
1.
Determine the annual breakeven point in units and dollars.
1.

Explanation of Solution
Compute the breakeven point in units:
Compute the breakeven point in dollars:
Compute the contribution margin ratio:
2.
Determine the amount of sales in units and dollars.
2.

Explanation of Solution
Compute the amount of sales in units:
Compute the amount of sales in dollars:
3.
Determine the amount of sales in units and dollars, when income tax rate is 40%.
3.

Explanation of Solution
Compute the required sales in unit:
Working notes:
Determine the targeted profit:
Compute the required sales in dollars:
4.
Prepare a contribution income statement.
4.

Explanation of Solution
Prepare the contribution income statement:
Contribution Income Statement | |
Particulars | Amount |
Sales | $1,384,404 |
Less: Variable costs ($63 per unit) | $1,038,303 |
Contribution margin ($21 per unit) | $346,101 |
Less: Fixed costs | $296,100 |
Pre-tax income | $50,001 |
Less: Income tax (40%) | $20,000 |
Profit after tax | $30,001 |
5.
Indicate the effect of manager’s decision in operating profit of the company.
5.

Explanation of Solution
Particulars | Original (A) | Incremental (A-B) | After Change (B) |
Sales | $1,050,000 | $200,000 | $1,250,000 |
Less: Variable costs | $787,500 | $150,000 | $937,500 |
Contribution margin | $262,500 | $50,000 | $312,500 |
Less: Fixed costs | $296,100 | $60,000 | $356,100 |
Operating profit | -$33,600 | -$10,000 | -$43,600 |
Therefore, the operating profit is decreased by $10,000.
6.
Indicate the effect of strategy in operating profit of the company.
6.

Explanation of Solution
Particulars | Original (A) | Change (A-B) | New (B) |
Sales | $1,050,000 | $131,250 | $1,181,250 |
Less: Variable costs | $787,500 | $196,875 | $984,375 |
Contribution margin | $262,500 | -$65,625 | $196,875 |
Less: Fixed costs | $296,100 | $40,000 | $336,100 |
Operating income (loss) | -$33,600 | -$105,625 | -$139,225 |
Therefore, the operating profit is decreased by $105,525.
7.
Indicate whether the change is desirable or not.
7.

Explanation of Solution
The proposed change is considered to be desirable. The total amount of deduction in variable cost is $62,500 and the increase in fixed cost is $50,000. Hence, the total amount of net savings is $12,500.
Want to see more full solutions like this?
Chapter 9 Solutions
Cost Management
- Please give me true answer this financial accounting questionarrow_forwardRaptors Inc. creates aluminum alloy parts for commercial aircraft. In a recent transaction Raptors leased a high precision lathe machine from Grizzlies Corp. on January 1, 2024. The following information pertains to the leased asset and the lease agreement: Cost of lathe to lessor $140,000 Grizzlies normal selling price for lathe 178,268 Useful life 7 years Estimated value at end of useful life 8,000 Lease provisions Lease term 5 years Payment frequency Annual Start date of lease January 1 Payment timing December 31 Estimated residual value at end of lease (unguaranteed) 20,000 Interest rate implicit in the lease (readily determinable by lessee) 7% Lessee's incremental borrowing rate 8% The lathe machine will revert back to the lessor at end of lease term, title does not transfer to lessee at any time, and there is not a bargain purchase option. Required…arrow_forwardFinancial Accountingarrow_forward
- Can you please solve this financial accounting problem without use Ai?arrow_forwardHobbiton Tours Ltd. has the following details related to its defined benefit pension plan as at December 31, 2024: Pension fund assets of $1,900,000 and actuarial obligation of $1,806,317. The actuarial obligation represents the present value of a single benefit payment of $3,200,000 that is due on December 31, 2030, discounted at an interest rate of 10%; i.e. $3,200,000 / 1.106 = $1,806,317. Funding during 2025 was $55,000. The actual value of pension fund assets at the end of 2025 was $2,171,000. As a result of the current services received from employees, the single payment due on December 31, 2030, had increased from $3,200,000 to $3,380,000. Required Compute the current service cost for 2025 and the amount of the accrued benefit obligation at December 31, 2025. Perform this computation for an interest rate of 8%. Derive the pension expense for 2025 under various assumptions about the expected return and discount rate. Complete the following table: Case…arrow_forwardCalculate Debt Ratios and Debt to Equity Ratio for 2016arrow_forward
- Please explain the correct approach for solving this financial accounting question.arrow_forwardIn 2026, Maple Leafs Co. sells its single machine, which cost $100,000 and has an undepreciated capital cost (UCC) of $25,000 for tax purposes. For financial reporting, the machine has carrying amount of $40,000. The sale price of the machine is $30,000. Aside from the sale of the machine, the company has other income (before taxes) of $600,000, which includes non-taxable dividends of $120,000 dollars received during the year. There are no other permanent or temporary differences. The company faces an income tax rate of 35%. Required Provide the journal entries for the company for 2026.arrow_forwardBlue Jays Corporation started operations on March 1, 2025. It needs to acquire a special piece of equipment for its manufacturing operations. It is evaluating two options as follows. Option 1: Lease the equipment for 5 years. Lease payments would be $11,000 per year, due at the beginning of each fiscal year (March 1). Blue Jays incremental borrowing rate is 5%. There is not a bargain purchase or renewal option. Blue Jays is responsible for all non-lease costs of operating the equipment. Option 2: Purchase the equipment for $50,000 by borrowing the full purchase amount at 5% over 5 years. This price is considered the fair value of the equipment. Payments are due at the end of each fiscal year (February 28). The equipment has a useful life of 5 years and would be depreciated on a straight-line basis. No residual value is expected to exist at the end of 5 years. Required Calculate the present value of the lease payments (Option 1). Calculate the payment that would be…arrow_forward
- AccountingAccountingISBN:9781337272094Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.Publisher:Cengage Learning,Accounting Information SystemsAccountingISBN:9781337619202Author:Hall, James A.Publisher:Cengage Learning,
- Horngren's Cost Accounting: A Managerial Emphasis...AccountingISBN:9780134475585Author:Srikant M. Datar, Madhav V. RajanPublisher:PEARSONIntermediate AccountingAccountingISBN:9781259722660Author:J. David Spiceland, Mark W. Nelson, Wayne M ThomasPublisher:McGraw-Hill EducationFinancial and Managerial AccountingAccountingISBN:9781259726705Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting PrinciplesPublisher:McGraw-Hill Education





