Managerial Accounting

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Exercise 18-16
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Glacial Company estimates that variable costs will be60% of sales, and fixed costs will total $926,000. The selling price of the product is $5.
Compute the break-even point in (1) units and (2) dollars.

(1)Break-even sales.wileyplus.com/edugen/art2/common/pixel.gif”>units
(2)Break-even sales$.wileyplus.com/edugen/art2/common/pixel.gif”>

Compute the margin of safety in (1) dollars and (2) as a ratio, assuming actual sales are $2,930,380.(Round ratio to 0 decimal places, e.g. 20%.)

(1)Margin of safety$.wileyplus.com/edugen/art2/common/pixel.gif”>
(2)Margin of safety ratio.wileyplus.com/edugen/art2/common/pixel.gif”>%

Problem 18-1A
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Telly Savalas owns the Bonita Barber Shop. He employs6barbers and pays each a base rate of $1,300per month. One of the barbers serves as the manager and receives an extra $520per month. In addition to the base rate, each barber also receives a commission of $5.90per haircut.
Other costs are as follows.

Advertising$260per month
Rent$960per month
Barber supplies$0.40per haircut
Utilities$170per month plus $0.20per haircut
Magazines$20per month

Telly currently charges $11.70per haircut.

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Determine the variable cost per haircut and the total monthly fixed costs.(Round variable costs to 2 decimal places, e.g. 2.25.)

Total variable cost per haircut$.wileyplus.com/edugen/art2/common/pixel.gif”>
Total fixed$.wileyplus.com/edugen/art2/common/pixel.gif”>

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Compute the break-even point in units and dollars.(Round answers to 0 decimal places, e.g. 1,225.)

Break-even point.wileyplus.com/edugen/art2/common/pixel.gif”>haircuts
Break-even point$.wileyplus.com/edugen/art2/common/pixel.gif”>

LINK TO TEXTLINK TO VIDEO

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Determine net income, assuming2,370haircuts are given in a month.

Net income$.wileyplus.com/edugen/art2/common/pixel.gif”>

Problem 18-3A
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Dousmann Corp.’s sales slumped badly in 2014. For the first time in its history, it operated at a loss. The company’s income statement showed the following results from selling618,000units of product: sales $2,472,000; total costs and expenses $2,616,200; and net loss $144,200. Costs and expenses consisted of the amounts shown below.

TotalVariableFixed
Cost of goods sold$2,163,000$1,483,200$679,800
Selling expenses247,20074,160173,040
Administrative expenses206,00049,440156,560
$2,616,200$1,606,800$1,009,400

Management is considering the following independent alternatives for 2015.

1.Increase unit selling price24% with no change in costs, expenses, and sales volume.
2.Change the compensation of salespersons from fixed annual salaries totaling $154,500to total salaries of $61,800plus a6% commission on sales.

(a)Compute the break-even point in dollars for 2014.(Round final answer to 0 decimal places, e.g. 1,225.)

Break-even point$.wileyplus.com/edugen/art2/common/pixel.gif”>

(b)Compute the contribution margin under each of the alternative courses of action.(Round final answer to 0 decimal places, e.g. 1,225.)

Contribution margin for alternative 1.wileyplus.com/edugen/art2/common/pixel.gif”>%
Contribution margin for alternative 2.wileyplus.com/edugen/art2/common/pixel.gif”>%

Compute the break-even point in dollars under each of the alternative courses of action.(Round selling price per unit to 2 decimal places, e.g. 5.25 and other calculations to 0 decimal places, e.g. 20% and also final answer to 0 decimal places, e.g. 1,225.)

Break-even point for alternative 1$.wileyplus.com/edugen/art2/common/pixel.gif”>
Break-even point for alternative 2$.wileyplus.com/edugen/art2/common/pixel.gif”>

Which course of action do you recommend?.wileyplus.com/edugen/art2/common/pixel.gif”>Alternative 1Alternative 2

Exercise 18-9
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The Green Acres Inn is trying to determine its break-even point. The inn has 50 rooms that it rents at $75a night. Operating costs are as follows.

Salaries$8,547per month
Utilities$1,832per month
Depreciation$1,221per month
Maintenance$610per month
Maid service$9per room
Other costs$36per room

Determine the inn’s break-even point in (1) number of rented rooms per month and (2) dollars.

(1)Break-even point.wileyplus.com/edugen/art2/common/pixel.gif”>rooms
(2)Break-even point$.wileyplus.com/edugen/art2/common/pixel.gif”>

Exercise 18-11
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Kare Kars provides shuttle service between four hotels near a medical center and an international airport. Kare Kars uses two 10-passenger vans to offer 12 round trips per day. A recent month’s activity in the form of a cost-volume-profit income statement is shown below.

Fare revenues (1,400fares)$35,000
Variable costs
Fuel$6,300
Tolls and parking3,150
Maintenance1,05010,500
Contribution margin24,500
Fixed costs
Salaries12,495
Depreciation1,176
Insurance1,02914,700
Net income$9,800

(a)Calculate the break-even point in (1) dollars and (2) number of fares.

(1)Break-even point$.wileyplus.com/edugen/art2/common/pixel.gif”>
(2)Break-even point.wileyplus.com/edugen/art2/common/pixel.gif”>fares

(b)Without calculations, determine the contribution margin at the break-even point.

Contribution margin at the break-even point$.wileyplus.com/edugen/art2/common/pixel.gif”>

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