topic 3 template

topic 3 template - 3-30 1 Contribution margin decision...

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Unformatted text preview: 3-30 1. Contribution margin, decision making. Revenues Deduct variable costs: Contribution margin 2. $ Contribution margin percentage = CM SP = CM% Incremental contribution margin (CM% ( Rev x 20%)) Less Incremental fixed costs (advertising) Incremental operating income 3. $ If Mr. Schmidt spends $10,000 more on advertising, the operating income will 3-36 1. CVP analysis, income taxes. Unit CM = ; CM Ratio = Unit Cm x expected sales = less FC gross profit x 1-tax rate = after tax profit = OR Revenues Variable costs Fixed costs Let X = Net income for 2005 = Target net income 1 - Tax rate 2. FC unit CM = units OR Let Q = Number of units to break even 3. TOTAL CM = CM x expected units = $ Less FC Gross profit Gross profit x 1-tax rate = after tax profit OR Let X = Net income for 2006 4. BE = New FC CM% = $ OR Let Q = Number of units to break even with new fixed costs of $ 5. (new FC + profit before tax) CM % = $ OR Let S = Required sales units to equal 2005 net income 6. FC + profit before tax unit CM = BE units x unit CM = $ Expected sales - BE = OR Let A = Amount spent for advertising in 2006 10-30 1. Costs High-low method. Machine-Hours Highest observation of cost driver Lowest observation of cost driver Difference Maintenance costs = a + b . Machine-hours Maintenance Slope coefficient (b) = Constant (a) = = or Constant (a) = = Maintenance costs = $ 2. SOLUTION EXHIBIT 10-30 Plot and High-Low Line of Machine-Hours on Maintenance Costs $260,000 240,000 Maintenance Costs 220,000 200,000 180,000 160,000 140,000 120,000 100,000 80,000 90,000 100,000 110,000 120,000 130,000 Machine-Hours ...
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topic 3 template - 3-30 1 Contribution margin decision...

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