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1.
Variable Costing
Variable costing is the method that is used by the management (managers) for decision making purposes. The cost of goods manufactured includes direct materials, direct labor, and variable factory overhead. Fixed factory overhead is treated as period (fixed) expense.
Contribution Margin Analysis
Contribution margin analysis emphasized on explaining the differences between planned and actual contribution margins. Managers are regularly used this analysis for planning and supervisory purposes.
Contribution Margin
Contribution margin is the excess of manufacturing margin above selling and administrative expenses. Contribution margin is calculated by deducting the variable cost from sales or deducting variable selling and administrative expenses from manufacturing margin.
To calculate: The contribution margin analysis report for the year ended December 31.
2.
To interpret: The contribution margin analysis report.
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Chapter 6 Solutions
Bundle: Managerial Accounting, Loose-leaf Version, 14th - Book Only
- A company uses charging rates to allocate service department costs to the using departments. The accountant compiled the following information on one of the service departments: If Department K plans to use 1,350 hours of the service departments service in the coming year, how much of the service departments cost is allocated to Department K? a. 3,375 b. 27,300 c. 26,325 d. 23,950arrow_forwardClassify each of the following actions as either being associated with the financial accounting information system (FS) or the cost management information system (CMS): a. Determining the total compensation of the CEO of a public company b. Issuing a quarterly earnings report c. Determining the unit product cost using TDABC d. Calculating the number of units that must be sold to break even e. Preparing a required report for the SEC f. Preparing a sales budget g. Using cost and revenue information to decide whether to keep, or drop, a product line h. Preparing an annual statement of financial position that conforms to generally accepted accounting principles (GAAP) i. Using cost and revenue information to decide whether to invest in a new production system or not j. Reducing costs by improving the overall quality of a product k. Using a debt-equity ratio and liquidity ratios from a balance sheet to assess the likelihood of bankruptcy l. Using a public companys financial statements to decide whether or not to buy its stockarrow_forwardUsing the information in the previous exercises about Marleys Manufacturing, determine the operating income for department B, assuming department A sold department B 1,000 units during the month and department A reduces the selling price to the market price.arrow_forward
- Salespersons report and analysis Pachec Inc. employs seven salespersons to sell and distribute its product throughout the state. Data taken from reports received from the salespersons during the year ended June 30 are as follows: Instructions 1. Prepare a table indicating contribution margin, variable cost of goods sold as a percent of sales, variable selling expenses as a percent of sales, and contribution margin ratio by salesperson. 2. Which salesperson generated the highest contribution margin ratio for the year and why? 3. Briefly list factors other than contribution margin that should be considered in evaluating the performance of salespersons.arrow_forwardRaker Inc., manufactures product A. For the year ended Dec 31, 2019, the ........... contribution margin decreased by $126,000. The president of the firm has expressed concern about this decrease and has required a follow up report. The following data have been gathered from the accounting records for this year Actual Planned Difference S207,000 Sales S2,277,000 S2,070,000 Variable cost of goods sold Variable selling and administrative expenses Total Contribution margin $1,035,000 $828,000 S1,863,000 $414,000 S34,500 S990,000 $540,000 $1,530,000 $540,000 S30,000 $45,000 $288,000 $333,000 (S126,000) number of units sold Per unit : Sales price Variable cost of goods sold Variable selling and administrative expenses $4,500 S66 $69 S30 $33 S24 $18 1. Prepare contribution margin analysis report for this year. 2. Based on this analysis, make your own comment on the 2019 performance. م م م م م م م م م م م م م مه مarrow_forwardProblems L. Farrah Industries Inc. manufactures only one product. For the year ended December 31, the contribution margin increased by $560,000 from the planned level of $5,200,000. The president of L. Farrah Industries Inc. has expressed concern about such a small increase in contribution margin and has requested a follow-up report. The following data have been gathered from the accounting records for the year ended December 31: Financial Categories Actual Planned Difference Sales 30,000,000 $ 28,600,000 $ 1,400,000.00 Variable costs: Variable cost of goods sold 21,600,000 $ 21,450,000 $ 150,000 Variable selling and admin expenses 2,640,000 1,950,000 690,000 Total variable costs 24,240,000 23,400,000 840,000 Contribution Margin 5,760,000 5,200,000 560,000 Number of units sold 120,000 130,000 Per unit Sales price 2$ 250 220 Variable cost of goods sold Variable selling and admin expenses 2$ 2$ $ 2$ 180 165 22 15 a. Prepare a contribution margin analysis report for the year ended…arrow_forward
- L. Farrah Industries Inc. manufactures only one product. For the year ended December 31, the contribution margin increased by $560,000 from the planned level of $5,200,000. The president of L. Farrah Industries Inc. has expressed concern about such a small increase in contribution margin and has requested a follow-up report.The following data have been gathered from the accounting records for the year ended December 31:Financial Categories Actual Planned Difference Sales $ 30,000,000 $ 28,600,000 $ 1,400,000.00 Variable costs: Variable cost of goods sold $ 21,600,000 $ 21,450,000 $ 150,000 Variable selling and admin expenses $ 2,640,000 $ 1,950,000 $ 690,000 Total variable costs $ 24,240,000 $ 23,400,000 $ 840,000 Contribution Margin $ 5,760,000 $ 5,200,000 $ 560,000 Number of units sold 120,000 130,000 Per unit Sales price $ 250 $ 220 Variable cost of goods sold $ 180 $ 165 Variable selling and admin expenses $ 22 $ 15 a. Prepare a contribution margin analysis report for the year…arrow_forwardThe following is a summarized income statement for McClaron Manor Co.'s profit center 12608 for April: Contribution Margin $ 176,000 Period Expenses $ 12,000 Manager' s Salary $ 2,100 Corporate Expense Allocation $ 8,100 $ (22,200 ) Net Income $ 153,800 Which of the following amounts is most likely subject to the control of the profit center's manager? (CPA, adapted) Multiple Choice Contribution Margin of $176,000 and Period Expenses of $14,100. Contribution Margin of $176,000. Contribution Margin of $176,000 and Period Expenses of $22,200. Contribution Margin of $176,000 and Period Expenses of $12,000.arrow_forwardA review of the accounting records of Finch Manufacturing indicated that the company incurred the following payroll costs during the month of March. Assume the company's financial statements are prepared in accordance with GAAP. 1. Salary of the company president—$32,300.2. Salary of the vice president of manufacturing—$16,700.3. Salary of the chief financial officer—$19,000.4. Salary of the vice president of marketing—$14,900.5. Salaries of middle managers (department heads, production supervisors) in manufacturing plant—$189,000.6. Wages of production workers—$929,000.7. Salaries of administrative secretaries—$105,000.8. Salaries of engineers and other personnel responsible for maintaining production equipment—$183,000.9. Commissions paid to sales staff—$243,000. Requireda. What amount of payroll cost would be classified as SG&A expense?b. Assuming that Finch made 3,400 units of product and sold 3,060 of them during the month of March, determine the amount of payroll cost…arrow_forward
- Audio Zone Co. needs to prepare pro forma financial statements for the next fiscal year. To do so, the company must forecast its total overhead cost. The actual machine hours and total overhead cost are presented below for the past six months. Month Total Overhead Machine Hours Jan. $ 6,288 1,980 Feb. 6,460 2,090 Mar. 5,987 1,745 Apr. 5,559 1,560 May 6,032 1,865 June 6,341 2,012 Using the high-low method, total monthly fixed overhead cost is calculated to be:arrow_forwardA review of the accounting records of Rundle Manufacturing indicated that the company incurred the following payroll costs during the month of March. Assume the company's financial statements are prepared in accordance with GAAP. 1. Salary of the company president-$31,400. 2. Salary of the vice president of manufacturing-$16,100. 3. Salary of the chief financial officer-$18,000. 4. Salary of the vice president of marketing-$15,600. 5. Salaries of middle managers (department heads, production supervisors) in manufacturing plant-$204,000. 6. Wages of production workers-$945,000. 7. Salaries of administrative secretaries-$103,000. 8. Salaries of engineers and other personnel responsible for maintaining production equipment-$169,000. 9. Commissions paid to sales staff-$255,000. Required a. What amount of payroll cost would be classified as SG&A expense? b. Assuming that Rundle made 3,300 units of product and sold 2,475 of them during the month of March, determine the amount of payroll cost…arrow_forwardReview the contribution margin income statements for Cover-to-Cover Company and Biblio Files Company on their respective Income Statements panels. Complete the following table from the data provided in the income statements. Each company sold 84,800 units during the year. Cover-to-Cover Company Biblio Files Company Contribution margin ratio (percent) Unit contribution margin Break-even sales (units) Break-even sales (dollars) Cover-to-Cover Company Contribution Margin Income Statement For the Year Ended December 31, 20Y7 1 Sales $424,000.00 2 Variable costs: 3 Manufacturing expense $254,400.00 4 Selling expense 21,200.00 5 Administrative expense 63,600.00 339,200.00 6 Contribution margin $84,800.00 7 Fixed costs: 8 Manufacturing expense $5,000.00 9 Selling expense…arrow_forward
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