AnsToSylQues6-9

AnsToSylQues6-9 - BriefExercise61(20minutes) 1....

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Brief Exercise   6-1  (20 minutes) 1. The new income statement would be: Total Per Unit Sales (10,100 units). ........ \$353,500 \$35.00 Variable expenses. ..........   202,000       20.00     Contribution margin. ........ 151,500 \$15.00 Fixed expenses. ...............   135,000     Net operating income. ...... \$      16,500     You can get the same net operating income using the following approach: Original net operating income. .... \$15,000 Change in contribution margin  (100 units × \$15.00 per unit). ....       1,500     New net operating income. .......... \$16,500 2. The new income statement would be: Total Per Unit Sales (9,900 units). ............ \$346,500 \$35.00 Variable expenses. .............   198,000       20.00     Contribution margin. ........... 148,500 \$15.00 Fixed expenses. .................   135,000     Net operating income. ........ \$      13,500     You can get the same net operating income using the following approach: Original net operating income. ............. \$15,000  Change in contribution margin  (-100 units × \$15.00 per unit). ...........     (1,500     ) 6-1

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New net operating income. .................. \$13,500   6-2
Brief Exercise 6-1  (continued) 3. The new income statement would be: Total Per Unit Sales (9,000 units). ....... \$315,000 \$35.00 Variable expenses. .......   180,000       20.00     Contribution margin. ..... 135,000 \$15.00 Fixed expenses. ............   135,000     Net operating income. ... \$                      0    Note: This is the company’s break-even point. 6-3

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Brief Exercise 6-2  (30 minutes) 1. The CVP graph can be plotted using the three steps outlined in the text. The graph appears on the  next page. Step 1. Draw a line parallel to the volume axis to represent the total fixed expense. For this  company, the total fixed expense is \$24,000. Step 2. Choose some volume of sales and plot the point representing total expenses (fixed and  variable) at the activity level you have selected. We’ll use the sales level of 8,000 units. Fixed expenses. ...................................................... \$ 24,000 Variable expenses (8,000 units × \$18 per unit). .....   144,000     Total expense. ........................................................ \$168,000 Step 3. Choose some volume of sales and plot the point representing total sales dollars at the  activity level you have selected. We’ll use the sales level of 8,000 units again. Total sales revenue (8,000 units × \$24 per unit). .... \$192,000 2. The break-even point is the point where the total sales revenue and the total expense lines intersect.  This occurs at sales of 4,000 units. This can be verified as follows: Profit = Unit CM × Q − Fixed expenses = (\$24 − \$18) × 4,000 − \$24,000 = \$6 × 4,000 − \$24,000 = \$24,000− \$24,000 = \$0 6-4
Brief Exercise 6-2  (continued) 6-5

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CVP Graph \$0 \$50,000 \$100,000 \$150,000 \$200,000 0 2,000 4,000 6,000 8,000 Volume in Units Dollars Fixed Expense Total Expense Total Sales Revenue
Brief Exercise 6-3  (15 minutes) 1. The profit graph is based on the following simple equation: Profit = Unit CM × Q − Fixed expenses Profit = (\$16 − \$11) × Q − \$16,000 Profit = \$5 × Q − \$16,000 To plot the graph, select two different levels of sales such as Q=0 and Q=4,000. The profit at these  two levels of sales are -\$16,000 (=\$5 × 0 − \$16,000) and \$4,000 (= \$5 × 4,000 − \$16,000).

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This note was uploaded on 02/19/2012 for the course ACG 3301 taught by Professor Wheatley during the Spring '08 term at FIU.

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AnsToSylQues6-9 - BriefExercise61(20minutes) 1....

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