EBK HORNGREN'S COST ACCOUNTING
16th Edition
ISBN: 9780134475998
Author: Rajan
Publisher: YUZU
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Chapter 3, Problem 3.35E
Contribution margin, decision making. Welch Men’s Clothing’s revenues and cost data for 2017 are as follows:
| Revenues | $600,000 | |
| Cost of goods sold (all variable costs) | 300,000 | |
| Gross margin | 300,000 | |
| Operating costs: | ||
| Salaries fixed | $140,000 | |
| Sales commissions (12% of sales) | 72,000 | |
| |
10,000 | |
| Store rent ($3,500 per month) | 42,000 | |
| Other operating costs | 45,000 | 309,000 |
| Operating income (loss) | $ (9,000) |
Mr. Welch, the owner of the store, is unhappy with the operating results. An analysis of other operating costs reveals that it includes $30,000 variable costs, which vary with sales volume, and $15,000 (fixed) costs.
- 1. Compute the contribution margin of Welch Men’s Clothing.
Required
- 2. Compute the contribution margin percentage.
- 3. Mr. Welch estimates that he can increase units sold, and hence revenues by 25% by incurring additional advertising costs of $8,000. Calculate the impact of the additional advertising costs on operating income.
- 4. What other actions can Mr. Welch take to improve operating income?
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Q1. Compute the contribution margin of Welch Men’s Clothing.
Q. What other actions can Mr. Welch take to improve operating income?
3-35 Contribution margin, decision making. Welch Men’s Clothing’s revenues and cost data for 2017 areas follows:Revenues $600,000Cost of goods sold (all variable costs) 300,000Gross margin 300,000Operating costs:Salaries fixed $140,000Sales commissions (12% of sales) 72,000Depreciation of equipment and fixtures 10,000Store rent ($3,500 per month) 42,000Other operating costs 45,000 309,000Operating income (loss) $ (9,000)Mr. Welch, the owner of the store, is unhappy with the operating results. An analysis of other operatingcosts reveals that it includes $30,000 variable costs, which vary with sales volume, and $15,000 (fixed) costs.1. Compute the contribution margin of Welch Men’s Clothing.2. Compute the contribution margin percentage.3. Mr. Welch estimates that he can increase units sold, and hence revenues by 25% by incurring additionaladvertising costs of $8,000. Calculate the impact of the additional advertising costs on operatingincome.4. What other actions can Mr. Welch take to…
Chapter 3 Solutions
EBK HORNGREN'S COST ACCOUNTING
Ch. 3 - Define costvolumeprofit analysis.Ch. 3 - Describe the assumptions underlying CVP analysis.Ch. 3 - Distinguish between operating income and net...Ch. 3 - Prob. 3.4QCh. 3 - Prob. 3.5QCh. 3 - Why is it more accurate to describe the subject...Ch. 3 - CVP analysis is both simple and simplistic. If you...Ch. 3 - Prob. 3.8QCh. 3 - Prob. 3.9QCh. 3 - Give an example of how a manager can decrease...
Ch. 3 - Give an example of how a manager can increase...Ch. 3 - What is operating leverage? How is knowing the...Ch. 3 - There is no such thing as a fixed cost. All costs...Ch. 3 - Prob. 3.14QCh. 3 - In CVP analysis, gross margin is a less-useful...Ch. 3 - Jacks Jax has total fixed costs of 25,000. If the...Ch. 3 - During the current year, XYZ Company increased its...Ch. 3 - Under the contribution income statement, a...Ch. 3 - A company needs to sell 10,000 units of its only...Ch. 3 - Once a company exceeds its breakeven level,...Ch. 3 - Prob. 3.21ECh. 3 - CVP computations. Garrett Manufacturing sold...Ch. 3 - CVP analysis, changing revenues and costs. Sunset...Ch. 3 - CVP exercises. The Deli-Sub Shop owns and operates...Ch. 3 - CVP exercises. The Doral Company manufactures and...Ch. 3 - CVP analysis, income taxes. Westover Motors is a...Ch. 3 - CVP analysis, income taxes. The Home Style Eats...Ch. 3 - CVP analysis, sensitivity analysis. Perfect Fit...Ch. 3 - CVP analysis, margin of safety. Suppose Morrison...Ch. 3 - Operating leverage. Cover Rugs is holding a 2-week...Ch. 3 - CVP analysis, international cost structure...Ch. 3 - Sales mix, new and upgrade customers. Chartz 1-2-3...Ch. 3 - Prob. 3.33ECh. 3 - Prob. 3.34ECh. 3 - Contribution margin, decision making. Welch Mens...Ch. 3 - Contribution margin, gross margin, and margin of...Ch. 3 - Uncertainty and expected costs. Kindmart is an...Ch. 3 - CVP analysis, service firm. Lifetime Escapes...Ch. 3 - CVP, target operating income, service firm....Ch. 3 - CVP analysis, margin of safety. Marketing Docs...Ch. 3 - CVP analysis, income taxes. (CMA, adapted) J.T....Ch. 3 - CVP, sensitivity analysis. The Derby Shoe Company...Ch. 3 - CVP analysis, shoe stores. The HighStep Shoe...Ch. 3 - CVP analysis, shoe stores (continuation of 3-43)....Ch. 3 - Prob. 3.45PCh. 3 - Prob. 3.46PCh. 3 - CVP analysis, income taxes, sensitivity. (CMA,...Ch. 3 - Choosing between compensation plans, operating...Ch. 3 - Prob. 3.49PCh. 3 - Multiproduct CVP and decision making. Crystal...Ch. 3 - Sales mix, two products. The Stackpole Company...Ch. 3 - Prob. 3.52PCh. 3 - Ethics, CVP analysis. Megaphone Corporation...Ch. 3 - Deciding where to produce. (CMA, adapted) Portal...
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