Crane Farms reports the following results for the month of November Sales (10.200 unit) $652,800 Variable costs 459,000 Contribution margin Fixed costs Net income 193.800 Course 112.200 $81,600 Management is considering the following independent courses of action to increase net income 1 Increase selling price by 5% with no change in total variable costs 2 Reduce variable costs to 66%% of sales 1 Reduce foxed costs by $10.000 Calculate net income for the above courses of action 1 Increase selling price 2 Reduce variable cost 1. Reduce foed cont Net Income If maximizing net income is the objective, which is the best course of action Beit course of action is

Crane Farms reports the following results for the month of November Sales (10.200 unit) $652,800 Variable costs 459,000 Contribution margin Fixed costs Net income 193.800 Course 112.200 $81,600 Management is considering the following independent courses of action to increase net income 1 Increase selling price by 5% with no change in total variable costs 2 Reduce variable costs to 66%% of sales 1 Reduce foxed costs by $10.000 Calculate net income for the above courses of action 1 Increase selling price 2 Reduce variable cost 1. Reduce foed cont Net Income If maximizing net income is the objective, which is the best course of action Beit course of action is

Managerial Accounting: The Cornerstone of Business Decision-Making

7th Edition

ISBN:9781337115773

Author:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Publisher:Maryanne M. Mowen, Don R. Hansen, Dan L. Heitger

Chapter8: Tactical Decision-making And Relevant Analysis

Section: Chapter Questions

Problem 11MCQ: Garrett Company provided the following information: Common fixed cost totaled 46,000. Garrett...

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Lotts Company produces and sells one product. The selling price is 10, and the unit variable cost is 6. Total fixed cost is 10,000. Required: 1. Prepare a CVP graph with Units Sold as the horizontal axis and Dollars as the vertical axis. Label the break-even point on the horizontal axis. 2. Prepare CVP graphs for each of the following independent scenarios: (a) Fixed cost increases by 5,000, (b) Unit variable cost increases to 7, (c) Unit selling price increases to 12, and (d) Fixed cost increases by 5,000 and unit variable cost is 7.
Income Statements under Absorption and Variable Costing In the coming year, Kalling Company expects to sell 28,700 units at 32 each. Kallings controller provided the following information for the coming year: Required: 1. Calculate the cost of one unit of product under absorption costing. 2. Calculate the cost of one unit of product under variable costing. 3. Calculate operating income under absorption costing for next year. 4. Calculate operating income under variable costing for next year.
Grand Canyon Manufacturing Inc. produces and sells a product with a price of 100 per unit. The following cost data have been prepared for its estimated upper and lower limits of activity: Overhead: Selling and administrative expenses: Required: 1. Classify each cost element as either variable, fixed, or semi-variable. (Hint: Recall that variable expenses must go up in direct proportion to changes in the volume of activity.) 2. Calculate the break-even point in units and dollars. (Hint: First use the high-low method illustrated in Chapter 4 to separate costs into their fixed and variable components.) 3. Prepare a break-even chart. 4. Prepare a contribution income statement, similar in format to the statement appearing on page 540, assuming sales of 5,000 units. 5. Recompute the break-even point in units, assuming that variable costs increase by 20% and fixed costs are reduced by 50,000.
Variable-Costing and Absorption-Costing Income Borques Company produces and sells wooden pallets that are used for moving and stacking materials. The operating costs for the past year were as follows: During the year, Borques produced 200,000 wooden pallets and sold 204,300 at 9 each. Borques had 8,200 pallets in beginning finished goods inventory; costs have not changed from last year to this year. An actual costing system is used for product costing. Required: 1. What is the per-unit inventory cost that is acceptable for reporting on Borquess balance sheet at the end of the year ? How many units are in ending inventory? What is the total cost of ending inventory? 2. Calculate absorption-costing operating income. 3. CONCEPTUAL CONNECTION What would the per-unit inventory cost be under variable costing? Does this differ from the unit cost computed in Requirement 1? Why? 4. Calculate variable-costing operating income. 5. Suppose that Borques Company had sold 196,700 pallets during the year. What would absorption-costing operating income have been? Variable-costing operating income?
Bradshaw Company reported sales of 5,000,000 in 20X1. At the end of the fiscal year (June 30, 20X1), the following quality costs were reported: Required: 1. Prepare a quality cost report. 2. Prepare a graph (pie chart or bar graph) that shows the relative distribution of quality costs, and comment on the distribution. 3. Assuming sales of 5,000,000, by how much would profits increase if quality improves so that quality costs are only 3% of sales?
Cost-Volume-Profit, Margin of Safety Victoria Company produces a single product. Last years income statement is as follows: Required: 1. Compute the break-even point in units and sales dollars calculated using the break-even units. 2. What was the margin of safety for Victoria last year in sales dollars? 3. Suppose that Victoria is considering an investment in new technology that will increase fixed cost by 250,000 per year but will lower variable costs to 45% of sales. Units sold will remain unchanged. Prepare a budgeted income statement assuming that Victoria makes this investment. What is the new break-even point in sales dollars, assuming that the investment is made?
Estimated income statements, using absorption and variable costing Prior to the first month of operations ending October 31, Marshall Inc. estimated the following operating results: The company is evaluating a proposal to manufacture 50,000 units instead of 40,000 units, thus creating an ending inventory of 10,000 units. Manufacturing the additional units will not change sales, unit variable factory overhead costs, total fixed factory overhead cost, or total selling and administrative expenses. a. Prepare an estimated income statement, comparing operating results if 40,000 and 50,000 units are manufactured in (1) the absorption costing format and (2) the variable costing format. b. What is the reason for the difference in operating income reported for the two levels of production by the absorption costing income statement?
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.
Grainger Company produces only one product and sells that product for $100 per unit. Cost information for the product is: Selling expenses are $4 per unit and are all variable. Administrative expenses of $20,000 are all fixed. Grainger produced 5,000 units; sold 4,000; and had no beginning inventory. A. Compute net income under absorption costing variable costing B. Reconcile the difference between the income under absorption and variable costing.
Bolger and Co. manufactures large gaskets for the turbine industry. Bolgers per-unit sales price and variable costs for the current year are as follows: Bolgers total fixed costs aggregate to 360,000. Bolgers labor agreement is expiring at the end of the year, and management is concerned about the effects of a new labor agreement on its break-even point in units. The controller performed a sensitivity analysis to ascertain the estimated effect of a 10-per-unit direct labor increase and a 10,000 reduction in fixed costs. Based on these data, the break-even point would: a. decrease by 1,000 units. b. decrease by 125 units. c. increase by 375 units. d. increase by 500 units.
Segment variable costing income statement and effect on operating income of change in operations Valdespin Company manufactures three sizes of camping tentssmall (S), medium (M), and large (L). The income statement has consistently indicated a net loss for the M size, and management is considering three proposals: (1) continue Size M, (2) discontinue Size M and reduce total output accordingly, or (3) discontinue Size M and conduct an advertising campaign to expand the sales of Size S so that the entire plant capacity can continue to be used. If Proposal 2 is selected and Size M is discontinued and production curtailed, the annual fixed production costs and fixed operating expenses could be reduced by 46,080 and 32,240, respectively. If Proposal 3 is selected, it is anticipated that an additional annual expenditure of 34,560 for the rental of additional warehouse space would yield an additional 130% in Size S sales volume. It is also assumed that the increased production of Size S would utilize the plant facilities released by the discontinuance of Size M. The sales and costs have been relatively stable over the past few years, and they are expected to remain so for the foreseeable future. The income statement for the past year ended June 30, 20Y9, is as follows: Instructions 1. Prepare an income statement for the past year in the variable costing format. Use the following headings: Data for each size should be reported through contribution margin. The fixed costs should be deducted from the total contribution margin, as reported in the Total column, to determine operating income. 2. Based on the income statement prepared in (1) and the other data presented, determine the amount by which total annual operating income would be reduced below its present level if Proposal 2 is accepted. 3. Prepare an income statement in the variable costing format, indicating the projected annual operating income if Proposal 3 is accepted. Use the following headings: Data for each style should be reported through contribution margin. The fixed costs should be deducted from the total contribution margin as reported in the Total column. For purposes of this problem, the expenditure of 34,560 for the rental of additional warehouse space can be added to the fixed operating expenses. 4. By how much would total annual operating income increase above its present level if Proposal 3 is accepted? Explain.
Garrett Company provided the following information: Common fixed cost totaled 46,000. Garrett allocates common fixed cost to Product 1 and Product 2 on the basis of sales. If Product 2 is dropped, which of the following is true? a. Sales will increase by 300,000. b. Overall operating income will increase by 2,600. c. Overall operating income will decrease by 25,000. d. Overall operating income will not change. e. Common fixed cost will decrease by 27,600.