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ACC 202: Managerial Accounting (4226_E0Z1)

Chapter 18

1.Required information

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[The following information applies to the questions displayed below.] Hudson Company reports the following contribution margin income statement.

HUDSON COMPANY
Contribution Margin Income Statement
For Year Ended December 31
Sales (11,200 units at $280 each)	$ 3,136,000
Variable costs (11,200 units at $210 each)	2,352,000
Contribution margin	784,000
Fixed costs	567,000
Income	$ 217,000

1. Compute break-even point in units. 2. Compute break-even point in sales dollars.

1. Break-even units ______units

2. Break-even sales dollars ______

Required information

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[The following information applies to the questions displayed below.] Hudson Company reports the following contribution margin income statement.

HUDSON COMPANY
Contribution Margin Income Statement
For Year Ended December 31
Sales (11,200 units at $280 each)	$ 3,136,000
Variable costs (11,200 units at $210 each)	2,352,000
Contribution margin	784,000
Fixed costs	567,000
Income	$ 217,000

1. Assume Hudson has a target income of $156,000. What amount of sales (in dollars) is needed to produce this target income? 2. If Hudson achieves its target income, what is its margin of safety (in percent)? (Round your answer to 1 decimal place.)

1. Amount of sales ______

2. Margin of safety _____ %

2. Sunn Company manufactures a single product that sells for $120 per unit and whose variable costs are $132 per unit. The companys annual fixed costs are $627,000. The sales manager predicts that next years annual sales of the companys product will be 39,700 units at a price of $197 per unit. Variable costs are predicted to increase to $137 per unit, but fixed costs will remain at $627,000. What amount of income can the company expect to earn under these predicted changes? Prepare a contribution margin income statement for the next year.

3.

The following costs result from the production and sale of 4,300 drum sets manufactured by Tight Drums Company for the year ended December 31. The drum sets sell for $280 each.

Variable costs
Plastic for casing	$ 98,900
Wages of assembly workers	378,400
Drum stands	137,600
Sales commissions	90,300
Fixed costs
Taxes on factory	13,000
Factory maintenance	26,000
Factory machinery depreciation	86,000
Lease of equipment for sales staff	26,000
Accounting staff salaries	76,000
Administrative salaries	156,000

Required: 1. Prepare a contribution margin income statement for the year. 2. Compute contribution margin per unit and contribution margin ratio. 3. For each dollar of sales, how much is left to cover fixed costs and contribute to income?

Prepare a contribution margin income statement for the year.

	TIGHT DRUMS COMPANY Contribution Margin Income Statement For Year Ended December 31 Sales Variable costs: Contribution margin Fixed costs Income

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Required 1

Required 2

Required 3

Compute contribution margin per unit and contribution margin ratio. (Round Contribution margin ratio to nearest whole percentage.)

	TIGHT DRUMS COMPANY Contribution Margin Income Statement (partial) For Year Ended December 31 Per Unit Sales Variable costs: Total variable costs Contribution margin

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Required 3

For each dollar of sales, how much is left to cover fixed costs and contribute to income? (Round your answer to 2 decimal places.)

	For each dollar of sales, how much is left to cover fixed costs and contribute to income?

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