Managerial Accounting: The Cornerstone of Business Decision-Making
7th Edition
ISBN: 9781337115773
Author: Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher: Cengage Learning
expand_more
expand_more
format_list_bulleted
Question
Chapter 7, Problem 6DQ
To determine
Explain if the decision to increase advertising expense with the given contribution margin ratio was right. Also, explain the decision with increased contribution margin ratio.
Expert Solution & Answer
Trending nowThis is a popular solution!
Students have asked these similar questions
Assume that you are the president of your company and paid a year-end bonus according to the amount of net income earned during the year. When prices are rising, would you choose a FIFO or weighted average cost flow assumption? Explain, using an example to support your answer. Would your choice be the same if prices were falling?
Assume that you are the president of your company and paid a year-end bonus according to the amount of net income earned during the year. When prices are rising, would you choose a FIFO or weighted average cost flow assumption? Explain, using an example to support your answer. Would your choice be the same if prices were falling?
I need an example with net income for weighted average
Consider the following information for a given business.
Sale revenue =GHS40,000
VC per unit =GHS20
Activity level =1,000 to break even
Required:
1. Determine the TFC
2. Express the contribution as a percentage of sale.
3. The company plans to sale 1,500 unit in the next period. What will be the percentage margin of safety (MoS)
4. What margin should the business employ for planning purposes?
5. What total profit should the business expect in order to achieve it's planned sales?
Chapter 7 Solutions
Managerial Accounting: The Cornerstone of Business Decision-Making
Ch. 7 - Prob. 1DQCh. 7 - Describe the difference between the units sold...Ch. 7 - Define the term break-even point.Ch. 7 - Prob. 4DQCh. 7 - What is the variable cost ratio? The contribution...Ch. 7 - Prob. 6DQCh. 7 - Define the term sales mix. Give an example to...Ch. 7 - Explain how CVP analysis developed for single...Ch. 7 - Prob. 9DQCh. 7 - How does targeted profit enter into the break-even...
Ch. 7 - Explain how a change in sales mix can change a...Ch. 7 - Define the term margin of safety. Explain how it...Ch. 7 - Explain what is meant by the term operating...Ch. 7 - How can sensitivity analysis be used in...Ch. 7 - Why is a declining margin of safety over a period...Ch. 7 - If the variable cost per unit goes down,Ch. 7 - The amount of revenue required to earn a targeted...Ch. 7 - Prob. 3MCQCh. 7 - Prob. 4MCQCh. 7 - An important assumption of cost-volume-profit...Ch. 7 - The use of fixed costs to extract higher...Ch. 7 - Prob. 7MCQCh. 7 - The contribution margin is the a. amount by which...Ch. 7 - Dartmouth Company produces a single product with a...Ch. 7 - Dartmouth Company produces a single product with a...Ch. 7 - If a companys total fixed cost decreases by...Ch. 7 - Prob. 12MCQCh. 7 - Variable Cost, Fixed Cost, Contribution Margin...Ch. 7 - Prob. 14BEACh. 7 - Variable Cost Ratio, Contribution Margin Ratio...Ch. 7 - Prob. 16BEACh. 7 - Units to Earn Target Income Head-First Company...Ch. 7 - Sales Needed to Earn Target Income Head-First...Ch. 7 - Break-Even Point in Units for a Multiple-Product...Ch. 7 - Prob. 20BEACh. 7 - Margin of Safety Head-First Company plans to sell...Ch. 7 - Degree of Operating Leverage Head-First Company...Ch. 7 - Impact of Increased Sales on Operating Income...Ch. 7 - Variable Cost, Fixed Cost, Contribution Margin...Ch. 7 - Prob. 25BEBCh. 7 - Variable Cost Ratio, Contribution Margin Ratio...Ch. 7 - Prob. 27BEBCh. 7 - Units to Earn Target Income Chillmax Company plans...Ch. 7 - Sales Needed to Earn Target Income Chillmax...Ch. 7 - Prob. 30BEBCh. 7 - Prob. 31BEBCh. 7 - Margin of Safety Chillmax Company plans to sell...Ch. 7 - Prob. 33BEBCh. 7 - Impact of Increased Sales on Operating Income...Ch. 7 - Basic Break-Even Calculations Suppose that Larimer...Ch. 7 - Price, Variable Cost per Unit, Contribution...Ch. 7 - Contribution Margin Ratio, Variable Cost Ratio,...Ch. 7 - Prob. 38ECh. 7 - Prob. 39ECh. 7 - Margin of Safety Comer Company produces and sells...Ch. 7 - Prob. 41ECh. 7 - Sales Revenue Approach, Variable Cost Ratio,...Ch. 7 - Prob. 43ECh. 7 - Cherry Blossom Products Inc. produces and sells...Ch. 7 - Prob. 45ECh. 7 - Lotts Company produces and sells one product. The...Ch. 7 - Klamath Company produces a single product. The...Ch. 7 - Margin of Safety and Operating Leverage Medina...Ch. 7 - Parker Pottery produces a line of vases and a line...Ch. 7 - Jellico Inc.s projected operating income (based on...Ch. 7 - Break-Even Units, Contribution Margin Ratio,...Ch. 7 - Prob. 52PCh. 7 - Aldovar Company produces a variety of chemicals....Ch. 7 - Basu Company produces two types of sleds for...Ch. 7 - Cost-Volume-Profit Equation, Basic Concepts,...Ch. 7 - Contribution Margin Ratio, Break-Even Sales,...Ch. 7 - Prob. 57PCh. 7 - Polaris Inc. manufactures two types of metal...Ch. 7 - Cost-Volume-Profit, Margin of Safety Victoria...Ch. 7 - Abraham Company had revenues of 830,000 last year...Ch. 7 - Prob. 61PCh. 7 - Prob. 62PCh. 7 - Prob. 63PCh. 7 - Suppose that Kicker had the following sales and...Ch. 7 - Danna Lumus, the marketing manager for a division...Ch. 7 - Cost-Volume-Profit Analysis, Single-Product...Ch. 7 - Cost-Volume-Profit Analysis, Single-Product...Ch. 7 - Prob. 3MTCCh. 7 - Prob. 4MTCCh. 7 - Sensitivity Cost-Volume-Profit Analysis and...Ch. 7 - Calculate the hotels margin of safety (both in...
Knowledge Booster
Similar questions
- Suppose a firm with a contribution margin ratio of 0.3 increased its advertising expenses by 10,000 and found that sales increased by 30,000. Was it a good decision to increase advertising expenses? Why is this simple problem an important one for businesspeople to understand?arrow_forwardSuppose you are analyzing a firm that is successfully executing a strategy that differentiates its products from those of its competitors. Because of this strategy, you project that next year the firm will generate 6.0% revenue growth from price increases and 3.0% revenue growth from sales volume increases. Assume that the firms production cost structure involves strictly variable costs. (That is, the cost to produce each unit of product remains the same.) Should you project that the firms gross profit will increase next year? If you project that the gross profit will increase, is the increase a result of volume growth, price growth, or both? Should you project that the firms gross profit margin (gross profit divided by sales) will increase next year? If you project that the gross profit margin will increase, is the increase a result of volume growth, price growth, or both?arrow_forwardThank you for that, it actually coincides with what I think. However, could you please calculate the breakeven points and give an explanation of what they mean to the director. Also, could you please calculate the sales activity to reach a target profit of 20,000arrow_forward
- A corporation that is a single product firm is predicting that a price increase next year will cause unit sales to decrease. What effect would this price increase have on the following items for next year? A) B) C) D) Contribution Margin Ratio Increase Decrease Increase Decrease Multiple Choice Break-even Point Decrease Decrease No effect No effectarrow_forwardA company produces and sells a product. The company has found that the costto produce x units of the product is given by C(x) = 50x + 200 (in dollars),and the revenue from selling x units is given by R(x) = 100x - x? (in dollars).What is the number of units the company should produce and sell to maximize profitarrow_forwardAssume that the manager of the club is able to reduce expenses by $2,880 without any change in sales or average operating assets. What would be the club's return on investment (ROI)? Assume that the manager of the club is able to reduce expenses by $2,880 without any change in sales or average operating assets. What would be the club's return on investment (ROI)?arrow_forward
- which of the following occurs if a company decreases its selling price per unit? a. net income increase b. more than one of the answers would occur c. contribution margin ration increase d. break even point increase e. contribution magrin increasearrow_forwardA service company has the following financial information (in millions of $)a. What is the profit leverage effect of reducing the cost of the facilitating goods in this company?b. It has been suggested that the in-house services costs could be reduced by 10 percent in the coming year by implementing lean systems. What effect would thisohave on earnings increase in percentage?c. What is the profit leverage effect of in-house services relative to profits?arrow_forwardHow much would be the net effect on the total segment profit if product B is dropped and discontinued? Assume that by dropping product B, product A would increase A's sales by 80%. How much would be the net effect on the total segment profit? Assume that by dropping product B, product A would decrease A's sales by 20%. Moreover, 30,000 of common costs allocated are avoidable. How much would be the net effect on the total segment profit?arrow_forward
- When sales volume is rising do companies with a larger percentage of variable expenses or companies with a larger percentage of fixed expenses experience a larger percentage increase in profit? Explain your reasoning.arrow_forwardWhich of the following is true regarding the contribution margin ratio of a single product company? As fixed expenses decrease, the contribution margin ratio increases. The contribution margin ratio multiplied by the variable expense per unit equals the contribution margin per unit. The contribution margin ratio increases as the number of units sold increases. If sales increase, the dollar increase in net operating income can be computed by multiplying the contribution margin ratio by the dollar increase in sales.arrow_forwardRefer 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?arrow_forward
arrow_back_ios
SEE MORE QUESTIONS
arrow_forward_ios
Recommended textbooks for you
Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser...AccountingISBN:9781305970663Author:Don R. Hansen, Maryanne M. MowenPublisher:Cengage Learning
Financial Reporting, Financial Statement Analysis...FinanceISBN:9781285190907Author:James M. Wahlen, Stephen P. Baginski, Mark BradshawPublisher:Cengage Learning
Managerial Accounting: The Cornerstone of Busines...
Accounting
ISBN:9781337115773
Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger
Publisher:Cengage Learning
Cornerstones of Cost Management (Cornerstones Ser...
Accounting
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Cengage Learning
Financial Reporting, Financial Statement Analysis...
Finance
ISBN:9781285190907
Author:James M. Wahlen, Stephen P. Baginski, Mark Bradshaw
Publisher:Cengage Learning