管理会计答案chapter2-17终极版

2–1

1. Part#72A Part#172C

Steel* $ 12.00 $ 18.00

Setupcost** 6.00 6.00

Total $ 18.00 $ 24.00

*($1.0012;$1.0018)

**($60,000/10,000)

Steelcostisassignedbycalculatingacostperounceandthenmultiplyingthisbytheouncesusedbyeachpart:

Costperounce =$3,000,000/3,000,000ounces

=$1.00perounce

Setupcostisassignedbycalculatingthecostpersetupandthendividingthisbythenumberofunitsineachbatch(thereare20setupsperyear):

Costpersetup =$1,200,000/20

=$60,000

2. Thecostofsteelisassignedusingdirecttracing.Thecostofthesetupsisassignedthroughdrivertracingusingnumberofsetupsasthedriver.

3. Theassumptionunderlyingnumberofsetupsasthedriveristhateachpartusesanequalamountofsetuptime.SincePart#72AusesdoublethesetuptimeofPart#172C,itmakessensetoassignsetupcostsbasedonsetuptimeinsteadofnumberofsetups.Thisillustratestheimportanceofidentifyingdriversthatreflectthetrueunderlyingconsumptionpattern.Usingsetuphours[(4010)+(2010)],wegetthefollowingrateperhour:

Costpersetuphour =$1,200,000/600

=$2,000perhour

Thecostperunitisobtainedbydividingeachpart’stotalsetupcostsbythenumberofunits:

Part#72A =($2,000400)/100,000=$8.00

Part#172C =($2,000200)/100,000=$4.00

Thus,Part#72Ahasitsunitcostincreasedby$2.00,whilePart#172Chasitsunitcostdecreasedby$2.00.

2–4

1. Giventhedescriptionprovided,wecanconcludethatCariariusesafunctional-basedaccountingsystem.First,evidenceexiststhatproductcostsareonlydeterminedbyproductioncosts.Apparently,thefinancialaccountingsystemisdrivingthetypeofproductcostinformationbeingproduced.Second,onlydirectlaborhours,aunit-leveldriver,areusedtoassignoverheadcosts.Sincemanyoverheadcostsarelikelytobecausedbynonunit-leveldrivers,thisalsosuggestsastrongrelianceonallocationforcostassignment.Third,thecompanyattemptstocontrolcostsbyencouragingdepartmentalmanagerstomeetbudgetedlevelsofexpenditures.Thefocusisondepartmentalperformanceratherthansystemwideperformance.Further,departmentalperformanceismeasuredonlybyfinancialinstruments.AnABMsystememphasizescontrollingcostsbymanagingactivitiesandtheircauses;italsousesnonfinancialmeasuresofperformance.

2. Setupcostperdirectlaborhour =$100,000/100,000

=$1.00perDLH

Setupcostassigned:

AutomaticModel ManualModel

$1.0030,000DLH $ 30,000 $ —

$1.0070,000DLH — 70,000

Total $ 30,000 $ 70,000

Unitsproduced ÷ 60,000 ÷ 40,000

Setupcostperunit $ 0.50 $ 1.75

Itisnotdirecttracingbecausethereisnoexclusivephysicalassociation.Ifdirectlaborhoursisacausalfactorthatmeasurestheconsumptionofsetupresources,thenitcouldbeclassifiedasdrivertracing.However,thereappearstobelittleassociationbetweendirectlaborhoursandsetupcostconsumption.Theautomaticmodelusesmoresetupresourcesandlessdirectlaborhoursthanthemanualmodeluses,respectively.Thus,thisassignmentshouldbeclassifiedasallocation.

3. Setuphoursisamorelikelycause-and-effectmeasureofresourceconsumption.Theuseofsetuphoursobtainsanassignmentrateof$10persetuphour($100,000/10,000setuphours)andthefollowingassignment:

AutomaticModel ManualModel

$10.007,000setuphrs. $ 70,000 $ —

$10.003,000setuphrs. — 30,000

Total $ 70,000 $ 30,000

Unitsproduced ÷ 60,000 ÷ 40,000

Setupcostperunit $ 1.17 $ 0.75

TheassignmentiscompatiblewithanABMapproachandnotanFBMapproach(setuphoursisanonunit-leveldriver).

3–1

1. Resource TotalCost UnitCost

Plastic1 $ 10,800 $0.027

Directlaborand

variableoverhead2 8,000 0.020

Moldsets3 20,000 0.050

Otherfacilitycosts4 10,000 0.025

Total $ 48,800 $0.122

10.90$0.03400,000=$10,800;$10,800/400,000=$0.027

2$0.02400,000=$8,000;$8,000/400,000=$0.02

3$5,0004quarters=$20,000;$20,000/400,000=$0.05

4$10,000;$10,000/400,000=$0.025

2. Plastic,directlabor,andvariableoverheadareflexibleresources;moldsandotherfacilitycostsarecommittedresources.Thecostofplastic,directlabor,andvariableoverheadarestrictlyvariable.Thecostofthemoldsisfixedfortheparticularactionfigurebeingproduced;itisastepcostfortheproductionofactionfiguresingeneral.Otherfacilitycostsarestrictlyfixed.

3–2

1. Committedresources:trucksandtechnicians’salaries

Flexibleresources:supplies,smalltools,andfuel

2. Variableactivityrate=$840,000/70,000=$12percall

Fixedactivityrate=$1,200,000*/80,000=$15percall

Totalcostofonecall=$12+$15=$27percall

*($26,25040)+($6,00025)

3. Activityavailability = Activityusage + Unusedcapacity

Callsavailable = Callsmade + Unmadecalls

80,000calls = 70,000calls + 10,000calls

4. Totalcostof Costof Costof

committedresources = activityused + unusedcapacity

$1,200,000 = ($1570,000) + ($1510,000)

$1,200,000 = $1,050,000 + $150,000

Note:Theanalysisisrestrictedtocommittedresources,sinceonlytheseresourceswilleverhaveanyunusedcapacity.

3–3

1.

Thescattergraphprovidesevidenceforalinearrelationship.

2. High(1,400,$7,950);Low(700,$5,150)

V =($7,950–$5,150)/(1,400–700)

=$2,800/700=$4peroilchange

F =$5,150–$4(700)

=$5,150–$2,800=$2,350

Cost=$2,350+$4(oilchanges)

PredictedcostforJanuary=$2,350+$4(1,000)=$6,350

3. Outputoftheregressionroutinecalculatedbyaspreadsheet:

Constant

1697.097

Std.Err.ofYEst.

243.6784

RSquared

0.967026

No.ofObservations

8

DegreesofFreedom

6

XCoefficient(s)

4.64678

Std.Err.ofCoef.

0.350304

Roundingthecoefficients:

Variablerate=$4.65peroilchange

Fixedcost=$1,697

PredictedcostforJanuary =$1,697+$4.65(oilchanges)

=$1,697+$4.65(1,000)=$6,347

R2=0.97(rounded)

Thissaysthat97percentofthevariabilityinthecostofprovidingoilchangesisexplainedbythenumberofoilchangesperformed.

4. Theleast-squaresmethodisbetterbecauseitusesalleightdatapointsinsteadofjusttwo.

4–1

1.

Quarter1 Quarter2 Quarter3 Quarter4 Total

Unitsproduced 400,000 160,000 80,000 560,000 1,200,000

Primecosts $8,000,000 $3,200,000 $1,600,000 $11,200,000 $24,000,000

Overheadcosts $3,200,000 $2,400,000 $3,600,000 $2,800,000 $12,000,000

Unitcost:

Prime $20 $20 $20 $20 $20

Overhead 8 15 45 5 10

Total $28 $35 $65 $25 $30

2. Actualcostingcanproducewideswingsintheoverheadcostperunit.Thecauseappearstobenonuniformincurrenceofoverheadandnonuniformproduction(seasonalproductionisapossibility).

3. First,calculateapredeterminedrate:

OHrate =$11,640,000/1,200,000

=$9.70perunit

Thisrateisusedtoassignoverheadtotheproductthroughouttheyear.Sincethedriverisunitsproduced,$9.70wouldbeassignedtoeachunit.Addingthistotheactualprimecostsproducesaunitcostundernormalcosting:

Unitcost=$9.70+$20.00=$29.70

Thiscostisclosetotheactualannualcostof$30.00.

4–2

1. Predeterminedrates:

DrillingDepartment: Rate =$600,000/280,000=$2.14*perMHr

AssemblyDepartment: Rate =$392,000/200,000

=$1.96perDLH

*Rounded

2. Appliedoverhead:

DrillingDepartment:$2.14288,000=$616,320

AssemblyDepartment:$1.96196,000=$384,160

Overheadvariances:

Drilling Assembly Total

Actualoverhead $602,000 $ 412,000 $ 1,014,000

Appliedoverhead 616,320 384,160 1,000,480

Overheadvariance $ (14,320)over $ 27,840under $ 13,520

3. Unitoverheadcost =[($2.144,000)+($1.961,600)]/8,000

=$11,696/8,000

=$1.46*

*Rounded

4–3

1. Yes.Sincedirectmaterialsanddirectlaboraredirectlytraceabletoeachproduct,theircostassignmentshouldbeaccurate.

2. Elegant: (1.75$9,000)/3,000=$5.25perbriefcase

Fina: (1.75$3,000)/3,000=$1.75perbriefcase

Note:Overheadrate=$21,000/$12,000=$1.75perdirectlabordollar(or175percentofdirectlaborcost).

TherearemoremachineandsetupcostsassignedtoElegantthanFina.ThisisclearlyadistortionbecausetheproductionofFinaisautomatedandusesthemachineresourcesmuchmorethanthehandcraftedElegant.Infact,theconsumptionratioformachiningis0.10and0.90(usingmachinehoursasthemeasureofusage).Thus,FinausesninetimesthemachiningresourcesasElegant.Setupcostsaresimilarlydistorted.Theproductsuseanequalnumberofsetupshours.Yet,ifdirectlabordollarsareused,thentheElegantbriefcasereceivesthreetimesmoremachiningcoststhantheFinabriefcase.

3. Overheadrate =$21,000/5,000

=$4.20perMHr

Elegant: ($4.20500)/3,000=$0.70perbriefcase

Fina: ($4.204,500)/3,000=$6.30perbriefcase

Thiscostassignmentappearsmorereasonablegiventherelativedemandseachproductplacesonmachineresources.However,onceafirmmovestoamultiproductsetting,usingonlyoneactivitydrivertoassigncostswilllikelyproduceproductcostdistortions.Productstendtomakedifferentdemandsonoverheadactivities,andthisshouldbereflectedinoverheadcostassignments.Usually,thismeanstheuseofbothunit-andnonunit-levelactivitydrivers.Inthisexample,thereisaunit-levelactivity(machining)andanonunit-levelactivity(settingupequipment).Theconsumptionratiosforeach(usingmachinehoursandsetuphoursastheactivitydrivers)areasfollows:

Elegant Fina

Machining 0.10 0.90 (500/5,000and4,500/5,000)

Setups 0.50 0.50 (100/200and100/200)

Setupcostsarenotassignedaccurately.Twoactivityratesareneeded—onebasedonmachinehoursandtheotheronsetuphours:

Machinerate: $18,000/5,000=$3.60perMHr

Setuprate: $3,000/200=$15persetuphour

Costsassignedtoeachproduct:

Machining: Elegant Fina

$3.60500 $ 1,800

$3.604,500 $ 16,200

Setups:

$15100 1,500 1,500

Total $ 3,300 $ 17,700

Units ÷ 3,000 ÷ 3,000

Unitoverheadcost $ 1.10 $ 5.90

4–5

1. Deluxe Percent Regular Percent

Price $900 100% $750 100%

Cost 576 64 600 80

Unitgrossprofit $324 36% $150 20%

Totalgrossprofit:

($324100,000) $32,400,000

($150800,000) $120,000,000

2. Calculationofunitoverheadcosts:

Deluxe Regular

Unit-level:

Machining:

$200100,000 $20,000,000

$200300,000 $60,000,000

Batch-level:

Setups:

$3,000300 900,000

$3,000200 600,000

Packing:

$20100,000 2,000,000

$20400,000 8,000,000

Product-level:

Engineering:

$4050,000 2,000,000

$40100,000 4,000,000

Facility-level:

Providingspace:

$1200,000 200,000

$1800,000 800,000

Totaloverhead $ 25,100,000 $ 73,400,000

Units ÷ 100,000 ÷ 800,000

Overheadperunit $ 251 $ 91.75

Deluxe Percent Regular Percent

Price $900 100% $750.00 100%

Cost 780* 87*** 574.50** 77***

Unitgrossprofit $120 13%*** $175.50 23%***

Totalgrossprofit:

($120100,000) $12,000,000

($175.50800,000) $140,400,000

*$529+$251

**$482.75+$91.75

***Rounded

3. Usingactivity-basedcosting,amuchdifferentpictureofthedeluxeandregularproductsemerges.Theregularmodelappearstobemoreprofitable.Perhapsitshouldbeemphasized.

4–6

1. JIT Non-JIT

Salesa $12,500,000 $12,500,000

Allocationb 750,000 750,000

a$125100,000,where$125=$100+($1000.25),and100,000istheaverageordersizetimesthenumberoforders

b0.50$1,500,000

2. Activityrates:

Orderingrate =$880,000/220 =$4,000persalesorder

Sellingrate =$320,000/40 =$8,000persalescall

Servicerate =$300,000/150 =$2,000perservicecall

JIT Non-JIT

Orderingcosts:

$4,000200 $ 800,000

$4,00020 $ 80,000

Sellingcosts:

$8,00020 160,000

$8,00020 160,000

Servicecosts:

$2,000100 200,000

$2,00050 100,000

Total $ 1,160,000 $ 340,000

Forthenon-JITcustomers,thecustomercostsamountto$750,000/20=$37,500perorderundertheoriginalallocation.Usingactivityassignments,thisdropsto$340,000/20=$17,000perorder,adifferenceof$20,500perorder.Foranorderof5,000units,theorderpricecanbedecreasedby$4.10perunitwithoutaffectingcustomerprofitability.Overallprofitabilitywilldecrease,however,unlessthepriceforordersisincreasedtoJITcustomers.

3. ItsoundsliketheJITbuyersareswitchingtheirinventorycarryingcoststoEmerywithoutanysignificantbenefittoEmery.Emeryneedstoincreasepricestoreflecttheadditionaldemandsoncustomer-supportactivities.Furthermore,additionalpriceincreasesmaybeneededtoreflecttheincreasednumberofsetups,purchases,andsoon,thatarelikelyoccurringinsidetheplant.EmeryshouldalsoimmediatelyinitiatediscussionswithitsJITcustomerstobeginnegotiationsforachievingsomeofthebenefitsthataJITsuppliershouldhave,suchaslong-termcontracts.Thebenefitsoflong-termcontractingmayoffsetmostoralloftheincreasedcostsfromtheadditionaldemandsmadeonotheractivities.

8–3

1. CashBudget

FortheMonthofJune20XX

Beginningcashbalance $ 1,345

Collections:

Cashsales 20,000

Creditsales:

Currentmonth($90,00050%) 45,000

Maycreditsales($85,00030%) 25,500

Aprilcreditsales* 8,060

Totalcashavailable $ 99,905

Lessdisbursements:

Inventorypurchases:

Currentmonth($110,00080%40%) $ 35,200

Priormonth($100,00080%60%) 48,000

Salariesandwages 10,300

Rent 2,200

Taxes 5,500

Totalcashneeds 101,200

Excessofcashavailableoverneeds $( 1,295)

*PaymentsforAprilcreditsales=$50,00016%=$8,000

Latefeesremitted=($8,000/2)0.015=$60

TotalPaymentsforAprilcreditsalesandlatefees=$8,000+$60=$8,060

2. Yes,thebusinessdoesshowanegativecashbalanceforthemonthofJune.Withoutthepossibilityofshort-termloans,theownershouldconsidertakinglesscashsalary.

8–4

1. PartA23=(12/60)(35,000)=7,000directlaborhours

PartB14=(24/60)(10,000)=4,000directlaborhours

Totaldirectlaborhours=7,000+4,000=11,000

2.

Roberoy,Inc.

OverheadBudget

FortheMonthofNovember

ActivityLevel

Formula 11,000Hours

Variablecosts:

Maintenance $1.40 $ 15,400

Supplies 0.70 7,700

Power 0.12 1,320

Totalvariablecosts $ 24,420

Fixedcosts(1/12of

annualamount):

Depreciation $ 650

Salaries 5,500

Totalfixedcosts 6,150

Totaloverheadcosts $ 30,570

8–5

1. Resource Formula 60,000Moves(activityoutput)

Fixed Variable

Salaries $400,000 — $400,000

Lease 24,000 — 24,000

Crates — $1.00 60,000

Fuel — 0.06 3,600

Total $424,000 $1.06 $487,600

Note:Cycles,insteadofmoves,couldhavebeenusedastheoutputmeasures.Inthiscase,thevariablecostperunitwoulddouble.Insomeways,cyclesisabettermeasurebecausecratesthenbecomeastrictlyvariablecost(formoves,itisastep-variablecosttreatedasavariablecost).Foreithermovesorcycles,salariesandleasesarestep-fixedcosts.Also,capacityisdeterminedbyoperators:32,00010=60,000moves.Theforkliftsactuallysupplymorepotentialcapacity:3242803=60,480,buttheycannotmovewithoutoperators.

2. Resource Formula 54,000Moves(activityoutput)

Fixed Variable

Salaries $400,000 — $400,000

Lease 24,000 — 24,000

Crates — $1.00 54,000

Fuel — 0.06 3,240

Total $424,000 $1.06 $481,240

Thereductioninoutputreducesthedemandforcratesandfuel,butthenumberofoperatorsandforkliftswouldstaythesame(evenifthereductioninactivityoutputwerepermanent).

3. Resource Formula 15,000Moves(activityoutput)

Fixed Variable

Salaries $120,000 — $120,000

Lease 8,000 — 8,000

Crates — $1.00 15,000

Fuel — 0.06 900

Total $128,000 $1.06 $143,900

Note:Reducingdemandpermanentlyto15,000movesrequiresthreeoperators(32,0003=18,000),assumingthatpart-timehelpisnotpermitted,andoneforklift(242803=20,160).Ifpart-timeoperatorsareallowed,thenthecostforsalarieswouldbebudgetedat$100,000.Thisillustratesthelumpynatureofresourcesandtheirroleinbudgeting.

9–2

1. SH=0.895,000=76,000hours

2. SQ=595,000=475,000components

9–3

1. Materials: $6020,000=$1,200,000

Labor: $2120,000=$420,000

2. ActualCost* BudgetedCost Variance

Materials $1,215,120 $1,200,000 $ 15,120 U

Labor 390,000 420,000 30,000 F

*$122,000$9.96;31,200$12.50

3. MPV =(AP–SP)AQ

=($9.96–$10)122,000=$4,880F

MUV =(AQ–SQ)SP

=(122,000–120,000)$10=$20,000U

APAQ

SPAQ

SPSQ

$9.96122,000

$10122,000

$10120,000

$4,880F

$20,000U

Price

Usage

4. LRV =(AR–SR)AH

=($12.50–$14)31,200=$46,800F

LEV =(AH–SH)SR

=(31,200–30,000)$14=$16,800U

ARAH

SRAH

SRSH

$12.5031,200

$1431,200

$1430,000

$46,800F

$16,800U

Rate

Efficiency

9–4

1. Fixedoverheadrate=$0.55/(1/2hr.perunit)=$1.10perDLH

SH=1,180,0001/2=590,000

AppliedFOH=$1.10590,000=$649,000

2. Fixedoverheadanalysis:

ActualFOH

BudgetedFOH

AppliedFOH

$630,000

$1.10600,000

$1.10590,000

$30,000F

$11,000U

Spending

Volume

(600,000expectedhours=1/2hour1,200,000units)

3. VariableOHrate =($1,350,000–$660,000)/600,000

=$1.15perDLH

4. Variableoverheadanalysis:

ActualVOH

BudgetedVOH

AppliedVOH

$705,000

$1.15595,000

$1.15590,000

$20,750U

$5,750U

Spending

Efficiency

9–6

Materials:

APAQ

SPAQ

SPSQ

$42,000

$0.9053,000

$0.9050,000

$5,700F

$2,700U

Price

Usage

Labor:

ARAH

SRAH

SRSH

$102,000

$714,900

$715,000

$2,300F

$700F

Rate

Efficiency

13–2

Alternatives($inthousands)

Answering VideoGame Both Neither

MachineOnly PlayerOnly Projects Project

Operatingincome $1,300 $640 $1,940 $13,500

Operatingassets $10,000 $4,000 $14,000 $75,000

ROI 13.00% 16.00% 13.86% 18.00%

ThemanagerwillchoosetoinvestinneithersincetheROIishighestforthatalternative.

13–3

1. AnsweringmachineEVA =$1,300,000–0.12($10,000,000)

=$1,300,000–$1,200,000

=$100,000

2. VideogameplayerEVA =$640,000–0.12($4,000,000)

=$640,000–$480,000

=$160,000

3. CurrentdivisionEVA =$13,500,000–0.12($75,000,000)

=$13,500,000–$9,000,000

=$4,500,000

ThemanagerwillchoosetoinvestinbothsincetheEVAofeachispositive.Ifthemanagerinvestsinboth,overallEVAwillbe$4,760,000($100,000+$160,000+$4,500,000).

13–4

1. Yes,thefirmasawholewillbenefitifthepartistransferredat$30.ThePartsDivisionwilllose$15($45–$30)perunit,buttheNeonatalProductsDivisionwillgain$35($230–$195)contributionmarginperunit.Thenetbenefitis$20perunittothefirmoratotalof$20,000($201,000).Althoughitmaybetemptingtointervene,thebestpolicyistoallowthedivisionstoworkoutanytransferpricingarrangement.

2. Thecompanymaybeturningawayprofitwithitspolicywhenadivisionisoperatingbelowcapacity.FortheNeonatalProductsDivision,theofferingpriceis$230,anditsvariablecostis$210(assumingthat$45ispaidforthepart).Thus,acontributionmarginof$20perunitispossible.

3. Minimumtransferprice=$45;maximumtransferprice=$45.Thetransfer,ifitismade,shouldbefor$45.Atthisprice,theNeonatalProductsDivisionwillmakeacontributionmarginof$20perunit,increasingtheirprofitsby$20,000($201,000).Thus,thefirmearnsthesame$20,000indicatedinRequirement1,butthePartsDivisionismadenoworseoff.Thefull-costpolicy,however,needschanging.

15–3

1. FaiselCompany

Variable-CostingSegmentedIncomeStatement

(inthousands)

Northeast South Total

Sales $ 15,000 $ 12,000 $ 27,000

LessvariableCOGS* 6,020 8,380 14,400

Contributionmargin $ 8,980 $ 3,620 $ 12,600

Lessdirectfixedexpenses:

Fixedoverhead* (1,080) (720) (1,800)

Sellingandadministrative** (1,000) (1,500) (2,500)

Segmentmargin $ 6,900 $ 1,400 $ 8,300

Lesscommonfixedexpenses:

Fixedoverhead (1,800)

Sellingandadministrative (2,000)

Netincome $ 4,500

*Fixedcosts=20%ofcostofgoodssold=$3,600

DirectFOHcosts=50%of$3,600=$1,800

CommonFOHcosts=50%of$3,600=$1,800

Northeastdirectfixedcosts=0.30$3,600=$1,080

Southdirectfixedcosts=0.20$3,600=$720

Totalallocatedfixedcostsunderabsorptioncosting:

Northeast=$1,080+0.5($1,800)=$1,980

South=$720+0.5($1,800)=$1,620

Variablecostofgoodssold:

Northeast=$8,000–$1,980=$6,020

South=$10,000–$1,620=$8,380

**Commonsellingandadministrativeexpenses=$2,000

Directsellingandadministrativeexpenses=$4,500–$2,000=$2,500

Northeast=0.40$2,500=$1,000

South=0.60$2,500=$1,500

ThecompanyshouldnoteliminatetheSouthregion.Thesegmentmarginispositive.

2. Northeast South

Contributionmargin 59.9%* 30.2%*

Segmentmargin 46.0 11.7

*Rounded

FaiselCompany

Variable-CostingSegmentedIncomeStatement

Northeast South Total

Sales $ 16,500 $ 13,200 $ 29,700

Lessvariableexpenses:

Costofgoodssold 6,622 9,218 15,840

Contributionmargin $ 9,878 $ 3,982 $ 13,860

Lessdirectfixedexpenses:

Fixedoverhead (1,080) (720) (1,800)

Sellingandadministrative (1,000) (1,500) (2,500)

Segmentmargin $ 7,798 $ 1,762 $ 9,560

Lesscommonfixedexpenses:

Fixedoverhead (1,800)

Sellingandadministrative (2,000)

Netincome $ 5,760

Northeast South

Contributionmargin 59.9%* 30.2%*

Segmentmargin 47.3* 13.3*

Thecontributionmarginratioremainedconstantasapercentageofsales,butthesegmentmarginincreased.Bydefinition,wewouldexpectvariablecoststoincreaseinproportiontoincreasesinsales,thusleavingthecontributionmarginratiounchanged.However,wewouldexpectthesegmentmargintoincreaseasapercentageassalesincrease,simplybecausedirectfixedcostsdonotchangeasvolumechangeswithintherelevantrange.

*Rounded

15–5

1. Windsor,Inc.

Variable-CostingIncomeStatement

BudgetedforNextYear

Sales $ 2,646,756

Lessvariableexpenses:

Costofgoodssold $ 1,056,693

Selling 120,510 1,177,203

Contributionmargin $ 1,469,553

Lessfixedexpenses:

Overhead $ 610,000

Sellingandadministrative 263,500 873,500

Netincome $ 596,053

2. Windsor,Inc.

Variable-CostingIncomeStatement

ConservativeBudgetforNextYear

Sales $2,597,742

Lessvariableexpenses:

Costofgoodssold $ 1,100,722

Selling 122,850 1,223,572

Contributionmargin $ 1,374,170

Lessfixedexpenses:

Overhead $ 610,000

Sellingandadministrative 266,000 876,000

Netincome $ 498,170

16–1

1. Units =Fixedcost/Contributionmargin

=$10,350/($15–$12)

=3,450

2. Sales(3,450$15) $51,750

Variablecosts(3,450$12) 41,400

Contributionmargin $ 10,350

Fixedcosts 10,350

Operatingincome $ 0

3. Units =(Targetincome+Fixedcost)/Contributionmargin

=($9,900+$10,350)/($15–$12)

=$20,250/$3

=6,750

16–2

1. Contributionmarginperunit=$15–$12=$3

Contributionmarginratio=$3/$15=0.20,or20%

2. Variablecostratio=$60,000/$75,000=0.80,or80%

3. Revenue =Fixedcost/Contributionmarginratio

=$10,350/0.20

=$51,750

4. Revenue =(Targetincome+Fixedcost)/Contributionmarginratio

=($9,900+$10,350)/0.20