ACCT 226 Managerial AccountingACCT 226 Managerial AccountingACCT 226 Managerial AccountingACCT 226 Managerial Accounting

Exam 3Exam 3Exam 3Exam 3

Spring, 2013Spring, 2013Spring, 2013Spring, 2013

SolutionsSolutionsSolutionsSolutions

Question 1

Sales price $65 per unit

Variable production cost $21 per unitVariable selling cost $8 per unitFixed production cost $1,349,000 totalFixed selling cost $863,000 total

(1) What is profit/loss at 70,000 units? Prepare a contribution margin income statement to

prove your answer. Also prepare a traditional income statement to prove your answer..

CM*X ! F = π(65 !29)*70,000 ! 2,212,000 = π

π = 308,000

Sales 4,550,000 Sales 4,550,000 65*70,000CGS 2,819,000 Var 2,030,000 29*70,000GM 1,731,000 CM 2,520,000 36*70,000S&A 1,423,000 F 2,212,000 π 308,000 π 170,000

(2) What is the break even point in units for Cassandra's MP3 players?

36*X !2,212,000 = 0X = 61,444.44

(3) How many MP3 players in total are needed to generate a profit of $425,000? Prepare a

contribution margin income statement to prove your answer.

36*X !2,212,000 = 425,000X = 73,250

Sales 4,761,250 Var 2,124,250 CM 2,637,000 F 2,212,000 π 425,000

(4) How many units must be produced and sold to generate a profit of 15% of total salesrevenue? How much is this profit?

36*X ! 2,212,000 = 0.15*(65X)36*X ! 9.75*X = 2,212,000

X = 84,266.67

π = 84,266.67*36 ! 2,212,000 = 821,601π = 84,266.67*65*0.15 = 821,601

(5) How much is Cassandra’s contribution margin percentage?

36 / 65 = 55.38%

(6) By how much does profit/loss change going from 60,000 units to 70,000 units? Is this anincrease or decrease?

CM*ªX = ªπ36*10,000 = 360,000

Question 2 The following information is available for the Andrew Company.Sales price per unit for all units $25Variable cost per unit for units 1-15,000 $10Variable costs per unit for all units above 15,000 $12

(1) If fixed costs are $365,000, how many units sold are needed to break even. Prepare a

contribution margin income statement to prove your answer.

Total CM needed is enough to pay for fixed cost365,000

CM generated from first 15,000 units15*15,000 = 225,000

CM still needed to pay for fixed cost:

365,000 ! 225,000 = 140,000

Additional units needed to generate remaining 140,000 of CM12*X = 140,000 —> 10,769.23

Total volume152,000 + 10,769.23 = 25,769.23 units

Sales 644,231 25,769.23*25Var 279,231 15,000*10 + 10,769.23*12CM 365,000 F 365,000 π 0

(2) What is the amount of profit at 10 units above the break even point?

(25 ! 12) * 10 = 130

Question 3

Benefits+ Additional contribution margins

A increase in cm (10% * (3,000,000 ! 1,200,000) +180,000+ Cost savings

C traceable fixed costs (75% * 360,000) +270,000

Costs! Additional costs

A traceable fixed costs !20,000! Lost contribution margins

C decrease in cm (100% * (1,500,000 ! 1,250,00)) !250,000B decrease in cm (20% * (2,100,000 ! 850,000) !250,000

Net change in income !!!!70,000

Question 4

Benefits+ Additional revenues

Rent revenue +50,000+ Cost savings

DM + DL + VOH +550,000Fixed OH avoided +75,000

Costs! Additional costs

Purchase cost (20,000 * 80) !800,000Transportation !20,000

Net change in income !!!!145,000