222 CH 6 HW Solutions 5th edition

# 222 CH 6 HW Solutions 5th edition - CHAPTER 6...

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CHAPTER 6 Cost-Volume-Profit Analysis: Additional Issues Homework Solutions ANSWERS TO QUESTIONS (8, 14) 8. The 100,000-mile tire has a higher unit contribution margin, that is, each tire sold covers a larger amount of fixed costs. Therefore, if the sales mix shifts away from the 100,000-mile tire to the 40,000-mile tire, the company will have to sell more total tires in order to break-even. 14. Typically manual labor is considered a variable cost. Depreciation on factory equipment is a fixed cost. Therefore, if a company replaces manual labor with automated factory equipment it will increase its operating leverage, and increase its break-even point. SOLUTIONS TO BRIEF EXERCISES (1, 10, 11, 14, 15) BRIEF EXERCISE 6-1 1. (a) \$80 = (\$250 – \$170) (b) 32% (\$80 ÷ \$250) 2. (c) \$300 = (\$500 – \$200) (d) 40% (\$200 ÷ \$500) 3. (e) \$1,000 = (\$300 ÷ 30%) (f) \$700 (\$1,000 – \$300) BRIEF EXERCISE 6-10 (a) Sales Mix Bedroom Division \$500,000 ÷ \$1,250,000 = .40 Dining Room Division \$750,000 ÷ \$1,250,000 = .60 (b) Weight-average contribution = \$550,000 = .44 margin ratio \$1,250,000 OR Contribution Margin Ratio Bedroom Division (\$250,000 ÷ \$500,000) = .50 Dining Room Division (\$300,000 ÷ \$750,000) = .40 Weighted-average contribution margin ratio = (.50 X .40) + (.40 X .60) = .44

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BRIEF EXERCISE 6-11 Product A Product B Contribution margin per unit (a) Machine hours required (b) Contribution margin per unit of limited resource [(a) ÷ (b)] \$10 .0 2 \$ 5 \$12 3 \$ 4 BRIEF EXERCISE 6-14 Degree of operating leverage = Contribution margin ÷ Net income Dousmann Corp. 1.4 = Contribution margin ÷ \$50,000 Contribution margin = \$50,000 X 1.4 = \$70,000 PCB Co. 5.6 = Contribution margin ÷ \$50,000 Contribution margin = \$50,000 X 5.6 = \$280,000 BRIEF EXERCISE 6-15 Product 1 Product 2 Contribution margin per unit (a) Machine hours required (b) Contribution margin per unit of limited resource [(a) ÷ (b)] \$ 42 .14 \$300
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## This note was uploaded on 03/17/2012 for the course ACT 222 taught by Professor Pike during the Fall '10 term at Saint Louis.

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222 CH 6 HW Solutions 5th edition - CHAPTER 6...

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