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ProblemSolutions 6-10 - Managerial Accounting Exercises and...

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Managerial Accounting: Exercises and Problems E6-3, E6-4, E6-7,P6-15, P6-17, P6-20 E7-2, E7-4, E7-5, E7-6, E7-13, E7-14, P7-23, P7-26 E8-1,E8-3, E8-5, E8-7, P8-14,P8-16 E9-2, E9-3, E9-5, E9-8, P9-11, P9-17 E10-1, E10-3, E10-7, E10-8, P10-13, P10-16 E12-1, E12-2, E12-3, E12-4, E12-6 Exercise 6-3 (20 minutes) 1. Month Occupancy- Days Electrical Costs High activity level (August) ........ 3,608 $8,111 Low activity level (October) ....... 186 1,712 Change ....................................... 3,422 $6,399 Variable cost = Change in cost ÷ Change in activity = $6,399 ÷ 3,422 occupancy-days = $1.87 per occupancy-day Total cost (August) .................................................................... $8,111 Variable cost element ($1.87 per occupancy-day × 3,608 occupancy-days) ........... 6,747 Fixed cost element ................................................................... $1,364 2. Electrical costs may reflect seasonal factors other than just the variation in occupancy days. For example, common areas such as the reception area must be lighted for longer periods during the winter. This will result in seasonal effects on the fixed electrical costs. Additionally, fixed costs will be affected by how many days are in a month. In other words, costs like the costs of lighting common areas are variable with respect to the number of days in the month, but are fixed with respect to how many rooms are occupied during the month. Other, less systematic, factors may also affect electrical costs such as the frugality of individual guests. Some guests will turn off lights when they leave a room. Others will not. Exercise 6-4 (20 minutes) 1 . The Rhythm Shop Income Statement—Acoustic Guitar Department For the Quarter Ended March 31
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Sales .............................................................................. $1,600,000 Variable expenses: Cost of goods sold ($400 per guitar × 2,000 guitars*) ................................................................... $800,000 Selling expenses ($75 per guitar × 2,000 guitars) .................................................................... 150,000 Administrative expenses (25% × $200,000) ............... 50,000 1,000,000 Contribution margin ....................................................... 600,000 Fixed expenses: Selling expenses (400,000-150,000) ........................... 250,000 Administrative expenses(75% x 200,000) .................. 150,000 400,000 Operating income .......................................................... $ 200,000 *$1,600,000 sales ÷ $800 per guitar = 2,000 guitars. 2. Since 2,000 guitars were sold and the contribution margin totaled $600,000 for the quarter, the contribution of each guitar toward fixed expenses and profits was $300 ($600,000 ÷ 2,000 guitars = $300 per guitar). Another way to compute the $300 is: Selling price per guitar ................................. $800 Less variable expenses: Cost per guitar .......................................... $400 Selling expenses ....................................... 75 Administrative expenses ($50,000 ÷ 2,000 guitar) ....................... 25 500 Contribution margin per guitar .................... $300 Exercise 6-4 (continued) 3. If the Rhythm Shop sells 100 more guitars in the quarter ending June 30, than they did for the quarter ending March 31, profits will increase by: 100 x $300* per guitar = $30,000 *$800 selling price - $500 total variable cost per guitar Total operating income for the quarter ended June 30 will be: Operating income for the Quarter ended March 31 $200,000
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Contribution margin from additional unit sales 30,000 Total operating income** $230,000 ** Check: 2,100 guitars sold x $300/guitar $630,000 Less fixed expenses 400,000 Total operating income $230,000 Exercise 6-7 (20 minutes) 1. Kilometres Driven Total Annual Cost* High level of activity .................. 120,000 $13,920 Low level of activity ................... 80,000 10,880 Change ....................................... 40,000 $ 3,040 * 120,000 kilometres × $0.116 per kilometre = $13,920 80,000 kilometres × $0.136 per kilometre = $10,880 Variable cost per kilometre: Change in cost = $3,040____ = $0.076 per kilometre Change in activity 40,000 kilometres Fixed cost per year: Total cost at 120,000 kilometres ....................................... $13,920 Less variable cost element: 120,000 kilometres × $0.076 per kilometre .................. 9,120 Fixed cost per year ............................................................ $ 4,800 2. Y = $4,800 + $0.076X 3.
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