Managerial Accounting and Cost–Volume–Profit Relationships Assignment
PART-1
For each of the following costs, identify whether it is a Fixed, Variable or Both:
COST TYPE
Wages of assembly-line workers
Depreciation- office equipment
Glue and fasteners
Delivery costs
Raw materials handling costs
Salary of marketing manager
Production run setup costs
Plant utilities
Electricity cost of manufacturing plant
Research and development expenses
PART-2
The following data have been extracted from the records of Puzzle Incorporated:
February August
Production level, in units 10,000 15,000
Variable costs $ 21,000 $ ?
Fixed costs ? 38,000
Mixed costs 19,600 ?
Total costs $ 78,600 $ 96,500
Required:
Calculate the missing costs.
Calculate the cost formula for mixed cost using the high–low method.
Calculate the total cost that would be incurred for the production of 11,818 units.
Identify the two key cost behavior assumptions made in the calculation of your answer to part c.
Complete this question by entering your answers in the tabs below.
Calculate the missing costs.
Note: Do not round intermediate calculations.
February August
Production level, in units 10,000 15,000
Variable costs $21,000
Fixed costs 38,000
Mixed costs 19,600
Total costs $78,600 $96,500
B
Calculate the cost formula for mixed cost using the high–low method.
Note: Do not round intermediate calculations. Round “Variable rate” to 2 decimal places.
Cost formula = + per unit
C
Calculate the total cost that would be incurred for the production of 20,060 units.
Note: Do not round intermediate calculations.
Total cost
D
Identify the two key cost behavior assumptions made in the calculation of your answer to part c.
Cost behavior pattern is . Relevant range .
PART-3
Current operating income for Bay Area Cycles Company is $52,000. Selling price per unit is $100, the contribution margin ratio is 20%, and fixed expense is $208,000.
Required:
Calculate Bay Area Cycle’s per unit variable expense and contribution margin. How many units are currently being sold?
How many additional unit sales would be necessary to achieve operating income of $130,000?
Complete this question by entering your answers in the tabs below.
Calculate Bay Area Cycle’s per unit variable expense and contribution margin. How many units are currently being sold?
1
Per Unit Volume Total Ratio
Revenue $100.00 100 %
Variable expense %
Contribution margin 20 %
Fixed expense (208,000)
Operating income $52,000
2
How many additional unit sales would be necessary to achieve operating income of $130,000?
Additional unit sales units
PART-4
Assume MIX Incorporated has sales volume of $1,360,000 for two products with May sales and contribution margin ratios as follows:
Product A: Sales $520,000; Contribution Margin Ratio 30%
Product B: Sales $840,000; Contribution Margin Ratio 60%
Required:
Assume MIX’s fixed expenses are $340,000. Calculate the May total contribution margin, operating income, average contribution margin ratio, and breakeven sales volume.
Note: Round “Average contribution margin ratio” answer to 2 decimal places. Round up “Breakeven sales volume” answer to nearest whole dollar.
Total contribution margin
Operating income
Average contribution margin ratio %
Breakeven sales volume
PART-5
The following information provides the amount of cost incurred in March for the cost items indicated. During March, 8,000 units of the firm’s single product were manufactured.
Raw materials $ 41,100
Factory depreciation expense 40,500
Direct labor 99,800
Production supervisor’s salary 6,000
Computer rental expense 4,400
Maintenance supplies used 1,000
Required:
How much cost would you expect to be incurred for each of these items during April when 9,400 units of the product are planned for production?
Calculate the average total cost per unit for the 8,000 units manufactured in March.
It is meaningful to use the average total cost figure in part b-1 to predict the cost in subsequent months.
Complete this question by entering your answers in the tabs below.
A
How much cost would you expect to be incurred for each of these items during April when 9,400 units of the product are planned for production?
Note: Do not round intermediate calculations. Round your final answer to the nearest whole dollars.
Raw materials
Factory depreciation expense
Direct labor
Production supervisor’s salary
Computer rental expense
Maintenance supplies used
Total cost
B1
Calculate the average total cost per unit for the 8,000 units manufactured in March.
Note: Do not round intermediate calculations. Round your answer to 2 decimal places.
Average cost per unit
B2
It is meaningful to use the average total cost figure in part b-1 to predict the cost in subsequent months.
PART-6
Presented here is the income statement for Big Sky Incorporated for the month of February:
Sales $ 60,500
Cost of goods sold 50,800
Gross profit $ 9,700
Operating expenses 15,400
Operating loss $ (5,700)
Based on an analysis of cost behavior patterns, it has been determined that the company’s contribution margin ratio is 16%.
Required:
Rearrange the preceding income statement to the contribution margin format.
If sales increase by 10%, what will be the firm’s operating income (or loss)?
Calculate the amount of revenue required for Big Sky to break even.
Complete this question by entering your answers in the tabs below.
A
Rearrange the preceding income statement to the contribution margin format.
B
If sales increase by 10%, what will be the firm’s operating income (or loss)?
Note: Do not round intermediate calculations.
C
Calculate the amount of revenue required for Big Sky to break even.
Break even
PART-7
Jen and Barry’s ice cream shop charges $1.6 for a cone. Variable expenses are $0.37 per cone, and fixed costs total $2,200 per month. A Valentine’s Day promotion is being planned for the second week of February. During this week, a person buying a cone at the regular price would receive a free cone for a friend. It is estimated that 750 additional cones would be sold and that 950 cones would be given away. Advertising costs for the promotion would be $175.
Required:
Calculate the effect of the promotion on operating income for the second week of February.
Do you think the promotion should occur?
Complete this question by entering your answers in the tabs below.
A
Calculate the effect of the promotion on operating income for the second week of February.
Note: Do not round intermediate calculation and round your final answer to 2 decimal places.
Net in operating income
B
Do you think the promotion should occur?
PART-8
HighTech Incorporated and OldTime Company compete within the same industry and had the following operating results in 2022:
HighTech Incorporated OldTime Company
Sales $ 3,300,000 $ 3,300,000
Variable expenses 660,000 1,980,000
Contribution margin $ 2,640,000 $ 1,320,000
Fixed expenses 2,140,000 820,000
Operating income $ 500,000 $ 500,000
Required:
Calculate the breakeven point for each firm in terms of revenue.
What observations can you draw by examining the breakeven point of each firm given that they earned an equal amount of operating income on identical sales volumes in 2022?
Calculate the amount of operating income (or loss) that you would expect each firm to report in 2023 if sales were to
Increase by 20%.
Decrease by 20%.
Using the amounts computed in requirement c, calculate the increase or decrease in the amount of operating income expected in 2023 from the amount reported in 2022.
Explain why an equal percentage increase (or decrease) in sales for each firm would have such differing effects on operating income.
Calculate the ratio of contribution margin to operating income for each firm in 2022. (Hint: Divide contribution margin by operating income.)
Multiply the expected increase in sales of 20% for 2023 by the ratio of contribution margin to operating income for 2022 computed in requirement f for each firm. (Hint: Multiply your answer in requirement (f) by 0.2.)
Multiply your answer in requirement g by the operating income of $500,000 reported in 2022 for each firm.
Compare your answer in requirement h with your answer in requirement d. What conclusions can you draw about the effects of operating leverage from the steps you performed in requirements f, g, and h?
A
Calculate the breakeven point for each firm in terms of revenue.
Note: Do not round intermediate calculations.
Breakeven sales revenue
HighTech Incorporated
OldTime Company
B
What observations can you draw by examining the breakeven point of each firm given that they earned an equal amount of operating income on identical sales volumes in 2022?
C1
Calculate the amount of operating income (or loss) that you would expect each firm to report in 2023 if sales were to increase by 20%.
Note: Losses should be indicated by minus sign.
Operating income (or loss)
HighTech Incorporated
OldTime Company
C2
Calculate the amount of operating income (or loss) that you would expect each firm to report in 2023 if sales were to decrease by 20%.
Note: Losses should be indicated by minus sign.
Operating income (or loss)
HighTech Incorporated
OldTime Company
D
Using the amounts computed in requirement c, calculate the increase or decrease in the amount of operating income expected in 2023 from the amount reported in 2022.
HighTech Incorporated OldTime Company
Increase (Decrease) with 20% sales increase
Increase (Decrease) with 20% sales decrease
E
Explain why an equal percentage increase (or decrease) in sales for each firm would have such differing effects on operating income.
F
Calculate the ratio of contribution margin to operating income for each firm in 2022. (Hint: Divide contribution margin by operating income.)
Note: Do not round intermediate calculations and round your final answers to 2 decimal places.
Ratio of contribution margin
HighTech Incorporated times
OldTime Company times
G
Multiply the expected increase in sales of 20% for 2023 by the ratio of contribution margin to operating income for 2022 computed in requirement f for each firm. (Hint: Multiply your answer in requirement (f) by 0.2.)
Note: Do not round intermediate calculations and round your final answers to 2 decimal places.
HighTech Incorporated %
OldTime Company %
H
Multiply your answer in requirement g by the operating income of $500,000 reported in 2022 for each firm.
Note: Do not round intermediate calculations.
HighTech Incorporated
OldTime Company
I
Compare your answer in requirement h with your answer in requirement d. What conclusions can you draw about the effects of operating leverage from the steps you performed in requirements f, g, and h?
