Contribution and Fixed and Variable Costs in Manufacturing Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced. Examples are costs of direct material and direct labor. Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced. Examples are costs of factory rent, depreciation on plant and equipment Manufacturing costs are costs that are directly incurred in connection with manufacture of goods. Examples are Direct materials and Manufacturing Overhead Contribution is the difference between the Sales revenue and the Variable cost per unit. This is an indicator of the contribution of the goods manufactured to the profit and bottom line of the organization. Breakeven point represents that level of sales in units and in dollars, where the contribution would equal the fixed costs. In other words, there would no profit, no loss and no operating income, since the contribution would be sufficient only to cover the fixed costs, thus leaving no surplus. Margin of Safety represents that portion of the sales over the breakeven point, that acts as a buffer to protect the company’s revenue, in the event that there is a drop in the sales. Operating Leverage is the degree to which the contribution and net operating income are related and represents the relation between the Sales and Variable costs. To Compute: Breakeven point, Margin of Safety and Operating Leverage after changing inputs of Sales, Selling Price Per unit, Variable and fixed expenses.

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Answer 1

Question

Chapter 6, Problem 5AE

5.

a)

To determine

Concept Introduction:

Contribution and Fixed and Variable Costs in Manufacturing

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced.

Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced.

Examples are costs of factory rent, depreciation on plant and equipment

Manufacturing costs are costs that are directly incurred in connection with manufacture of goods.

Examples are Direct materials and Manufacturing Overhead

Contribution is the difference between the Sales revenue and the Variable cost per unit. This is an indicator of the contribution of the goods manufactured to the profit and bottom line of the organization.

Breakeven point represents that level of sales in units and in dollars, where the contribution would equal the fixed costs.

In other words, there would no profit, no loss and no operating income, since the contribution would be sufficient only to cover the fixed costs, thus leaving no surplus.

Margin of Safety represents that portion of the sales over the breakeven point, that acts as a buffer to protect the company’s revenue, in the event that there is a drop in the sales.

Operating Leverage is the degree to which the contribution and net operating income are related and represents the relation between the Sales and Variable costs.

To Compute:

Breakeven point, Margin of Safety and Operating Leverage after changing inputs of Sales, Selling Price Per unit, Variable and fixed expenses.

5.

b)

To determine

Concept Introduction:

Contribution and Fixed and Variable Costs in Manufacturing

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced.

Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced.

Examples are costs of factory rent, depreciation on plant and equipment

Manufacturing costs are costs that are directly incurred in connection with manufacture of goods.

Examples are Direct materials and Manufacturing Overhead

Contribution is the difference between the Sales revenue and the Variable cost per unit. This is an indicator of the contribution of the goods manufactured to the profit and bottom line of the organization.

Breakeven point represents that level of sales in units and in dollars, where the contribution would equal the fixed costs.

In other words, there would no profit, no loss and no operating income, since the contribution would be sufficient only to cover the fixed costs, thus leaving no surplus.

Margin of Safety represents that portion of the sales over the breakeven point, that acts as a buffer to protect the company’s revenue, in the event that there is a drop in the sales.

Operating Leverage is the degree to which the contribution and net operating income are related and represents the relation between the Sales and Variable costs.

To Compute:

Changes in Operating leverage due to reduction in selling price

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Consolidation after Several Years On January 1, 2016, Adams Corporation acquired all of the stock of Baker Company. The fair value of Adams’ shares used in the exchange was $37,500,000. At the time of acquisition, the book value of Baker’s shareholders’ equity was $5,000,000, and the book value of Baker’s building (25-year life) exceeded its fair value by $1,000,000. From the date of acquisition to December 31, 2021, Baker had cumulative net income of $1,300,000. For 2022, Baker reported net income of $300,000. Adams uses the complete equity method to account for its investment in Baker. There is no goodwill impairment loss for the period 2016 through 2021, but there is impairment loss of $100,000 in 2022. Baker declared no dividends during the period 2016–2022. Required Prepare the working paper eliminating entries necessary to consolidate the financial statements of Adams and Baker at December 31, 2022. Enter numerical answers using all zeros (do not abbreviate in thousands or in…

Give me the answer in a clear organized table please. Thank you!

Answer 2

Question

Chapter 6, Problem 5AE

5.

a)

To determine

Concept Introduction:

Contribution and Fixed and Variable Costs in Manufacturing

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced.

Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced.

Examples are costs of factory rent, depreciation on plant and equipment

Manufacturing costs are costs that are directly incurred in connection with manufacture of goods.

Examples are Direct materials and Manufacturing Overhead

Contribution is the difference between the Sales revenue and the Variable cost per unit. This is an indicator of the contribution of the goods manufactured to the profit and bottom line of the organization.

Breakeven point represents that level of sales in units and in dollars, where the contribution would equal the fixed costs.

In other words, there would no profit, no loss and no operating income, since the contribution would be sufficient only to cover the fixed costs, thus leaving no surplus.

Margin of Safety represents that portion of the sales over the breakeven point, that acts as a buffer to protect the company’s revenue, in the event that there is a drop in the sales.

Operating Leverage is the degree to which the contribution and net operating income are related and represents the relation between the Sales and Variable costs.

To Compute:

Breakeven point, Margin of Safety and Operating Leverage after changing inputs of Sales, Selling Price Per unit, Variable and fixed expenses.

5.

b)

To determine

Concept Introduction:

Contribution and Fixed and Variable Costs in Manufacturing

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced.

Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced.

Examples are costs of factory rent, depreciation on plant and equipment

Manufacturing costs are costs that are directly incurred in connection with manufacture of goods.

Examples are Direct materials and Manufacturing Overhead

Contribution is the difference between the Sales revenue and the Variable cost per unit. This is an indicator of the contribution of the goods manufactured to the profit and bottom line of the organization.

Breakeven point represents that level of sales in units and in dollars, where the contribution would equal the fixed costs.

In other words, there would no profit, no loss and no operating income, since the contribution would be sufficient only to cover the fixed costs, thus leaving no surplus.

Margin of Safety represents that portion of the sales over the breakeven point, that acts as a buffer to protect the company’s revenue, in the event that there is a drop in the sales.

Operating Leverage is the degree to which the contribution and net operating income are related and represents the relation between the Sales and Variable costs.

To Compute:

Changes in Operating leverage due to reduction in selling price

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Answer 3

Question

Chapter 6, Problem 5AE

5.

a)

To determine

Concept Introduction:

Contribution and Fixed and Variable Costs in Manufacturing

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced.

Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced.

Examples are costs of factory rent, depreciation on plant and equipment

Manufacturing costs are costs that are directly incurred in connection with manufacture of goods.

Examples are Direct materials and Manufacturing Overhead

Contribution is the difference between the Sales revenue and the Variable cost per unit. This is an indicator of the contribution of the goods manufactured to the profit and bottom line of the organization.

Breakeven point represents that level of sales in units and in dollars, where the contribution would equal the fixed costs.

In other words, there would no profit, no loss and no operating income, since the contribution would be sufficient only to cover the fixed costs, thus leaving no surplus.

Margin of Safety represents that portion of the sales over the breakeven point, that acts as a buffer to protect the company’s revenue, in the event that there is a drop in the sales.

Operating Leverage is the degree to which the contribution and net operating income are related and represents the relation between the Sales and Variable costs.

To Compute:

Breakeven point, Margin of Safety and Operating Leverage after changing inputs of Sales, Selling Price Per unit, Variable and fixed expenses.

5.

b)

To determine

Concept Introduction:

Contribution and Fixed and Variable Costs in Manufacturing

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced.

Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced.

Examples are costs of factory rent, depreciation on plant and equipment

Manufacturing costs are costs that are directly incurred in connection with manufacture of goods.

Examples are Direct materials and Manufacturing Overhead

Contribution is the difference between the Sales revenue and the Variable cost per unit. This is an indicator of the contribution of the goods manufactured to the profit and bottom line of the organization.

Breakeven point represents that level of sales in units and in dollars, where the contribution would equal the fixed costs.

In other words, there would no profit, no loss and no operating income, since the contribution would be sufficient only to cover the fixed costs, thus leaving no surplus.

Margin of Safety represents that portion of the sales over the breakeven point, that acts as a buffer to protect the company’s revenue, in the event that there is a drop in the sales.

Operating Leverage is the degree to which the contribution and net operating income are related and represents the relation between the Sales and Variable costs.

To Compute:

Changes in Operating leverage due to reduction in selling price

Expert Solution & Answer

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Answer 4

Question

Chapter 6, Problem 5AE

5.

a)

To determine

Concept Introduction:

Contribution and Fixed and Variable Costs in Manufacturing

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced.

Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced.

Examples are costs of factory rent, depreciation on plant and equipment

Manufacturing costs are costs that are directly incurred in connection with manufacture of goods.

Examples are Direct materials and Manufacturing Overhead

Contribution is the difference between the Sales revenue and the Variable cost per unit. This is an indicator of the contribution of the goods manufactured to the profit and bottom line of the organization.

Breakeven point represents that level of sales in units and in dollars, where the contribution would equal the fixed costs.

In other words, there would no profit, no loss and no operating income, since the contribution would be sufficient only to cover the fixed costs, thus leaving no surplus.

Margin of Safety represents that portion of the sales over the breakeven point, that acts as a buffer to protect the company’s revenue, in the event that there is a drop in the sales.

Operating Leverage is the degree to which the contribution and net operating income are related and represents the relation between the Sales and Variable costs.

To Compute:

Breakeven point, Margin of Safety and Operating Leverage after changing inputs of Sales, Selling Price Per unit, Variable and fixed expenses.

5.

b)

To determine

Concept Introduction:

Contribution and Fixed and Variable Costs in Manufacturing

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced.

Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced.

Examples are costs of factory rent, depreciation on plant and equipment

Manufacturing costs are costs that are directly incurred in connection with manufacture of goods.

Examples are Direct materials and Manufacturing Overhead

Contribution is the difference between the Sales revenue and the Variable cost per unit. This is an indicator of the contribution of the goods manufactured to the profit and bottom line of the organization.

Breakeven point represents that level of sales in units and in dollars, where the contribution would equal the fixed costs.

In other words, there would no profit, no loss and no operating income, since the contribution would be sufficient only to cover the fixed costs, thus leaving no surplus.

Margin of Safety represents that portion of the sales over the breakeven point, that acts as a buffer to protect the company’s revenue, in the event that there is a drop in the sales.

Operating Leverage is the degree to which the contribution and net operating income are related and represents the relation between the Sales and Variable costs.

To Compute:

Changes in Operating leverage due to reduction in selling price

Expert Solution & Answer

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Check out a sample textbook solution

See solution

Answer 5

Chapter 6, Problem 5AE

5.

a)

To determine

Concept Introduction:

Contribution and Fixed and Variable Costs in Manufacturing

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced.

Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced.

Examples are costs of factory rent, depreciation on plant and equipment

Manufacturing costs are costs that are directly incurred in connection with manufacture of goods.

Examples are Direct materials and Manufacturing Overhead

Contribution is the difference between the Sales revenue and the Variable cost per unit. This is an indicator of the contribution of the goods manufactured to the profit and bottom line of the organization.

Breakeven point represents that level of sales in units and in dollars, where the contribution would equal the fixed costs.

In other words, there would no profit, no loss and no operating income, since the contribution would be sufficient only to cover the fixed costs, thus leaving no surplus.

Margin of Safety represents that portion of the sales over the breakeven point, that acts as a buffer to protect the company’s revenue, in the event that there is a drop in the sales.

Operating Leverage is the degree to which the contribution and net operating income are related and represents the relation between the Sales and Variable costs.

To Compute:

Breakeven point, Margin of Safety and Operating Leverage after changing inputs of Sales, Selling Price Per unit, Variable and fixed expenses.

5.

b)

To determine

Concept Introduction:

Contribution and Fixed and Variable Costs in Manufacturing

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced.

Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced.

Examples are costs of factory rent, depreciation on plant and equipment

Manufacturing costs are costs that are directly incurred in connection with manufacture of goods.

Examples are Direct materials and Manufacturing Overhead

Contribution is the difference between the Sales revenue and the Variable cost per unit. This is an indicator of the contribution of the goods manufactured to the profit and bottom line of the organization.

Breakeven point represents that level of sales in units and in dollars, where the contribution would equal the fixed costs.

In other words, there would no profit, no loss and no operating income, since the contribution would be sufficient only to cover the fixed costs, thus leaving no surplus.

Margin of Safety represents that portion of the sales over the breakeven point, that acts as a buffer to protect the company’s revenue, in the event that there is a drop in the sales.

Operating Leverage is the degree to which the contribution and net operating income are related and represents the relation between the Sales and Variable costs.

To Compute:

Changes in Operating leverage due to reduction in selling price

Answer 6

Chapter 6, Problem 5AE

5.

a)

To determine

Concept Introduction:

Contribution and Fixed and Variable Costs in Manufacturing

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced.

Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced.

Examples are costs of factory rent, depreciation on plant and equipment

Manufacturing costs are costs that are directly incurred in connection with manufacture of goods.

Examples are Direct materials and Manufacturing Overhead

Contribution is the difference between the Sales revenue and the Variable cost per unit. This is an indicator of the contribution of the goods manufactured to the profit and bottom line of the organization.

Breakeven point represents that level of sales in units and in dollars, where the contribution would equal the fixed costs.

In other words, there would no profit, no loss and no operating income, since the contribution would be sufficient only to cover the fixed costs, thus leaving no surplus.

Margin of Safety represents that portion of the sales over the breakeven point, that acts as a buffer to protect the company’s revenue, in the event that there is a drop in the sales.

Operating Leverage is the degree to which the contribution and net operating income are related and represents the relation between the Sales and Variable costs.

To Compute:

Breakeven point, Margin of Safety and Operating Leverage after changing inputs of Sales, Selling Price Per unit, Variable and fixed expenses.

Answer 7

Chapter 6, Problem 5AE

5.

a)

To determine

Concept Introduction:

Contribution and Fixed and Variable Costs in Manufacturing

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced.

Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced.

Examples are costs of factory rent, depreciation on plant and equipment

Manufacturing costs are costs that are directly incurred in connection with manufacture of goods.

Examples are Direct materials and Manufacturing Overhead

Contribution is the difference between the Sales revenue and the Variable cost per unit. This is an indicator of the contribution of the goods manufactured to the profit and bottom line of the organization.

Breakeven point represents that level of sales in units and in dollars, where the contribution would equal the fixed costs.

In other words, there would no profit, no loss and no operating income, since the contribution would be sufficient only to cover the fixed costs, thus leaving no surplus.

Margin of Safety represents that portion of the sales over the breakeven point, that acts as a buffer to protect the company’s revenue, in the event that there is a drop in the sales.

Operating Leverage is the degree to which the contribution and net operating income are related and represents the relation between the Sales and Variable costs.

To Compute:

Breakeven point, Margin of Safety and Operating Leverage after changing inputs of Sales, Selling Price Per unit, Variable and fixed expenses.

Answer 8

5.

b)

To determine

Concept Introduction:

Contribution and Fixed and Variable Costs in Manufacturing

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced.

Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced.

Examples are costs of factory rent, depreciation on plant and equipment

Manufacturing costs are costs that are directly incurred in connection with manufacture of goods.

Examples are Direct materials and Manufacturing Overhead

Contribution is the difference between the Sales revenue and the Variable cost per unit. This is an indicator of the contribution of the goods manufactured to the profit and bottom line of the organization.

Breakeven point represents that level of sales in units and in dollars, where the contribution would equal the fixed costs.

In other words, there would no profit, no loss and no operating income, since the contribution would be sufficient only to cover the fixed costs, thus leaving no surplus.

Margin of Safety represents that portion of the sales over the breakeven point, that acts as a buffer to protect the company’s revenue, in the event that there is a drop in the sales.

Operating Leverage is the degree to which the contribution and net operating income are related and represents the relation between the Sales and Variable costs.

To Compute:

Changes in Operating leverage due to reduction in selling price

Answer 9

5.

b)

To determine

Concept Introduction:

Contribution and Fixed and Variable Costs in Manufacturing

Variable costs refer to the costs of manufacture that have a direct co-relation with the volume of the goods manufactured, i.e. the costs increase with an increase in the goods produced.

Examples are costs of direct material and direct labor.

Fixed costs refer to the costs of manufacture that have an inverse co-relation with the volume of the goods manufactured, i.e. the costs decrease with an increase in the goods produced.

Examples are costs of factory rent, depreciation on plant and equipment

Manufacturing costs are costs that are directly incurred in connection with manufacture of goods.

Examples are Direct materials and Manufacturing Overhead

Contribution is the difference between the Sales revenue and the Variable cost per unit. This is an indicator of the contribution of the goods manufactured to the profit and bottom line of the organization.

Breakeven point represents that level of sales in units and in dollars, where the contribution would equal the fixed costs.

In other words, there would no profit, no loss and no operating income, since the contribution would be sufficient only to cover the fixed costs, thus leaving no surplus.

Margin of Safety represents that portion of the sales over the breakeven point, that acts as a buffer to protect the company’s revenue, in the event that there is a drop in the sales.

Operating Leverage is the degree to which the contribution and net operating income are related and represents the relation between the Sales and Variable costs.

To Compute:

Changes in Operating leverage due to reduction in selling price

Answer 10

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Answer 11

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Answer 12

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Answer 13

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Solution Summary: The author explains the concepts of contribution and fixed and variable costs in manufacturing, and breakseven point, Margin of Safety and Operating Leverage.

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