Managerial accounting

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Ch.5 HW

Chapter 5, CVP
Managerial Accounting, HCT
Base Case [Plan]
Variable
per unit Units Fixed
Sell price [SP] $ 20.00
Direct materials $ 6.00
Direct labor $ 2.00
Manufacturing OH $ 3.00
Selling exp.-commissions 5% Don't forget if sell price changes then commision changes
of sell price
per unit
Advertising $ 40,000
Other selling $ 100,000
Admin. $ 60,000
Manufacturing $ 160,000
←Total
Base units 62,000
sold & manufactured
To Do
1 at Base
a Compute Contribution per unit: $s & %
b Compute Operating Income at Base units
c Compute Breakeven sales $s & # units
d Compute Leverage ratio at Base units
2. a If a new Target income of $120,000 is to be
achieved, what # of units must be sold
b Compute Leverage ratio at Target
3 Operating Income --- What-if scenarios?
a Improve product performance, add $3.20 variable cost per unit, increase unit sales 20%, increase sell price per unit by 10%
b Raise variable selling to 12% of sell price per unit, double advertising, sell every 5th unit at no charge, unit sales double
c Increase sell price by 15%, unit sales decrease 14%
d Remove features from product, decrease variable cost per unit by $3, unit sales decrease by 25%
900

Ch5 Base case

k
A RBC Company
Item
1. Planned Base Sales$s = P X Q
2. Variable costs & expenses $s= Q X b.
3. CM $s = contribution $s = 1.-2.
4. Fixed costs & expenses [given data]
5. 3.-4. = Planned Operating Income
CMu P $500.00 P $500.00
Sell price per unit $500.00 P X b. -$300.00 CMu $200.00
Variable costs & expenses per unit $300.00 b. =CMu $200.00 = CM% 40.0%
CMu = Contribution margin per unit $200.00 C. = P-b
Planned Base case Quantity 500 Q. Sales$s $500.00 BE Qty.
Planned Base Sales$s $250,000 e. = P X Q X 500 Fixed $80,000
Variable costs & expenses $s $150,000 bx = b X Q = $250,000 / CMu $200.00
CM $s = contribution $s $100,000 CM$s = e - bx OR CMu. X Q BE Qty. 400
CM % = Contributiin ratio = Contribution % 40.0% CM% = CMu/a. OR CM$s/e. Var. cost $ 500
X $300.00 Safety Margin Units
Fixed costs & expenses $80,000 Fxd. = $150,000 Op. Inc. $20,000
Breakeven: Qty. (Units) = BE Qty 400 BE Qty= Fxd/CMu / CMu $200.00
Breakeven: Sales$s $200,000 BE Sales$ = BE Qty X P -OR- Fxd/ CM% Safety Q 100
Safety Margin $s $50,000 s1. = Sales $s-BE Sales$ Var. cost $ $300.00
Safety Qty. Margin Units 100 s2. = Q.- BE Qty X $500 Leverage ratio
= $150,000 CM$s $100,000 40.0%
Operating Income [above] $20,000 / Op. Inc. $20,000 8.0%
Leverage Ratio 5.00 CM$ / Operating Income 1% ∆ CM Ratio 5.00 5.00
= 5% ∆ Op.Income $s %s
Ratio = 5
B Base Case CH.5 PPT
a SP unit $500
b Var.cost per unit $300
c1 CM$/unit $200 a-b per unit
c2 CM% 40.0% c1 / a CM%
Fixed costs
d Manufacturing $50,000
e S&A $30,000
f Total Fxd $80,000 d+e
g Sales Budget [Base] 500 units
C h Profit [contribution format IS [NOT GAAP}] at Target = Budget = Base Case
per unit $s %
i Sales $500 $ 250,000 100.0% Sales
j Variable costs & Expense $300 $ 150,000 60.0% Variable costs & Expense
k Contribution margin $200 $ 100,000 +$200/$500=40% CM% Contrib ratio $s 40.0% Contribution margin
l Fixed expenses $80,000 $100,000/$250,000=40% 32.0% Fixed expenses
m Net income [Operating Income] $20,000 8.0% Net income [Operating Income]
D
$250,000
$450,000
Using CM% Using CMu $200,000 more
Fixed costs & expenses $80,000 $180,000 to go from $20000 to $100000
+Target Profit $100,000 CMu $200.00 profit
Sunm to be covered by Sales $180,000 Qty 900 change in profit 80,000
P $500.00 at 40% CM% 40.0%
+CM% 40.0% $450,000 change in sales $ 200000
Target Sales $450,000 Target Sales per unit $500
Change in unts 400
base 500
Needed Qty 900
E
Quantity 150 Target Profit $3,000
Profit needed per unit $20.00
Variable costs & expenses per unit $300.00
Price neede to achieve desired profit $320.00

Ch5 CVP

A Base Case CH.5 PPT
a SP unit $500
b Var.cost per unit $300
c1 CM$/unit $200 a-b per unit
c2 CM% 40.0% c1 / a CM%
Fixed costs
d Manufacturing $50,000
e S&A $30,000
f Total Fxd $80,000 d+e
g Sales Budget [Base] 500 units
B h Profit [contribution format IS] at Target = Budget = Base Case
per unit $s %
i Sales $500 $ 250,000 g X a 100.0% i / i
j Variable costs & Expense $300 $ 150,000 g X b 60.0% j / i
k Contribution margin $200 $ 100,000 I - j 40.0% k / i +$200/$500=40% CM% Contrib ratio $s
l Fixed expenses $80,000 f 32.0% l / i $100,000/$250,000=40%
m Net income [Operating Income] $20,000 k - l 8.0% m / i
Back to PPT slide
What IF
C1 n What IF #1
o Sales up 40 units Adv. Up $10,000 40 540
Profit [contribution format IS] at What if #1 Qty. 500 $500
540 per unit $s % 540 $270,000
units Sales $500 $ 270,000 [was $250K] 100.0% i / i 500 40 Qty
Variable costs & Expense $300 $ 162,000 60.0% j / i 540
Contribution margin $200 $ 108,000 40.0% k / i CM% $300
Fixed expenses $90,000 [was 80,000] 33.3% l / i $80,000 $10,000 Fxd. Exp $162,000
p Net income [Operating Income] $18,000 [was 20,000] 6.7% m / i
40 units Net change Adv. Up $10,000 Net change from the Base Case Add Adv.
q Net Change profit Incr/(Decr) CMu X 40 $8,000 ($2,000) ($10,000) m - p
What IF
C2
What IF #2
r Sales up 80 units Var.cost/unit $10
Profit [contribution format IS] at What if #2 Qty.
per unit $s %
Sales $500 $ 290,000 100.0% 500 80 Qty
b + o Variable costs & Expense $310 $ 179,800 [was $300] 62.0% $300 $10 $310
Contribution margin $190 $ 110,200 38.0% CM% 580
Fixed expenses $80,000 27.6% $179,800
s Net income [Operating Income] $30,200 10.4%
80 units Net change Var.cost/unit $10
t Net Change profit Incr/(Decr) $200 $16,000 $10,200 ($5,800) p - q 580X$10
$200 X 80 o X c1 o[$s] X (o[qty]+g Net change from the Base Case
What IF
C3 What IF #3 Qty AP∆ Adv. Up
u Sales up 150 units Sp down $20 Adv. Up $15,000
Profit [contribution format IS] at What if #3 Qty.
per unit $s %
Sales $480 $ 312,000 [was $500] 100.0% 500 150 Qty 650
Variable costs & Expense $300 $ 195,000 62.5% $500 ($20) SP unit $ 480.00
Contribution margin $180 $ 117,000 37.5% CM% $ 312,000
Fixed expenses $95,000 [was $80,000] 30.4% $80,000 $15,000 Fxd Exp
v Net income [Operating Income] $22,000 7.1% $95,000
$480
150 units Net change Sp down Adv up[ 650 X $20 ($13,000) ($300) 650
w Net Change profit Incr/(Decr) 150 X $200 $30,000 $2,000 ($13,000) ($15,000) Adv. Up $180 117000
r X c1 [r qty+ g] X r ∆SP Net change from the Base Case
What IF
C4 500 75 575 $500
What IF #4 Qty Commissions∆ Fxd Exp $287,500
x Sales up 75 units Comm.unité $15 Fxd Expê $6,000
Profit [contribution format IS] at What if #3 Qty. 500 75 Qty 575
per unit $s % $300 $15 Var.cost-Exp $315
Sales $500 $ 287,500 100.0% $181,125
Variable costs & Expense $315 $ 181,125 [was $300] 63.0%
Contribution margin $185 $ 106,375 37.0% CM%
Fixed expenses $74,000 [was $80K] 25.7% $80,000 ($6,000) Fxd $74,000
y Net income [Operating Income] $32,375 11.3%
Net Change profit Incr/(Decr) 75 units Net change Comm.unité Fxd Expê
$15,000 $12,375 $ (8,625) $6,000
75X$200 575X$15 Net change from the Base Case
Back to slide 22
Breakeven:
D Equation Method
Breakeven Units: Breakeven$s
Total Fxd $80,000 BE units 400
divide CM$/unit $200 SP unit $500
BE units 400 BE Revenue $ 200,000
OR 12000
65000
Total Fxd $ 80,000 21600
CM% 40.0% Contribution Margin Method 98600
BE Revenue $ 200,000
526524
Proof: Profit= -0- per unit $s 5.34
Sales $500 $ 200,000 at 400 units 100%
Variable costs & Expense $300 $ 120,000 60%
Contribution margin $200 $ 80,000 40%
Fixed expenses $80,000
Net income [Operating Income] $0 Profit @ zero = Breakeven
Back to slide 33
Target
Target Profit $ 100,000
CM must cover the fixed expense AND the target profit
Data SP unit $500 To have a profit of $ 100,000
Set Var.cost per unit $300 Total Fxd $80,000
CM$/unit $200 Sum $ 180,000 Profit + Fxd. Costs & Expenses
CM% 40.0%
CM$/unit $200
Target Units 900 $180000 / $200
Manufacturing $50,000 @SP/unit $450,000 Target revenue $s
S&A $30,000
Total Fxd $80,000 OR CM% 40.0% $180,000 / 40%
$ 450,000 Target revenue $s
Sales Budget [Base] 500 Base case Proof Target per unit $s
Sales $500 $ 450,000 100%
Variable costs & Expense $300 $ 270,000 60%
Contribution margin $200 $ 180,000 40%
Fixed expenses $80,000 18%
Net income [Operating Income] $100,000 22%
Go to PPT slide 36
1.49
-0.36
1.13 76%
1300
1150.4424778761
1714.1592920354

Ch5 Mix

Sales Mix & CVP Use an Average Uunit
Average Ch.5 CVP
Bikes Carts Unit ACC220
Units 500 300 800
Mix: Units 62.5% 37.5% 100.0%
Dollars 75.2% 24.8% 100.0%
Per Unit
Sales Price $ 500.00 $ 275.00 $ 415.63 Weighted average used units $332,500 $s
Variable cost per Unit 800 Units
Direct Materials $ 200.00 $ 125.00 $ 171.88 Weighted average used units $ 415.63 average
Variable LOH $ 75.00 $ 60.00 $ 69.38 Weighted average used units
Total variable costs per unit $ 275.00 $ 185.00 $ 241.25 Sum $ 200.00 $ 125.00
Varable Sales & Admin. Per Unit $ 25.00 $ 15.00 $ 21.25 Weighted average used units 500 300 800 Units
Total Variable Costs & expenses $ 300.00 $ 200.00 $ 262.50 Sum $ 100,000 $ 37,500 $ 137,500 $s
171.88 $s / uynits
Contribution margin per unit $ 200.00 $ 75.00 $ 153.13 Difference
CM % 40.0% 27.3% 36.8%
Fixed Manufacturing Costs $ 30,000 $ 20,000 per month
Fixed S&A Expenses $ 50,000 per month
Added
P&L Brief (Month) Bikes Carts Total Company 800
Sales $250,000 $82,500 $332,500 100.0% $ 153.13
Variable Costs & Expenses $150,000 $60,000 $210,000 63.2%
CM $ $100,000 $22,500 $122,500 36.8% $ 122,500
CM% 40.0% 27.3% 36.8% 36.842105263158%
36.800000000000%
Fixed Costs & Expenses [given] $ 80,000 $ 20,000 $100,000 30.1%
$100,000
Operating Income $20,000 $2,500 $22,500 6.8% $22,500
Operating Leverage 5.00 9.00 5.44 5.44 1000000
368421.052631579
Breakeven
Fixed Costs & Expenses $ 80,000 $ 20,000 $ 100,000 using Mix % x BE sales $ $100,000 Fxd
CM% 40.0% 27.3% 36.8% CM% 75.2% 24.8% 36.8% Mix CM%
Breakeven $204,082 $67,347 $271,429 Method $271,429 $271,429 $ 271,429 divide
BE $-Mix 75.2% 24.8% 100% $ 204,082 $ 67,347
Bikes Carts Bikes Carts
Breakeven 81,633 18,367 100,000 $ 204,082 $ 67,347
Fixed Costs & Expenses $ 80,000 $ 20,000 $ 100,000 using 40.0% 27.3% CM % 40.0% 27.3%
CM$ per unit $ 200.00 $ 75.00 $ 153.13 Units $81,633 $18,367
Breakeven units 408 245 653 Method 100000
BE Sales $ $ 204,000 $ 67,375 $ 271,375 * 153
* did not use fractional units would be exactly the same with fractional units 653.06
Redo 480 SP ea.
580 Sales 650 575
310 Coad ea
1.49 190 CMu 180 185
1150 110200 CM$s 117000 106375
1713.5 80000 Fxd 95000 74000
30200 Net inc 22000 32375
20000 @ 500 Net Inc 20000 20000
1300 10200 Increase 2000 12375
1.13
1150.4424778761
2100
1.49
0.36
Sales 3129 3754.8 +20%
V 756 907.2 +20%
Cm 2373 2847.6 +20%
F 1300 1301 0%
NI 1073 1546.6 144.1%
OL 2.21 44.1%

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Sheet1

Racing Bicycle Company
Contribution Income Statement
For the Month of June
Sales (500 bicycles) $ 250,000
Less: Variable expenses 150,000
Contribution margin 100,000
Less: Fixed expenses 80,000
Net operating income $ 20,000

Sheet2

Sheet3

Sales (500 bicycles)250,000$

Less: Variable expenses150,000

Contribution margin100,000

Less: Fixed expenses80,000

Net operating income20,000$

Racing Bicycle Company

Contribution Income Statement

For the Month of June

Sheet1

Income 300 units Income 400 units Income 500 units
Sales $ 150,000 $ 200,000 $ 250,000
Less: variable expenses 90,000 120,000 150,000
Contribution margin $ 60,000 $ 80,000 $ 100,000
Less: fixed expenses 80,000 80,000 80,000
Net operating income $ (20,000) $ - 0 $ 20,000
&A
Page &P

Income

300 units

Income

400 units

Income

500 units

Sales150,000$ 200,000$ 250,000$

Less: variable expenses90,000 120,000 150,000

Contribution margin60,000$ 80,000$ 100,000$

Less: fixed expenses80,000 80,000 80,000

Net operating income(20,000)$ -$ 20,000$

Sheet1

Income 300 units Income 400 units Income 500 units
Sales $ 150,000 $ 200,000 $ 250,000
Less: variable expenses 90,000 120,000 150,000
Contribution margin $ 60,000 $ 80,000 $ 100,000
Less: fixed expenses 80,000 80,000 80,000
Net operating income $ (20,000) $ - 0 $ 20,000
&A
Page &P