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Chapter 07 - Answer - MANAGEMENT ACCOUNTING Solutions...

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MANAGEMENT ACCOUNTING - Solutions Manual CHAPTER 7 GROSS PROFIT VARIATION ANALYSIS AND EARNINGS PER SHARE DETERMINATION I. Problems Problem I The Dawn Mining Company Gross Profit Variation Analysis For 2006 Increase in Sales: Quantity Factor [(24,000) x P8] P(192,000) Price Factor (105,000 x P3) 315,000 Quantity/Price Factor [(24,000) x P3] (72,000 ) P 51,000 Less: Increase (decrease) in Cost of Sales: Quantity Factor [(24,000) x P9] P(216,000) Cost Factor [105,000 x (P.50)] (52,500) Quantity/Cost Factor [(24,000) x (P.50)] 12,000 (256,500 ) Increase in Gross Profit P 307,500 Problem II 1. Selling Price Factor Sales in 2006 P210,000 Less: Sales in 2006 at 2005 prices (P210,000 105%) 200,000 Favorable P 10,000 2. Cost Factor Cost of Sales in 2006 P164,000 Less: Cost of Sales in 2006 at 2005 costs 176,000 Favorable P(12,000 ) 3. Quantity Factor Increase in Sales 7-1
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Chapter 7 Gross Profit Variation Analysis and Earnings Per Share Determination Sales in 2006 at 2005 prices P200,000 Less: Sales in 2005 150,000 Favorable P 50,000 Less: Increase in Cost of Sales Cost of Sales in 2006 at 2005 costs (P132,000 x 133-1/3%) P176,000 Less: Cost of Sales in 2005 132,000 Unfavorable P 44,000 Net favorable quantity factor 6,000 * Increase in Gross Profit P 28,000 * This may also be obtained using the following presentation: Quantity Factor: Sales in 2006 at 2005 prices P200,000 Less: Sales in 2005 150,000 Increase in Sales P 50,000 Multiplied by: Ave. Gross Profit rate in 2005 12% Net favorable variance P 6,000 Problem III Requirement A: Tony Corporation Statement Accounting for Gross Profit Variation For 2006 Increase (Decrease) in Sales accounted for as follows: Price Factor Sales this year P210,210 Less: Sales this year at last year’s prices 269,500 Favorable (Unfavorable) P(59,290 )
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