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221 Solutions - Quick Check MC - Ch 07

# 221 Solutions - Quick Check MC - Ch 07 - Chapter 7...

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Chapter 7 Cost-Volume-Profit (CVP) Analysis Quick Check Answers: 1. d 3. c 5. a 7. d 9. d 2. b 4. c 6. b 8. a 10. c Managerial Accounting 2e Solutions Manual 172

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Short Exercises (5-10 min.) S 7-1 a. Sales price per passenger……………………. \$ 50 Less: Variable cost per passenger………….. (20 ) Contribution margin per passenger………… \$ 30 b. Contribution margin per passenger………… \$30 Divided by sales price per passenger………. ÷ 50 Contribution margin ratio…………………….. 60 % c. Total contribution margin (10,000 × \$30)…... \$300,000 Less: Fixed expenses………………………….. 210,000 Operating income………………………………. \$90,000 d. Total contribution margin (\$400,000 × 60%) ………………………….. \$240,000 Less: Fixed expenses………………………….. 210,000 Operating income………………………………. \$ 30,000 (5 min.) S 7-2 The unit contribution margin tells managers how much income is earned on each unit of sales before considering fixed costs. Each sale contributes its unit contribution margin towards covering fixed costs and generating a profit. Therefore, if the number of dinner cruises sold increases by 500 and each sale generates \$30 of contribution margin, operating income will increase (or operating loss will decrease) by \$15,000 (= 500 passengers × \$30 per passenger). Managerial Accounting 2e Solutions Manual 173
(5-10 min.) S 7-3 a. Sales revenue Variable expenses Fixed = Operating expenses income Sale price Units per unit × sold Variable cost Units Fixed = Operating per unit × sold expenses income (\$50 × Units sold) (\$20 × Units sold) \$210,000 = \$0 [(\$50 \$20) × Units sold] \$210,000 = \$0 \$30 × Units sold = \$210,000 Units sold = 7,000 passengers b. Units sold = Fixed expenses + Operating income (to break even) Contribution margin per unit (passenger) = \$210,000 + 0 \$30* = 7,000 passengers *Contribution margin = \$50 sale \$20 variable expense per passenger price per passenger Proof: Sales revenue (7,000 × \$50)… ............................. …. \$350,000 Variable expenses (7,000 × \$20)… ..................... ….. 140,000 Contribution margin(7,000 × \$30)… ................... ….. 210,000 Fixed expenses… ..................................... ………….. (210,000 ) Operating income… ................................... ……….… \$ 0 Chapter 7 Cost-Volume-Profit (CVP) Analysis 174

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(continued) S 7-3 c. Number of passengers to break even*……………. 7,000 Sales price per passenger…………………………... × \$50 Sales revenue to break even……………………….. \$350,000 * from parts a. and b. d. Sales in dollars = Fixed expenses + Operating income Contribution margin ratio = \$210,000 + \$0 0.60 = \$350,000 Managerial Accounting 2e Solutions Manual 175
(5 min.) S 7-4 Sales in units = Fixed expenses + Operating income Contribution margin per unit = \$210,000 + \$60,000 \$30 = 9,000 dinner cruise tickets Or, using the equation approach: Sales revenue Variable expenses Fixed = Operating expenses income Sale price Units per unit × sold Variable cost Units Fixed = Operating per unit × sold expenses income (\$50 × Units sold) (\$20 × Units sold) \$210,000 = \$60,000 [(\$50 \$20) × Units sold] \$210,000 = \$60,000 \$30 × Units sold = \$270,000 Units sold = 9,000 tickets To earn target income of \$60,000, Bay Cruiseline must sell 9,000 dinner cruise tickets.

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221 Solutions - Quick Check MC - Ch 07 - Chapter 7...

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