Q42PGB - Horngren'S Financial And Managerial Accounting

Question

The budgets of four companies yield the following information: 

                                                                                        Company 

                                                                              Blue         Red          Green         Yellow                

 Net Sales Revenue                                     \( 1,900,000    \) (d)         \( 1,500,000    \) (j)                           Variable Costs                                                    (a)             47,250            1,050,000  256,200                        Fixed Costs                                                 (b)           168,000       159,000        (k)                           Operating Income (Loss)                                  298,500          (e)                (g)         97,800 

Units Sold                                                         190,000         9,000              (h)           (l) Contribution         Margin per Unit                                                  \( 3.00           \) (f)            \( 75.00   \) 18.00 

Contribution Margin Ratio                                       (c)                80%              (i)             30% 

Requirements 

1. Fill in the blanks for each missing value. (Round the contribution margin per unit to the nearest cent.) 

2. Which company has the lowest breakeven point in sales dollars? 

3. What causes the low breakeven point?  

 

Step-by-Step Solution

Answer

 

 (1) (a) $1,330,000

(b) 271,500

(c) 30%

(d) $236,250

(e) $21,000

(f) $21

(g) $291,000

(h) 6,000

(i) 30%

(j) $366,000

(k) $12,000

(l) 6,100

(2)Yellow has the lowest breakeven point that is $40,000.

(3) Low contribution margin ratio and sales.

Step 1: Calculation of (a), (b), (c)

 

Net sales revenue	$1,900,000
Variable costs ($1,900,000 / 190,000)-$3 ) x 190,000	(a)$1,330,000
Fixed costs ($1,900,000 - $1,330,000-$298,500)	(b)$271,500
Operating income (Loss)	$298,500
Units sold	190,000
Contribution margin per unit	$3
Contribution margin ratio ($3 / ($1,900,000 / 190,000)	(c)30%

Step 2: Calculation of (d), (e), (f)

 

Net sales revenue ($47,250 / (1-80%))	(d)$236,250
Variable costs	$47,250
Fixed costs	$168,000
Operating income (Loss) ($236,250 -$47,250-$168,000)	(e) $21,000
Units sold	9,000
Contribution margin per unit ($236,250/9,000) x 80%	(f)$21
Contribution margin ratio	80%

 

Step 3: Calculation of (g), (h), (i)

 

Net sales revenue	$1,500,000
Variable costs	$1,050,000
Fixed costs	$159,000
Operating income (Loss) ($1,500,000-$1,050,000-$159,000)	(g) $291,000
Units sold ($1,500,000-$1,050,000) / 75	(h) 6,000
Contribution margin per unit	$75
Contribution margin ratio	(i)30%

 

Step 4: Calculation of (j), (k), (l)

 

Net sales revenue ($256,200 / (1-30%)	(j)$366,000
Variable costs	$256,200
Fixed costs ($366,000 - $256,200 - $97,800)	(k)$12,000
Operating income (Loss)	$97,800
Units sold ($366,000 - $256,200) / $18	(l)6,100
Contribution margin per unit	$18
Contribution margin ratio	30%

Step 5: Calculation of breakeven sales in dollars

$$\begin{gathered} \mathbf{Breakevensales}\mathbf{\left(}\mathbf{Blue}\mathbf{\right)}\mathbf{=}\frac{\mathbf{Fixedcosts}}{\mathbf{Contributionmarginratio}} \\ \mathbf{=}\frac{\mathbf{\$}271,500}{\mathbf{30}\mathbf{\%}} \\ \mathbf{=}\mathbf{\$}905,000 \end{gathered}$$

$$\begin{gathered} \mathbf{Breakevensales}\mathbf{\left(}\mathbf{Red}\mathbf{\right)}\mathbf{=}\frac{\mathbf{Fixedcosts}}{\mathbf{Contributionmarginratio}} \\ \mathbf{=}\frac{\mathbf{\$}\mathbf{168}\mathbf{,}\mathbf{000}}{\mathbf{80}\mathbf{\%}} \\ \mathbf{=}\mathbf{\$}\mathbf{210}\mathbf{,}\mathbf{000} \end{gathered}$$

$$\begin{gathered} \mathbf{Breakevensales}\mathbf{\left(}\mathbf{Green}\mathbf{\right)}\mathbf{=}\frac{\mathbf{Fixedcosts}}{\mathbf{Contributionmarginratio}} \\ \mathbf{=}\frac{\mathbf{\$}\mathbf{159}\mathbf{,}\mathbf{000}}{\mathbf{30}\mathbf{\%}} \\ \mathbf{=}\mathbf{\$}\mathbf{530}\mathbf{,}\mathbf{000} \end{gathered}$$

$$\begin{gathered} \mathbf{Breakevensales}\mathbf{\left(}\mathbf{Yellow}\mathbf{\right)}\mathbf{=}\frac{\mathbf{Fixedcosts}}{\mathbf{Contributionmarginratio}} \\ \mathbf{=}\frac{\mathbf{\$}\mathbf{12}\mathbf{,}\mathbf{000}}{\mathbf{30}\mathbf{\%}} \\ \mathbf{=}\mathbf{\$}\mathbf{40}\mathbf{,}\mathbf{000} \end{gathered}$$

Step 6: Cause of low breakeven point

Low contribution margin causes the low breakeven point. Yellow has the lowest contribution margin ratio that is why it has the lowest breakeven point.