# Get Best ACCT 346 Week 5 Homework Assignment (Question 1, 2, 3, 4 and 5) Summer 2020

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## Get Best ACCT 346 Week 5 Homework Assignment Question 1 2 3 4 and 5 Summer 2020

##### ACCT 346 Week 5 Homework – Question 1

Sport Ready produces sports socks. The company has fixed expenses of \$85,000 and variable expenses of \$0.85 per package. Each package sells for \$1.70.

The basic cost-volume-profit (CVP) analysis involves analyzing what a business must sell in order to break even. The breakeven point is the sales level at which the operating income is zero. If the sales are above the breakeven point, the business will have a profit. If sales are below the breakeven point, the business will incur a loss. The contribution margin approach provides a shortcut formula to make various CVP calculations.

Requirement 1. Find the breakeven point in units and in dollars. Determine the contribution margin per package.

Requirement 2. Find the breakeven point in units and in dollars.

Find the breakeven point in units using the contribution margin approach. (For amounts with a \$0 balance, make sure to enter “0” in the appropriate cell.)

Requirement 3. Find the number of packages Sport Ready needs to sell to earn a \$25,500 operating income.

1: Requirements

1. Compute the contribution margin per package and the contribution margin ratio.
2. Find the breakeven point in units and in dollars.
3. Find the number of packages Sport Ready needs to sell to earn a \$25,500 operating income.

##### ACCT 346 Week 5 Homework – Question 2

Foster’s Repair Shop has a monthly target operating income of \$10,000. Variable expenses are 50% of sales, and monthly fixed expenses are \$7,000.

The margin of safety is the excess of expected sales over breakeven sales. This is the “cushion,” or drop in sales, the company can absorb without incurring a loss. The higher the margin of safety, the greater the cushion against loss and the less risky the business plan. Managers use the margin of safety to evaluate the risk of current operations as well as the risk of new plans.

Managers can also compute the margin of safety as a percentage of sales. Simply divide the margin of safety by sales. We obtain the same percentage whether we use units or dollars.

Requirement 1. Compute the monthly margin of safety in dollars if the shop achieves its income goal.

First, what is the contribution margin ratio? In order to compute the contribution margin ratio, we can use the following formula. (Enter the ratios as a decimal to two places, “.XX”.)……

Using the contribution margin ratio, we can determine the breakeven sales in dollars. Use the formula below to calculate the sales point at which we neither have a profit nor a loss. (For amounts with a \$0 balance, make sure to enter “0” in the appropriate cell. Round your answer up to the nearest whole dollar.)………..

Next we must compute the target sales at which we would earn a monthly target operating income of \$10,000. We can utilize the formula that we just identified above for this computation, but now enter in the operating income amount we would like to earn. (Round your answer up to the nearest whole dollar.)………….

Let’s recall the formula to compute the margin of safety in sales dollars if Foster’s Repair Shop achieves its income goal. Compute the margin of safety in dollars using the following formula………..

Requirement 2. Express Foster’s margin of safety as a percentage of target sales.

Now that we have identified Foster’s margin of safety in sales dollars, we would like to know the margin of safety percentage. Let’s use the formula below to compute the margin of safety percentage. (Round the percentage to the nearest whole percent.)………….

Requirement 3. What is Foster’s operating leverage factor at the target level of operating income?

Before we can determine Foster’s operating leverage factor at the target level of operating income, we need to compute the contribution margin for Foster at the target sales level.

We can compute the contribution margin by completing the following. (Round your answer to the nearest whole dollar.) Target sales dollars x          Contribution margin ratio         =          Contribution margin…………..

Now we can compute Foster’s operating leverage factor at the target level of operating income. Use the formula below to calculate the operating leverage factor. (Round your answer to two decimal places.)………….

The operating leverage factor, at a given level of sales, indicates the percentage change in operating income that will occur from a 1% change in volume. In other words, it tells us how responsive a company’s operating income is to changes in volume.

Requirement 4. Assume that the company reaches its target. By what percentage will the company’s operating income fall if sales volume declines by 15%?

We can compute what percent Foster’s operating income will increase using the operating leverage factor. Begin by reviewing the formula to compute the change in operating income……………

1: Requirements

1. Compute the monthly margin of safety in dollars if the shop achieves its income goal.
2. Express Foster’s margin of safety as a percentage of target sales.
3. What is Foster’s operating leverage factor at the target level of operating income?
4. Assume that the company reaches its target. By what percentage will the company’s operating income fall if sales volume declines by 15%?

##### ACCT 346 Week 5 Homework – Question 3

BestSystems manufactures an optical switch that it uses in its final product. BestSystems incurred the following manufacturing costs when it produced 68,000 units last year: 1(Click the icon to view the manufacturing costs.)

BestSystems does not yet know how many switches it will need this year; however, another company has offered to sell BestSystems the switch for \$16.00 per unit. If BestSystems buys the switch from the outside supplier, the manufacturing facilities that will be idle cannot be used for any other purpose, yet none of the fixed costs are avoidable.

Managers want to know if outsourcing is more expensive than producing in-house. The goal is to minimize costs and maximize profits. The decision process involves comparing the relevant costs to make the item with the relevant costs to outsource. If the cost to make is less than the cost to outsource (buy), a company will continue making the product. But if the cost to make exceeds the cost to outsource, a company will buy from the outside supplier.

Let’s begin by identifying the costs that are relevant to our decision. Direct materials………….

Requirement 1. Given the same cost structure, should BestSystems make or buy the switch? Show your analysis.

Requirement 2. Now, assume that BestSystems can avoid \$102,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, BestSystems needs 73,000 switches a year rather than 68,000 switches. What should the company do now?

Requirement 3. Given the last scenario, what is the most BestSystems would be willing to pay to outsource the switches?

2: Requirements

1. Given the same cost structure, should BestSystems make or buy the switch? Show your analysis.
2. Now, assume that BestSystems can avoid \$102,000 of fixed costs a year by outsourcing production. In addition, because sales are increasing, BestSystems needs 73,000 switches a year rather than 68,000 switches. What should the company do now?
3. Given the last scenario, what is the most BestSystems would be willing to pay to outsource the switches?

##### ACCT 346 Week 5 Homework – Question 4

Members of the board of directors of Deluxe Safety have received the following operating income data for the year just ended:

1(Click the icon to view the operating income data.)

Members of the board are surprised that the industrial systems product line is losing money. They commission a study to determine whether the company should discontinue the line.

Company accountants estimate that discontinuing the industrial systems line will decrease fixed cost of goods sold by \$86,000 and decrease fixed marketing and administrative expenses by \$13,000.

Requirement 1. Prepare an incremental analysis to show whether Deluxe Safety should discontinue the industrial systems product line.

Managers often must decide whether to discontinue products, departments, stores, or territories that are not as profitable as desired. Managers need to eliminate unprofitable product lines. Discontinuing the product line may improve the company’s profits. To make this decision, companies calculate the change in operating income if they were to discontinue the product line.

Requirement 2. Prepare contribution margin income statements to show Deluxe Safety’s total operating income under the two alternatives: (a) with the industrial systems line and (b) without the line. Compare the difference between the two alternatives’ income numbers to your answer to Requirement 1. What have you learned from this comparison?

We will begin by preparing the statements with and without the industrial systems line. Start with the first half of the income statement − the contribution margin (sales less variable expenses). The column below, totals the industrial system product line, and is equal to the “total” column that is given to us. The totals without the industrial system is equal to the household systems amounts, with the exception of fixed costs which we will address in the next step.

2: Requirements

1. Prepare an incremental analysis to show whether Deluxe Safety should discontinue the industrial systems product line.
2. Prepare contribution margin income statements to show Deluxe Safety’s total operating income under the two alternatives:

(a)  with the industrial systems line and (b) without the line. Compare the difference between the two alternatives’ income numbers to your answer to Requirement 1. What have you learned from this comparison?

1. Definition

##### ACCT 346 Week 5 Homework – Question 5

College Spirit Calendars imprints calendars with college names. The company has fixed expenses of \$1,065,000 each month plus variable expenses of \$3.50 per carton of calendars. Of the variable expense, 69% is the cost of goods sold, while the remaining 31% relates to variable operating expenses. The company sells each carton of calendars for \$13.50.

The breakeven point is the sales level at which operating income is zero: Total revenues equal total costs. Sales below the breakeven point result in a loss; sales above the breakeven point provide a profit.

The contribution margin is the amount of the sales price that contributes to covering fixed costs and then providing operating income. It is the excess of the sales price over the variable costs.

Requirement 1. Compute the number of cartons of calendars that College Spirit Calendars must sell each month to break even.

The income statement approach can be used to compute the breakeven point. It is an easy method to remember as it is based on the income statement, which you are already familiar with. The firm’s target operating income can be expressed in the following equation form:………..

Before computing the number of cartons to break even, we will enter the amounts into the income statement equation below. Refer to the information provided. Enter the sales revenue and variable expenses at the per carton amount. (Complete all answer boxes.)

Requirement 2. Compute the dollar amount of monthly sales College Spirit Calendars needs in order to earn \$304,000 in operating income.

Let’s review the formula we will use to calculate the amount College Spirit needs to earn in order to reach its target operating income level…………………

Now calculate the amount College Spirit needs to earn in order to reach its target operating income level. Instead of making operating income equal zero, which we do to calculate the breakeven level, we will make operating income equal \$304,000. You will need to compute the contribution margin ratio 3 using the information provided. (Enter the contribution margin ratio as a decimal rounded to two decimal places, XX.)……………..

Requirement 3. Prepare the company’s contribution margin income statement for June for sales of 465,000 cartons of calendars.

The contribution margin income statement shows expenses by cost behavior—variable expenses and fixed expenses. Recall the format of the contribution margin income statement and begin to prepare it by choosing the labels………………

Requirement 4. What is June’s margin of safety (in dollars)? What is the operating leverage factor at this level of sales?

The margin of safety is the excess of actual or expected sales over breakeven sales. This is the “cushion”, or drop in sales, the company can absorb without incurring a loss. The higher the margin of safety, the greater the cushion against loss and the less risky the business plan. Managers use the margin of safety to evaluate the risk of current operations as well as the risk of new plans.

A company’s operating leverage refers to the relative amount of fixed and variable costs that make up its total costs. Most companies have both fixed and variable costs. However, companies with high operating leverage have relatively more fixed costs and relatively fewer variable costs.

Requirement 5. By what percentage will operate income change if July’s sales volume is 16% higher? Prove your answer.

When a company wants to know what percentage its operating income will change by if it increases sales, it multiplies the percentage that the sales volume has increased by, 16%, by the operating leverage factor.

The operating leverage factor was calculated using the current level of sales; therefore, when we multiply the operating leverage factor by the percentage increase we can determine the percentage the operating income will increase by when sales increase.

Calculate the amount by which operating income will increase by when the sales increase by 16%. (Round the operating income increase percentage to two decimal places.)…………..

Prove your answer. Let’s begin by determining the new volume of cartons. Recall how to calculate the increase in volume (original volume multiplied by the sales increase percentage).

1: Requirements

1. Compute the number of cartons of calendars that College Spirit Calendars must sell each month to break even.
2. Compute the dollar amount of monthly sales that the company needs in order to earn \$304,000 in operating income (round the contribution margin ratio to two decimal places).
3. Prepare the company’s contribution margin income statement for June for sales of 465,000 cartons of calendars.
4. What is June’s margin of safety (in dollars)? What is the operating leverage factor at this level of sales?
5. By what percentage will operate income change if July’s sales volume is 16% higher? Prove your answer.

2: Definition

4: Sales Revenue

5: Variable expenses

6: Formula

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