CUSTOM COST ACCOUNTING 15E
15th Edition
ISBN: 9781269831338
Author: Horngren
Publisher: PEARSON C
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Textbook Question
Chapter 3, Problem 3.35E
Contribution margin, decision making. Welch Men’s Clothing’s revenues and cost data for 2017 are as follows:
| Revenues | $600,000 | |
| Cost of goods sold (all variable costs) | 300,000 | |
| Gross margin | 300,000 | |
| Operating costs: | ||
| Salaries fixed | $140,000 | |
| Sales commissions (12% of sales) | 72,000 | |
| |
10,000 | |
| Store rent ($3,500 per month) | 42,000 | |
| Other operating costs | 45,000 | 309,000 |
| Operating income (loss) | $ (9,000) |
Mr. Welch, the owner of the store, is unhappy with the operating results. An analysis of other operating costs reveals that it includes $30,000 variable costs, which vary with sales volume, and $15,000 (fixed) costs.
- 1. Compute the contribution margin of Welch Men’s Clothing.
Required
- 2. Compute the contribution margin percentage.
- 3. Mr. Welch estimates that he can increase units sold, and hence revenues by 25% by incurring additional advertising costs of $8,000. Calculate the impact of the additional advertising costs on operating income.
- 4. What other actions can Mr. Welch take to improve operating income?
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Students have asked these similar questions
Contribution Margin ConceptsThe following information is taken from the 2017 records of Hendrix's Guitar Center.
Fixed
Variable
Total
Sales
$1,125,000
Costs
Goods sold
506,250
Labor
$240,000
90,000
Supplies
3,000
7,500
Utilities
18,000
19,500
Rent
36,000
0
Advertising
9,000
36,750
Miscellaneous
9,000
15,000
Total costs
$315,000
$675,000
(990,000)
Net income
$ 135,000
Required
Determine the annual break-even dollar sales volume.
Contribution margin ratio: $AnswerAnnual break-even dollar sales volumes: $Answer
Determine the current margin of safety in dollars.
What is the annual break-even dollar sales volume if management makes a decision that increases fixed costs by $40,000?
Multiple Product Planning with TaxesIn the year 2017, Pyramid Consulting had the following contribution income statement:
PYRAMID CONSULTINGContribution Income StatementFor the Year 2017
Sales revenue
$ 1,300,000
Variable costs
Cost of services
$ 420,000
Selling and administrative
200,000
(620,000)
Contribution margin
680,000
Fixed Costs -selling and administrative
(285,000)
Before-tax profit
395,000
Income taxes (36%)
(142,200)
After-tax profit
$ 252,800
a) Determine the annual break-even point in sales revenue.
Round contribution margin ratio to two decimal places for your calculation. Round final answer to nearest dollar.
(b) Determine the annual margin of safety in sales revenue.
Use rounded answer from above for calculation.
(c) What is the break-even point in sales revenue if management makes a decision that increases fixed costs by $57,000?
Use rounded contribution margin ratio (2 decimal places) for your calculation.
(d) With the…
Chapter 3 Solutions
CUSTOM COST ACCOUNTING 15E
Ch. 3 - Define costvolumeprofit analysis.Ch. 3 - Describe the assumptions underlying CVP analysis.Ch. 3 - Distinguish between operating income and net...Ch. 3 - Prob. 3.4QCh. 3 - Prob. 3.5QCh. 3 - Why is it more accurate to describe the subject...Ch. 3 - CVP analysis is both simple and simplistic. If you...Ch. 3 - Prob. 3.8QCh. 3 - Prob. 3.9QCh. 3 - Give an example of how a manager can decrease...
Ch. 3 - Give an example of how a manager can increase...Ch. 3 - What is operating leverage? How is knowing the...Ch. 3 - There is no such thing as a fixed cost. All costs...Ch. 3 - Prob. 3.14QCh. 3 - In CVP analysis, gross margin is a less-useful...Ch. 3 - Jacks Jax has total fixed costs of 25,000. If the...Ch. 3 - During the current year, XYZ Company increased its...Ch. 3 - Under the contribution income statement, a...Ch. 3 - A company needs to sell 10,000 units of its only...Ch. 3 - Once a company exceeds its breakeven level,...Ch. 3 - Prob. 3.21ECh. 3 - CVP computations. Garrett Manufacturing sold...Ch. 3 - CVP analysis, changing revenues and costs. Sunset...Ch. 3 - CVP exercises. The Deli-Sub Shop owns and operates...Ch. 3 - CVP exercises. The Doral Company manufactures and...Ch. 3 - CVP analysis, income taxes. Westover Motors is a...Ch. 3 - CVP analysis, income taxes. The Home Style Eats...Ch. 3 - CVP analysis, sensitivity analysis. Perfect Fit...Ch. 3 - CVP analysis, margin of safety. Suppose Morrison...Ch. 3 - Operating leverage. Cover Rugs is holding a 2-week...Ch. 3 - CVP analysis, international cost structure...Ch. 3 - Sales mix, new and upgrade customers. Chartz 1-2-3...Ch. 3 - Prob. 3.33ECh. 3 - Prob. 3.34ECh. 3 - Contribution margin, decision making. Welch Mens...Ch. 3 - Contribution margin, gross margin, and margin of...Ch. 3 - Uncertainty and expected costs. Kindmart is an...Ch. 3 - CVP analysis, service firm. Lifetime Escapes...Ch. 3 - CVP, target operating income, service firm....Ch. 3 - CVP analysis, margin of safety. Marketing Docs...Ch. 3 - CVP analysis, income taxes. (CMA, adapted) J.T....Ch. 3 - CVP, sensitivity analysis. The Derby Shoe Company...Ch. 3 - CVP analysis, shoe stores. The HighStep Shoe...Ch. 3 - CVP analysis, shoe stores (continuation of 3-43)....Ch. 3 - Prob. 3.45PCh. 3 - Prob. 3.46PCh. 3 - CVP analysis, income taxes, sensitivity. (CMA,...Ch. 3 - Choosing between compensation plans, operating...Ch. 3 - Prob. 3.49PCh. 3 - Multiproduct CVP and decision making. Crystal...Ch. 3 - Sales mix, two products. The Stackpole Company...Ch. 3 - Prob. 3.52PCh. 3 - Ethics, CVP analysis. Megaphone Corporation...Ch. 3 - Deciding where to produce. (CMA, adapted) Portal...
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