Managerial Accounting
15th Edition
ISBN: 9781337912020
Author: Carl Warren, Ph.d. Cma William B. Tayler
Publisher: South-Western College Pub
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Chapter 6, Problem 8DQ
To determine
Explain the reason for the difference in the break-even points for both the company.
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The following data were taken from the first year absorption based accounting records of Stan Corp..
Total fixed costs incurred, P100,000
Total variable costs incurred, P50,000
Total period costs incurred, P70,000 Total variable period costs incurred, P30,000
Units produced, 20,000
Units sold, 12,000
Unit sales price, P 12.00
If Stan Corp had used variable costing in first year of operations, how much income/loss before tax would it have reported?
Riders Company computes net operating income under both the absorption costing approach and the variable costing approach. For a given year the absorption costing net operating income was greater than the variable costing net operating income. This fact suggests that:
more units were produced during the year than were sold.
more units were sold during the year than were produced.
common costs were greater than variable costs for the year.
variable manufacturing costs were less than fixed manufacturing costs.
Head Bucket, Inc. has two product lines—batting helmets and football helmets. The income statement data for the most recent year is as follows in the chart.
Assuming the football helmet line is dropped, total fixed costs remain unchanged, and the space formerly used to produce the football helmet line is used to double the production of batting helmets, operating income will be ________.
Chapter 6 Solutions
Managerial Accounting
Ch. 6 - Describe how total variable costs and unit...Ch. 6 - Which of the following costs would be classified...Ch. 6 - Describe how total fixed costs and unit fixed...Ch. 6 - Prob. 4DQCh. 6 - Prob. 5DQCh. 6 - Prob. 6DQCh. 6 - Prob. 7DQCh. 6 - Prob. 8DQCh. 6 - Prob. 9DQCh. 6 - What does operating leverage measure, and how is...
Ch. 6 - High-low method The manufacturing costs of...Ch. 6 - Contribution margin Waite Company sells 250,000...Ch. 6 - Prob. 3BECh. 6 - Prob. 4BECh. 6 - Prob. 5BECh. 6 - Operating leverage Haywood Co. reports the...Ch. 6 - Margin of safety Jorgensen Company has sales of...Ch. 6 - Classify Costs Following is a list of various...Ch. 6 - Identify cost graphs The following cost graphs...Ch. 6 - Identify activity bases For a major university,...Ch. 6 - Prob. 4ECh. 6 - Identify fixed and variable costs Intuit Inc....Ch. 6 - Relevant range and fixed and variable costs Child...Ch. 6 - High-low method Ziegler Inc. has decided to use...Ch. 6 - Prob. 8ECh. 6 - Contribution margin ratio Young Company budgets...Ch. 6 - Contribution margin and contribution margin ratio...Ch. 6 - Prob. 11ECh. 6 - Break-even sales Anheuser-Busch InBev SA/NV (BUD)...Ch. 6 - Prob. 13ECh. 6 - Prob. 14ECh. 6 - Prob. 15ECh. 6 - Break-even analysis for a service company3 Sprint...Ch. 6 - Prob. 17ECh. 6 - Prob. 18ECh. 6 - Prob. 19ECh. 6 - Prob. 20ECh. 6 - Prob. 21ECh. 6 - Prob. 22ECh. 6 - Prob. 23ECh. 6 - Prob. 24ECh. 6 - Prob. 25ECh. 6 - Classify costs Seymour Clothing Co. manufactures a...Ch. 6 - Break-even sales under present and proposed...Ch. 6 - Prob. 3PACh. 6 - Prob. 4PACh. 6 - Prob. 5PACh. 6 - Contribution margin, break-even sales,...Ch. 6 - Classify costs Cromwell Furniture Company...Ch. 6 - Prob. 2PBCh. 6 - Prob. 3PBCh. 6 - Prob. 4PBCh. 6 - Prob. 5PBCh. 6 - Contribution margin, break-even sales,...Ch. 6 - Analyze Global Airs cost-volume-profit...Ch. 6 - Prob. 2MADCh. 6 - Prob. 3MADCh. 6 - Prob. 4MADCh. 6 - Prob. 1TIFCh. 6 - Prob. 3TIFCh. 6 - Profitability strategies Somerset Inc. has...Ch. 6 - Prob. 5TIFCh. 6 - Analysis of costs for a shipping department Sales...Ch. 6 - Taylor Corporation is analyzing the cost behavior...Ch. 6 - Prob. 2CMACh. 6 - Bolger and Co. manufactures large gaskets for the...Ch. 6 - Prob. 4CMA
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- Both Austin Company and Hill Company had the same unit sales, total costs, and income from operations for the current fiscal year; yet, Austin Company had a lower break-even point than Hill Company. Explain the reason for this difference in break-even points.arrow_forwardBoth Austin Company and Hill Company had the same unit sales, total costs, and income from operations for the current fiscal year; yet, Austin Company had a lower break-even point than Hill Company. Explain the reason for this difference in break-even points.arrow_forwardGarrett Company provided the following information: Common fixed cost totaled 46,000. Garrett allocates common fixed cost to Product 1 and Product 2 on the basis of sales. If Product 2 is dropped, which of the following is true? a. Sales will increase by 300,000. b. Overall operating income will increase by 2,600. c. Overall operating income will decrease by 25,000. d. Overall operating income will not change. e. Common fixed cost will decrease by 27,600.arrow_forward
- Refer again to the absorption costing income statements. Explain why the company suffered a loss in Year 3 but reported a profit in Year 1 although the same number of units was sold each year.arrow_forwardUnder Absorption Costing, Net sales of Pacquiao Incorporated totaled P500,000 and the gross profit is 35% based on net sales. Cost of goods sold includes both variable and fixed manufacturing cost. Operating expenses that was fixed in nature amounted to P115,000 during the year. Assuming there is no beginning inventory and the ending inventory is 20% of all produced units during the year, how much is the Net income under variable costing if the total fixed manufacturing cost was P70,000 during the year?arrow_forwardA division of a large company reports the information shown below for a recent year. Variable costs and direct fixed costs are avoidable, and 40% of the indirect fixed costs are avoidable. Based on this information, should the division be eliminated?arrow_forward
- Darby Company, operating at full capacity, sold 131,600 units at a price of $126 per unit during the current year. Its income statement is as follows: Sales $16,581,600 Cost of goods sold 5,880,000 Gross profit $10,701,600 Expenses: Selling expenses $2,940,000 Administrative expenses 1,764,000 Total expenses 4,704,000 Income from operations $5,997,600 The division of costs between variable and fixed is as follows: Variable Fixed Cost of goods sold 60% 40% Selling expenses 50% 50% Administrative expenses 30% 70% Management is considering a plant expansion program for the following year that will permit an increase of $1,386,000 in yearly sales. The expansion will increase fixed costs by $184,800, but will not affect the relationship between sales and variable costs. Required: Determine the total variable costs and the total fixed costs for the current year. Total variable costs $ fill in the blank 1 Total fixed costs $ fill in the blank 2 Determine (a) the unit…arrow_forwardA company with a break-even point at $900,000 in sales revenue had fixed costs of $175,000. When actual sales were $1,200,000, variable costs were $850,000. Determine (a) the margin of safety expressed in dollars, (b) the margin of safety expressed as a percentage of sales, (c) the contribution margin ratio, and (d) the operating income.arrow_forwardA segment of a company reports the following loss for the year. All $192,500 of its variable costs are avoidable, and $93,000 of its fixed costs are avoidable. Segment Income (Loss) Sales $ 275,000 Variable costs 192,500 Contribution margin 82,500 Fixed costs 101,000 Income (loss) (18,500) (a) Compute the income increase or decrease from eliminating this segment.(b) Should the segment be eliminated?arrow_forward
- Use the information from the previous exercises involving JJ Manufacturing to determine their break-even point in sales dollars.arrow_forwardUse the information from the previous exercises involving Salvador Manufacturing to determine their break-even point in sales dollars.arrow_forwardContribution margin, break-even sales, cost-volume-profit chart, margin of safety, and operating leverage Belmain Co. expects to maintain the same inventories at the end of 20Y7 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during the year. A summary report of these estimates is as follows: It is expected that 12,000 units will be sold at a price of 240 a unit. Maximum sales within the relevant range are 18,000 units. Instructions 1. Prepare an estimated income statement for 20Y7. 2. What is the expected contribution margin ratio? 3. Determine the break-even sales in units and dollars. 4. Construct a cost-volume-profit chart indicating the break-even sales. 5. What is the expected margin of safety in dollars and as a percentage of sales? (Round to one decimal place.) 6. Determine the operating leverage.arrow_forward
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Cost-Volume-Profit (CVP) Analysis and Break-Even Analysis Step-by-Step, by Mike Werner; Author: Accounting Step by Step;https://www.youtube.com/watch?v=D0MOfse9OWk;License: Standard Youtube License