Chapter 18: Problem Set B

These problems involve a range of financial and cost accounting methods, from using the high-low method for cost estimation to creating contribution margin income statements, break-even analyses, and assessing alternative strategies for cost and income impacts. Here’s a structured guide to approaching each problem in this set: Problem 18-1B: Cost Estimation Using High-Low Method 1. Estimate Variable and Fixed Costs Using High-Low Method: o Variable Cost per Unit: Identify the highest and lowest activity levels (units) with their associated costs and use the formula: Variable Cost per Unit=Change in Total Cost o Fixed Cost: Select one data point and plug in the values to solve for fixed costs: Fixed Cost=Total Cost−(Variable Cost per Unit×Units) 2. Predict Future Total Costs for Given Volumes (100,000 units and 170,000 units): o Total Cost Prediction: Total Cost=(Variable Cost per Unit×Volume)+Fixed Cost 3. Scatter Diagram and Line of Cost Behavior: o Plot cost data against units in a scatter plot to visually assess the trend. o Draw a line of best fit and analyze whether the cost behavior is variable, fixed, or mixed. Problem 18-2B: Contribution Margin Income Statement and Ratio 1. Prepare Contribution Margin Income Statement: o Format to show Sales, Variable Costs, Contribution Margin, Fixed Costs, and Net Income. 2. Compute Contribution Margin per Unit and Ratio: o Contribution Margin per Unit: Selling Price per Unit - Variable Cost per Unit. o Contribution Margin Ratio: Contribution Margin per Unit / Selling Price per Unit. 3. Analysis: For each dollar of sales, calculate how much remains to cover fixed costs and contribute to income. Problem 18-3B: Break-Even Analysis and Income Targeting 1. Compute Break-Even Sales for Next Year with Machine Installed: o Adjust for new variable costs and fixed costs. Break-Even Sales in Dollars: Break-Even Sales=Fixed Costs Contribution Margin Ratio 2. Contribution Margin Income Statement for $750,000 Sales: o Prepare based on the revised variable and fixed costs. 3. Sales Level for Target Income of $87,000: o Required Sales for Target Income: Required Sales=Fixed Costs+Target Income Contribution Margin Ratio o Problem 18-4B: Break-Even Analysis with Different Cost Structures 1. Compute Break-Even Point for Each Product: o Break-Even Sales for each product: Break-Even Sales=Fixed Costs Contribution Margin Ratio 2. Contribution Margin Income Statement for Sales Decline to 33,000 Units: o Adjust units sold and calculate the impact on income. 3. Income Statement for Sales Increase to 64,000 Units: o Prepare the statement and compute the net income for each product. 4. Analysis: Assess which product benefits most from the sales increase. Problem 18-5B: Contribution Margin and Strategy Analysis 1. Compute Contribution Margin per Unit for Each Scenario: o Scenario (a): New material only. o Scenario (b): New material and increased selling price. 2. Contribution Margin Income Statements: o Set up two columns to compare income from each strategy. 3. Analysis Component: Evaluate whether raising the selling price improves net income. Problem 18-6B: Break-Even Analysis for Electronic Keyboards 1. Estimate Break-Even in Units and Dollars: o Break-Even Units: BreakEven Units=Fixed CostsContribution Margin per Unit o Break-Even Sales: Break-Even Sales=BreakEven Units×Selling Price per Unit\text{Break-Even Sales} = \text{Break-Even Units} \times \text{Selling Price per Unit}BreakEven Sales=Break-Even Units×Selling Price per Unit 2. Contribution Margin Income Statement at Break-Even: o Create an income statement that results in zero net income. 3. CVP Chart: o Use 700 units on the x-axis and $250,000 on the y-axis to display the break-even analysis visually. Problem 18-7B: Break-Even Analysis with Two Products 1. Weighted-Average Contribution Margin Calculation: o Based on the proportion of sales for each backpack type. 2. Break-Even Without New Equipment: o Calculate total sales units required to cover fixed costs using the weighted-average contribution margin. 3. Break-Even with New Equipment: o Recalculate fixed and variable costs to determine break-even in total units and per product. Serial Problem (Business Solutions) 1. Compute Weighted-Average Contribution Margin: o Based on the sales mix of desk units and chairs. 2. Break-Even Point in Units: o Use the weighted-average contribution margin to find the break-even sales volume. 3. Units of Each Product at Break-Even: o Allocate the break-even units between desk units and chairs based on their respective sales percentages. These steps will guide you in completing the required calculations and analyses for each problem. Let me know if you need help with a specific calculation!