Chapter_21A_Solutions_7e

Chapter_21A_Solutions_7e - Chapter 21 Appendix...

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Chapter 21 Appendix Cost-Volume-Profit (CVP) Analysis Appendix Short Exercises (10-15 min.) S 21A-37 Limonade Income Statement (Variable Costing) Month Ended April 30, 2009 Sales revenue (10,000 × $25) $250,000 Variable costs (10,000 × $10) 100,000 Contribution margin 150,000 Fixed costs 75,000 Operating income $ 75,000 Accounting 7/e Solutions Manual 136
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(15 min.) S 21A-38 Req. 1 Limonade Income Statement (Absorption Costing) Month Ended April 30, 2009 Sales revenue (10,000 × $25) $250,000 Cost of goods sold [10,000 × ($8 var. + $5 fixed*)] 130,000 Gross Profit 120,000 Selling and administrative cost [(10,000 × $2) + $20,000] 40,000 Operating income $ 80,000 *$55,000 / 11,000 = $5 per unit Req. 2 The difference in incomes of $5,000 is the 1,000 units in ending inventory × $5 fixed cost per unit that will be expensed when goods are sold next month. Accounting 7/e Solutions Manual 137
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Appendix Exercises (15-20 min.) E 21A-39 Req. 1 Seams Company Conventional (Absorption Costing) Income Statement Year Ended December 31, 2008 Sales revenue (185,000 × $35) $6,475,000 Less: Cost of goods sold (185,000 × $25*) 4,625,000 Gross profit 1,850,000 Operating costs [(185,000 × $5) + $300,000] 1,225,000 Operating income $ 625,000 __________ *Variable manufacturing cost per unit of $15 plus $10 fixed manufacturing cost per unit ($2,000,000 fixed manufacturing overhead / 200,000 units produced). Seams Company Contribution Margin (Variable Costing) Income Statement Year Ended December 31, 2008 Sales revenue (185,000 × $35) $6,475,000 Variable costs: Variable cost of goods sold (185,000 × $15 manufacturing) $2,775,000 Variable sales commission (185,000 × $5) 925,000 3,700,000 Contribution margin 2,775,000 Fixed costs: Manufacturing overhead $2,000,000 Operating costs 300,000 2,300,000 Operating income $ 475,000 Chapter 21 Cost-Volume-Profit (CVP) Analysis 138
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(continued) E 21A-39 Req. 2 Absorption costing operating income is higher than variable costing operating income. This is because absorption costing defers 15,000 goggles × $10 fixed manufacturing overhead per goggle = $150,000 of 2008 fixed manufacturing overhead as an asset in ending inventory. In contrast, variable costing expenses all the 2008 fixed manufacturing overhead during 2008. Variable costing expenses $150,000 more costs during 2008, so variable costing operating income is $150,000 less than absorption costing income in 2008 ($625,000 $475,000). Req. 3 Seams’ managers can use the contribution margin income statement format to evaluate the sales promotion. Increase in contribution margin (15,000 × $15)*. .. $225,000 Increase in fixed costs……………………………… (150,000 ) Increase in operating income……………………… $ 75,000 Seams should go ahead with the promotion. *Contribution margin per unit:
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Chapter_21A_Solutions_7e - Chapter 21 Appendix...

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