Chapter 12 accounting
E12-2, E12-7, E12-9, E12-10, E12-12, E12-14
E12-2)
1.) No the sale and production of the bikes should not be discontinued. If they are discontinued the net operating income will take a loss of $11,000/quarter
Lost contribution margin
$(27,000)
Fixed costs that can be avoided:
Advertising, traceable
$ 6,000
Salary of the product line manager 10,000 16,000
Decrease in net operating income for the company as a whole
$(11,000)
2.)
Total
Dirt Bikes
M. Bikes
Racing Bikes
Sales
$300,000
$90,000
$150,000
$60,000
Variable manufacturing and selling expenses 120,000 27,000 60,000 33,000
Contribution margin 180,000 63,000 90,000 27,000
Traceable fixed expenses:
Advertising
30,000
10,000
14,000
6,000
Depreciation of special equipment
23,000
6,000
9,000
8,000
Salaries of the product line managers 35,000 12,000 13,000 10,000
Total traceable fixed expenses 88,000 28,000 36,000 24,000
Product line segment margin
92,000
$35,000
$ 54,000
$ 3,000
Common fixed expenses 60,000
Net operating income
$ 32,000
12-7)
A
B
C
Selling price after further processing
$20
$13
$32
Selling price at the split-off point 16 8 25
Incremental revenue per pound or gallon
$ 4
$ 5
$ 7
Total quarterly output in pounds or gallons
×15,000
×20,000
×4,000
Total incremental revenue
$60,000
$100,000
$28,000
Total incremental processing costs 63,000 80,000 36,000
Total incremental profit or loss
$(3,000)
$ 20,000
$(8,000)
B should be further processed
E12-9)
1.
Per Unit
15,000 Units
Incremental sales
$14.00
$210,000
Incremental costs:
Direct materials
5.10
76,500
Direct labor
3.80
57,000
Variable manufacturing overhead
1.00
15,000
Variable selling and administrative 1.50 22,500
Total incremental costs 11.40 171,000
Incremental profits
$ 2.60
$ 39,000
Profits will increase by $39,000
2. The only relevant cost is the variable selling and administrative costs of $1.50. The fixed costs are not relevant
E12-2)
1.) No the sale and production of the bikes should not be discontinued. If they are discontinued the net operating income will take a loss of $11,000/quarter
Lost contribution margin
$(27,000)
Fixed costs that can be avoided:
Advertising, traceable
$ 6,000
Salary of the product line manager 10,000 16,000
Decrease in net operating income for the company as a whole
$(11,000)
2.)
Total
Dirt Bikes
M. Bikes
Racing Bikes
Sales
$300,000
$90,000
$150,000
$60,000
Variable manufacturing and selling expenses 120,000 27,000 60,000 33,000
Contribution margin 180,000 63,000 90,000 27,000
Traceable fixed expenses:
Advertising
30,000
10,000
14,000
6,000
Depreciation of special equipment
23,000
6,000
9,000
8,000
Salaries of the product line managers 35,000 12,000 13,000 10,000
Total traceable fixed expenses 88,000 28,000 36,000 24,000
Product line segment margin
92,000
$35,000
$ 54,000
$ 3,000
Common fixed expenses 60,000
Net operating income
$ 32,000
12-7)
A
B
C
Selling price after further processing
$20
$13
$32
Selling price at the split-off point 16 8 25
Incremental revenue per pound or gallon
$ 4
$ 5
$ 7
Total quarterly output in pounds or gallons
×15,000
×20,000
×4,000
Total incremental revenue
$60,000
$100,000
$28,000
Total incremental processing costs 63,000 80,000 36,000
Total incremental profit or loss
$(3,000)
$ 20,000
$(8,000)
B should be further processed
E12-9)
1.
Per Unit
15,000 Units
Incremental sales
$14.00
$210,000
Incremental costs:
Direct materials
5.10
76,500
Direct labor
3.80
57,000
Variable manufacturing overhead
1.00
15,000
Variable selling and administrative 1.50 22,500
Total incremental costs 11.40 171,000
Incremental profits
$ 2.60
$ 39,000
Profits will increase by $39,000
2. The only relevant cost is the variable selling and administrative costs of $1.50. The fixed costs are not relevant