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# ch06 - SOLUTIONS TO EXERCISESSET B EXERCISE 6-1B(a(1...

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SOLUTIONS TO EXERCISES—SET B EXERCISE 6-1B (a) (1) Contribution margin per room = \$50 – (\$5 + \$30) Contribution margin per room = \$15 Contribution margin ratio = \$15 ÷ \$50 = 30% Fixed costs = \$10,000 + \$2,000 + \$1,000 + \$500 = \$13,500 Break-even point in rooms = \$13,500 ÷ \$15 = 900 (2) Break-even point in dollars = 900 rooms X \$50 per room = \$45,000 per month OR Fixed costs ÷ Contribution margin ratio = \$13,500 ÷ .30 = \$45,000 per month (b) (1) Margin of safety in dollars: Planned activity = 40 rooms per day X 30 days = 1,200 rooms per month Expected rental revenue = 1,200 rooms X \$50 = \$60,000 Margin of safety in dollars = \$60,000 – \$45,000 = \$15,000 (2) Margin of safety ratio: \$15,000 = 25% \$60,000 EXERCISE 6-2B (a) Contribution margin (in dollars): Sales = (2,700 X \$30) = \$81,000 Variable costs = \$81,000 X .60 = 48,600 Contribution margin \$32,400 Variable cost (per unit): \$30 X .60 = \$18. Contribution margin (per unit): \$30 – \$18 = \$12. Contribution margin (ratio): \$12 ÷ \$30 = 40%. © 2008 For Instructor Use Only 6-1

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EXERCISE 6-2B (Continued) (b) Breakeven sales (in dollars): \$26 ,000 40% = \$65,000. Breakeven sales (in units): \$12 = 2,167 units (rounded). (c) Margin of safety (in dollars): \$81,000 – \$65,000 = \$16,000. Margin of safety (ratio): \$16,000 ÷ \$81,000 = 20% (rounded). EXERCISE 6-3B 1. Unit sales price = \$300,000 ÷ 5,000 units = \$60 Increase selling price to \$66, or (\$60 X 110%). Net income = \$330,000 – \$210,000 – \$70,000 = \$50,000. 2. Reduce variable costs to 65% of sales. Net income = \$300,000 – \$195,000 – \$70,000 = \$35,000. 3. Reduce fixed costs to \$60,000, or (\$70,000 – \$10,000). Net income = \$300,000 – \$210,000 – \$60,000 = \$30,000. Alternative 1, increasing selling price, will produce the highest net income. EXERCISE 6-4B (a) (1) Contribution margin ratio is: \$26,400 = 55% \$48,000 Break-even point in dollars = \$22,000 = \$40,000 55% (2) Round-trip fare = \$48,000 = \$160 300 fares Break-even point in fares = \$40,000 = 250 fares \$160 EXERCISE 6-4B (Continued) © 2008 For Instructor Use Only 6-2
(b) At the break-even point fixed costs and contribution margin are equal. Therefore, the contribution margin at the break-even point would be \$22,000. (c) Fare revenue (\$144* X 375**) \$54,000 Variable costs (\$21,600 X 1.25) 27,000 Contribution margin 27,000 Fixed costs 22,000 Net income \$ 5,000 Yes, the fare decrease should be implemented because net income increases to \$5,000. *\$160 – (.10 X \$160) **300 + 75 EXERCISE 6-5B KOUFAX COMPANY CVP Income Statement (Current) For the Year Ended December 31, 2008 Total Per Unit Sales (60,000 X \$25) .............................................. \$1,500,000 \$25 Variable expenses (60,000 X \$12) ....................... 720,000 12 Contribution margin ............................................. 780,000 \$13 Fixed expenses ..................................................... 550,000 Net income ............................................................. \$ 230,000 © 2008 For Instructor Use Only 6-3

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EXERCISE 6-5B (Continued) KOUFAX COMPANY CVP Income Statement (with Changes) For the Year Ended December 31, 2008 Total Per Unit Sales [66,000 units (1) X \$23.80 (2)] .................... \$1,570,800 \$23.80 Variable expenses [66,000 X \$9.60 (3)] ............... 633,600 9.60 Contribution margin (66,000 X \$14.20) ............... 937,200 \$14.20 Fixed expenses (\$550,000 + \$50,000) ................. 600,000 Net income ............................................................. \$ 337,200 (1) (60,000 X 10%) + 60,000. (2) \$25.00 – (\$2.40 X 50%) = \$23.80. (3) \$12.00 – (\$12 X 20%) = \$9.60. EXERCISE 6-6B Sales Mix Percentag e Contribution Margin Per Unit Weighted-Average Contribution Margin Lawnmowers Weed-trimmers Chainsaws 30% 50% 20% \$35 \$25 \$50 \$10.50 \$12.50 \$10.00 \$33.00 Total break-even sales in units = \$4,950,000 ÷ \$33.00 = 150,000 units Sales Mix Percentage Total Break-even Sales in Units Sales Units Needed Per Product Lawnmowers Weed-trimmers Chainsaws Total units 30% 50% 20% X X X 150,000 150,000 150,000 = = = 45,000 units 75,000 units 30,000 units 150,000 units © 2008 For Instructor Use Only 6-4
EXERCISE 6-7B (a) Sales Mix Percentag e Contribution Margin Ratio Weighted-Average Contribution Margin Ratio Oil changes Brake repair 70% 30% 20% 60% .14 .18 .32 Total break-even sales in dollars = \$18,000,000 ÷ .32 = \$56,250,000 Sales Mix Percentage Total Break-even Sales

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ch06 - SOLUTIONS TO EXERCISESSET B EXERCISE 6-1B(a(1...

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