# Expert Answer:Week2 Wilmington University Managerial accounting

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Question 1
Mauro Products distributes a single product, a woven basket whose selling
price is \$21 per unit and whose variable expense is \$16 per unit. The
company’s monthly fixed expense is \$5,500.
Required:
1. Calculate the company’s break-even point in unit sales.
2. Calculate the company’s break-even point in dollar sales. (Do not round
intermediate calculations.)
3. If the company’s fixed expenses increase by \$600, what would become the
new break-even point in unit sales? In dollar sales? (Do not round
intermediate calculations.)
1. Break-even point in unit sales
2. Break-even point in dollar sales
3. Break-even point in unit sales
Break-even point in dollar sales
Question 2
Miller Company’s contribution format income statement for the most recent
month is shown below:
Total
Sales (32,000 units) \$320,000
Variable expenses
224,000
Contribution margin
96,000
Per Unit
\$10.00
7.00
\$ 3.00
Fixed expenses
43,000
Net operating income \$ 53,000
Required:
(Consider each case independently):
1. What is the revised net operating income if unit sales increase by 11%?
2. What is the revised net operating income if the selling price decreases by
\$1.10 per unit and the number of units sold increases by 22%?
3. What is the revised net operating income if the selling price increases by
\$1.10 per unit, fixed expenses increase by \$10,000, and the number of units
sold decreases by 4%?
4. What is the revised net operating income if the selling price per unit
increases by 20%, variable expenses increase by 20 cents per unit, and the
number of units sold decreases by 13%?
1. Net operating income
2. Net operating income
3. Net operating income
4. Net operating income
Question 3 – 7 requirements
Due to erratic sales of its sole product—a high-capacity battery for laptop computers—PEM,
Inc., has been experiencing financial difficulty for some time. The company’s contribution
format income statement for the most recent month is given below:
Sales (13,400 units × \$30 per
unit)
Variable expenses
Contribution margin
Fixed expenses
Net operating loss
\$402,000
241,200
160,800
178,800
\$(18,000)
Required:
1. Compute the company’s CM ratio and its break-even point in unit sales and dollar sales.
2. The president believes that a \$6,000 increase in the monthly advertising budget, combined
with an intensified effort by the sales staff, will result in an \$81,000 increase in monthly sales. If
the president is right, what will be the increase (decrease) in the company’s monthly net
operating income?
3. Refer to the original data. The sales manager is convinced that a 10% reduction in the selling
price, combined with an increase of \$40,000 in the monthly advertising budget, will double unit
sales. If the sales manager is right, what will be the revised net operating income (loss)?
4. Refer to the original data. The Marketing Department thinks that a fancy new package for the
laptop computer battery would grow sales. The new package would increase packaging costs by
0.40 cents per unit. Assuming no other changes, how many units would have to be sold each
month to attain a target profit of \$4,300?
5. Refer to the original data. By automating, the company could reduce variable expenses by \$3
per unit. However, fixed expenses would increase by \$57,000 each month.
a. Compute the new CM ratio and the new break-even point in unit sales and dollar sales.
b. Assume that the company expects to sell 20,700 units next month. Prepare two contribution
format income statements, one assuming that operations are not automated and one assuming
that they are. (Show data on a per unit and percentage basis, as well as in total, for each
alternative.)
c. Would you recommend that the company automate its operations (Assuming that the
company expects to sell 20,700)?
Requirement 1
Compute the company’s CM ratio and its break-even point in unit sales and dollar sales. (Do not
round intermediate calculations.)
CM ratio
%
Break-even point in unit sales
Break-even point in dollar sales
Requirement 2
The president believes that a \$6,000 increase in the monthly advertising budget, combined
with an intensified effort by the sales staff, will result in an \$81,000 increase in monthly
sales. If the president is right, what will be the increase (decrease) in the company’s
monthly net operating income? (Do not round intermediate calculations.)
Increases/decreases
by
Requirement 3
Refer to the original data. The sales manager is convinced that a 10% reduction in the
selling price, combined with an increase of \$40,000 in the monthly advertising budget, will
double unit sales. If the sales manager is right, what will be the revised net operating
income (loss)? (Losses should be entered as a negative value.)
Revised net operating income (loss)
Requirement 4
Refer to the original data. The Marketing Department thinks that a fancy new package for
the laptop computer battery would grow sales. The new package would increase packaging
costs by 40 cents per unit. Assuming no other changes, how many units would have to be
sold each month to attain a target profit of \$4,300? (Do not round intermediate calculations.
Round final answer to the nearest whole unit.)
Show less
Unit sales to attain target profit
Requirement 5
Refer to the original data. By automating, the company could reduce variable expenses by
\$3 per unit. However, fixed expenses would increase by \$57,000 each month. Compute the
new CM ratio and the new break-even point in unit sales and dollar sales. (Round “CM ratio”
to the nearest whole percent and other answers to the nearest whole number.)
CM ratio
Break-even point in unit sales
%
Break-even point in dollar sales
Requirement 6
Refer to the original data. By automating, the company could reduce variable expenses by
\$3 per unit. However, fixed expenses would increase by \$57,000 each month. Assume that
the company expects to sell 20,700 units next month. Prepare two contribution format
income statements, one assuming that operations are not automated and one assuming
that they are. (Show data on a per unit and percentage basis, as well as in total, for each
to the nearest whole number.)
Show less
PEM, Inc.
Contribution Income Statement
Not Automated
Total
Per Unit
Automated
%
Total
Per Unit
%
%
%
%
%
%
%
Requirement 7
Refer to the original data. By automating, the company could reduce variable expenses by
\$3 per unit. However, fixed expenses would increase by \$57,000 each month. Would you
recommend that the company automate its operations (Assuming that the
company expects to sell 20,700)?
Yes
No
Question 4 – 8 requirements
Toxaway Company is a merchandiser that segments its business into two
divisions—Commercial and Residential. The company’s accounting intern was
asked to prepare segmented income statements that the company’s divisional
managers could use to calculate their break-even points and make decisions.
She took the prior month’s companywide income statement and prepared the
absorption format segmented income statement shown below:
Sales
Cost of goods sold
Gross margin
expenses
Net operating income
Total
Company CommercialResidential
\$1,035,000 \$ 345,000 \$ 690,000
676,200
179,400
496,800
358,800
165,600
193,200
316,000
\$
42,800 \$
142,000
23,600 \$
174,000
19,200
In preparing these statements, the intern determined that Toxaway’s only
variable selling and administrative expense is a 10% sales commission on all
sales. The company’s total fixed expenses include \$58,500 of common fixed
expenses that would continue to be incurred even if the Commercial or
Residential segments are discontinued, \$88,000 of fixed expenses that would
be avoided if the Commericial segment is dropped, and \$66,000 of fixed
expenses that would be avoided if the Residential segment is dropped.
Required:
1. Do you agree with the intern’s decision to use an absorption format for her
segmented income statement?
2. Based on a review of the intern’s segmented income statement.
a. How much of the company’s common fixed expenses did she allocate to
the Commercial and Residential segments?
b. Which of the following three allocation bases did she most likely used to
allocate common fixed expenses to the Commercial and Residential
segments: (a) sales, (b) cost of goods sold, or (c) gross margin?
3. Do you agree with the intern’s decision to allocate the common fixed
expenses to the Commercial and Residential segments?
4. Redo the intern’s segmented income statement using the contribution
format.
5. Compute the companywide break-even point in dollar sales.
6. Compute the break-even point in dollar sales for the Commercial Division
and for the Residential Division.
7. Assume the company decided to pay its sales representatives in the
Commercial and Residential Divisions a total monthly salary of \$16,500 and
\$33,000, respectively, and to lower its companywide sales commission
percentage from 10% to 5%. Calculate the new break-even point in dollar
sales for the Commercial Division and the Residential Division.
Requirement 1
Do you agree with the intern’s decision to use an absorption format for her segmented
income statement?
Yes
No
Requirement 2
Based on a review of the intern’s segmented income statement, how much of the company’s
common fixed expenses did she allocate to the Commercial and Residential segments?
Commercial Residential
Common fixed
expenses
Requirement 3
Based on a review of the intern’s segmented income statement, which of the following three
allocation bases did she most likely used to allocate common fixed expenses to the
Commercial and Residential segments?
Sales
Cost of goods
sold
Gross margin
Requirement 4
Do you agree with the intern’s decision to allocate the common fixed expenses to the
Commercial and Residential segments?
Yes
No
Requirement 5
Redo the intern’s segmented income statement using the contribution format.
Toxaway Company
Income Statement
Total Company
Variable expenses:
Total variable expenses
Commercial Residential
Requirement 6
Compute the companywide break-even point in dollar sales. (Round intermediate
calculations to 3 decimal places and final answer to the nearest whole dollar amount.)
Break-even point
Requirement 7
Compute the break-even point in dollar sales for the Commercial Division and for the
Residential Division. (Round CM ratio to 2 decimal places and final answer to the nearest
whole dollar amount.)
Commercial Residential
Division
Division
Break-even
point
Requirement 8
Assume the company decided to pay its sales representatives in the Commercial and
Residential Divisions a total monthly salary of \$16,500 and \$33,000, respectively, and to
lower its companywide sales commission percentage from 10% to 5%. Calculate the new
break-even point in dollar sales for the Commercial Division and the Residential
Division. (Round CM ratio to 2 decimal places and final answers to the nearest whole dollar
amount.)
Show less
Commercial Residential
Division
Division
Break-even
point
Question 5 – 2 requirements
Ida Sidha Karya Company is a family-owned company located on the island of
Bali in Indonesia. The company produces a handcrafted Balinese musical
instrument called a gamelan that is similar to a xylophone. The gamelans are
sold for \$950. Selected data for the company’s operations last year follow:
Units in beginning inventory
Units produced
Units sold
Units in ending inventory
Variable costs per unit:
Direct materials
Direct labor
Variable selling and
Fixed costs:
0
270
235
35
\$
\$
\$
110
330
30
\$
20
\$81,000
\$22,000
The absorption costing income statement prepared by the company’s
accountant for last year appears below:
Sales
Cost of goods sold
Gross margin
expense
Net operating income
Required:
\$223,250
180,950
42,300
26,700
\$ 15,600
1. Under absorption costing, how much fixed manufacturing overhead cost is
included in the company’s inventory at the end of last year?
2. Prepare an income statement for last year using variable costing.
Requirement 1
Under absorption costing, how much fixed manufacturing overhead cost is included in the
company’s inventory at the end of last year?
Fixed manufacturing overhead cost included in inventory
Requirement 2
Prepare an income statement for last year using variable costing.
Ida Sidha Karya Company
Variable Costing Income Statement
Question 6 – 5 requirements
Walsh Company manufactures and sells one product. The following
information pertains to each of the company’s first two years of operations:
Variable costs per unit:
Manufacturing:
Direct materials
\$
29
Direct labor
\$
13
\$
5
\$
4
Fixed costs per year:
\$320,000
Fixed selling and administrative expenses\$ 60,000
During its first year of operations, Walsh produced 50,000 units and sold
40,000 units. During its second year of operations, it produced 40,000 units
and sold 50,000 units. The selling price of the company’s product is \$59 per
unit.
Required:
1. Assume the company uses variable costing:
a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2.
2. Assume the company uses absorption costing:
a. Compute the unit product cost for Year 1 and Year 2.
b. Prepare an income statement for Year 1 and Year 2.
3. Reconcile the difference between variable costing and absorption costing
net operating income in Year 1.
Requirement 1
ssume the company uses variable costing. Compute the unit product cost for year 1 and
year 2.
Year 1
Year 2
Unit product cost
Requirement 2
Assume the company uses variable costing. Prepare an income statement for Year 1 and
Year 2.
Walsh Company
Income Statement
Year 1
Year 2
Net operating income (loss)
Requirement 3
Assume the company uses absorption costing. Compute the unit product cost for Year 1 and
Year 1
Year 2
Unit product cost
Requirement 4
Assume the company uses absorption costing. Prepare an income statement for Year 1 and Year
2. (Round your intermediate calculations to 2 decimal places.)
Walsh Company
Income Statement
Year
1
Year 2
Requirement 5
Reconcile the difference between variable costing and absorption costing net operating
income in Year 1. (Enter any losses or deductions as a negative value.)
Year 1
Variable costing net operating income
(loss)
Year 2
Absorption costing net operating
income (loss)

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