Ch.09 Kinney 9e SM Final.doc-CHAPTER 9 B...
Ch.09_Kinney_9e_SM_Final.doc-CHAPTER 9 BREAK-EVEN POINT AND COST-VOLUME-PROFIT
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Ch.09 Kinney 9e SM Final.doc-CHAPTE...
Ch.09_Kinney_9e_SM_Final.doc-CHAPTER 9 BREAK-EVEN POINT AND COST-VOLUME-PROFIT
##### Page 15
Chapter 9
275
34.
Joanna’s calculations assume that the current cost and revenue structure will be
maintained in future periods. Over time productivity can be improved and
revenues can be increased. Closing the business is a long-term decision and CVP
is short-term analysis. The CVP analysis is based on the assumption that cost and
revenue structures will not change. Over the long term, prices may be increased,
volume may be increased, and cost structures can be improved. Hence, Joanna’s
recommendation should be taken with skepticism, and Aire should examine her
long-term prospects to enhance revenues and reduce costs.
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##### Page 16
276
Chapter 9
PROBLEMS
35.
a. CM% = (\$5,000
\$2,800
\$200) ÷ \$5,000 = 40%
Break-even = \$280,000 ÷ 0.40 = \$700,000
b.
Fixed costs in CGS = \$400,000 – (100 × \$2,800) = \$120,000
Only \$120,000 of fixed overhead was assigned to CGS, therefore units sold =
\$120,000 ÷ \$200,000 of units produced = 100 ÷ 0.6 = 167 units (rounded)
c.
Because the company manufactured more units than it sold, \$80,000 of fixed
overhead was assigned to ending inventories rather than the Cost of Goods
Sold. Accordingly, the company reported break-even results even though sales
fell far short of the break-even level.
d.
Sales
\$ 500,000
Variable costs
Production
\$280,000
Selling
20,000
(300,000
)
Contribution margin
\$ 200,000
Fixed costs
Production
\$200,000
80,000
(280,000
)
Operating income (loss)
\$
(80,000
)
e.
No, it would not be unethical to present the absorption costing income format.
In fact, that is the most accepted format for reporting outside of the firm. The
lending institution, with adequate information regarding the inventories, can
adjust the income statement to a variable costing format if it desires to do so.
36.
a.
Dollars per Unit
Percent
Sales
\$ 60.00
100%
Variable costs
(45.00
)
(75
)
Contribution margin
\$ 15.00
25
%
b.
Break-even point = \$975,000 ÷ \$15.00 per unit = 65,000 carts
c.
Target pre-tax profit of \$900,000
(\$975,000 + \$900,000) ÷ \$15.00 per cart = 125,000 carts
d.
Target after-tax profit of \$750,000
Before tax profit = \$750,000 ÷ (1
0.40) = \$1,250,000
(\$975,000 + \$1,250,000) ÷ \$15 per cart = 148,333 carts (rounded)
e.
Selling price
\$60.00
Variable costs
Manufacturing (\$35 × 0.40)
14.00
Manufacturing labor (0.60 × \$35 × 0.90)
18.90
Selling
10.00
Contribution margin
\$17.10
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