Onaverageabooksellsfor4000Variablesellingexpensesare300perbo...

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Finite Mathematics and Applied Calculus
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Chapter 9 / Exercise 50
Finite Mathematics and Applied Calculus
Costenoble/Waner
Expert Verified
On average, a book sells for $40.00. Variable selling expenses are $3.00 per book; the  remaining selling expenses are fixed. The variable administrative expenses are 5% of sales; the  remainder of the administrative expenses are fixed.  10. The contribution margin for the University Store for the first quarter is:  A) $660,000  B) $700,000  C) $180,000  D) $140,000  Answer: D   Level: Medium   LO: 4   
THE CONTRIBUTION APPROACH A contribution format income statement is very useful in CVP analysis  since it highlights cost behavior. EXAMPLE: Last month’s contribution income statement for Nord  Corporation, a manufacturer of exercise bicycles, follows: Total Per  Unit Percen t Sales ( 500 bikes ) ............ $250,000 $500 100% Less variable expenses..   150,000     Contribution margin .......   100,000 $200     300       60            40     % 5
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Finite Mathematics and Applied Calculus
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Chapter 9 / Exercise 50
Finite Mathematics and Applied Calculus
Costenoble/Waner
Expert Verified
MANAGERIAL ACCOUNTING - IIE 211 CLASS 8 Less fixed expenses .......     80,000     Net operating income ..... $      20,000     CONTRIBUTION MARGIN: The amount that sales (net of variable expenses) contributes toward  covering fixed expenses and then toward profits. The unit contribution margin remains constant so long as the selling price  and the unit variable cost do not change. Review Exercise   6-1  (20 minutes) 1. The new income statement would be: Total Per Unit Sales (10,100 units) $353,500 $35.00 Less variable expenses   202,000       20.00     Contribution margin 151,500 $15.00 Less 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 Less variable expenses   198,000       20.00     Contribution margin 148,500 $15.00 6
MANAGERIAL ACCOUNTING - IIE 211 CLASS 8 Less 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     ) New net operating income ..................... $13,500   3. The new income statement would be: Total Per Unit Sales (9,000 units) $315,000 $35.00 Less variable expenses   180,000       20.00     Contribution margin 135,000 $15.00 Less fixed expenses   135,000     Net operating income $                      0    Note: This is the company’s break-even point  REVIEW: Exercise 6-2  (30 minutes) 1. The CVP graph can be plotted using the three steps outlined in the text.  7
MANAGERIAL ACCOUNTING - IIE 211 CLASS 8 The graph appears on the next page.

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