Chapter 18: Problem Set A

This set of problems requires calculations on cost estimation, contribution margins, break-even analysis, and assessing alternative strategies for companies. Here are suggested steps for solving each of these problems: Problem 18-1A: Measuring Costs Using the High-Low Method 1. Estimate Variable and Fixed Costs: o Identify the highest and lowest levels of activity (units) along with their associated costs. o Calculate Variable Cost per Unit: Variable Cost per Unit=Change in Total Cost o Calculate Fixed Costs: Using one of the data points and the estimated variable cost per unit, solve for fixed costs with the formula: Fixed Cost=Total Cost−(Variable Cost per Unit×Units) 2. Predict Total Costs for Given Volumes: o Use the formula: Total Cost=(Variable Cost per Unit×Volume)+Fixed Cost o Substitute the predicted units (220,000 and 240,000) to find future total costs. Problem 18-2A: Contribution Margin Income Statement and Ratio 1. Prepare Contribution Margin Income Statement: o Structure the income statement 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: Contribution Margin per Unit=Selling Price per Unit−Variable Cost p er Unit o Contribution Margin Ratio: Contribution Margin Ratio=Contribution Margin per UnitSelling Pric e per Unit 3. Analysis: The contribution margin per dollar of sales shows how much is available to cover fixed costs and contribute to income. Problem 18-3A: Break-Even Analysis and Target Income 1. Compute Next Year’s Break-Even Sales in Dollars: o Adjust variable costs for the new cost structure. Break-Even Sales in Dollars: Break-Even Sales=Fixed Costs Contribution Margin Ratio 2. Prepare Contribution Margin Income Statement for Expected Sales: o Use the adjusted cost structure and sales of $1,000,000. 3. Sales Level for Target Income of $208,000: o Required Sales for Target Income: Required Sales=Fixed Costs+Target IncomeContribution Margin Rati o o Problem 18-4A: Break-Even Analysis with Different Cost Structures 1. Compute Break-Even Point for Each Product: o Break-Even Sales in Dollars for Each Product: BreakEven Sales=Fixed CostsContribution Margin Ratio 2. Contribution Margin Income Statement for Sales Decline to 30,000 Units: o Adjust each product’s units sold and recalculate the statement. 3. Income Statement for Increase to 60,000 Units: o Calculate total income for each product under increased sales volume. 4. Analysis: Determine which product experiences a greater income decrease at reduced sales. Problem 18-5A: Contribution Margin and Strategy Analysis 1. Compute Contribution Margin per Unit for Each Scenario: o Calculate with the new material only, and with the new material and increased selling price. 2. Prepare Contribution Margin Income Statements: o Set up income statements for each scenario and show the resulting profit. 3. Analysis Component: Compare outcomes to determine if raising the selling price would be beneficial. Problem 18-6A: Break-Even Analysis for Product XT 1. Estimate Product XT’s Break-Even in Units and Sales Dollars: o Break-Even Units: Break-Even Units=Fixed Costs Contribution Margin per Unit o Break-Even Sales in Dollars: Break-Even Sales=BreakEven Units×Selling Price per Unit 2. Contribution Margin Income Statement at Break-Even Point: o Prepare a statement showing zero profit at the break-even point. Problem 18-7A: Break-Even Analysis with Two Products 1. Compute Weighted-Average Contribution Margin: o Use the formula for weighted-average contribution margin based on sales mix and contribution margins for each flag size. 2. Break-Even Without New Equipment: o Calculate total units to cover fixed costs using the weighted-average contribution margin. 3. Break-Even with New Equipment: o Adjust fixed costs and variable costs and calculate the break-even units for each product. These steps should help systematically approach and solve each part of the problem set. Let me know if you would like detailed calculations for specific problems!