A manufacturing company prepares income statements using both absorption and variable costing methods. At the end of the period, actual sales revenue, total gross profit, and total contribution margin approximated the budgeted figures, whereas net income was substantially greater than the budgeted amount. There were no beginning or ending inventories. The most likely explanation of the net income increase is that, compared to budget, actual * O manufacturing fixed costs had increased O selling and administrative fixed expenses had decreased O sales prices and variable costs had increased proportionately O sales prices had declined proportionately less than the variable costs

A manufacturing company prepares income statements using both absorption and variable costing methods. At the end of the period, actual sales revenue, total gross profit, and total contribution margin approximated the budgeted figures, whereas net income was substantially greater than the budgeted amount. There were no beginning or ending inventories. The most likely explanation of the net income increase is that, compared to budget, actual * O manufacturing fixed costs had increased O selling and administrative fixed expenses had decreased O sales prices and variable costs had increased proportionately O sales prices had declined proportionately less than the variable costs

Managerial Accounting

15th Edition

ISBN:9781337912020

Author:Carl Warren, Ph.d. Cma William B. Tayler

Publisher:Carl Warren, Ph.d. Cma William B. Tayler

Chapter7: Variable Costing For Management analysis

Section: Chapter Questions

Problem 7E: The following data were adapted from a recent income statement of The Procter Gamble Company (PG):...

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Sales Revenue Approach, Variable Cost Ratio, Contribution Margin Ratio Arberg Companys controller prepared the following budgeted income statement for the coming year: Required: 1. What is Arbergs variable cost ratio? What is its contribution margin ratio? 2. Suppose Arbergs actual revenues are 30,000 more than budgeted. By how much will operating income increase? Give the answer without preparing a new income statement 3. How much sales revenue must Arberg earn to break even? Prepare a contribution margin income statement to verify the accuracy of your answer. 4. What is Arbergs expected margin of safety? 5. What is Arbergs margin of safety if sales revenue is 380,000?
Contribution margin, break-even sales, cost-volume-profit chart, margin of safety, and operating leverage Belmain Co. expects to maintain the same inventories at the end of 20Y7 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during the year. A summary report of these estimates is as follows: It is expected that 12,000 units will be sold at a price of 240 a unit. Maximum sales within the relevant range are 18,000 units. Instructions 1. Prepare an estimated income statement for 20Y7. 2. What is the expected contribution margin ratio? 3. Determine the break-even sales in units and dollars. 4. Construct a cost-volume-profit chart indicating the break-even sales. 5. What is the expected margin of safety in dollars and as a percentage of sales? (Round to one decimal place.) 6. Determine the operating leverage.
Evaluating selling and administrative cost allocations Gordon Gecco Furniture Company has two major product lines with the following characteristics: Commercial office furniture: Few large orders, little advertising support, shipments in full truckloads, and low handling complexity Home office furniture: Many small orders, large advertising support, shipments in partial truckloads, and high handling complexity The company produced the following profitability report for management: The selling and administrative expenses are allocated to the products on the basis of relative sales dollars. Evaluate the accuracy of this report and recommend an alternative approach.
Use the information from the previous exercises involving JJ Manufacturing to determine their break-even point in sales dollars.
Continuous improvement is the governing principle of a lean accounting system. Following are several performance measures. Some of these measures would be associated with a traditional standard-costing accounting system, and some would be associated with a lean accounting system. a. Materials price variances b. Cycle time c. Comparison of actual product costs with target costs d. Materials quantity or efficiency variances e. Comparison of actual product costs over time (trend reports) f. Comparison of actual overhead costs, item by item, with the corresponding budgeted costs g. Comparison of product costs with competitors product costs h. Percentage of on-time deliveries i. First-time through j. Reports of value- and non-value-added costs k. Labor efficiency variances l. Days of inventory m. Downtime n. Manufacturing cycle efficiency (MCE) o. Unused (available) capacity variance p. Labor rate variance q. Using a sister plants best practices as a performance standard Required: 1. Classify each measure as lean or traditional (standard costing). If traditional, discuss the measures limitations for a lean environment. If it is a lean measure, describe how the measure supports the objectives of lean manufacturing. 2. Classify the measures into operational (nonfinancial) and financial categories. Explain why operational measures are better for control at the shop level (production floor) than financial measures. Should any financial measures be used at the operational level? 3. Suggest some additional measures that you would like to see added to the list that would be supportive of lean objectives.
Determine the operating income for Vinnies Vinyls West score, assuming the warehouse allocation is reduced to 10% of sales for the warehouse and the difference will be charged to the West store. Management has determined that the warehouse takes fewer corporate resources and the allocation to the West store was lower than it should have been.
Using the information in the previous exercises about Marleys Manufacturing, determine the operating income for department B, assuming department A sold department B 1,000 units during the month and department A reduces the selling price to the market price.
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Contribution margin, break-even sales, cost-volume-profit chart, marginof safety, and operating leverageBelmain Co. expects to maintain the same inventories at the end of 20Y7 as at the beginning of the year. The total of all production costs for theyear is therefore assumed to be equal to the cost of goods sold. With thisin mind, the various department heads were asked to submit estimatesof the costs for their departments during the year. A summary report ofthese estimates is as follows: (attached) It is expected that 12,000 units will be sold at a price of $240 a unit.Maximum sales within the relevant range are 18,000 units.Instructions 1. Prepare an estimated income statement for 20Y7.2. What is the expected contribution margin ratio?3. Determine the break-even sales in units and dollars. 4. Construct a cost-volume-profit chart indicating the break-evensales.5. What is the expected margin of safety in dollars and as apercentage of sales?6. Determine the operating leverage.
Contribution Margin, Break-Even Sales, A chart used to assist management in understanding the relationships among costs, expenses, sales, and operating profit or loss.Cost-Volume-Profit Chart, Indicates the possible decrease in sales that may occur before an operating loss results.Margin of Safety, and A measure of the relative mix of a business's variable costs and fixed costs, computed as contribution margin divided by operating income.Operating Leverage Belmain Co. expects to maintain the same inventories at the end of 20Y7 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during the year. A summary report of these estimates is as follows: EstimatedFixed Cost Estimated Variable Cost(per unit sold) Production costs: Direct materials $22 Direct labor…
The managerial accountant at Fast and Mean Manufacturing reported that the organization contains an automated production line to manufacture and produce its products for consumers to enjoy in the marketplace. The managerial accountant reported that the company uses the high-low method to estimate the costs in the new budget. The managerial accountant reported the following information: Compute the slope of the mixed cost, or the variable cost per unit of activity. Compute the vertical intercept, or the fixed cost component of the mixed cost. What is the mixed cost equation? Month Total machine hours total cost January 250,000 $5,500,000 February 248,000 $5,260,000 March 249,000 $5,400,000 April 248,000 $5,220,000 May 238,000 $5,180,000 June 230,000 $5,130,000
Sales Revenue Approach, Variable Cost Ratio, Contribution MarginRatioArberg Company’s controller prepared the following budgeted income statement for thecoming year: Required:1. What is Arberg’s variable cost ratio? What is its contribution margin ratio?2. Suppose Arberg’s actual revenues are $30,000 more than budgeted. By how much willoperating income increase? Give the answer without preparing a new income statement.3. How much sales revenue must Arberg earn to break even? Prepare a contribution marginincome statement to verify the accuracy of your answer.4. What is Arberg’s expected margin of safety?5. What is Arberg’s margin of safety if sales revenue is $380,000?