COST ACCOUNTING
16th Edition
ISBN: 9781323169261
Author: Horngren
Publisher: PEARSON C
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Textbook Question
Chapter 3, Problem 3.42P
CVP, sensitivity analysis. The Derby Shoe Company produces its famous shoe, the Divine Loafer, that sells for $70 per pair. Operating income for 2017 is as follows:
Sales revenue ($70 per pair) | $350,000 |
Variable cost ($30 per pair) | 150,000 |
Contribution margin | 200,000 |
Fixed cost | 100,000 |
Operating income | $100,000 |
Derby Shoe Company would like to increase its profitability over the next year by at least 25%. To do so, the company is considering the following options:
- 1. Replace a portion of its variable labor with an automated machining process. This would result in a 20% decrease in variable cost per unit but a 15% increase in fixed costs. Sales would remain the same.
Required
- 2. Spend $25,000 on a new advertising campaign, which would increase sales by 10%.
- 3. Increase both selling price by $10 per unit and variable costs by $8 per unit by using a higher-quality leather material in the production of its shoes. The higher-priced shoe would cause demand to drop by approximately 20%.
- 4. Add a second manufacturing facility that would double Derby’s fixed costs but would increase sales by 60%.
Evaluate each of the alternatives considered by Derby Shoes. Do any of the options meet or exceed Derby’s targeted increase in income of 25%? What should Derby do?
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The Derby Shoe Company produces its famous shoe, the Divine Loafer, that sells for $70 per pair. Operating income for 2017 is as follows:
Sales revenue ($70 per pair) $350,000
Variable cost ($30 per pair) 150,000
Contribution margin 200,000
Fixed cost 100,000
Operating income $100,000
Derby Shoe Company would like to increase its profitability over the next year by at least 25%.
Q1. Increase both selling price by $10 per unit and variable costs by $8 per unit by using a higher-quality leather material in the production of its shoes. The higher-priced shoe would cause demand to drop by approximately 20%.
Q2. Add a second manufacturing facility that would double Derby’s fixed costs but would increase sales by 60%.
Evaluate each of the alternatives considered by Derby Shoes. Do any of the options meet or exceed Derby’s targeted increase in income of 25%? What should Derby do?
After conducting a market research study, Magnificent Manufacturing decided to produce a new interior door to complement its exterior door line. It is estimated that the new interior door can be sold at a target price of $270. The annual target sales volume for interior doors is 29,000. Magnificent has target operating income of 40% of sales.
What are target sales revenues?
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$4,698,000
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$7,830,000
The Derby Shoe Company produces its famous shoe, the Divine Loafer, that sells for $70 per pair. Operating income for 2017 is as follows:
Sales revenue ($70 per pair) $350,000
Variable cost ($30 per pair) 150,000
Contribution margin 200,000
Fixed cost 100,000
Operating income $100,000
Derby Shoe Company would like to increase its profitability over the next year by at least 25%.
Q.Replace a portion of its variable labor with an automated machining process. This would result in a 20% decrease in variable cost per unit but a 15% increase in fixed costs. Sales would remain the same.
Q2. Spend $25,000 on a new advertising campaign, which would increase sales by 10%.
Evaluate each of the alternatives considered by Derby Shoes. Do any of the options meet or exceed Derby’s targeted increase in income of 25%? What should Derby do?
Chapter 3 Solutions
COST ACCOUNTING
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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