High-low method, break-even point, sales mix and break-even analysis, operating leverage, bedgeted income statement and balance sheet

il- 988 Chapter 21 Cost Behavior and Cost-Volume-Profit Analysis

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January

February

March

PE 21-14 -low method

ufacturing costs of Fuld Industries for three months of the year are prol-:r

Total Costs Production 51 7s,000

390,000

490,000

7,500 units

20,000

25,000

Using the highJow method, determine (a) the variable cost per unit and (b) the : i:- fixed cost.

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PE 21-18 High-low method The manufacturing costs of Greenburg are provided below.

April May

June

Using the high-low method, determine fixed cost.

Enterprises for the first three months of the I ';

Total Costs Production 5210,000 2,000 units 320,000 4,000 225,000 2,500

(a) the variable cost per unit and (b) thc : ':

PE 21-2A Contribution margin United Merchants Company sells 4,000 units at $60 per unit' Variable costs are S+l unit, and fixed costs ,i. $4O,OOO. Determine (a) the contribution margin ratio, (b unit contribution margin, and (c) income from operations'

Break-even point

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PE21-28 Contribution margin Gluxman Company sells 10,000 units at $25 pet unit. Variable costs ate $22 per -:'r and fixed costs aie $20,000. Determine (a) the contribution margin ratio, (b) the --

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contribution margin, and (c) income from operations'

6 Enterprises sells a product for $80 per unit. The variable cost is whil"e fixed .oit, ur" $20,000. Determine (a) the break-even point in sales

$55 Per u: r- units anc -

the break-even point if the selling price were increased to $87 per unit.

PE 21-38 Break-even Point Grobe Inc. sells a product for $50 per unit' The variable cost is $40 per unit' while fir'-::

costs are $14,000. Determine (a) the break-even point in sales units and (b) the brg:'

even point if the selling price were decreased to $45 per unit'

Chapter 21 Cost Behavior and Cost-Volume-profit Analysis

PE 21-4A Target profit Ivey Inc. sells a product for $100 per unit. The variable cost is fi75 per unit, and fixed costs are $30,000. Determine (a) the break-even point in sales units and (b) the break- even point in sales units if the company desires a target profit of $10,000.

PE21-48 Target profit Hofstra Company sells-a product for $120 per unit. The variable cost is $100 per unit, and fixed costs are $120,000. Determine (ai the break-even point in sales units and 16jthe break-even point in sales units if the company desires a-target profit of $40,000.

Sales mix and break-even analysis FWnc. has tixed costs of $420,OO0. The unit selling price, variable cost per unit, and contribution margin per unit for the company's t*o prodrr.t, are provided below.

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Product Price Variable Cost Unit Contribution SBo

62

The sales mix for products L and M is 60o/o and 4O%o, even point in units of L and M.

L

M s100

BO

Unit 520

18

respectively. Determine the break-

PE 21-58 Sales mix and break-even analysis Golub company has fixed costs of $100,000. The unit selling price, variable cost per unit, and contribution margin per unit for the company,s two products are provided below.

Product Price Variable Cost Unit Contribution Unit

leverage rprises reports the followin g data:

Sales

Variable costs Contribution margin Fixed costs

lncome from operatlons

Determine Emily Enterprises,s operating leverage.

SS 10

respectively. Determine the break-

s 1 80,000

100,000

s 80,000 30,000

$!p99

X S:O

20 S2s

10

The sales mix for products X and y is 75o/o and 25o/o, even point in units of X and y.

G*j.$ EE2"t^€, t, ,, , PE 21-68 Operating leverage lTalker Co. reports the following data:

Sales

Variable costs

Contribution margin Fixed costs

lncome from operations

Determine Walker Co.,s operating leverage.

s600,000 250,000

53s0,000 1 s0,000

s200,000

Margin of safety tra lnc. has sales of $910,000, and the break-even point in sares dollars is fi746,2o0.

the company's margin of safety u" a p.rc.rr1 of current sales.

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Detennine

Chapter22 Budgeting 1 045

oBi :: PR22-4A Cash budget T. ,'v{ay deFicfency. The controller of Santa Fe Hctusewares Inc. insrrucrs you to prepare a mctnthly cash bucl- ;,i30 get for the next three months. You are presented with the following budget information:

March April May

Sales 570,000 584,000 592,000 32,000 39,000 42,s00 1 2,000 1 8,000 21,000

20,000

The company expects to sell about 10% of its merchandise for cash. Of sales on account, 7O'/o are expected to be collected in full in the month following the sale and the remainder the follou'ing month. Depreciation, insurance, and propefy tax expense represent $3,000 of the estimated monthly manufacturing costs. The annual insurance premium is paid in July, and the annual propef-y- taxes are paid in November. Of the remainder of the manufacturing costs, 80o/o are expected to be paid in the month in which they are incurred and the balance in the following rnonth.

Current assets as of March 1 include cash of $10,000, n-rarketable securities of $40,000, and accounts receivable of $75,600 ($6o,Ooo from February sales and $15,600 fromJanu- ary sales). Sales on account for January and February were $52,000 and $60,000, respec- tively. Current liabilities as of March 1 include a $12,000, 15o/o, 9O-day note payable due May 2O and $4,000 of accounts payable incurred in February for manufacturing costs. All selling and administrative expenses are paicl in cash in the period they are incurred. It is expected that $1,800 in dividends will be received in March. An estimated income tax payment of $16,000 u.ill be rnade in April. Santa Fe's regular quarterly dividend of $3,000 is expected to be declared in April and paid in N{ay. Management desires to maintain a minimum cash balance of $30,000.

lnstruetions 1. Prepare a monthly cash budget and supporting schedules for Nlarch, April, and May. ). * On the basis of the cash budget prepared in part (1), what recommendation

should be made to the controller?

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1. Budgeied net come, $44,800

Budgeted income statement and balance sheet eFa preliminary to requesting budget estimates of sales, costs, and expenses for the fiscal year beginning January l, 2013, the following tentative trial balance as of December 37, 2012, is prepared by the Accounting Department of Tahiti Blossom Soap Co.:

Manufacturing costs. . . Selling and administrative expenses Capital expenditures . .

Cash .. Accounts Receivable.

Finished Goods .

Work in Process

Materials

Prepaid Expenses

PIant and Equipment

Accumulated Depreciation-Plant and Equipment Accounts Payable

Common Stock, $10 par . . . .

Retained Earnings

51 00,000

1 1 2,300

76,700

24,300

54,1 00

3,400

295,000

q\' si 40,400 59,000

210,000

256,400

$q!499 s66s,800

Factory output and sales for 2Ol3 are expected to total 160,000 units of product, which are to be sold at $4.50 per unit. The quantities and costs of the inventories at December 31, 2013, are expected to remain unchanged from the balances at the beginning of the year.

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1046 Chapter 22 Budgeting

Budget estimates of manufacturing summarized as follows:

costs and operating expenses for the year ^re

Estimated Costs and Expenses

Fixed Variable (Total forYear) (Per Unit Sold)

cy

Cost of goods manufactured and sold:

Direct materials...... Direct labor. Factory overhead:

Depreciation of plant and equipment....... Other factory overhead.

Selling expenses:

Sales salaries and commissions. . . . .

Advertising Miscellaneous selling expense ......

Administrative expenses:

Office and officers salaries

Supplies. Miscellaneous administrative expense

54s,000 8,000

37,000

55,000

5,000

50.90

0.s5

0.35

0.40

0.20

q% s8,200 0.15 4,000 0.08 3,000 0.12

Balances of accounts receivable, prepaid expenses, and accounts payable at the end of the year are not expected to differ significantly from the beginning balances. Federal income tax of $20,000 on 2O'J.3 taxable income will be paid during 2013. Regular quar- tely cash dividends of $0.10 per share are expected to be declared and paid in March, June, September, and December on 21,000 shares of common stock outstanding. It is anticipated that fixed assets will be purchased for $60,000 cash in May.

flnstructions I r. nr"pare a budgeted income statement for 2013. I Z. Vrrpure a budgeted balance sheet as of December 31,201.3,with supporting calculations.

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y' 3. Total revenue from sales, s20,373,si 0

PR 22-18 Forecast sales volume and sales budget Alert Systems Inc. prepared the following sales budget for the cufrent year:

Alert Systems lnc. Sales Budget

For the Year December3l,2012

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E Product and Area

Unit Sales Unit Selling Volume Price

Total Sales

Home Alert System:

United States Europe . Asia . ..

Total .. Business Alert System:

United States Europe . Asia...

Total .. Total revenue from sales

18,900

5,400

4,500

28,800

9,s00

3,200

2,700

15,400

52s0 250

250

s800 800

800

5 4,72s,ooo 1,350,000

1,1 25,000

s 7,200,000

s 7,600,000 2,560,000

2,1 60,000

s12,320,000

s 1 9,520,000

At the end of December 2072, the following unit sales data were reported for the year: