Ex 1-30

Betty’s Fashions, City Division

Divisional Income Statement
Differential Revenues and Costs
For the Year Ending January 31

Sales revenue $ 8,600,000 differential

Costs
Advertising 350,000.00 differential
Cost of goods sold 4,300,000.00 differential
Divisional administrative salaries 580,000.00 differential
Selling costs (sales commissions) 1,160,000.00 differential
Rent 1,470,000.00 differential
Share of corporate administration –0– not differential
Total costs $ 7,860,000
Net differential gain before income tax $ 740,000
Tax expense at 40% rate 296,000.00 differential
Net differential gain from store $ 444,000

Ex 1-31
State University Business School
Degree Income Statement
Differential Revenues and Costs
For the Academic Year Ending June 30

Revenue $ 6,000,000 differential

Costs
Advertising – BBA program 225,000.00 differential
Faculty salaries 3,060,000.00 differential
Degree operating costs 390,000.00 differential
Building maintenance 555,000.00 differential
Classroom costs 1,275,000.00 differential
Allocated school administration costs –0– not differential
Total costs $ 5,505,000
Net differential gain from BBA program $ 495,000

Ex 1-32
State University Business School
Degree Income Statement
Differential Revenues and Costs
For the Academic Year Ending June 30
Revenue 12,000,000.00
Costs
Advertising – BBA program 900,000.00
Faculty salaries 6,120,000.00
Degree operating costs 585,000.00
Building maintenance 555,000.00
Classroom costs 1,275,000.00
Classroom rental 300,000.00
Differential school administration costs 30,000.00
Total costs 9,765,000.00
Net differential gain from BBA program 2,235,000.00

Ex 1-33

PR 1-42
PR 1-48

PR 1-50
PR 2-58
a. Prime costs = DM + DL 217,500.00
DM = beg. Inventory + purchases - ending inventory 121,500.00

b. Conversion costs = DL + Manufacturing overhead 222,000.00

c. Total mfg costs = DM + DL + mfg overhead 343,500.00

d. Cost of goods manufactured = Beg. WIP + Total mfg costs - ending WIP

e. Cost of goods sold = cost of goods mfd + beg FG - End FG 336,000.00

PR 2-60
1. variable mfg cost per unit = mfg overhead + DL + DM 217.00

2. full unit cost = all unit fixed costs + all unit variable costs 362.00
fx mfg 56
fx mktg & admin 75

3. variable cost = all variable costs 231.00

4. full absorption cost = fx and variable mfg overhead + DL + DM 273.00

5. Prime cost = DL + DM 147.00

6. Conversion cost = DL + mfg overhead 161.00

7. Profit margin = Sales price - Full cost 86.00

8. Contribution margin = Sales price - variable cost 217.00

9. Gross margin = Sales price - Full absorption cost 175.00

PR 2-62
Mesa Designs
Statement of Cost of Goods Sold
For the year ended December 31
($000)
Work in process, Jan 1 152.00
Manufacturing costs:
 Direct materials:
Beg. Inventory, Jan 1 96.00
Add materials purchases 10,300.00
Direct materials available 10,396.00
Less ending inventory 110.00
Direct materials used 10,286.00
Direct labor 13,000.00
Manufacturing overhead:
Depreciation (factory) 5,560.00
Depreciation (machines) 9,240.00
Indirect labor (factory) 3,340.00
Indirect materials (factory) 960.00
Property taxes 370.00
Utilities 1,060.00
Total manufacturing overhead 20,530.00
Total manufacturing costs 43,816.00
Total cost of work in process during the year 43,968.00
Less work in process, Dec 31 136.00
Costs of goods manufactured during the year 43,832.00
Beginning finished goods, Jan 1 1,974.00
Finished goods available for sale 45,806.00
Less ending Finished goods inventory, Dec 31 2,026.00
Cost of goods sold 43,780.00

Mesa Designs
Income Statement
For the year ended December 31
($000)

Sales revenue 60,220.00

Less: Cost of goods sold 43,780.00
Gross margin 16,440.00
Administrative costs 4,200.00
Selling costs 2,140.00
Total selling and administrative costs 6,340.00
Operating profit 10,100.00

PR 2-67
A1 Corporate Government Total
Direct cost 500,000.00 2,000,000.00 2,500,000.00
Percentage 20% 80% 100%
Allocation of indirect cost 900,000.00 3,600,000.00 4,500,000.00

A2
Direct cost 2,000,000.00
Allocated indirect cost 3,600,000.00
total cost 5,600,000.00
Fixed fee 1,200,000.00 840,000.00
Total revenue 1,200,000.00 6,440,000.00 7,640,000.00

B1
Direct contact hours 1,000.00 2,000.00 3,000.00
percentage 33.33% 66.67% 100.00%
Allocation of indirect cost 1,500,000.00 3,000,000.00 4,500,000.00

B2
Direct cost 2,000,000.00
Allocated indirect cost 3,000,000.00
Total cost 5,000,000.00
Fixed fee 1,200,000.00 750,000.00
Total revenue 1,200,000.00 5,750,000.00 6,950,000.00

PR 2-71
a rate is 20% above the average cost of collection:
total cost of collection 2,000,000.00
total waste collected (tons) 16,000.00 x 2,000 32,000,000.00
average cost per pound 0.0625 per pound
price per pound 0.075

b First, allocate costs to the cost objects: households and businesses

allocation of administrative and truck costs:
Total costs 1,680,000.00
number of customers 15,000.00
allocated cost per customer 112.00

allocation of other collection costs:

total costs 320,000.00
total waste collected (tons) 16,000.00
allocated cost per ton of wast 20.00
 households businesses
allocation of customer cost
allocation per customer 112.00 112.00
number of customers 12,000.00 3,000.00
allocated cost 1,344,000.00 336,000.00
allocation of other costs:
allocated cost per ton 20.00 20.00
number of tons 4,000.00 12,000.00
allocated cost 80,000.00 240,000.00

total allocated cost 1,424,000.00 576,000.00

total number of tons 4,000.00 12,000.00
number of pounds 8,000,000.00 24,000,000.00
average allocated cost per lb 0.1780 0.0240
price (average cost x 1.20) 0.2136 0.0288
345,000.00
pounds
PR 3-48
a current profit 200,000.00
variable cost labor + materials + overhead
8.63 labor
4.13 materials
4.50 overhead
17.25 new variable cost per unit
PRICE 33.00 new price
Fx cost 735,000.00 new FC
Sales 200,000.00 profit target
Profit = (P-V)X-F
200000 = (33 - 17.25)X - 735000
X= 935000 / (33 - 17.25)
X= 59,365
Sales 1,959,045.00

b profit target = 200,000 x 106% 212,000.00

Profit = (P-V)X-F
212000 = (33 - 17.25)X - 735000
X= 947000 / (33 - 17.25)
X= 60,127
Sales 1,984,191.00

c Profit = PX - VX - F
212000 = P(60000) - (17.25 x 60,000) - 735,000
P = 1,982,000 / 60,000
P = 33.03 or a 10.1% increase

PR 3-50
a Profit = Revenue - Costs
Profit = 150,000 x Price - Costs
600,000 = 150,000 P - 630,000
150,000P = 1,230,000.00
P= 8.20

b Profit = Revenue - Costs

0.20 Revenues = (P - V) X - F
0.20 Revenues = Revenues - 0.6Revenues - 225,000
0.20 Revenues = 225,000
Revenues = 1,125,000.00

c 125000 units
PR3-53
a Profit = (P-V)X-F
Profit = (800-480) X - 160,000
X= 160,000 / 320
X= 500.00 students

b Profit = (800-480) X - 160,000

80,000 = (800-480) X - 160,000
X 240,000 / 320 BEP = FC + target profit / UCM
X= 750.00 students

c1 Profit = (800-480) 800 students - 160,000

96,000.00

c2 10% price decrease; New P = 720

Profit = (720-480) x 800 students - 160,000
32,000.00

20% price increase; New P = 960

Profit = (960-480) x 800 students - 160,000
224,000.00

c3 10% variable cost decrease ; New V = 432

Profit = (800-432) x 800 students - 160,000
134,400.00

20% variable cost increase ; New V = 576

Profit = (800-576) x 800 students - 160,000
19,200.00

c4 10% FC decrease, 10% VC increase

FC 144,000.00 VC 528.00

Profit = (800-528) x 800 students - 144,000

73,600.00

PR3-54
a Profit = (P-V)X-f

1. unit rate = (40-20-4) X - 200,000

0= (40-24) X - 200,000
 X= 12,500.00 parts

2. flat-rate = (40-20) X - (200,000 + 60,000)

0= (40-20) X - 260,000
X 13,000.00 parts

b Profit (unit-rate lease) = Profit (flat-rate lease)

(40-20-4) X - 200,000 = (40-20) X - (200,000 + 60,000)
16X - 200,000 = 20X - 260,000
4X = 60,000
X= 15,000.00 parts

c operating leverage = CM / operating profit

1. unit-rate lease = [(40-20-4) X] / [(40-20-4) X - 200,000]
(16 x 20,000) / [(16 x 20,000) - 200000]
320,000 / 120,000
2.67

2. flat-rate lease = [(40-20) X] / [(40-20 X) - (200,000 + 60,000)]

20 x 20,000 / [(20 x 20,000) - 260,000]
400,000 / 140000
2.86

d margin of safety % = (actual sales - break-even sales) / actual sales

1. unit-rate lease = (20,000 units - 12,500 units) / 20,000 units
37.5%

2. flat-rate lease = (20,000 - 13,000) / 20,000

35%
PR 3-56
a 1 lane 5,500.00 meals
2 lanes 6,500.00 meals
3 lanes 8,750.00 meals

b 1 lane (10-4) x 5,000 meals - 33,000 (3,000.00) loss

2 lanes (10-4) x 8,000 meals - 39,000 9,000.00 profit
3 lanes (10-4) x 10,000 meals - 52,500 7,500.00 profit

PR3-59
a 48 passengers

b [FC + target profit / (1-tx)] / ucm 3,510 = [(240-60)X-8640](1-.25)

 74 passengers 3,510 = (180X-8640)(0.75)
3,510/.75 =180X-8640
after-tax proifts = [(P - V) X - F (1-t) 4,680+8640 = 180X
180X = 13,320
PR3-62 X = 13320/180 74.00
a Sales 10,000,000.00
Variable costs 4,125,000.00
Contribution margin 5,875,000.00
Fixed costs 1,500,000.00
Before tax profit 4,375,000.00
Tax (35% x 4375000) 1,531,250.00
After tax profit 2,843,750.00

b 6383 units

c Sales 11,200,000.00
Variable costs 4,620,000.00
Contribution margin 6,580,000.00
Fixed costs 1,800,000.00
Before tax profit 4,780,000.00
Tax (35% x 4780000) 1,673,000.00
After tax profit 3,107,000.00

d bep units 7,659.57 7660 units rounded

sales 3,064,000.00

e Target volume in units = FC + (TP / (1-t) / UCM

26,276.60 26,277 units rounded
Sales dollars 10,510,800.00

f Sales 11,200,000.00
Variable costs 4,620,000.00
Contribution margin 6,580,000.00
Advertising costs 3,926,153.85 ?
Other costs 1,500,000.00
Before tax profit 1,153,846.15
Tax (35% x 1153,846.15) 403,846.15
After tax profit 750,000.00

PR3-64 AU NZ
a 60,0000 x 160 40,000 x 160 16,000,000.00 PX
60,000 x 60 40000 x 80 6,800,000.00 VX
6,000,000.00 3,200,000.00 9,200,000.00 (P-V)X
2,208,000.00 F
6,992,000.00 Profit

b Weighted average CM
Weights: AU = 60,000 / (60,000 + 40000) = 0.60
NZ = 40,000 / (60000 + 40,000) 0.40

Weighted average CM = 0.6 x 100 + .4 x 80 92.00

BEP 24,000.00 units

AU = .60 x 24,000 14,400.00 units

NZ = .40 x 24,000 9,600.00 units

Profit = (P-V) X - F
0 = 92X - 2,208,000
92X = 2,208,000 X = 24,000 units 24,000.00

c new weights: AU = .80; NZ = .20

weighted average CM .80 x 100 + .20 x 80

96.00
BEP 23,000.00 units

AU = .80 x 23,000 18,400.00 units

NZ = .20 x 23,000 4,600.00 units
23,000.00 units

PR 3-68
a Basic Retest Vital Total
Revenue 425,000.00 80,000.00 200,000.00 705,000.00
Variable costs 102,000.00 40,000.00 140,000.00 282,000.00
Contribution margin 323,000.00 40,000.00 60,000.00 423,000.00
Fixed cost 390,000.00
Profit before taxes 33,000.00
Income tax (40%) 13,200.00
Profit after tax 19,800.00

b Weights SP per test VC per test CM per test

 Basic 0.85 500.00 120.00 380.00
Retest 0.10 800.00 400.00 400.00
Vital 0.05 4,000.00 2,800.00 1,200.00

Weighted average revenue 705.00

Weighted average CM 423.00
Weighted average CM % 60%

break-even revenue: FC / Weighted average CM % 650,000.00

c after-tax income = 180000

Before tax income = 180000 / (1-.40)
300,000.00

Required revenue = (FC + Required profit) / Weighted average CM %

(390,000 + 300,000) / 60%
1,150,000.00

d Basic Retest Vital Total

Revenue 50,000.00 320,000.00 800,000.00 1,170,000.00
Variable costs 12,000.00 160,000.00 560,000.00 732,000.00
Contribution margin 38,000.00 160,000.00 240,000.00 438,000.00
Fixed cost 420,000.00
Profit before taxes 18,000.00
Income tax (40%) 7,200.00
Profit after tax 10,800.00
144,000.00
passengers