Accounting Principles and breakeven analysis at Magic Manufacturing Essay

Accounting Principles 10ThursdayEdition for International Students.

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E5-1Mr. Lucas has prepared the undermentioned list of statements about service companies and

Merchants.

  1. Measuring net income for a merchant is conceptually the same as for a service company.

Solution: True

  1. For a merchant, gross revenues less operating disbursals is called gross net income.

Solution: False

Gross Profit = Gross saless Revenue- Cost of goods sold

  1. For a merchant, the primary beginning of grosss is the sale of stock list.

Solution: True

  1. Gross saless wages and rewards is an illustration of an operating disbursal.

Solution: True

  1. The operating rhythm of a merchant is the same as that of a service company.

Solution: False

The added plus history for a ware Company is the Inventory Account.

6.In a ageless stock list system, no elaborate stock list records of goods on manus are

maintained.

Solution: False

In a ageless stock list system a elaborate record for the stock list in manus is maintained.

7.In a periodic stock list system, the cost of goods sold is determined merely at the terminal of the

accounting period.

Solution: True

8.A periodic stock list system provides better control over stock lists than a ageless system.

Solution: False

Since a ageless stock list system has a elaborate record of the stock list in manus, one can look into that the sum of goods agrees with the stock list record and any discrepancy in records can be investigated instantly.

E5-2Information related to Almond Co. is presented below.

1. On April 5, purchased ware from Morris Company for $ 23,000, footings 2/10, net/30,

FOB transportation point.

Instruction manuals

( a ) Prepare the diary entries to enter these minutess on the books of Almond Co. under

a ageless stock list system.

Solution:

Dr Merchandise Inventory 23,000

Cr Accounts Collectible 23,000

2. On April 6, paid cargo costs of $ 900 on ware purchased from Morris.

Dr Merchandise Inventory 900

Cr Cash 900

3. On April 7, purchased equipment on history for $ 26,000.

Dr Equipment 26,000

Cr Accounts Collectible 26,000

4. On April 8, returned damaged ware to Morris Company and was granted a $ 3,000

recognition for returned ware.

Dr Accounts Collectible 3000

Cr Merchandise Inventory 3000

  1. On April 15, paid the sum due to Morris Company in full.

Dr Accounts Collectible 20,000 ( 23000-3000 )

Cr Cash 19,600

Cr Merchandise Inventory 400 ( 2 % of 20,000 )

( B ) Assume that Almond Co. paid the balance due to Morris Company on May 4 alternatively of

April 15. Fix the journal entry to enter this payment.

Dr Accounts Collectible 20,000

Cr Cash 20,000

E5-13Presented below is fiscal information for two different companies.

Dae Company

Kim Company

$

$

Gross saless gross

90,000

( vitamin D )

Gross saless returns

( a )

5,000

Net gross revenues

87,000

102,000

Cost of goods sold

56,000

( vitamin E )

Gross net income

( B )

41,500

Operating disbursals

15,000

( degree Fahrenheit )

Net income

( degree Celsius )

15,000

Instruction manuals

( a ) Determine the missing sums.

( B ) Determine the gross net income rates. ( Round to one denary topographic point. )

a )

Solution

a ) Gross saless Return =Sales Revenue – Net Gross saless

=90,000-87000

=3,000

B ) Gross net income =Net Gross saless – Cost of goods sold

=87,000-56000

=31,000

degree Celsiuss ) Net Income =Gross profit-Operating Expenses

=31,000-15,000

= 16,000

vitamin D ) Gross saless Revenue =Sales Returns + Net Gross saless

=102,000+5000

=107,000

vitamin E ) Cost of goods sold = Net Gross saless –Gross Net income

=102,000-41,500

=60,500

degree Fahrenheit ) Operating Expenses = Gross Profit – Net Income

= 41,500 – 15,000

= 26,500

Final Table would look like this:

Dae Company

Kim Company

$

$

Gross saless gross

90,000

107,000

Gross saless returns

3,000

5,000

Net gross revenues

87,000

102,000

Cost of goods sold

56,000

60,500

Gross net income

31,000

41,500

Operating disbursals

15,000

26,500

Net income

16,000

15,000

( B ) Determine the gross net income rates. ( Round to one denary topographic point. )

Net income rates= Gross Profit/Net Gross saless

Dae company net income rates

Gross net income ?Net gross revenues = 31,000 ?87,000=35.6 %

Kim company net income rates

Gross net income ?Net gross revenues =41,500 ? 102,000=40.7 %

E18-8Selected comparative statement informations for Navin Products Company are presented on the

following page. All balance sheet informations are as of December 31.

2013 2012

Net gross revenues $ 760,000 $ 720,000

Cost of goods sold 480,000 440,000

Interest disbursal 7,000 5,000

Net income 50,000 42,000

Histories receivable 120,000 100,000

Inventory 85,000 75,000

Entire assets 580,000 500,000

Entire common stockholders’ equity 430,000 325,000

Instruction manuals

Calculate the undermentioned ratios for 2013.

( a ) Net income border.

( B ) Asset turnover.

( degree Celsius ) Return on assets.

( vitamin D ) Tax return on common stockholders’ equity.

Solution ;

( a ) Net income border = Net income/Net gross revenues = $ 50,000/ $ 760,000 = 6.58 % ( B ) Asset turnover = Net sales/Average entire assets = $ 760,000/540,000 = 1.41 times ( degree Celsius ) Return on assets = EBIT/Average entire assets = $ 57,000/540,000 = 10.56 % ( vitamin D ) Tax return on common stockholders’ equity = Net income/Average shareholders ‘ equity

= $ 50,000/377,500 = 13.25 %

Notes: Average Entire Assets= ( Total Assets 2013 + Total Assets 2012 ) /2

= ( 580,000+500,000 ) /2

= 540,000

Notes: Average shareholders ‘ equity = ( Entire common stockholders’ equity 2013 +

Entire common stockholders’ equity2012 ) /2

= ( 430,000+325,000 ) /2

= 377,500

E18-9The income statement for Mary Hatch, Inc. , appears below.

MARY HATCH, INC.

Income Statement

For the Year Ended December 31, 2012

Net gross revenues $ 400,000

Cost of goods sold 230,000

Gross net income 170,000

Expenses ( including $ 16,000 involvement and $ 24,000 income revenue enhancements ) 105,000

Net income $ 65,000

Extra information:

1.The weighted-average common portions outstanding in 2012 were 30,000 portions.

2.The market monetary value of Mary Hatch, Inc. stock was $ 13 in 2012.

3.Cash dividends of $ 26,000 were paid, $ 5,000 of which were to preferable shareholders.

Instruction manuals

Calculate the undermentioned ratios for 2012.

( a )Net incomes per portion.

( B )Price-earnings.

( degree Celsius )Payout.

( vitamin D )Timess involvement earned

Solutions:

a ) EPS = ( 65,000-5,000 ) /30,000 = $ 2.00.

( B ) Price Earnings =13/2= 6.5 times.

( degree Celsius ) Payout = 26,000/65,000= 40 % .

( vitamin D ) Times involvement earned = ( 65,000+16,000+24,000 ) /16,000

=105,000/16,000

=6.6 times.

E22-11In 2012, Paterno Company had a break-even point of $ 350,000 based on a merchandising monetary value

of $ 7 per unit and fixed costs of $ 105,000. In 2013, the merchandising monetary value and the variable cost per unit did non alteration, but the break-even point increased to $ 420,000.

Instruction manuals

( a ) Compute the variable cost per unit and the part border ratio for 2012.

( B ) Compute the addition in fixed costs for 2013.

Solutions

  1. Contribution border ratio = Unit part border ? Selling Price per Unit

To deduce this we need to cipher Unit Contribution Margin

Unit part border = Fixed costs ? Number of sale units to accomplish breakeven

= $ 105,000 ? ( $ 350,000 ? $ 7 )

= $ 2.10

Variable cost per unit = merchandising monetary value per Unit –contribution margin per unit

= $ 7.00 – $ 2.10

= $ 4.90

Therefore

Contribution border ratio = $ 2.10 ? $ 7.00 = 30 %

( B ) Break-even gross revenues ( $ ) = Fixed costs ? Contribution border ratio

Fixed costs = $ 420,000 ? 3= $ 126,000

Since fixed costs were $ 105,000 in 2011, the addition in 2012 is

= ( $ 126,000 – $ 105,000 ) .

= $ 21,000

E23-9Duke Company combines its operating disbursals for budget intents in a merchandising and

administrative disbursal budget. For the first 6 months of 2012, the undermentioned informations are available.

1. Gross saless: 20,000 units one-fourth 1 ; 22,000 units one-fourth 2.

2. Variable costs per dollar of gross revenues: Gross saless committees 5 % , bringing disbursal 2 % , and

publicizing 3 % .

3. Fixed costs per one-fourth: Gross saless salaries $ 10,000, office wages $ 6,000, depreciation $ 4,200,

insurance $ 1,500, public-service corporations $ 800, and repairs expense $ 600.

4. Unit of measurement selling monetary value: $ 20.

Instruction manuals

Fix a merchandising and administrative disbursal budget by quarters for the first 6 months of 2012.

Solution:

Half Year Selling AND ADMINISTRATIVE BUDGET

FOR JAN 2012 TO JUNE 2012

One-fourth

1

2

Budgeted Sale Unit of measurements

20,000

22,000

Selling Price/Unit

20

20

Variable Expenses

Gross saless Commission

20,000

22,000

Delivery Expense

8,000

8,800

Ad

12,000

13,200

Entire Variable Expenses

40,000

44,000

Fixed Expenses

Gross saless Wages

10,000

10,000

Office Wages

6000

6000

Depreciation

4200

4200

Insurance

1500

1500

Utilities

800

800

Repairs

600

600

Entire Fixed Expenses

23,100

23,100

Entire Selling and Administrative Expense

63,100

67,100

P22-2AHytek Company bottles and distributes Livit, a diet soft drink. The drink is sold for

50 cents per 16-ounce bottle to retail merchants, who charge clients 75 cents per bottle. For the twelvemonth

2012, direction estimates the undermentioned grosss and costs.

Net gross revenues $ 1,800,000 Selling expenses—variable $ 70,000

Direct stuffs 430,000 Selling expenses—fixed 65,000

Direct labour 352,000 Administrative disbursal

Manufacturing overhead variable 20,000

Variable 316,000 Administrative disbursals fixed 60,000

Manufacturing operating expense

Fixed 283,000

Instruction manuals

( a ) Fix a CVP income statement for 2012 based on management’s estimations.

( B ) Compute the break-even point in ( 1 ) units and ( 2 ) dollars.

( degree Celsius ) Compute the part border ratio and the border of safety ratio. ( Round to full per centums. )

( vitamin D ) Determine the gross revenues dollars required to gain net income of $ 238,000.

Solution

HYTEK COMPANY

CVP Income Statement ( Estimated )

For the Year Ending December 31, 2012 $

Net gross revenues

1,800,000

Variable disbursals

Cost of goods sold

1,098,000

Selling disbursals

70,000

Administrative disbursals

20,000

Entire variable disbursals

1,188,000

Contribution border

612,000

Fixed disbursals

Cost of goods sold

283,000

Selling disbursals

65,000

Administrative disbursals

60,000

Entire fixed disbursals

408,000

Net income

204,000

Notes

*Direct stuffs $ 430,000 + direct labour $ 352,000 + variable fabrication

overhead $ 316,000

*Contribution border is Net Gross saless -Total Variable Costss

B )

First Calculate Units of Bottles sold

No of Unit of measurements sold = Total Gross saless Revenue/Cost of one bottle

= 1,800,000/0.75

= 2,400,000 Unit of measurements

Entire Variable Cost ( $ )

Direct Material

430,000

Direct Labor

352,000

Manufacturing OHD

316,000

Admin Expenses

20,000

Selling Expenses

70,000

Sum

1,188,000

Unit of measurements Sold

2,400,000

Entire Variable Cost

$ 1,188,000

VC per Unit

$ 0.50

Entire Fixed Cost ( $ )

Manufacturing OHD

283,000

Admin Expenses

60,000

Selling Expenses

65,000

TOTAL FC

$ 408,000

B ) I

Break-even=Fixed Costss + Entire Variable Costss = Entire Gross saless

= 408,000 + 0.50x = 0.75x ( where ten is the figure of units required )

=408,000=0.75x-0.50x

=408,000/0.25=x

= 1,632,000 =x

The figure of Unit of measurements required to breakeven is 1,632,000

B ) two

Number of Units required to breakeven = 1,632,000

Selling monetary value /Unit = $ 0.75

Breakeven in dollars = 1632,000 X 0.75

= $ 1,224,000

degree Celsius ) Contribution Margin=Sales Price – Variable Cost

=0.75- 0.50

=0.25

Contribution Margin Ratio=Contribution Margin / Selling monetary value

= 0.25/ 0.75

=33 %

Margin of Safety= Budgeted Gross saless – Break-Even Gross saless

= $ 1,800,000 – $ 1,224,000

= $ 576,000

Margin of Safety ( % ) =576,000/1,800,000

= 32 %

vitamin D ) Gross saless dollars required to gain net income of $ 238,000.

Net Income = Total Gross saless – ( Fixed Costs + Total Variable Costss )

Here x is the figure of units

238,000 = 0.75x – ( 408,000 + 0.50x )

238,000+ 408,000 =0.75x- 0.50x

646,000 = 0.25 ten

2,584,000 = ten

No of Unit of measurements required to gain net income of $ 238,000 are 2,584,000

Gross saless dollars required to gain net income of $ 238,000.

= 2,584,000 tens 0.75

= $ 1,938,000

P22-3AMagic Manufacturing’s gross revenues slumped severely in 2012. For the first clip in its history, it

operated at a loss. The company’s income statement showed the undermentioned consequences from selling

600,000 units of merchandise: Net gross revenues $ 2,400,000 ; entire costs and disbursals $ 2,540,000 ; and net loss

$ 140,000. Costss and disbursals consisted of the sums shown below.

Entire Variable Fixed

Cost of goods sold $ 2,100,000 $ 1,440,000 $ 660,000

Selling disbursals 240,000 72,000 168,000

Administrative disbursals 200,000 48,000 152,000

$ 2,540,000 $ 1,560,000 $ 980,000

Management is sing the undermentioned independent options for 2013.

1. Increase unit selling monetary value 20 % with no alteration in costs, disbursals, and gross revenues volume.

2. Change the compensation of sales representatives from fixed one-year wages numbering $ 150,000 to number

Wages of $ 60,000 plus a 3 % committee on net gross revenues.

3. Purchase new automated equipment that will alter the proportion between variable and

Fixed cost of goods sold to 54 % variable and 46 % fixed.

Instruction manuals

( a ) Compute the break-even point in dollars for 2012.

( B ) Compute the break-even point in dollars under each of the alternate classs of action.

( Round all ratios to nearest full per centum. ) Which class of action do you urge?

Solution

  1. Break-even=Fixed Costss + Entire Variable Costss = Entire Gross saless

Current gross revenues monetary value per unit = $ 2,400,000 / 600,000

= $ 4.00

Current variable cost per unit = 1,560,000/ 600,000

= $ 2.60

Break-even= 980,000 + 2.60x = 4x

=980,000 =4x – 2.60x

=980,000/1.4x

= 700,000 Unit of measurements

In dollars = 700,000 x 4

= $ 2,800,000

B )

1. Increase unit selling monetary value 20 % with no alteration in costs, disbursals, and gross revenues volume.

New selling monetary value = $ 4.00 x 1.20 = $ 4.80

= 980,000 + 2.60x = 4.80x

= 445,455 Unit of measurements

In dollars = 445,455 x 4.8

= $ 2,138,182

2. Change the compensation of sales representatives from fixed one-year wages numbering $ 150,000 to number

Wages of $ 60,000 plus a 3 % committee on net gross revenues.

Solution

When we change the compensation of the gross revenues individual as above,

The fixed cost for selling disbursals will be equal to:

$ 168,000 – $ 150,000 + $ 60,000 = $ 78,000

The entire variable Selling cost will be:

$ 72000 + 3 % ten $ 2,400,000= $ 144,000

The entire fixed cost and variable cost will be changed consequently:

Entire

Variable

Fixed

Cost of goods sold

$ 2,100,000

$ 1,440,000

$ 660,000

Selling disbursals

$ 240,000

$ 144,000

$ 78,000

Administrative disbursals

$ 200,000

$ 48,000

$ 152,000

Entire

$ 2,540,000

$ 1,632,000

$ 890,000

Due to the alteration in variable cost, the variable cost per unit peers to:

= 1,632,000/600,000

= $ 2.72/ Unit

The break-even point in unit will be:

Break-even=Fixed Costss + Entire Variable Costss = Entire Gross saless

= 2.72x + $ 890,000 = 4x

=890,000=4x -2.72x

X = 695,312.50 Unit of measurements

In dollars

= 695,312.50 tens 4

= $ 2,781,250

3. Purchase new automated equipment that will alter the proportion between variable and

Fixed cost of goods sold to 54 % variable and 46 % fixed.

New variable Cost of goods sold =2,100,000 ten 54 %

= $ 1,134,000

New fixed Cost of goods sold = 2,100,000 ten 46 %

= $ 966,000 Selling monetary value per Unit =2,400,000 / 600,000

= $ 4.00

New Variable Cost per Unit = Variable Cost of goods sold + Variable Selling disbursals +

Variable Administrative disbursals

= ( 1,134,000 + 72,000 + 48,000 ) / 600,000

= $ 2.09 variable cost per unit

New Fixed Cost per Unit = Fixed Cost of goods sold + Fixed Selling disbursals +

Fixed Administrative disbursals

= 966,000 + 168,000 + 152,000

= $ 1,286,000 entire fixed costs

Break-even

=Fixed Costss + Entire Variable Costss = Entire Gross saless

=1,286,000 + 2.09x = 4x

ten = 673,298.43 Unit of measurements

In dollars = 673,298.43 ten $ 4.00

= $ 2,693,194 ( Rounded to nearest whole figure )

The break-even point in dollars for 3 classs are:$2,138,182 ; $ 2,781,250 ;$ 2,693,194. Therefore, the first class of action is recommended as it gives the smallest break-even point in dollars.