I need help with this managerial accounting. The problem is uploaded in a jpeg i
ID: 2421806 • Letter: I
Question
I need help with this managerial accounting. The problem is uploaded in a jpeg image file. I'm having trouble with both question 1 and 2 on all parts. The biggest trouble I'm having is what is considered to be variable selling expense, variable administrative expense, fixed selling expense and fixed administrative expense.
Chapter 3 Problem 2 Your Company Traditional Income Statement QTR 1 QTR 2 QTR 3 QTR 4 Units produced and sold Sales @$100 per unit 3,500 350,000 6,000 600,000 7,000 700,000 21,000 2,100,000 450,000 Cost of goods sold 140,000 180,000 240,000 280,000 840,000 Gross margin 210,000 270,000 360,000 420,000 1,260,000 Operating expenses 150,000 36,000 34,000 12,000 7,500 4,000 14,000 6,300 13,500 Salaries Commissions 150,000 21,000 21,500 12,000 7,500 4,000 9,000 3,800 8,500 150,000 Depreciation Insurance Taxes Utilities Office supplies 150,000 42,000 39,000 12,000 7,500 4,000 16,000 7,300 15,500 600,000 126,000 121,000 48,000 30,000 16,000 50,000 22,200 48,000 7,500 11,000 4,800 10,500 Total operating expenses 237,300 253,300 277,300 293,300 1,061,200 Operating income (27,300) 82,700 126,700 198,800 Instructions: 1. Using the above information prepare an income statement in the contribution format 2. Compute the: a. contrubution margin per unit b. contribution margin ratio c. breakeven point in units and dollars- show your formulas d. degree of operating leverage e. margin of safety as a percent and in dollars f. dollar sales and units required to increase operating income g, from your answer in item d, what would be the result of a 5% Decrease in Sales; a 5% increase in salesExplanation / Answer
The Format of income statement under contribution format is:
Sales XXXX
Less: Variable Cost (XXX)
Contribution XXX
Less : Fixed Cost (XXX)
Net income XXX
Now let us find out the what are the Variable Costs and Variable Costs and Semi Variable and formulate
Traditional Income Statement
Particulars
QTR1
%
QTR2
%
QTR3
%
QTR4
%
Total
%
Result
Sale Units
3,500
100
4,500
100
6,000
100
7,000
100
21,000
100
Sales
350,000
450,000
600,000
700,000
2,100,000
Less: COGS
140,000
40
180,000
40
240,000
40
280,000
40
840,000
40
Variable
Gross Profit
210,000
60
270,000
60
360,000
60
420,000
60
1,260,000
60
-
Operating Expenses
-
Salaries
150,000
150,000
150,000
150,000
600,000
Fixed
Commssions
21,000
6
27000
6
36,000
6
42,000
6
126,000
Variable
Delivery
21,500
6.142857
26,500
5.888889
34,000
5.666667
39,000
5.571429
121,000
5.761905
Semi Variable
Depreciation
12,000
12,000
12,000
12,000
48,000
Fixed
Insurance
7,500
7,500
7,500
7,500
30,000
Fixed
Taxes
4,000
4,000
4,000
4,000
16,000
Fixed
Utilities
9,000
2.571429
11,000
2.444444
14,000
2.333333
16,000
2.285714
50,000
Semi Variable
Office Supplies
3,800
1.085714
4,800
1.066667
6,300
1.05
7,300
1.042857
22,200
Semi Variable
Other
8,500
2.428571
10,500
2.333333
13,500
2.25
15,500
2.214286
48,000
Semi Variable
Total Operating Exp
237,300
253,300
277,300
293,300
1,061,200
Operating Income
(27,300)
16,700
82,700
126,700
198,800
Now Let us bifurcate the semi variable into variable and fixed
QTR 1= $ 21,500 for 3,500 units
QTR 2 = $ 26,500 for 4,500 units
Using High Low method=$26,500-$21,500/(4,500-3,500)=$5 per unit
Hence fixed cost = Total cost @ 3,500 units- Variable cost for 3,500 units
=$21,500-(3,500 x 5)
=$21,500-$17,500=$4,000
2. Utilities
QTR 1= $ 9,000 for 3,500 units
QTR 2 = $ 11,000 for 4,500 units
Using High Low method=$11,000-$9,000/(4,500-3,500)=$2 per unit
Hence fixed cost = Total cost @ 3,500 units- Variable cost for 3,500 units
=$9,000-(3,500 x 2)
=$9,000-$7,000=$2,000
3. Office Supplies
QTR 1= $ 3,800 for 3,500 units
QTR 2 = $ 4,800 for 4,500 units
Using High Low method=$4,800-$3,800/(4,500-3,500)=$1 per unit
Hence fixed cost = Total cost @ 3,500 units- Variable cost for 3,500 units
=$3,800-(3,500 x 1)
=$3,800-$3,500=$300
4. Other
QTR 1= $ 8,500 for 3,500 units
QTR 2 = $ 10,500 for 4,500 units
Using High Low method=$10,500-$8,500/(4,500-3,500)=$2 per unit
Hence fixed cost = Total cost @ 3,500 units- Variable cost for 3,500 units
=$8,500-(3,500 x 2)
=$8,500-$7,000=$1,500
Income Statement( Contribution Format)
Particulars
QTR1
QTR2
QTR3
QTR4
Total
Sale Units
3,500
4,500
6,000
7,000
21,000
Sales
350,000
450,000
600,000
700,000
2,100,000
Less: Variable Cost
COGS
140,000
180,000
240,000
280,000
840,000
Delivery @$5 per unit
17,500
22,500
30,000
35,000
105,000
Utilities @ $2 Per unit
7,000
9,000
12,000
14,000
42,000
Office Supplies @ $1 Per unit
3,500
4,500
6,000
7,000
21,000
Others @ $2 Per unit
7,000
9,000
12,000
14,000
42,000
Commssions
21,000
27,000
36,000
42,000
126,000
Total Variable Cost
196,000
252,000
336,000
392,000
1,176,000
Contribution
154,000
198,000
264,000
308,000
924,000
-
Less : Fixed Cost
-
Salaries
150,000
150,000
150,000
150,000
600,000
Delivery
4,000
4,000
4,000
4,000
16,000
Depreciation
12,000
12,000
12,000
12,000
48,000
Insurance
7,500
7,500
7,500
7,500
30,000
Taxes
4,000
4,000
4,000
4,000
16,000
Utilities
2,000
2,000
2,000
2,000
8,000
Office Supplies
300
300
300
300
1,200
Other
1,500
1,500
1,500
1,500
6,000
Total Fixed Cost
181,300
181,300
181,300
181,300
725,200
Operating Income
(27,300)
16,700
82,700
126,700
198,800
2.
a.Contribution Margin Per Unit= Total contribution/ No of units=$2,079,000 /21,000
=$44
B .Contribution Margin Ratio=$44/$100 x 100=44%
c. Break Even Point in units= Fixed cost/Contribution per unit=$725,200/$44=16,482 unitts
Break even Sales=Fixed cost/Contribution Margin Ratio=$725,200/44%=$ 1,648,181.82
d. Degree of Operating Leverage= Contribution/ Operating income =
=$ 924,000 /$ 198,800 =4.64788
e. Margin of Safety= Total sales- Break even sales=$ 2,100,000 - 1,648,181.82 =$ 451,818.18
f.Operating Income increase by 25%
i.e 198,800+ 25% of 198,800=$ 248,500
Desired sales in $= target profit+ fixed cost/ contribution margin ratio
= $248,500 + $ 725,200 /44%
= 973,700 /44$
=$ 2,212,954.55
Sales in units=$ 2,212,954.55 /100= 22,129.55 units
g.5 % decrease in sales=New Contribution / New operating Profit=
= 921,690 / 196,490=4.69077307
5% increase in sales= New Contribution / New operating Profit=
= 970,200 / 245,000 = 3.96
Traditional Income Statement
Particulars
QTR1
%
QTR2
%
QTR3
%
QTR4
%
Total
%
Result
Sale Units
3,500
100
4,500
100
6,000
100
7,000
100
21,000
100
Sales
350,000
450,000
600,000
700,000
2,100,000
Less: COGS
140,000
40
180,000
40
240,000
40
280,000
40
840,000
40
Variable
Gross Profit
210,000
60
270,000
60
360,000
60
420,000
60
1,260,000
60
-
Operating Expenses
-
Salaries
150,000
150,000
150,000
150,000
600,000
Fixed
Commssions
21,000
6
27000
6
36,000
6
42,000
6
126,000
Variable
Delivery
21,500
6.142857
26,500
5.888889
34,000
5.666667
39,000
5.571429
121,000
5.761905
Semi Variable
Depreciation
12,000
12,000
12,000
12,000
48,000
Fixed
Insurance
7,500
7,500
7,500
7,500
30,000
Fixed
Taxes
4,000
4,000
4,000
4,000
16,000
Fixed
Utilities
9,000
2.571429
11,000
2.444444
14,000
2.333333
16,000
2.285714
50,000
Semi Variable
Office Supplies
3,800
1.085714
4,800
1.066667
6,300
1.05
7,300
1.042857
22,200
Semi Variable
Other
8,500
2.428571
10,500
2.333333
13,500
2.25
15,500
2.214286
48,000
Semi Variable
Total Operating Exp
237,300
253,300
277,300
293,300
1,061,200
Operating Income
(27,300)
16,700
82,700
126,700
198,800