requirement 4

To determine

To compute:

  1. The amount of sales needed to produce the target income of $ 200,000
  2. The number of units to be sold to produce the target income of $ 200,000

Requirement 4

Expert Solution
Check Mark

Answer to Problem 4BPSB

Solution:

  1. The amount of sales needed to produce the target income of $ 200,000 = $ 916,667
  2. The number of units to be sold to produce the target income of $ 200,000 = 24,445 units

Explanation of Solution

  1. The target sales will be calculated as under −
  2. Given,
    • Contribution margin ratio = 60%
    • Fixed costs = $ 350,000
    • Desired profit = $ 200,000
    The target sales will be calculated as under −

      Target Sales =Fixed Costs + Desired ProfitContribution Margin ratioTarget Sales =$ 350,000 + $ 200,00060 %Target Sales =$ 916,667

    The amount of sales to earn a target pre-tax income of $ 200,000 = $ 916,667

  3. The number of units to be sold to earn a target profit of $ 200,000 will be calculated as under −
  • Sales price per unit = $ 37.50 (i.e. $ 750,000 divided by 20,000 units)
  • Sales = $ 916,667

  Number of units sold =SalesSales price per unitNumber of units sold =$ 916,667$ 37.5 per unitNumber of units sold =24,445 units

Conclusion

Thus, the amount of sales and the number of sales units needed to produce the target income of $ 200,000 have been calculated.

Requirement 5

To determine

To prepare:

A forecasted contribution margin income statement that shows the results at the sales level = $ 916,667.

Requirement 5

Expert Solution
Check Mark

Answer to Problem 4BPSB

Solution:

The forecasted margin income statement with sales level = $ 916,667 −

    Rivera Co.
    Forecasted Contribution Margin Income statement
    For the year ended December 31, 2016
    Sales
    916,667
    Less: Variable costs
    366,667


    Contribution Margin
    550,000


    Less: Fixed Costs
    350,000


    Net Operating Income200,000

Explanation of Solution

The forecasted contribution margin income statement has been prepared as under −

  1. Sales revenue = $ 916,667
  2. Variable costs will be calculated as −

  3.   Variable costs = Sales X (1  Contribution ratio)

    • Contribution ratio = 60 %

       Variable costs = Sales X ( 1  Contribution ratio ) Variable costs = $ 916,667 X ( 1  60% )Variable costs = $ 366,667

  4. The contribution margin is calculated as under −

  5.   Contribution Margin = Sales revenue  Total variable costsContribution Margin = $ 916,667  $ 366,667Contribution Margin = $ 550,000

  6. Fixed costs given as = $ 350,000
  7. The net operating income will be calculated as under −

  8.   Net Operating Income = Contribution Margin  Fixed costsNet Operating Income = $ 550,000  $ 350,000Net Operating Income = $ 200,000

The expected net operating income for Rivera Co. for the year ended December 31, 2016 = $ 200,000.

Conclusion

Thus, the forecasted contribution margin income statement that shows the results at the sales level = $ 916,667 has been calculated.

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Chapter 21 Solutions

Fundamental Accounting Principles -Hardcover

Ch. 21 - How does assuming that operating activity occurs...Ch. 21 - Prob. 12DQCh. 21 - Prob. 13DQCh. 21 - Prob. 14DQCh. 21 - Prob. 15DQCh. 21 - Prob. 16DQCh. 21 - Prob. 17DQCh. 21 - Prob. 18DQCh. 21 - Prob. 19DQCh. 21 - Prob. 20DQCh. 21 - Prob. 21DQCh. 21 - Prob. 1QSCh. 21 - Prob. 2QSCh. 21 - Prob. 3QSCh. 21 - Prob. 4QSCh. 21 - Prob. 5QSCh. 21 - Prob. 6QSCh. 21 - Prob. 7QSCh. 21 - Prob. 8QSCh. 21 - Prob. 9QSCh. 21 - Prob. 10QSCh. 21 - Prob. 11QSCh. 21 - Prob. 12QSCh. 21 - Prob. 13QSCh. 21 - Prob. 14QSCh. 21 - Prob. 15QSCh. 21 - Prob. 16QSCh. 21 - Prob. 17QSCh. 21 - Prob. 1ECh. 21 - Prob. 2ECh. 21 - Prob. 3ECh. 21 - Exercise 21-4 Measurement of cost behavior using a...Ch. 21 - Prob. 5ECh. 21 - Prob. 6ECh. 21 - Prob. 7ECh. 21 - Prob. 8ECh. 21 - Prob. 9ECh. 21 - Prob. 10ECh. 21 - Prob. 11ECh. 21 - Prob. 12ECh. 21 - Prob. 13ECh. 21 - Prob. 14ECh. 21 - Prob. 15ECh. 21 - Prob. 16ECh. 21 - Prob. 17ECh. 21 - Prob. 18ECh. 21 - Prob. 19ECh. 21 - Prob. 20ECh. 21 - Prob. 21ECh. 21 - Prob. 22ECh. 21 - Prob. 23ECh. 21 - Prob. 24ECh. 21 - Prob. 25ECh. 21 - Prob. 1APSACh. 21 - Prob. 2APSACh. 21 - Prob. 3APSACh. 21 - Prob. 4APSACh. 21 - Prob. 5APSACh. 21 - Prob. 6APSACh. 21 - Prob. 7APSACh. 21 - Prob. 1BPSBCh. 21 - Prob. 2BPSBCh. 21 - Prob. 3BPSBCh. 21 - Prob. 4BPSBCh. 21 - Prob. 5BPSBCh. 21 - Prob. 6BPSBCh. 21 - Prob. 7BPSBCh. 21 - Prob. 21SPCh. 21 - Prob. 1BTNCh. 21 - Prob. 2BTNCh. 21 - Prob. 3BTNCh. 21 - Prob. 4BTNCh. 21 - Prob. 5BTNCh. 21 - Prob. 6BTNCh. 21 - Prob. 7BTNCh. 21 - Prob. 8BTNCh. 21 - Prob. 9BTN
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