Concept Introduction:
Cost Volume Profit (CVP) Analysis:
The Cost Volume Profit analysis is the analysis of the relation between cost, volume, and profit of a product. It analyzes the cost and profits at the different level of production, in order to determine the breakeven point and required the level of sales to earn the desired profit.
Contribution margin means the margin that is left with the company after recovering variable cost out of revenue earned by selling smart phones. The formula for contribution margin is as follows:
Contribution margin = Sales - Variable cost.
Similarly contribution margin ratio = Contribution/sales
Breakeven Point:
The Breakeven point is the level of sales at which the net profit is nil. It can be explained as a situation where the business is generating a sale that is equal to the expenses incurred and hence no
Margin of Safety:
Margin of safety is sales over and above the breakeven level. Margin of safety can be calculated as dollar amount and in units as follows:
To Indicate:
The reason to question the validity of the given data
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Chapter 11 Solutions
Survey of Accounting (Accounting I)
- Tombro Industries is in the process of automating one of its plants and developing a flexible manufacturing system. The company is finding it necessary to make many changes in operating procedures. Progress has been slow, particularly in trying to develop new performance measures for the factory. In an effort to evaluate performance and determine where improvements can be made, management has gathered the following data relating to activities over the last four months: Month 1 2 3 4 Quality control measures: Number of defects 185 163 124 91 Number of warranty claims 46 39 30 27 Number of customer complaints 102 96 79 58 Material control measures: Purchase order lead time 8 days 7 days 5 days 4 days Scrap as a percent of total cost 1% 1% 2% 3% Machine performance measures: Machine downtime as a percentage of availability 3% 4% 4% 6% Use as a percentage of availability…arrow_forwardD: Measures of Internal Business Process PerformanceDataSpan, Inc., automated its plant at the start of the current year and installed a flexiblemanufacturing system. The company is also evaluating its suppliers and moving toward LeanProduction. Many adjustment problems have been encountered, including problems relating toperformance measurement. After much study, the company has decided to use the performancemeasures below, and it has gathered data relating to these measures for the first four months ofoperations.Month1 2 3 4Throughput time (days) ? ? ? ?Delivery cycle time (days) ? ? ? ?Manufacturing cycle efficiency (MCE) ? ? ? ?Percentage of on-time deliveries 91% 86% 82% 78%Total sales (units) 3460 3312 3143 3025Management has asked for your help in computing throughput time, delivery cycle time, and MCE.The following average times have been logged over the last four months: Average per Month (in days)1 2 3 4Move time per unit 0.7 0.5 0.6 0.6Process time per unit 2.8 2.7 2.6…arrow_forwardMaking decisions about dropping a product Members of the board of directors of Security Team have received the following operating income data for the year ended March 31, 2018: Members of the board are surprised that the industrial systems product line is losing money. They commission a study to determine whether the company should drop the line. Company accountants estimate that dropping industrial systems will decrease fixed cost of goods sold by $81,000 and decrease fixed selling and administrative expenses by $15,000. Requirements Prepare a differential analysis to show whether Security Team should drop the industrial systems product line. Prepare contribution margin income statements to show Security Team’s total operating income under the two alternatives: (a) with the industrial systems line and without the line. Compare the difference between the two alternatives’ income numbers to your answer to Requirement l. What have you learned from this comparison in Requirement 2?arrow_forward
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- Moses Moonrocks Inc. has developed a balanced scorecard with a measure map that suggests that the number of erroneous shipments has a direct effect on operating profit. The company estimates that every shipment error leads to a reduction of revenue by 3,000 and increased costs of about 2,000. If the company has the following budgeted sales and costs for next month (without accounting for any possible shipping errors), determine how many shipping errors the company can afford to have and still break even:arrow_forwardRequired Ethics Mary Branson is the Division Controller and Robert Carson is the Division Vice President of Chandler Manufacturing Company. Due to pressures to meet earnings estimates for 2016, Carson instructs Branson to record as revenue 3,000,000 of orders for computers that are still in production and will not be shipped until January 2017. Required: a. Which of the standards within the IMAs Statement of Ethical Professional Practice should Branson consider in deciding her course of action in this matter? b. What should Branson do if Carson does not acquiesce and still insists that he record the revenue in 2016?arrow_forwardRecently, Ulrich Company received a report from an external consulting group on its quality costs. The consultants reported that the companys quality costs total about 21 percent of its sales revenues. Somewhat shocked by the magnitude of the costs, Rob Rustin, president of Ulrich Company, decided to launch a major quality improvement program. For the coming year, management decided to reduce quality costs to 17 percent of sales revenues. Although the amount of reduction was ambitious, most company officials believed that the goal could be realized. To improve the monitoring of the quality improvement program, Rob directed Pamela Golding, the controller, to prepare monthly performance reports comparing budgeted and actual quality costs. Budgeted costs and sales for the first two months of the year are as follows: The following actual sales and actual quality costs were reported for January: Required: 1. Reorganize the monthly budgets so that quality costs are grouped in one of four categories: appraisal, prevention, internal failure, or external failure. (Essentially, prepare a budgeted cost of quality report.) Also, identify each cost as variable (V) or fixed (F). (Assume that no costs are mixed.) 2. Prepare a performance report for January that compares actual costs with budgeted costs. Comment on the companys progress in improving quality and reducing its quality costs.arrow_forward
- Horizon Corporation manufactues personal computers. The company began operations in 2012 and reported profits for the years 2012 through 2019. Due primarily to increased competition and price slashing in the industry, 2020's income statement reported a loss of $20 million. Just before the end of 2021 fiscal year, a memo from the company's chief financial officer (CFO) to Jim Fielding, the company controller, included the following comments: "If we dont do something about the large amount of unsold computers already manufactured, our auditors will require us to record a write-down. The resulting loss for 2021 will cause a violation of our debt convenants and force the company into bankruptcy. I suggest that you ship half of out inventory to J.B. Sales, Inc., in Oklahoma City. I know the company's presdient, and he will accept the inventory and acknowledge the shipment as a purchase. We can record the sale in 2021 which will boost our loss to a profit. Then J.B. Sales will simply return…arrow_forwardETHICS (Rule-Making Issues) When the FASB issues new pronouncements, the implementation date is usually12 months from date of issuance, with early implementation encouraged. Karen Weller, controller, discusses with her financialvice president the need for early implementation of a rule that would result in a fairer presentation of the company’s financialcondition and earnings. When the financial vice president determines that early implementation of the rule will adversely affectthe reported net income for the year, he discourages Weller from implementing the rule until it is required. InstructionsAnswer the following questions.(a) What, if any, is the ethical issue involved in this case?(b) Is the financial vice president acting improperly or immorally?(c) What does Weller have to gain by advocacy of early implementation?(d) Which stakeholders might be affected by the decision against early implementation?arrow_forwardReeve Lumber Company has a small information systems department consisting of five people. A backlog of approximately 15 months exists for requests for new systems applications to even be considered. Both information users and systems personnel are unhappy with this state of affairs. The users feel that the systems department is not responsive enough to their needs, while the systems personnel feel overworked, frustrated, and unappreciated.Janet Hubert, the manager of the systems department, has decided that she needs to take a proactive measure. She is requesting the funds to purchase a CASE system for approximately $75,000 that takes about 2 months to install and train workers how to use it. The president of the company, Mike Cassidy, initially responded by questioning the wisdom of taking the systems personnel away from their duties when they are backlogged so they can learn a system. Prepare a memo from Hubert to Cassidy. In the memo, outline the expected benefits of purchasing and…arrow_forward
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