Class_10_MGR - MANAGERIAL ACCOUNTING IIE 211 CLASS 10 Korea...

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MANAGERIAL ACCOUNTING - IIE 211 CLASS 10 LECTURE NOTES Chapter 6 Cost-Volume-Profit Relationships 1. HW: Chapter 6 Problem 19 2. REVIEW Chapter 6 Problem 21 Chapter 7 Variable Costing—A Tool for Management 3. Chapter 7 Introduction 4. REVIEW Chapter 7 Exercise 1 5. REVIEW Chapter 7 Exercise 3 HW due (FRIDAY) – CHAPTER 7 EXERCISE 8 Korea U Intranet http://iie.korea.ac.kr/intranet/ Garrison Text Site www.mhhe.com/ garrison11e eBook Text Site http://ebooks.primisonline.com 1
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MANAGERIAL ACCOUNTING - IIE 211 CLASS 10 Problem 6-19 (60 minutes) 1. The CM ratio is 30%. Total Per Unit Percent of Sales Sales (19,500 units) $585,000 $30.00 100% Less variable expenses 409,500 21.00 70 Contribution margin $175,500 $ 9.00 30 % The break-even point is: Sales = Variable expenses + Fixed expenses + Profits $30.00Q = $21.00Q + $180,000 + $0 $9.00Q = $180,000 Q = $180,000 ÷ $9.00 per unit Q = 20,000 units 20,000 units × $30.00 per unit = $600,000 in sales. Alternative solution: Fixed expenses Break-even point = in unit sales Unit contribution margin $180,000 = =20,000 units $9.00 per unit Fixed expenses Break-even point = in sales dollars CM ratio $180,000 = = $600,000 in sales 0.30 2. Incremental contribution margin: $80,000 increased sales × 0.30 CM ratio. ...................................... $24,000 Less increased advertising cost. ......................................................... 16,000 Increase in monthly net operating income. ........................................ $ 8,000 Since the company is now showing a loss of $4,500 per month, if the changes are adopted, the loss will turn into a profit of $3,500 each month ($8,000 less $4,500 = $3,500). 2
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MANAGERIAL ACCOUNTING - IIE 211 CLASS 10 Problem 6-19 (continued) 3. Sales (39,000 units @ $27.00 per unit*). .................................. $1,053,000 Less variable expenses (39,000 units @ $21.00 per unit). .......................................... 819,000 Contribution margin. ................................................................. 234,000 Less fixed expenses ($180,000 + $60,000). .............................. 240,000 Net operating loss. ..................................................................... $ (6,000 ) *$30.00 – ($30.00 × 0.10) = $27.00 4. Sales = Variable expenses + Fixed expenses + Profits $30.00Q = $21.75Q* + $180,000 + $9,750 $8.25Q = $189,750 Q = $189,750 ÷ $8.25 per unit Q = 23,000 units *$21.00 + $0.75 = $21.75 Alternative solution: Fixed expenses + Target profit Unit sales to attain = target profit CM per unit $180,000 + $9,750 = =23,000 units $8.25 per unit** **$30.00 – $21.75 = $8.25 5. a. The new CM ratio would be: Per Unit Percent of Sales Sales $30.00 100% Less variable expenses 18.00 60 Contribution margin $12.00 40 % 3
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MANAGERIAL ACCOUNTING - IIE 211 CLASS 10 Problem 6-19 (continued) The new break-even point would be: Fixed expenses Break-even point = in unit sales Unit contribution margin $180,000 + $72,000 = =21,000 units
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This note was uploaded on 10/09/2011 for the course ACCOUNTING 211 taught by Professor Edwardl.monsour during the Summer '07 term at Korea University.

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Class_10_MGR - MANAGERIAL ACCOUNTING IIE 211 CLASS 10 Korea...

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