Questions and Answers on Managerial Accounting
Thomas Edison State College
Principles of Managerial Accounting (ACC-102)
Final Project
1. Cost-volume-profit relationships (15 points)
The following data are available for a product manufactured and sold by Logan Company:
Compute the following:
(a) Contribution margin per unit: $_______________
Solution: Computation of the Contribution margin per unit
Contribution margin per unit = Selling price per unit – Variable Cost per unit
Where as
Selling price per unit = 212
Variable Cost per unit =128
Contribution margin per unit = 212 – 128
Contribution margin per unit = $84
(b) Number of units that must be sold to break-even: _______________ units
Solution: Computation of the Number of units that must be sold to break-even
Break-even Point = Fixed cost / Contribution Margin
Fixed cost = 468000
Contribution Margin = 84
Break-even Point = 468000 / 84
Break-even Point = 5572
Hence the Break Even point in units 5572
(c) Dollar sales volume to produce income of $864,000 before taxes: $_______________
Solution: Computation of the Dollar sales volume
Break-even Point = (Fixed cost + Desired profit) / Contribution Margin
Fixed cost = 468000
Desired profit= 864000
Contribution Margin = 84
Break-even Point = (468000+864000) / 84
Break-even Point = 15857.14
Break-even Point in dollars = 15857.14*212
Break-even Point in dollars = $3,361,714
Hence the Break Even point in dollar $3,361,714
2. Incremental analysis (20 points)
Information regarding current operations of the Farrell Corporation is given below: A proposed addition to Farrell’s factory is estimated by the sales manager to increase sales by a maximum of $750,000. The company’s accountants have determined that the proposed addition will add $320,000 to fixed costs each year. Variable costs are expected to be at the same percentage as they currently are before the proposed addition.
(a) Explain why the existing $310,000 of fixed costs is a sunk cost while the $320,000 of fixed
Principles of Managerial Accounting (ACC-102)
Final Project
1. Cost-volume-profit relationships (15 points)
The following data are available for a product manufactured and sold by Logan Company:
Compute the following:
(a) Contribution margin per unit: $_______________
Solution: Computation of the Contribution margin per unit
Contribution margin per unit = Selling price per unit – Variable Cost per unit
Where as
Selling price per unit = 212
Variable Cost per unit =128
Contribution margin per unit = 212 – 128
Contribution margin per unit = $84
(b) Number of units that must be sold to break-even: _______________ units
Solution: Computation of the Number of units that must be sold to break-even
Break-even Point = Fixed cost / Contribution Margin
Fixed cost = 468000
Contribution Margin = 84
Break-even Point = 468000 / 84
Break-even Point = 5572
Hence the Break Even point in units 5572
(c) Dollar sales volume to produce income of $864,000 before taxes: $_______________
Solution: Computation of the Dollar sales volume
Break-even Point = (Fixed cost + Desired profit) / Contribution Margin
Fixed cost = 468000
Desired profit= 864000
Contribution Margin = 84
Break-even Point = (468000+864000) / 84
Break-even Point = 15857.14
Break-even Point in dollars = 15857.14*212
Break-even Point in dollars = $3,361,714
Hence the Break Even point in dollar $3,361,714
2. Incremental analysis (20 points)
Information regarding current operations of the Farrell Corporation is given below: A proposed addition to Farrell’s factory is estimated by the sales manager to increase sales by a maximum of $750,000. The company’s accountants have determined that the proposed addition will add $320,000 to fixed costs each year. Variable costs are expected to be at the same percentage as they currently are before the proposed addition.
(a) Explain why the existing $310,000 of fixed costs is a sunk cost while the $320,000 of fixed