Chapter 22 Godgift-Books Pdf

CHAPTER 22 Godgift
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ASSIGNMENT CHARACTERISTICS TABLE, Problem Difficulty Time. Number Description Level Allotted min, 1A Determine variable and fixed costs compute break even Simple 20 30. point prepare a CVP graph and determine net income. 2A Prepare a CVP income statement compute break even Moderate 30 40. point contribution margin ratio margin of safety ratio. and sales for target net income, 3A Compute break even point under alternative courses Simple 20 30. 4A Compute break even point and margin of safety ratio Moderate 20 30. and prepare CVP income statement before and after, changes in business environment. 5A Compute break even point and margin of safety ratio Moderate 20 30. and prepare a CVP income statement before and after. changes in business environment, 6A Prepare income statements under absorption and variable Moderate 30 40.
1B Determine variable and fixed costs compute break even Simple 20 30. point prepare a CVP graph and determine net income. 2B Prepare a CVP income statement compute break even Moderate 30 40. point contribution margin ratio margin of safety ratio. and sales for target net income, 3B Compute break even point under alternative courses Simple 20 30. 4B Compute break even point and margin of safety ratio Moderate 20 30. and prepare CVP income statement before and after, changes in business environment. 5B Compute break even point and margin of safety ratio and Moderate 20 30. prepare a CVP income statement before and after changes. in business environment, 6B Prepare income statements under absorption and variable Moderate 30 40. Correlation Chart between Bloom s Taxonomy Study Objectives and End of Chapter Exercises and Problems. Study Objective Knowledge Comprehension Application Analysis Synthesis Evaluation. 1 Distinguish between variable and E22 3 Q22 1 Q22 6 E22 2. fixed costs Q22 2 BE22 1 P22 1A, Q22 3 E22 1 P22 1B. 2 Explain the significance of the Q22 4 BE22 2, relevant range Q22 5.
3 Explain the concept of mixed costs E22 3 Q22 6 BE22 1 Q22 8 BE22 3 P22 1A. Q22 7 E22 1 BE22 4 E22 2 P22 1B, 4 List the five components of E22 4 Q22 9. cost volume profit analysis, BLOOM S TAXONOMY TABLE. 5 Indicate what contribution margin Q22 10 Q22 11 E22 8 BE22 5 P22 1B P22 3A P22 5B. is and how it can be expressed E22 5 P22 1A P22 2B P22 3B. E22 7 P22 2A P22 5A, 6 Identify the three ways to determine Q22 12 Q22 13 E22 7 E22 6 P22 1B P22 3A P22 4B. the break even point Q22 14 BE22 6 E22 8 P22 1A P22 2B P22 4A P22 5A. E22 5 E22 9 P22 2A P22 3B P22 5B, 7 Give the formulas for determining Q22 16 E22 10 P22 2A P22 5A. sales required to earn target net BE22 7 P22 2B P22 5B. income E22 9, 8 Define margin of safety and give Q22 15 E22 6 P22 5A P22 4A.
the formulas for computing it BE22 8 P22 2A P22 5B P22 4B. E22 5 P22 2B, 9 Describe the essential features Q22 17 P22 2A P22 4A. of a cost volume profit income BE22 9 P22 2B P22 4B. statement E22 11, 10 Explain the difference between Q22 18 E22 12 BE22 10 P22 6A. absorption costing and variable Q22 19 E22 13 P22 6B. Broadening Your Perspective Communication Real World Focus Decision Making Managerial Analysis. Exploring the Web Across the Ethics Case, Organization All About You. ANSWERS TO QUESTIONS, 1 a Cost behavior analysis is the study of how specific costs respond to changes in the level of activity. within a company, b Cost behavior analysis is important to management in planning business operations and in deciding.
between alternative courses of action, 2 a The activity index identifies the activity that causes changes in the behavior of costs Once the. index is determined it is possible to classify the behavior of costs in response to changes in. activity levels into three categories variable fixed or mixed. b Variable costs may be defined in total or on a per unit basis Variable costs in total vary directly. and proportionately with changes in the activity level Variable costs per unit remain the. same at every level of activity, 3 Fixed costs remain the same in total regardless of changes in the activity level In contrast fixed costs. per unit vary inversely with activity As volume increases fixed costs per unit decline and vice versa. 4 a The relevant range is the range of activity that a company expects to operate during the year. b Disagree The behavior of both fixed and variable costs are linear only over a certain range. of activity, 5 This is true Most companies operate within the relevant range Within this range it is possible to. establish a linear straight line relationship for both variable and fixed costs If a relevant range. cannot be established segregation of costs into fixed and variable becomes extremely difficult. 6 Apartment rent is fixed because the cost per month remains the same regardless of how much. Ryan uses the apartment Rent on a Hertz rental truck is a mixed or semivariable cost because. the cost usually includes a per diem charge a fixed cost plus an activity charge based on miles. driven a variable cost, 7 For CVP analysis mixed costs must be classified into their fixed and variable elements One approach. to the classification of mixed costs is the high low method. 8 Variable cost per unit is 1 20 or 60 000 50 000 At any level of activity fixed costs are 52 000. per month 160 000 90 000 X 1 20, 9 No Only two of the basic components of cost volume profit CVP analysis unit selling prices and.
variable cost per unit relate to unit data The other components volume and total fixed costs are. not based on per unit amounts, 10 There is no truth in Jill s statement Contribution margin is sales less variable costs It is the revenue. that remains to cover fixed costs and to produce income profit for the company. 11 Contribution margin is 12 40 28 The contribution margin ratio is 30 12 40. 12 Disagree Knowledge of the break even point is useful to management in deciding whether to introduce. new product lines change sales prices on established products and enter new market areas. 13 25 000 25 100 000, Questions Chapter 22 Continued. 14 a The breakeven point involves the plotting of three lines over the full range of activity the total. revenue line the total fixed cost line and the total cost line The breakeven point is deter. mined at the intersection of the total revenue and total cost lines. b The breakeven point in units is obtained by drawing a vertical line from the breakeven point to the. horizontal axis The breakeven point in sales dollars is obtained by drawing a horizontal line from. the breakeven point to the vertical axis, 15 Margin of safety is the difference between actual or expected sales and sales at the breakeven. point 1 250 X 12 15 000 15 000 12 000 3 000 3 000 15 000 20. 16 At breakeven sales the contribution margin is, The sales volume to achieve net income of 60 000 is as follows. 180 000 60 000, 17 MALLON COMPANY, CVP Income Statement.
Sales 900 000, Variable expenses, Cost of goods sold 350 000. Operating expenses 140 000, Total variable expenses 490 000. Contribution margin 410 000, 18 Under absorption costing both variable and fixed manufacturing costs are considered to be. product costs Under variable costing only variable manufacturing costs are product costs and. fixed manufacturing costs are expensed when incurred. 19 a The rationale for variable costing centers on the purpose of fixed manufacturing costs which. is to have productive facilities available for use Since these costs are incurred whether a. company operates at zero or 100 capacity it is argued that they should be expensed. when they are incurred Variable costing is useful in product costing internally by management. and it is useful in controlling manufacturing costs. b Variable costing cannot be used in product costing in financial statements prepared in accordance. with generally accepted accounting principles because it does not comply with the matching. principle and thus understates inventory costs, SOLUTIONS TO BRIEF EXERCISES. BRIEF EXERCISE 22 1, Indirect labor is a variable cost because it increases in total directly and.
proportionately with the change in the activity level. Supervisory salaries is a fixed cost because it remains the same in total regard. less of changes in the activity level, Maintenance is a mixed cost because it increases in total but not proportionately. with changes in the activity level, BRIEF EXERCISE 22 2. VARIABLE COST FIXED COST, Relevant Range Relevant Range. 10 000 10 000, 8 000 8 000, 6 000 6 000, 4 000 4 000. 2 000 2 000, 0 20 40 60 80 100 0 20 40 60 80 100, Activity Level Activity Level.
BRIEF EXERCISE 22 3, Total Cost Line, 40 000 Variable Cost Element. Fixed Cost Element, 0 500 1 000 1 500 2 000 2 500, Direct Labor Hours. BRIEF EXERCISE 22 4, High Low Difference, 15 000 13 600 1 400. 8 500 7 500 1 000, 1 400 1 000 1 40 Variable cost per mile. Total cost 15 000 13 600, Less Variable costs, 8 500 X 1 40 11 900.
7 500 X 1 40 10 500, Total fixed costs 3 100 3 100. The mixed cost is 3 100 plus 1 40 per mile, BRIEF EXERCISE 22 5. 1 a 80 250 170, b 32 80 250, 2 c 300 500 200, d 40 200 500. 3 e 1 000 300 30, f 700 1 000 300, BRIEF EXERCISE 22 6. a 400Q 260Q 210 000 0, 140Q 210 000, Q 1 500 units.
b Contribution margin per unit 140 or 400 260, X 210 000 140. X 1 500 units, BRIEF EXERCISE 22 7, X 70X 210 000 60 000. 30X 270 000, If variable costs are 70 of sales the contribution margin ratio is 1 0 70. 1 30 Then 210 000 60 000 30 900 000, BRIEF EXERCISE 22 8. Margin of safety 1 200 000 900 000 300 000, Margin of safety ratio 300 000 1 200 000 25.
BRIEF EXERCISE 22 9, DILTS MANUFACTURING INC, Income Statement. For the Quarter Ended March 31 2008, Sales 1 800 000. Variable expenses, Cost of goods sold 760 000, Selling expenses 95 000. Administrative expenses 79 000, Total variable expenses 934 000. Contribution margin 866 000, Fixed expenses, Cost of goods sold 540 000.
Selling expenses 60 000, Administrative expenses 66 000. Total fixed expenses 666 000, Net income 200 000, BRIEF EXERCISE 22 10. To Chief financial officer, From Student, Re Absorption and variable costing. Under absorption costing fixed manufacturing overhead is a product cost. while under variable costing fixed manufacturing overhead is a period cost. expensed as incurred, Since units produced 50 000 exceeded units sold 47 000 last month income. under absorption costing will be higher than under variable costing Some. fixed overhead 3 000 units X 3 9 000 will be assigned to ending inventory. and therefore not expensed under absorption costing whereas all fixed. overhead is expensed under variable costing Therefore absorption costing. net income will be higher than variable costing net income by 9 000. SOLUTIONS TO EXERCISES, EXERCISE 22 1, a The determination as to whether a cost is variable fixed or mixed can.
be made by comparing the cost in total and on a per unit basis at two. different levels of production, Variable Costs Vary in total but remain constant on a per unit basis. Fixed Costs Remain constant in total but vary on a per unit basis. Mixed Costs Contain both a fixed element and a variable element. Vary both in total and on a per unit basis, b Using these criteria as a guideline the classification is as follows. Direct materials Variable Rent Fixed, Direct labor Variable Maintenance Mixed. Utilities Mixed Supervisory salaries Fixed, EXERCISE 22 2. a Maintenance Costs, 4 900 2 400 2 500, 5 variable cost per machine hour.
800 300 500, Machine Hours Machine Hours, Total costs 4 900 2 400. Less Variable costs, 800 X 5 4 000, 300 X 5 1 500, Total fixed costs 900 900. Thus maintenance costs are 900 per month plus 5 per machine hour. EXERCISE 22 2 Continued, Total Cost Line 4 900, Variable Cost Element. Fixed Cost Element, 0 200 400 600 800, Machine Hours. EXERCISE 22 3, 1 Wood used in the production of furniture Variable.
2 Fuel used in delivery trucks Variable, 3 Straight line depreciation on factory building Fixed. 4 Screws used in the production of furniture Variable. 5 Sales staff salaries Fixed, 6 Sales commissions Variable. 7 Property taxes Fixed, 8 Insurance on buildings Fixed. 9 Hourly wages of furniture craftsmen Variable, 10 Salaries of factory supervisors Fixed. 11 Utilities expense Mixed, 12 Telephone bill Mixed.
EXERCISE 22 4, To Jim Thome, From Student, Re Assumptions underlying CVP analysis. CVP analysis is a useful tool in analyzing the effects of changes in costs. and volume on a company s profits However there are some assumptions. which underline CVP analysis When these assumptions are not valid. the results of CVP analysis may be inaccurate, The five assumptions are. 1 The behavior of both costs and revenues is linear throughout. the relevant range of the activity index, 2 All costs can be classified with reasonable accuracy as either. fixed or variable, 3 Changes in activity are the only factors that affect costs. 4 All units produced are sold, 5 When more than one type of product is sold the sales mix will.
remain constant, If you want further explanation of any of these assumptions please. contact me, EXERCISE 22 5, a Contribution margin in dollars Sales 2 700 X 30 81 000. Questions Chapter 22 Continued 14 a The breakeven point involves the plotting of three lines over the full range of activity the total revenue line the total fixed cost line and the total cost line The breakeven point is deter mined at the intersection of the total revenue and total cost lines

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