CHAPTER 1 Managerial Accounting and Cost Concepts ___________________________________________________________________________________ ______ Costs are split into two groups: Manufacturing Costs Nonmanufacturing Costs Manufacturing Costs: Direct Materials - Materials that go into the final product Direct Labor - Labor costs that can be traced into parts of the product Manufacturing Overhead - all manufacturing costs except direct materials/labor ‚ such as Indirect Materials‚ Indirect Labor
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Relationships Solutions to Questions 6-1 The contribution margin (CM) ratio is the ratio of the total contribution margin to total sales revenue. It can be used in a variety of ways. For example‚ the change in total contribution margin from a given change in total sales revenue can be estimated by multiplying the change in total sales revenue by the CM ratio. If fixed costs do not change‚ then a dollar increase in contribution margin will result in a dollar increase in net operating income
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Perceptual Map Situation Analysis The Situation Analysis will help your company understand current market conditions and how the industry will evolve over the next eight years. The analysis can be done as a group or you can assign parts to individuals and then report back to the rest of the company. An online version of the Situation Analysis is available in the Getting Started area. (customers want better performing products) and for size is -0.7 (customers want smaller products). At the end of
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contributed $4‚348 to fixed costs * 115 students are the breakeven point 3. The current Abbington’s programs enrollment is exactly at breakeven‚ so Mr. Thomas encourages the program directors to expand the size of their programs to increase margin. However‚ they come up with three concerns about expanding programs: - Infants and Toddlers Program has reached its current maximum capacity of 50 students - Preschool Program could add another 10 students‚ but would need to hire another
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statements for E-company utilizing both variable (contribution margin) and traditional (absorption margin) methods. I will also show E-company’s computed contribution margin ratio‚ gross profit ratio and operating (net) income ratios‚ as well as explain the difference and reconcile operating income for the two methods. Additionally‚ I will discuss which method I would recommend to the CFO and why. INCOME STATEMENTS: Variable Costing Contribution Statement Sales: $10‚005‚000
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customers might react to the lower price offered to the discount store. 7-19 (a) Superstore faces a problem of maximizing contribution margin per unit of scarce resource. Here‚ the scarce resource is shelf space. Superstore requires at least 24 square feet for each category. The store manager should assign additional space to the category with the highest contribution margin per square foot. | |Ice Cream |Juices |Frozen
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receiving the revenue. Break-even analysis calculates what is known as a margin of safety‚ the amount that revenues exceed the break-even point. This is the amount that revenues can fall while still staying above the break-even point. Break Even Point: An analysis to determine the point at which revenue received equals the costs associated with receiving the revenue. Break-even analysis calculates what is known as a margin of safety‚ the amount that revenues exceed the break-even point. This is
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is the range of activity for which estimates of costs are likely to be accurate. 8. The contribution margin is equal to the selling price minus variable cost. The contribution margin ratio is the contribution margin per dollar of sales‚ i.e.‚ the contribution margin per unit divided by the sales price per unit. 9. It would not be appropriate to focus on weighted average contribution margin per unit if the units were dissimilar (e.g.‚ pencils and computers at an office supply warehouse)
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CHAPTER 8 Cost-Volume-Profit Analysis ANSWERS TO REVIEW QUESTIONS 8-1 a. In the contribution-margin approach‚ the break-even point in units is calculated using the following formula: Break-even point = fixed expenses unit contribution margin b. In the equation approach‚ the following profit equation is used: sales volume ⎞ ⎛ unit variable sales volume ⎞ ⎛ unit fixed ⎜ ⎟ −⎜ ⎟ − ⎜ sales price × ⎟ ⎜ expense × ⎟ expenses = 0 in units ⎠ ⎝ in units ⎠ ⎝ This equation is solved for the sales volume in
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mix can affect profits because different products have different profit margins‚ this can cause a change the sales mix and can have a impact on profits‚ even when total revenues are unchanged. Based on theses formulas‚ when the unit selling price increases the contribution margin per unit causes the net income to be increased. The following will illustrate how the increase in the unit price can affect the contribution margin. Table 1 Ambonica hairbows CVP Income Statement Month Ending December
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