CVP Analysis & Cost-Volume-Profit Relationships: Solutions,

School: University of Michigan - Course: MATSCIE 12323 - Subject: Accounting

Ch03-180514112543 - solution manual - cost accounting-Horngren 15th ed Akuntansi Biaya (Universitas Mercu Buana Jakarta) Downloaded by adela klosi ([email protected])lOMoARcPSD|12838944

Cost-Volume-Profit Analysis C h a p t e r -3 Cost Accounting A Managerial Emphasis 15th Edition Charles T. Horngren, Srikant M. Datar, Madhav V. Rajan Questions & Solutions Downloaded by adela klosi ([email protected])lOMoARcPSD|12838944

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Note: To underscore the basic CVP relationships, the assignment material ignores income taxes unless stated otherwise. Questions 3-1 Define cost-volume-profit analysis. 3-2 Describe the assumptions underlying CVP analysis. 3-3 Distinguish between operating income and net income. 3-4 Define contribution margin, contribution margin per unit, and contribution margin percentage. 3-5 Describe three methods that managers can use to express CVP relationships. 3-6 Why is it more accurate to describe the subject matter of this chapter as CVP analysis rather than as breakeven analysis? 3-7 "CVP analysis is both simple and simplistic. If you want realistic analysis to underpin your decisions, look beyond CVP analysis." Do you agree? Explain. 3-8 How does an increase in the income tax rate affect the breakeven point? 3-9 Describe sensitivity analysis. How has the advent of the electronic spreadsheet affected the use of sensitivity analysis? 3-10 Give an example of how a manager can decrease variable costs while increasing fixed costs. 3-11 Give an example of how a manager can increase variable costs while decreasing fixed costs. 3-12 What is operating leverage? How is knowing the degree of operating leverage helpful to managers? 3-13 "There is no such thing as a fixed cost. All costs can be 'unfixed' given sufficient time." Do you agree? What is the implication of your answer for CVP analysis? 3-14 How can a company with multiple products compute its breakeven point? 3-15 "In CVP analysis, gross margin is a less-useful concept than contribution margin." Do you agree? Explain briefly. MyAccountingLab Downloaded by adela klosi ([email protected])lOMoARcPSD|12838944

94CHAPTER 3COST-VOLUME-PROFIT ANALYSIS Exercises 3-16 CVP computations.Fill in the blanks for each of the following independent cases. CaseRevenuesVariableCostsFixed CostsTotal CostsOperatingIncomeContribution Margin Percentage a.$800$1,200$1,000 b.$2,400$400$700 c.$900$500$900 d.$1,800$40050% 3-17 CVP computations.Garrett Manufacturing sold 410,000 units of its product for $68 per unit in 2014. Variable cost per unit is $60, and total fixed costs are $1,640,000. 1.Calculate (a) contribution margin and (b) operating income. 2.Garrett's current manufacturing process is labor intensive. Kate Schoenen, Garrett's production manager, has proposed investing in state-of-the-art manufacturing equipment, which will increase the annual fixed costs to $5,330,000. The variable costs are expected to decrease to $54 per unit. Garrett expects to maintain the same sales volume and selling price next year. How would acceptance of Schoenen's proposal affect your answers to (a) and (b) in requirement 1? 3.Should Garrett accept Schoenen's proposal? Explain. 3-18 CVP analysis, changing revenues and costs.Brilliant Travel Agency specializes in flights between Toronto and Jamaica. It books passengers on Ontario Air. Brilliant's fixed costs are $36,000 per month. Ontario Air charges passengers $1,300 per round-trip ticket. Calculate the number of tickets Brilliant must sell each month to (a) break even and (b) make a target oper- ating income of $12,000 per month in each of the following independent cases. 1.Brilliant's variable costs are $34 per ticket. Ontario Air pays Brilliant 10% commission on ticket price. 2.Brilliant's variable costs are $30 per ticket. Ontario Air pays Brilliant 10% commission on ticket price. 3.Brilliant's variable costs are $30 per ticket. Ontario Air pays $46 fixed commission per ticket to Brilliant. Comment on the results. 4.Brilliant's variable costs are $30 per ticket. It receives $46 commission per ticket from Ontario Air. It charges its customers a delivery fee of $8 per ticket. Comment on the results. 3-19 CVP exercises.The Incredible Donut owns and operates six doughnut outlets in and around Kansas City. You are given the following corporate budget data for next year: