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Chapter 6 - Presentation Solutions 2009

# Chapter 6 - Presentation Solutions 2009 - Chapter#...

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Chapter #6 Presentation Solutions Brief Exercise 6-1 1. The new income statement would be: Total Per Unit Sales (8,050 units) ............ \$209,300 \$26.00 Variable expenses .............   144,900       18.00     Contribution margin ........... 64,400 \$      8.00     Fixed expenses .................     56,000     Net operating income ........ \$        8,400     You can get the same net operating income using the following approach. Original net operating income ............ \$8,000  Change in contribution margin  (50 units  ×  \$8.00 per unit) ...............         400       New net operating income ................. \$8,400   2. The new income statement would be: Total Per Unit Sales (7,950 units) ..................... \$206,700 \$26.00 Variable expenses ......................   143,100       18.00     Contribution margin .................... 63,600 \$      8.00     Fixed expenses ..........................     56,000     Net operating income ................. \$        7,600     You can get the same net operating income using the following approach. ACC 208 – Presentation Solutions Chapter 6 Page 1

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Original net operating income ........................ \$8,000  Change in contribution margin  (-50 units  ×  \$8.00 per unit) ..........................       (400     ) New net operating income .............................. \$7,600   3. The new income statement would be: Total Per Unit Sales (7,000 units) .............. \$182,000 \$26.00 Variable expenses ...............   126,000       18.00     Contribution margin ............. 56,000 \$      8.00     Fixed expenses ...................     56,000     Net operating income .......... \$                    0    Note: This is the company's break-even point. Brief Exercise 6-4 1. The following table shows the effect of the proposed change in monthly advertising budget: Sales With Additional Current Advertising Sales Budget Difference Sales .................................... \$225,000 \$240,000 \$15,000 Variable expenses ................   135,000       144,000           9,000     Contribution margin .............. 90,000 96,000 6,000 Fixed expenses ....................     75,000         83,000           8,000     ACC 208 – Presentation Solutions Chapter 6 Page 2
Net operating income ........... \$      15,000     \$      13,000     \$(2,000) Assuming that there are no other important factors to be considered, the increase in the advertising budget should not  be approved since it would lead to a decrease in net operating income of \$2,000. Alternative Solution 1 Expected total contribution margin: \$240,000  ×  40% CM ratio ............................... \$96,000  Present total contribution margin: \$225,000  ×  40% CM ratio ...............................   90,000       Incremental contribution margin ......................... 6,000  Change in fixed expenses: Less incremental advertising expense ............       8,000       Change in net operating income ........................ \$(2,000 ) Alternative Solution 2 Incremental contribution margin:  \$15,000  ×  40% CM ratio ................................ \$ 6,000  Less incremental advertising expense ...............       8,000       Change in net operating income ........................ \$(2,000 ) 2.

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