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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
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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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