Suppose that Kicker had the following sales and cost experience (in thousands of dollars) for May of the current year and for May of the prior year: In May of the prior year, Kicker started an intensive quality program designed to enable it to build original equipment manufacture (OEM) speaker systems for a major automobile company. The program was housed in research and development. In the beginning of the current year, Kicker’s accounting department exercised tighter control over sales commissions, ensuring that no dubious (e.g., double) payments were made. The increased sales in the current year required additional warehouse space that Kicker rented in town. (Round ratios to four decimal places. Round sales dollars computations to the nearest dollar.) Required: 1. Calculate the contribution margin ratio for May of both years. 2. Calculate the break-even point in sales dollars for both years. 3. Calculate the margin of safety in sales dollars for both years. 4. CONCEPTUAL CONNECTION Analyze the differences shown by your calculations in Requirements 1, 2, and 3.
Solution Summary: The author explains the contribution margin ratio, which is the sales dollar percentage used to cover the total fixed cost.
Suppose that Kicker had the following sales and cost experience (in thousands of dollars) for May of the current year and for May of the prior year:
In May of the prior year, Kicker started an intensive quality program designed to enable it to build original equipment manufacture (OEM) speaker systems for a major automobile company. The program was housed in research and development. In the beginning of the current year, Kicker’s accounting department exercised tighter control over sales commissions, ensuring that no dubious (e.g., double) payments were made. The increased sales in the current year required additional warehouse space that Kicker rented in town. (Round ratios to four decimal places. Round sales dollars computations to the nearest dollar.)
Required:
1. Calculate the contribution margin ratio for May of both years.
2. Calculate the break-even point in sales dollars for both years.
3. Calculate the margin of safety in sales dollars for both years.
4. CONCEPTUAL CONNECTION Analyze the differences shown by your calculations in Requirements 1, 2, and 3.
Willingham Construction is in the business of building high-priced, custom, single-family homes. The company,headquartered in Anaheim, California, operates throughout the Southern California area. The construction periodfor the average home built by Willingham is six months, although some homes have taken as long as nine months.You have just been hired by Willingham as the assistant controller and one of your first tasks is to evaluate thecompany’s revenue recognition policy. The company presently recognizes revenue upon completion for all of itsprojects and management is now considering whether revenue recognition over time is appropriate.Required:Write a 1- to 2-page memo to Virginia Reynolds, company controller, describing the differences between theeffects of recognizing revenue over time and upon project completion on the income statement and balance sheet.Indicate any criteria specifying when revenue should be recognized. Be sure to include references to GAAP asthey pertain to…
Charles Berkle is the manager of Nogain Manufacturing and is interested in doing a cost of quality analysis. The following cost and revenue data are available for the most recent year ended December 31.
Sales revenue $ 250,000
Cost of goods sold 140,000
Warranty expense 20,000
Inspection costs 14,000
Scrap and rework 7,800
Product returns due to defects 6,000
Depreciation expense 10,000
Machine maintenance expense 2,700
Wage expense 35,000
Machine breakdown costs 4,000
Estimated lost sales due to poor quality 5,000
a. Classify each of these costs into the four quality cost categories and prepare a cost of quality report for Nogain.
b. What percentage of sales revenue is being spent on prevention and appraisal activities?
c. What percentage of sales revenue is being spent on internal and external failure costs?
NUBD Inc. manufactures clothing and sells these products to retail outlets. The following costs were incurred in performing quality activities at NUBD during the year:
Product recall activities- 370,000
Quality training activities- 240,000
Quality improvement activities- 154,000
Warranty claim activities- 109,000
Quality inspection and testing activities- 61,000
Rework activities- 38,000
Quality data collection and reporting activities- 16,000
What is the total of the prevention costs for NUBD?
Chapter 7 Solutions
Managerial Accounting: The Cornerstone of Business Decision-Making
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