Survey of Accounting (Accounting I)
8th Edition
ISBN: 9781305961883
Author: Carl Warren
Publisher: Cengage Learning
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Chapter 12, Problem 12.5E
To determine
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
To Indicate:
The Flaw in the decision of the company
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Decision to Discontinue a Product
On the basis of the following data, the general manager of Foremost Footwear Inc. decided to discontinue Children’s Shoes because it reduced income from operations by $10,000. What is the flaw in this decision if it is assumed that fixed costs would not be materially affected by the discontinuance?
Foremost Footwear Inc.
Product-Line Income Statement
For The Year Ended April 30, 20Y7
Children's Shoes
Men's Shoes
Women's Shoes
Total
Sales
$165,000
$300,000
$500,000
$965,000
Costs of goods sold:
_______________
___________
__________
____________
Variable cost
$105,000
$150,000
$220,000
$475,000
Fixed costs
32,000
60,000
120,000
212,000
Total cost of goods sold
$137,000
$210,000
$340,000
$687,000
Gross profit
$28,000
$90,000
$160,000
$278,000
Selling and adminstrative expenses:
____________
____________
____________
___________
Variable selling and admin. expenses
$21,000
$45,000
$95,000
$161,000
Fixed selling and admin.…
ecision to Discontinue a Product
On the basis of the following data, the general manager of Foremost Footwear Inc. decided to discontinue Children’s Shoes because it reduced income from operations by $10,000. What is the flaw in this decision if it is assumed that fixed costs would not be materially affected by the discontinuance?
Foremost Footwear Inc.Product-Line Income StatementFor the Year Ended April 30, 20Y7
Children's Shoes
Men's Shoes
Women's Shoes
Total
Sales
$165,000
$300,000
$500,000
$965,000
Costs of goods sold:
Variable costs
$105,000
$150,000
$220,000
$475,000
Fixed costs
32,000
60,000
120,000
212,000
Total cost of goods sold
$137,000
$210,000
$340,000
$687,000
Gross profit
$28,000
$90,000
$160,000
$278,000
Selling and adminstrative expenses:
Variable selling and admin. expenses
$21,000
$45,000
$95,000
$161,000
Fixed selling and admin. expenses
17,000
20,000
25,000
62,000
Total selling and admin. expenses
$38,000
$65,000
$120,000…
On the basis of the following data, the general manager of Foremost Footwear Inc. decided to discontinue Children’s Shoes because it reduced income from operations by $10,000. What is the flaw in this decision if it is assumed that fixed costs would not be materially affected by the discontinuance?
Foremost Footwear Inc.Product-Line Income StatementFor the Year Ended April 30, 20Y7
Children's Shoes
Men's Shoes
Women's Shoes
Total
Sales
$165,000
$300,000
$500,000
$965,000
Costs of goods sold:
Variable costs
$105,000
$150,000
$220,000
$475,000
Fixed costs
32,000
60,000
120,000
212,000
Total cost of goods sold
$137,000
$210,000
$340,000
$687,000
Gross profit
$28,000
$90,000
$160,000
$278,000
Selling and adminstrative expenses:
Variable selling and admin. expenses
$21,000
$45,000
$95,000
$161,000
Fixed selling and admin. expenses
17,000
20,000
25,000
62,000
Total selling and admin. expenses
$38,000
$65,000
$120,000
$223,000
Income (loss) from…
Chapter 12 Solutions
Survey of Accounting (Accounting I)
Ch. 12 - Mario Company is considering discontinuing a...Ch. 12 - Victor Company is considering disposing of...Ch. 12 - Prob. 3SEQCh. 12 - For which cost concept used in applying (he...Ch. 12 - Prob. 5SEQCh. 12 - Prob. 1CDQCh. 12 - Prob. 2CDQCh. 12 - A company could sell a building for $650,000 or...Ch. 12 - Prob. 4CDQCh. 12 - Prob. 5CDQ
Ch. 12 - A company fabricates a component at a cost of...Ch. 12 - Prob. 7CDQCh. 12 - Prob. 8CDQCh. 12 - Prob. 9CDQCh. 12 - Prob. 10CDQCh. 12 - Prob. 11CDQCh. 12 - Prob. 12CDQCh. 12 - Lease or sell decision Orwell Industries is...Ch. 12 - Prob. 12.2ECh. 12 - Prob. 12.3ECh. 12 - Prob. 12.4ECh. 12 - Prob. 12.5ECh. 12 - Make-or-buy decision Watts Technologies Company...Ch. 12 - Make-or-buy decision Wisconsin Arts of Milwaukee...Ch. 12 - Machine replacement decision Creekside Products...Ch. 12 - Differential analysis report for machine...Ch. 12 - Sell or process further St. Paul Lumber Company...Ch. 12 - Prob. 12.11ECh. 12 - Decision on accepting additional business Madison...Ch. 12 - Accepting business at a special price Palomar...Ch. 12 - Prob. 12.14ECh. 12 - Total cost concept of product costing Willis...Ch. 12 - Product cost concept of product pricing Based on...Ch. 12 - Variable cost concept of product pricing Based on...Ch. 12 - Target costing Toyota Motor Corporation (TM) uses...Ch. 12 - Differential analysis report involving opportunity...Ch. 12 - Prob. 12.1.2PCh. 12 - Prob. 12.1.3PCh. 12 - Differential analysis report for machine...Ch. 12 - Differential analysis report for machine...Ch. 12 - Differential analysis report for sales promotion...Ch. 12 - Differential analysis report for sales promotion...Ch. 12 - Differential analysis report for further...Ch. 12 - Prob. 12.4.2PCh. 12 - Product pricing using the cost-plus approach...Ch. 12 - Prob. 12.5.2PCh. 12 - Prob. 12.5.3PCh. 12 - Product pricing using the cost-plus approach...Ch. 12 - Prob. 12.5.5PCh. 12 - Product pricing using the cost-plus approach...Ch. 12 - Prob. 12.1MBACh. 12 - Prob. 12.2MBACh. 12 - Prob. 12.3.1MBACh. 12 - Contribution margin per constraint Using the data...Ch. 12 - Prob. 12.3.3MBACh. 12 - Contribution margin per constraint Using the data...Ch. 12 - Prob. 12.4.2MBACh. 12 - Contribution margin per constraint Using the data...Ch. 12 - Prob. 12.5.1MBACh. 12 - Prob. 12.5.2MBACh. 12 - Prob. 12.5.3MBACh. 12 - Product pricing Bev Frazier is a cost accountant...Ch. 12 - Prob. 12.2CCh. 12 - Prob. 12.3CCh. 12 - Cost-plus and target costing concepts The...Ch. 12 - Cost-plus and target costing concepts The...
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