Question

Chapter 4 CostVolumeProfit Relationships EXERCISE -13 Missing Data Base Cost-Volume-Profit Concepts ILOILO Fill in the missing amounts in each of the eight case situations below. Each case is independent of the other (Hint: One way to find the missing amounts is to prepare a contribution format income statement for each case enter the known data, and then compute the missing items) Asume that only one product is being sold in each of the following four case situations Variable Expenses Contribution Margin per Unii Fixed Expenses Operating Income (10) Case Sold Sales 15.000 $120,000 SIROXO SIKO S 50 $ 32,000 510 513 $ 70,000 10,000 O 58.000 $ 12,000 S(10,000) S100,000 S100,000 Assume that more than one product is being sold in each of the following four case situations Variable Expenses Average Contribution Margin (percentage) Fixed Expenses Operating Income (Loss) Case Sales 2014 $ 7.000 $500,000 $100.000 S2 $200,000 60 $100,000 $130,000 S000,000 $120,000 $20,000 $(5,000) EXERCISE 4-14 Break Even and Target Profit Analysis (1.03, L04, LOS, 106) Mentech Company is the exclusive distributor of a high-speed computer memory chip. The product wils for 50 per unit and has a CM ratio of 30%. The company's fixed expenses are $240.000 per year. Required:
Question #4-13

Question #4-12

Answer 1

According to the requirement, first we have to solve Question #4-13

Requirement a-: Assume that only one product is being sold in each of the following four Situations:

Case	Units Sold	Sales	Variable Expenses	Contribution Margin Per Unit	Fixed Expenses	Operating Income (Loss)
1.	15,000	$180,000	$120,000	$4 (Working Note)	$50,000	$10,000 (Working Note)
2.	4,000 (Working Note)	$100,000	$60,000 (Working Note)	$10	$32,000	$8,000
3.	10,000	$200,000 (Working Note)	$70,000	$13	$118,000 (Working Note)	$12,000
4.	6,000	$300,000	$210,000 (Working Note)	$15 (Working Note)	$100,000	$(10,000)

Working Note:-

Case 1. Calculation of Contribution Margin per unit.

Solution:- There is a formula to calculate contribution margin per unit i.e. Sales per unit - Variable cost per unit

Contribution margin per unit = $12 -$8 = $4 per unit

Sales = $180,000 / 15000 units = $12 per unit

Variable expenses = $120,000 / 15000 units = $8 per unit

# Calculation of Operating Income (loss).

Solution:- Sales - Variable Expenses = Contribution Margin - Fixed Expenses = Operating Income (Loss)

= $180,000 - $120,000 = $60,000 -$50,000 = $10,000 Operating Income

Case 2. Calculation of Variable Expenses.

Solution :- First of all, we have to find the Contribution Margin

Contribution Margin - Fixed Expenses = Operating income

Contribution Margin = Operating Income + Fixed Expenses

Contribution Margin = $8,000 + $32,000 = $40,000

Now, we have to calculate Variable Expenses

Sales - Variable Expenses = Contribution margin

$100,000 - Variable expenses = $40,000

Variable Expenses = $100,000 -$40,000 = $60,000

# Calculation of Units Sold.

Solution:- Contribution margin per unit $10 (given)

Contribution margin = $40,000

Units Sold = Contribution margin / Contribution margin per unit

Units sold = $40,000 / $10 = 4,000 units

Case 3. Calculation of Sales

Solution:- Sales per unit - Variable cost per unit = Contribution per unit

Sales per unit - ($70,000 / 10,000 units) = $13

Sales per unit = $13 + $7 = $20 per unit

Sales = Units * Selling price per unit

Sales = 10,000 * $20 = $200,000

# Calculation of Fixed Expenses

Solution:- Contribution Margin - Fixed Expenses = Operating income

$130,000 - Fixed Expenses = $12,000

Fixed Expenses = $130,000 -$12,000 = $118,000

Contribution Margin = Contribution margin per unit * Units sold

Contribution margin = $13 * 10,000 = $130,000

Case 4. Calculation of Contribution Margin per unit.

Solution:- Contribution Margin - Fixed Cost = Operating Loss

Contribution Margin - $100,000 = $(10,000)

Contribution Margin = $(10,000) + $100,000 = $90,000

Contribution Margin per unit = Contribution margin / Units Sold

Contribution Margin per unit = $90,000 / 6,000 = $15

# Calculation of Variable Expenses.

Solution :- Sales - Variable Expenses = Contribution Margin

= $300,000 - Variable Expenses = $90,000

Variable Expenses = $300,000 - $90,000 = $210,000

Requirement b-: Assume that more than one product is being sold in each of the following four case situation.

Case	Sales	Variable Expenses	Contribution Margin (Percentage)	Fixed Expenses	Operating Income (loss)
1.	$500,000	$400,000 (Working Note)	20%	$93,000 (Working Note)	$7,000
2.	$400,000	$260,000	35% (Working Note)	$100,000	$40,000 (Working Note)
3.	$250,000 (Working Note)	$100,000 (Working Note)	60%	$130,000	$20,000
4.	$600,000	$420,000	30%   (Working Note)	$185,000 (Working Note)	$(5,000)

Working Note :-

Case 1. Calculation of Variable Expenses.

Solution:- First of all we have to find the contribution margin.

Contribution margin (%) = Contribution margin / Sales *100%

Contribution Margin = Sales * Contribution Margin (%)

Contribution Margin = $500,000 * 20% = $100,000

Sales - Variable Expenses = Contribution Margin

$500,000 - Variable Expenses = $100,000

Variable Expenses = $500,000 - $100,000 = $400,000

# Calculation of Fixed Expenses.

Solution:- Contribution Margin - Fixed Expenses = Operating Income

$100,000 - Fixed Expense = $7,000

Fixed Expenses = $100,000- $7,000 = $93,000

Case 2. Calculation of Contribution margin (Percentage)

Solution:- Contribution margin = Sales - Variable Expenses

Contribution Margin = $400,000 - $260,000 = $140,000

Contribution Margin (%) = Contribution Margin / Sales * 100%

Contribution Margin (%) = $140,000 / $400,000 * 100% = 35%

# Calculation of Operating Income (loss).

Solution :- Contribution Margin - Fixed Expenses = Operating Income (Loss)

Operating Income = $140,000 - $100,000 = $40,000

Case 3. Calculation of Sales.

Solution :- First of all, we have to calculate Contribution Margin.

Contribution Margin - Fixed Cost = Operating Income

Contribution Margin = Operating Income + Fixed Expenses

Contribution Margin = $20,000 + $130,000 = $150,000

Contribution Margin (%) = Contribution Margin / Sales * 100 %

60% = $150,000 / Sales * 100 %

Sales = $150,000 / 60% = $250,000

# Calculation of Variable Expenses.

Solution :- Sales - Variable Expense = Contribution Margin

$250,000 - Variable Expenses = $150,000

Variable Expenses = $250,000 - $150,000 = $100,000

Case 4. Calculation of Contribution Margin (Percentage).

Solution :- First of all we have to calculate Contribution Margin.

Sales - Variable Expenses = Contribution Margin

Contribution Margin = $600,000 - $420,000 = $180,000

Contribution Margin (%) = Contribution margin / Sales * 100%

Contribution Margin (%) = $180,000 / $600,000 * 100 % = 30%

# Calculation of Fixed Expenses.

Solution :- Contribution Margin - Fixed Expenses = Operating Loss

$180,000 - Fixed Expenses = $(5,000)

Fixed Expenses = $180,000 + $ 5,000 = $185,000

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