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
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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