Managerial Accounting
16th Edition
ISBN: 9781259995484
Author: Ray Garrison
Publisher: MCGRAW-HILL HIGHER EDUCATION
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Chapter 5, Problem 20P
PROBLEM 5-20 CVP Applications: Break-Even Analysis: Cost Structure: Target Sales LO5-1, LO5-3, LO5-4, LO5-5, LO5-6, LO5-8
Northwood Company manufactures basketballs. The company has a ball that sells for $25. At present, the ball is manufactured in a small plant that relies heavily on direct labor workers. Thus, variable expenses are high, totaling $15 per ball, of which 60% is direct labor cost.
Last year, the company sold 30,000 of these balls, with the following results:
Sales (30,000 balls).........................$750,000
Variable expenses.........................450,000
Contribution margin.........................300,000
Fixed expenses.........................210,000
Net operating income.........................$90,000
Required:
- Compute (a) the CM ratio and the break-even point in balls, and (b) the degree of operating leverage at last year's sales level.
- Due to an increase in labor rates, the company estimates that variable expenses will increase by $3 per ball next year. If this change takes place and the selling price per ball remains constant at $25, what will be the new CM ratio and break-even point in balls?
- Refer to the data in (2) above. If the expected change in variable expenses takes place, how many balls will have to be sold next year to earn the same net operating income, $90,000, as last year?
- Refer again to the data in (2) above. The president feels that the company must raise the selling price of its basketballs. If Northwood Company wants to maintain the same CM ratio as last year, what selling price per ball must it charge next year to cover the increased labor costs?
- Refer to the original data. The company is discussing the construction of a new, automated manufacturing plant. The new plant would slash variable expenses per ball by 40%, but it would cause fixed expenses per year to double. If the new plant is built, what would be the company's new CM ratio and new breakeven point in balls?
- Refer to the data in (5) above.
- If the new plant is built, how many balls will have to be sold next year to earn the same net operating income, $90,000, as last year?
- Assume the new plant is built and that next year the company manufactures and sells 30,000 balls (the same number as sold last year). Prepare a contribution format income statement and compute the degree of operating leverage.
- If you were a member of top management, would you have been in favor of constructing the new plant? Explain.
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PROBLEM S-20 CVP Applications: Break Even Analysis; Cost Structure: Target Safes LOS-1, LOS-3.
LOS-4, LOS-S, LOS-6, LOS-8
Northwood Company manufactures basketballs. The company has a ball that sells for $25.
Al present, the ball is manufactured in a small plant that relies heavily on direct labor workers.
T, variable expenses are high, totaling $15 per ball, of which 60% is direct labor cost.
Last
the company sold 30,000 of these balls, with the following results:
year,
$750,000
450,000
Sales (30,000 balls)
Variable expenses.
300,000
210.000
Contribution margin
Fixed expenses
$ 90.000
Net operating income.
Required:
1. Compute (a) last year's CM ratio and the break-even point in balls, and (b) the degree of oper
ating leverage at last year's sales level.
2.
Due to an increase in labor rates, the company estimates that next year's variable expenses
will increase by $3 per ball. If this change takes place and the selling price per ball remains
constant at $25, what will be next year's…
4
Problem 3.Variable Cost Ratio, Contribution Margin Ratio
Head-First Company plans to sell 5,000 bicycle helmets at $75 each in the coming year. The unit variable cost is $45 (includes direct materials, direct labor, variable factory overhead, and variable sellingexpense). Fixed factory overhead is $20,000 and fixed selling and administrative expense are $29,500.Required:1. Calculate the variable cost ratio.2. Calculate the contribution margin ratio.3. Prepare a contribution margin income statement based on the budgeted figures for nextyear. In a column next to the income statement, show the percentages based on sales forsales, the total variable cost, and the total contribution margin.
Chapter 5 Solutions
Managerial Accounting
Ch. 5.A - EXERCISE 5A-1 High-Low Method LO5-10 The Cheyenne...Ch. 5.A - EXERCISE 5A-2 Least-Squares Regression LO5-11...Ch. 5.A - EXERCISE 5A-3 Cost Behavior; High-Low Method...Ch. 5.A - Prob. 4ECh. 5.A - EXERCISE 5A-5 Least-Squares Regression LO5-11...Ch. 5.A - Prob. 6PCh. 5.A - Problem 5A-7 Cost Behavior; High-Low Method;...Ch. 5.A - Problem 5A-8 High-Low Method; Predicting Cost...Ch. 5.A - Prob. 9PCh. 5.A - Prob. 10P
Ch. 5.A - Case 5A-11 Mixed Cost Analysis and the Relevant...Ch. 5.A - CASE 5A-12 Analysis of Mixed Costs in a Pricing...Ch. 5 - Prob. 1QCh. 5 - Often the most direct route to a business decision...Ch. 5 - Prob. 3QCh. 5 - What is the meaning of operating leverage?Ch. 5 - What is the meaning of break-even point?Ch. 5 - 5-6 In response to a request from your immediate...Ch. 5 - Prob. 7QCh. 5 - Prob. 8QCh. 5 - Prob. 9QCh. 5 - Prob. 1AECh. 5 - Prob. 2AECh. 5 - Prob. 3AECh. 5 - Prob. 4AECh. 5 - Prob. 5AECh. 5 - Prob. 1F15Ch. 5 - Prob. 2F15Ch. 5 - Prob. 3F15Ch. 5 - Prob. 4F15Ch. 5 - Prob. 5F15Ch. 5 - Prob. 6F15Ch. 5 - Prob. 7F15Ch. 5 - Prob. 8F15Ch. 5 - Prob. 9F15Ch. 5 - Prob. 10F15Ch. 5 - Prob. 11F15Ch. 5 - Prob. 12F15Ch. 5 - Prob. 13F15Ch. 5 - Prob. 14F15Ch. 5 - Prob. 15F15Ch. 5 - Prob. 1ECh. 5 - Prob. 2ECh. 5 - Prob. 3ECh. 5 - Prob. 4ECh. 5 - Prob. 5ECh. 5 - Prob. 6ECh. 5 - Prob. 7ECh. 5 - Prob. 8ECh. 5 - Prob. 9ECh. 5 - EXERCISE 5-10 Multiproduct Break-Even Analysis...Ch. 5 - Prob. 11ECh. 5 - EXERCISE 5-12 Multiproduct Break-Even Analysis...Ch. 5 - EXERCISE 5-13 Changes in Selling Price, Sales...Ch. 5 - Prob. 14ECh. 5 - Prob. 15ECh. 5 - Prob. 16ECh. 5 - Prob. 17ECh. 5 - Prob. 18ECh. 5 - Prob. 19PCh. 5 - PROBLEM 5-20 CVP Applications: Break-Even...Ch. 5 - PROBLEM 5-21 Sales Mix; Multiproduct Break-Even...Ch. 5 - Prob. 22PCh. 5 - Prob. 23PCh. 5 - Prob. 24PCh. 5 -
PROBLEM 5-25 Changes in Fixed and Variable Costs;...Ch. 5 -
PROBLEM 5-26 CVP Applications; Break-Even...Ch. 5 - Prob. 27PCh. 5 - Prob. 28PCh. 5 - Prob. 29PCh. 5 - Prob. 30PCh. 5 -
PROBLEM 5-31 Interpretive Questions on the CVP...Ch. 5 -
CASE 5-32 Break-Even Analysis for Individual...Ch. 5 - Prob. 33C
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