MANAGERIAL ACCOUNTING FOR MANAGERS
MANAGERIAL ACCOUNTING FOR MANAGERS
5th Edition
ISBN: 9781264196456
Author: Noreen
Publisher: MCG
Question
Book Icon
Chapter 2, Problem 1TF15

1.

To determine

Introduction:

Margin of safety: It is supposed to be the difference amount of actual sales and the break-even sales. It plays an important role by depicting the revenue value which can be reduced to equalize to the break-even point of no profit- no loss.

The contribution margin per unit.

1.

Expert Solution
Check Mark

Answer to Problem 1TF15

The contribution margin per unit is $8.

Explanation of Solution

Given information:

Sales volume=1000 units

Sales=$20000

Variable expenses=$12000

Contribution margin=$8000

Fixed expenses= $6000

Net operating income=$2000

With the help of the given information, let us calculate the contribution margin per unit.

Calculation of contribution margin per unit:

  Contribution margin per unit=Contribution marginTotal number of units sold=$80001000=$8

Therefore, the contribution margin per unit is $8.

2.

To determine

Introduction:

Margin of safety: It is supposed to be the difference amount of actual sales and break-even sales. It plays an important role by depicting the revenue value which can be reduced to equalize to the break-even point of no profit- no loss.

The contribution margin ratio.

2.

Expert Solution
Check Mark

Answer to Problem 1TF15

The contribution margin ratio is 40%.

Explanation of Solution

Given information:

Sales volume=1000 units

Sales=$20000

Variable expenses=$12000

Contribution margin=$8000

Fixed expenses= $6000

Net operating income=$2000

Let us now calculate the contribution margin ratio. Ratios are depicted in percentages.

Calculation of contribution margin ratio:

  Contribution margin ratio=Contribution marginTotal sales×100=$8000$20000×100=0.40×100=40%

Therefore, the contribution margin ratio is 40%.

3.

To determine

Introduction:

Margin of safety: It is supposed to be the difference amount of actual sales and break-even sales. It plays an important role by depicting the revenue value which can be reduced to equalize to the break-even point of no profit- no loss.

The variable expense ratio.

3.

Expert Solution
Check Mark

Answer to Problem 1TF15

The variable expense ratio is 60%.

Explanation of Solution

Given information:

Sales volume=1000 units

Sales=$20000

Variable expenses=$12000

Contribution margin=$8000

Fixed expenses= $6000

Net operating income=$2000

Let us calculate the variable expense ratio.

Calculation of variable expense ratio:

  Variable expense ratio=Variable expensesTotal sales×100=$12000$20000×100=0.60×100=60%

Therefore, the variable expense ratio is 60%.

4.

To determine

Introduction:

Margin of safety: It is supposed to be the difference amount of actual sales and break-even sales. It plays an important role by depicting the revenue value which can be reduced to equalize to the break-even point of no profit- no loss.

The net operating income if sales increases to 1001 units.

4.

Expert Solution
Check Mark

Explanation of Solution

Given information:

Sales volume=1000 units

Sales=$20000

Variable expenses=$12000

Contribution margin=$8000

Fixed expenses= $6000

Net operating income=$2000

We are asked to calculate the increase in net operating income. Before proceeding, we have to calculate the contribution margin per unit.

Calculation of contribution margin per unit:

  Contribution margin per unit=Contribution marginTotal number of units sold=$80001000=$8

Therefore, the contribution margin per unit is $8.

Let us now calculate the increase in net operating income.

  Increase in net operating income=Contribution margin per unit×increased unit sales=$8×1=$8

Therefore, the increase in net operating income is $8.

5.

To determine

Introduction:

Margin of safety: It is supposed to be the difference amount of actual sales and break-even sales. It plays an important role by depicting the revenue value which can be reduced to equalize to the break-even point of no profit- no loss.

The net operating income if sales decreases to 900 units.

5.

Expert Solution
Check Mark

Answer to Problem 1TF15

The net operating income is $1200.

Explanation of Solution

Given information:

Sales volume=1000 units

Sales=$20000

Variable expenses=$12000

Contribution margin=$8000

Fixed expenses= $6000

Net operating income=$2000

Additional information:

Decrease of sales by 100 units

If total sales units = 1000 and sales has decreased to 900 units, then the decreasing sales unit will be 100. With this information, let us calculate the net operating income using the formula:

  Net operating income=(Total number of units sold×Selling price per unit)(Total number of units sold×variable cost per unit)Fixed cost=(900×20)(90012)6000=18000108006000=1200

Therefore, the net operating income in this case is $1200.

6.

To determine

Introduction:

Margin of safety: It is supposed to be the difference amount of actual sales and break-even sales. It plays an important role by depicting the revenue value which can be reduced to equalize to the break-even point of no profit- no loss.

The net operating income if sales volume decreases by 100 units with an increase of $2 per unit in selling price.

6.

Expert Solution
Check Mark

Answer to Problem 1TF15

The net operating income is $3000.

Explanation of Solution

Given information:

Sales volume=1000 units

Sales=$20000

Variable expenses=$12000

Contribution margin=$8000

Fixed expenses= $6000

Net operating income=$2000

Additional information:

Sales volume decreases by 100 units

Increase of $2 per unit in selling price.

Therefore, the selling price will be 20+2=$22 per unit; and Variable cost= $12 per unit.

With the help of the given information, let us calculate the net operating income.

  Net operating income=(Total number of units sold×Selling price per unit)(Total number of units sold×variable cost per unit)Fixed cost

  =(900×22)(900×12)6000=19800108006000=3000

Therefore, the net operating income in this case is $3000.

7.

To determine

Introduction:

Margin of safety: It is supposed to be the difference amount of actual sales and break-even sales. It plays an important role by depicting the revenue value which can be reduced to equalize to the break-even point of no profit- no loss.

The net operating income with an increase in variable cost by $1, advertising cost by $1500 unit sales by 250 units.

7.

Expert Solution
Check Mark

Answer to Problem 1TF15

The net operating income in this case is $1250.

Explanation of Solution

Given information:

Sales volume=1000 units

Sales=$20000

Variable expenses=$12000

Contribution margin=$8000

Fixed expenses= $6000

Net operating income=$2000

Additional information:

Increase in variable cost by $1

Increase in advertising cost by $1500

Increase in unit sales by 250 units.

We are told that there are additions to the to some of the cost apart from sales. Let us calculate the increase. We can make use of the values in calculating the net operating income.

    Given unit sales 1000 units Advertising cost $ 0
    + increase 250 units+ increase $ 1500
    Total unit sales 1250 unitsTotal advertising cost $1500

Note: The amount of advertising cost has to be considered as a fixed expense. So, the value of the advertising cost has to be added to the fixed expense.

  Total fixed expenses=6000+1500=7500

Total variable cost per unit= $12+1=$13

Now let us calculate the net operating income with the given conditions.

  Net operating income=(Total number of units sold×Selling price per unit)(Total number of units sold×variable cost per unit)Fixed cost

Since we have calculated the required amounts, we can directly substitute the same.

  =(1250×20)(1250×13)7500=25000162507500=1250

Therefore the net operating income in this case is $1250.

8.

To determine

Introduction:

Margin of safety: It is supposed to be the difference amount of actual sales and break-even sales. It plays an important role by depicting the revenue value which can be reduced to equalize to the break-even point of no profit- no loss.

The break-even point in unit sales.

8.

Expert Solution
Check Mark

Answer to Problem 1TF15

The break-even unit sales will be 750 units.

Explanation of Solution

Given information:

Sales volume=1000 units

Sales=$20000

Variable expenses=$12000

Contribution margin=$8000

Fixed expenses= $6000

Net operating income=$2000

Since we are asked to calculate the break-even point in units, we have to consider the per-unit price of all the required variables used in the formula. With the help of the given information and earlier calculation, we are aware that the contribution margin per unit is $8.

  Breakeven point in unit sales=Fixed costContribution margin per unit

  =6000$8=750

Therefore, the break-even unit sales will be 750 units.

9.

To determine

Introduction:

Margin of safety: It is supposed to be the difference amount of actual sales and break-even sales. It plays an important role by depicting the revenue value which can be reduced to equalize to the break-even point of no profit- no loss.

The break-even point in dollar sales.

9.

Expert Solution
Check Mark

Answer to Problem 1TF15

The break-even sales value will be $15000.

Explanation of Solution

Given information:

Sales volume=1000 units

Sales=$20000

Variable expenses=$12000

Contribution margin=$8000

Fixed expenses= $6000

Net operating income=$2000

The formula to calculate the break-even point in unit sales is as follows:

  Breakeven point in dollar sales=Fixed cost Contribution margin Total sales=6000 $8000 $20000=60000.40=$15000

Therefore, the break-even sales value will be $15000.

10.

To determine

Introduction:

Margin of safety: It is supposed to be the difference amount of actual sales and break-even sales. It plays an important role by depicting the revenue value which can be reduced to equalize to the break-even point of no profit- no loss.

The number of units to be sold to achieve a target profit of $5000.

10.

Expert Solution
Check Mark

Answer to Problem 1TF15

The expected sales units of 1375 are required to achieve a target profit of $5000.

Explanation of Solution

Given information:

Sales volume=1000 units

Sales=$20000

Variable expenses=$12000

Contribution margin=$8000

Fixed expenses= $6000

Net operating income=$2000

Let us use the formula to calculate the expected sales unit:-

  Expected sales unit=Fixed cost + Target profitContribution margin per unit

From the above calculations, we are aware that the contribution margin per unit is $8.

  =$6000+$5000$8=$11000$8=1375

Therefore, the expected sales units of 1375 are required to achieve a target profit of $5000.

11.

To determine

Introduction:

Margin of safety: It is supposed to be the difference amount of actual sales and break-even sales. It plays an important role by depicting the revenue value which can be reduced to equalize to the break-even point of no profit- no loss.

The margin of safety in dollars along with its percentages.

11.

Expert Solution
Check Mark

Answer to Problem 1TF15

The margin of safety in percentages is 25%.

Explanation of Solution

Given information:

Sales volume=1000 units

Sales=$20000

Variable expenses=$12000

Contribution margin=$8000

Fixed expenses= $6000

Net operating income=$2000

We are informed that the total sales= $20000 with break-even sales at 15000.

The margin of safety value

  Margin of safety value=Total sales valueBreakeven sales value=$20000$15000=$5000

Therefore, the margin of safety is $5000.

To calculate the value in percentages, we need to divide it by total sales and then multiply the value by 100.

  Margin of safety in percentages=Margin of safety valueTotal sales value×100=500020000×100=25%

Therefore, the margin of safety in percentages is 25%.

12.

To determine

Introduction:

Margin of safety: It is supposed to be the difference amount of actual sales and break-even sales. It plays an important role by depicting the revenue value which can be reduced to equalize to the break-even point of no profit- no loss.

The degree of operating leverage.

12.

Expert Solution
Check Mark

Answer to Problem 1TF15

The degree of operating leverage is 4.

Explanation of Solution

Given information:

Sales volume=1000 units

Sales=$20000

Variable expenses=$12000

Contribution margin=$8000

Fixed expenses= $6000

Net operating income=$2000

The degree of operating leverage:

Calculation of degree of operating leverage:

  Degree of operating leverage=Cost marginTotal sales variable expenseFixed expense=800020000120006000=80002000=4

Therefore, the degree of operating leverage is 4.

13.

To determine

Introduction:

Margin of safety: It is supposed to be the difference amount of actual sales and break-even sales. It plays an important role by depicting the revenue value which can be reduced to equalize to the break-even point of no profit- no loss.

To determine: The degree of operating leverage when the percent in net operating income increases with an increase of 5% in sales.

13.

Expert Solution
Check Mark

Answer to Problem 1TF15

The increase in net operating income is 20%.

Explanation of Solution

Given information:

Sales volume=1000 units

Sales=$20000

Variable expenses=$12000

Contribution margin=$8000

Fixed expenses= $6000

Net operating income=$2000

Additional information:

Increase in sales= 5%

The following formula will be helpful in calculating the increase in net operating income.

  Increase in net operating income=Degree of operating leverage×Percentage increase in sales=4×5=20 Therefore, the increase in net operating income is 20%.

14.

To determine

Introduction:

Margin of safety: It is supposed to be the difference amount of actual sales and break-even sales. It plays an important role by depicting the revenue value which can be reduced to equalize to the break-even point of no profit- no loss.

The degree of operating leverage when total variable expenses are $6000; total fixed expenses are $12000.

14.

Expert Solution
Check Mark

Answer to Problem 1TF15

The degree of operating leverage is 7.

Explanation of Solution

Given information:

Sales volume=1000 units

Sales=$20000

Contribution margin=$8000

Net operating income=$2000

Additional information:

Total variable expenses= $6000

Total fixed expenses = $12000.

The formula suitable to the information given to us is as follows:

  Degree of operating leverage=Sales Variable expenseTotal sales variable expense Fixed expense=20000600020000600012000=140002000=7

Therefore, the degree of operating leverage is 7.

15.

To determine

Introduction:

Margin of safety: It is supposed to be the difference amount of actual sales and break-even sales. It plays an important role by depicting the revenue value which can be reduced to equalize to the break-even point of no profit- no loss.

The estimated percent increase in net operating income of a 5% increase in sales.

15.

Expert Solution
Check Mark

Answer to Problem 1TF15

The increase in net operating income is 35%.

Explanation of Solution

Given information:

Sales volume=1000 units

Sales=$20000

Variable expenses=$12000

Contribution margin=$8000

Fixed expenses= $6000

Net operating income=$2000

Additional information:

Increase in sales=5%

The following formula will be helpful in calculating the increase in net operating income.

Increase in net operating income= Degree of operating leverage* Percentage increase in sales

Here we have considered that the degree of operating leverage is 7.

  Increase in net operating income=Degree of operating leverage×Percentage increase in sales=7×5=35 Therefore, the increase in net operating income is 35%.

Want to see more full solutions like this?

Subscribe now to access step-by-step solutions to millions of textbook problems written by subject matter experts!
Knowledge Booster
Background pattern image
Recommended textbooks for you
Text book image
FINANCIAL ACCOUNTING
Accounting
ISBN:9781259964947
Author:Libby
Publisher:MCG
Text book image
Accounting
Accounting
ISBN:9781337272094
Author:WARREN, Carl S., Reeve, James M., Duchac, Jonathan E.
Publisher:Cengage Learning,
Text book image
Accounting Information Systems
Accounting
ISBN:9781337619202
Author:Hall, James A.
Publisher:Cengage Learning,
Text book image
Horngren's Cost Accounting: A Managerial Emphasis...
Accounting
ISBN:9780134475585
Author:Srikant M. Datar, Madhav V. Rajan
Publisher:PEARSON
Text book image
Intermediate Accounting
Accounting
ISBN:9781259722660
Author:J. David Spiceland, Mark W. Nelson, Wayne M Thomas
Publisher:McGraw-Hill Education
Text book image
Financial and Managerial Accounting
Accounting
ISBN:9781259726705
Author:John J Wild, Ken W. Shaw, Barbara Chiappetta Fundamental Accounting Principles
Publisher:McGraw-Hill Education