1 - JustAnswer



Solutions Guide:   Please reword the answers to essay type parts so as to guarantee that your answer is an original. Do not submit as your own.

1. In June, the salon gave 3,500 haircuts, shampoos, and permanents at an average price of $30. Fixed costs were $16,800 and variable costs were 80% of sales. (a)determine the contribution margin in dollars, per unit and as a ratio. (b)using the contribution margin technique, compute the break-even point in dollars and in units. (c)compute the margin of safety in dollars and as a ratio.

(a) Contribution margin in dollars: Sales = 3,500 X $30 = $105,000

Variable costs = $105,000 X .8 = 84,000

Contribution margin $ 21,000

Contribution margin per unit: $30 – $24 ($30 X 80%) = $6.

Contribution margin ratio: $6 ÷ $30 = 20%.

(b) Break-even sales in dollars = $16,800 / 20%

= $84,000.

Break-even sales in units = $16,800 / $6

= 2,800.

(c) Margin of safety in dollars: $105,000 – $84,000 = $21,000.

Margin of safety ratio: $21,000 ÷ $105,000 = 20%.

2. Golf Accessories sells golf shoes, gloves, and a laser-guided range-finder that measures distance. Unit sales price: shoes $100, gloves $30, range-finder $250. Unit variable costs: shoes 60, gloves 10, range 200. Unit contribution margin: shoes $40, gloves $20, range $50. Sales mix: shoes 40%, gloves 50%, range 10%. Fixed costs are $620,000. (a)compute the break-even point in units. (b)determine the # of units to be sold at the break-even point for each product line. (c)verify that the mix of sales units determined in (b) will generate a zero net income.

(a) Weighted-average unit contribution margin = ($40 X .40) + ($20 X .50) + ($50 X .10) = $31

Break-even point in units = $620,000 ÷ $31 = 20,000

(b) Shoes (20,000 X .40) = 8,000 pairs of shoes

Gloves (20,000 X .50) = 10,000 pairs of gloves

Range finders (20,000 X .10) = 2,000 range finders

(c) Shoes: 8,000 X $40 = $320,000

Gloves: 10,000 X $20 = 200,000

Range finders: 2,000 X $50 = 100,000

Total contribution margin 620,000

Fixed costs 620,000

Net income $ 0

3. Throne Co. sells 3 products: A, B, and C. Selling price (A)$9, (B)$12, (C)$14. Variable costs and expenses (A)$3, (B)$9.50, (C)$12. Machine hrs. (A)2, (B)1, (C)2. (a)compute the contribution margin per unit of machine hours for each product. (b)assuming 1,500 additional machine hours are available, which product should be manufactured?

(c) prepare an analysis showing the total contribution margin if the additional hours are (1)divided equally among the products, and (2) allocated entirely to the product identified in (b).

(a) Product

A B C

Contribution margin per unit (a) $6 $2.5 $2

Machine hours required (b) 2 1 2

Contribution margin per unit of limited resource (a) ÷ (b) $3 $2.5 $1

(b) Product A should be manufactured because it results in the highest

contribution margin per machine hour.

4. Apples uses a labor-intensive approach, and mech-apple uses a mechanized system. CVP income statements for the 2 companies: Apple: sales $400,000, variable costs $320,000, contribution margin $80,000, fixed costs $20,000, net income $60,000. Mech Apple: sales $400,000, variable costs $160,000, contribution margin $240,000, fixed costs $180,000, net income $60,000. (a)calculate each company's degree of operating leverage. Determine which company's cost structure makes it more sensitive to changes in sales volume. (b)Determine the effect on each company's net income if sales decrease by 10% and if sales increase by 5%. Do not prepare income statements. (c)Which company should be purchased by an investment banker? Discuss.

(a)

Contribution Net Degree of Operating

Margin ÷ Income = Leverage

Old Fashion $80,000 $60,000 1.33

Mech-Apple $240,000 $60,000 4.00

Mech-Apple, which relies more heavily on fixed costs, has the higher degree of operating leverage, 4.0 versus 1.33. That means for every dollar of increase (decrease) in sales, Mech-Apple will generate 3 (4 ÷ 1.33) times more (less) in contribution margin and net income.

(b)

% Change Degree of % Change in

in Sales × Operating Net Income

Leverage =

10% decrease:

Old Fashion (10%) 1.33 (13.3%)

Mech-Apple (10%) 4.00 (40.0%)

5% increase:

Old Fashion 5% 1.33 6.65%

Mech-Apple 5% 4.00 20.0%

(c) There are several possible answers that could be given. For example, if

the candied apple business is fairly stable, Mech-Apple might be the

choice, because it will generate the higher contribution margin and net

income. If, however, sales swing widely from year to year, Old Fashion

might be chosen because it will provide the more stable contribution

margin and net income. Finally, if the investment banker is a risk taker,

she might choose Mech-Apple in spite of year to year sales swings.

................
................

In order to avoid copyright disputes, this page is only a partial summary.

Google Online Preview   Download