Management Accounting Paper

1154 Words5 Pages
Running Head: MANAGEMENT ACCOUNTING Management Accounting Solutions to the Problem 3-26 Frieden Company 1. Contribution margin for the present and proposed operations are presented in the table below: Contribution Margin of Present Operation Contribution Margin of Proposed New Operation Present Operation Per Unit Per Percent Proposed Operation (Expected) Per Unit Per Percent Sales (40,000 units) $800,000 $20 100% $800,000 $20 100% Variable expenses 560,000 $14 70% $14 -6 =$8 x 40,000 320,000 $8 40% Contribution margin 240,000 $6 30% 480,000 12 60% Fixed expenses 192,000 $4.8 432,000 $10.8 Net operating income $48,000 $48,000 2a. The degree operating leverage for present and proposed operations is as follows: Present Operations Proposed Operations Contribution margin $240,000 $480,000 Net operating income 48,000 48,000 Degree operating leverage $240,000 / 48,000 =5 $480,000 /48,000 =10 % Increase in Net Operating Income 50% 100% (2b). The paper uses the equation method to calculate the company breakeven point in dollars for the present and propose operations and revealed as follows: Present Operation Profits = (Sales - Variable expenses) - Fixed expenses By rearranging the equation, the equation becomes as follows: Sales =Variable expenses + Fixed expenses + Profits =$20Q = $14Q + $192,000 + $0 $20Q - $14Q = $192,000 $6Q =$192,000 Q =$192,000 ÷ 6 per unit Q = 32,000 units. Thus, breakeven point in
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