Chap. 23 - Selected Ex. & Prob.

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EXERCISE 23­1 (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 per­unit basis at two different levels of production. Variable Costs Fixed Costs Mixed Costs

Vary in total but remain constant on a per­unit basis. Remain constant in total but vary on a per­unit basis. Contain both a fixed element and a variable element.  Vary both in total and on a per­unit basis.

(b) Using these criteria as a guideline, the classification is as  follows: Direct materials Direct labor Utilities

Variable Variable Mixed

Rent Maintenance Supervisory salaries

EXERCISE 23­2 (a) Maintenance Costs:

hour

$4,900 − $2,900 $2,000  =   = $4 variable cost per machine  500 800 − 300

Total costs Less:  Variable costs  800 X $4  300 X $4 Total fixed costs

800 Machine  Hours $4,900

300 Machine  Hours $2,900

 3,200 00,000 $1,700

 1,200 $1,700

Fixed Mixed Fixed

Thus, maintenance costs are $1,700 per month plus $4 per  machine hour.

(b)

COSTS

EXERCISE 23­2 (Continued) $5,000

Total Cost Line

$4,900

$4,000 Variable Cost Element

$3,000 $2,000 $1,700 $1,000

Fixed Cost Element

0

200

400

600

800

Machine Hours

PROBLEM 23­4B (a) Current breakeven point: $40X = $22X + $288,000 (where X = pairs of shoes) $18X = $288,000    X = 16,000 pairs of shoes New breakeven point: $32,000)

$38X = $22X + ($288,000 +  $16X = $320,000

   X = 20,000 pairs of shoes (b) Current margin of safety percentage =  (20,000 X $40) ­ (16,000 X $40)  (24,000 X $38) = 20% New margin of safety percentage (24,000 X $38) ­ (20,000 X $38)  (24,000 X $38)



= 17% (c)

VALUE SHOE STORE CVP Income Statement                                                                                                         Sales (20,000 X $40) Variable expenses (20,000 X $22) Contribution margin Fixed expenses Net income

Current

New

$800,000   440,000  360,000   288,000 $  72,000

$912,000   528,000  384,000   320,000 $  64,000

(24,000 X $38) (24,000 X $22)

The proposed changes will raise the breakeven point 4,000  units.   This is a significant increase. Margin of safety is 3% lower and  net   income is $8,000 lower. The recommendation is to  not  accept the  proposed changes.

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