chapter 6 - Chapter6CostVolumeProfitRelationships...

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Chapter 6 Cost-Volume-Profit Relationships Solutions to Questions 6-3 All other things equal, Company B, with its higher fixed costs and lower variable costs, will have a higher  contribution margin ratio than Company A. Therefore, it will tend to realize a larger increase in contribution margin and in  profits when sales increase.  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. Original net operating income. ....................... $8,000 Change in contribution margin  (-50 units × $8.00 per unit). .........................       (400     ) New net operating income. ............................. $7,600
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Exercise 6-1  (continued) 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.
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Exercise 6-3  1. The company’s contribution margin (CM) ratio is: Total sales. ...................................... $300,000  Total variable expenses. .................   240,000       = Total contribution margin. ............ 60,000  ÷ Total sales. .................................. $300,000   = CM ratio. ...................................... 20 % 2. The change in net operating income from an increase in total sales of $1,500 can be estimated by  using the CM ratio as follows: Change in total sales. ................................ $1,500 × CM ratio. .................................................           20     % = Estimated change in net operating  income. ................................................... $        300
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This note was uploaded on 12/10/2011 for the course ACCT 208 taught by Professor Kingery during the Winter '08 term at University of Delaware.

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chapter 6 - Chapter6CostVolumeProfitRelationships...

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