Fundamental Managerial Accounting Concepts with Access
Fundamental Managerial Accounting Concepts with Access
7th Edition
ISBN: 9781259683770
Author: Edmonds
Publisher: MCG
Question
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Chapter 3, Problem 23PSB

a.

To determine

Calculate the contribution margin per unit.

a.

Expert Solution
Check Mark

Explanation of Solution

The calculation of contribution margin per unit is as follows:

Contribution margin per unit=Sales priceVariable cost=$200$160=$40

Hence, the contribution margin per unit is $40.

b.

To determine

Calculate the break-even points in dollars and units and prepare income statement using contribution margin format.

b.

Expert Solution
Check Mark

Explanation of Solution

The calculation of break-even points in units is as follows:

Break-even point in units=Fixed costContribution margin per unit=$250,000$40=6,250 units

Hence, the break-even units are 6,250 units.

The calculation of break-even point in dollars is as follows:

Break-even in dollars=Break-even units×Sales price=6,250 units×$200 per unit=$1,250,000

Hence, the break-even in dollars is $1,250,000.

The calculation of income statement is as follows:

Fundamental Managerial Accounting Concepts with Access, Chapter 3, Problem 23PSB , additional homework tip  1

(Table 1)

Working note:

The calculation of variable cost is as follows:

Variable cost=Number of units×Variable cost per unit=6,250 units×$160=$1,000,000

Hence, the variable cost is $1,000,000.

…… (1)

c.

To determine

Calculate the sales volume in units and dollars that is required to earn profit and prepare income statement.

c.

Expert Solution
Check Mark

Explanation of Solution

The calculation of sales volume in units is as follows:

Sales volume in units=Fixed cost+Target profitContribution margin per unit=$250,000+$50,000$40=$300,000$40=7,500 units

Hence, the sales volume in units is 7,500 units.

The calculation of break even in dollars is as follows:

Sales volume in dollars=Sales volume in units×Sales price=7,500 units×$200 per unit=$1,500,000

Hence, the sales volume in dollars is $1,500,000.

The calculation of income statement is as follows:

Fundamental Managerial Accounting Concepts with Access, Chapter 3, Problem 23PSB , additional homework tip  2

(Table 2)

Working note:

The calculation of variable cost is as follows:

Variable cost=Number of units×Variable cost per unit=7,500 units×$160=$1,200,000

Hence, the variable cost is $1,200,000.

…… (2)

d.

To determine

Calculate the level of sales that is necessary to earn profit in case of drop in sales price.

d.

Expert Solution
Check Mark

Explanation of Solution

The calculation of sales volume in units is as follows:

Sales volume in units=Fixed cost+Target profitContribution margin per unit=$250,000+$50,000$20 (3)=$300,000$20=15,000 units

Hence, the sales volume in units is 15,000 units.

The calculation of sales volume in dollars is as follows:

Sales volume in dollars=Sales volume in units×Sales price=15,000 units×$180 per unit=$2,700,000

Hence, the sales volume in dollars is $2,700,000.

The calculation of income statement is as follows:

Fundamental Managerial Accounting Concepts with Access, Chapter 3, Problem 23PSB , additional homework tip  3

(Table 3)

Working note:

The calculation of contribution margin per unit is as follows:

Contribution margin per unit=Sales priceVariable cost=$180$160=$20

Hence, the contribution margin per unit is $20.

…… (3)

The calculation of variable cost is as follows:

Variable cost=Number of units×Variable cost per unit=15,000 units×$160=$2, 400,000

Hence, the variable cost is $2,400,000.

…… (4)

e.

To determine

Calculate the level of sales that is necessary to earn profit in case of drop in fixed cost.

e.

Expert Solution
Check Mark

Explanation of Solution

The calculation of sales volume in units is as follows:

Sales volume in units=Fixed cost+Target profitContribution margin per unit=$200,000+$50,000$20 (3)=$250,000$20=12,500 units

Hence, the sales volume in units is 12,500 units.

The calculation of sales volume in dollars is as follows:

Sales volume in dollars=Sales volume in units×Sales price=12,500 units×$180 per unit=$2,250,000

Hence, the sales volume in dollars is $2,250,000.

The calculation of income statement is as follows:

Fundamental Managerial Accounting Concepts with Access, Chapter 3, Problem 23PSB , additional homework tip  4

(Table 4)

Working note:

The calculation of variable cost is as follows:

Variable cost=Number of units×Variable cost per unit=12,500 units×$160=$2,000,000

Hence, the variable cost is $2,000,000.

…… (5)

f.

To determine

Calculate the level of sales that is necessary to earn profit in case of drop in variable cost.

f.

Expert Solution
Check Mark

Explanation of Solution

The calculation of sales volume in units is as follows:

Sales volume in units=Fixed cost+Target profitContribution margin per unit=$200,000+$50,000$50 (6)=$250,000$50=5,000 units

Hence, the sales volume in units is 5,000 units.

The calculation of sales volume in dollars is as follows:

Sales volume in dollars=Sales volume in units×Sales price=5,000 units×$180 per unit=$900,000

Hence, the sales volume in dollars is $900,000.

The calculation of income statement is as follows:

Fundamental Managerial Accounting Concepts with Access, Chapter 3, Problem 23PSB , additional homework tip  5

(Table 5)

Working note:

The calculation of contribution margin per unit is as follows:

Contribution margin per unit=Sales priceVariable cost=$180$130=$50

Hence, the contribution margin per unit is $50.

…… (6)

The calculation of variable cost is as follows:

Variable cost=Number of units×Variable cost per unit=5,000 units×$130=$650,000

Hence, the variable cost is $650,000.

…… (7)

g.

To determine

Calculate the margin of safety in dollars, units and as a percentage.

g.

Expert Solution
Check Mark

Explanation of Solution

The calculation of break-even points in units is as follows:

Break-even point in units=Fixed costContribution margin per unit=$200,000$50=4,000 units

Hence, the break-even units are 4,000 units.

The calculation of margin of safety in dollars and units is as follows:

Fundamental Managerial Accounting Concepts with Access, Chapter 3, Problem 23PSB , additional homework tip  6

(Table 6)

The calculation of margin of safety in percentage is as follows:

Margin of safety in percentage=Margin of safety in dollarsBudgeted sales=$180,000$900,000=0.2=20%

Hence, the margin of safety in percentage is 20%

h.

To determine

Draw a break-even graph using the data in requirement (g).

h.

Expert Solution
Check Mark

Explanation of Solution

The break-even graph is as follows:

Fundamental Managerial Accounting Concepts with Access, Chapter 3, Problem 23PSB , additional homework tip  7s

(Figure 1)

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Fundamental Managerial Accounting Concepts with Access

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