MID-TERM REVISION

• TA: LÊ BÁ KHÁNH LINH

• Contact: lbklinh@gmail.com

• Cover from Chap 19-22

Lê Bá Khánh Linh
 CHAPTER 19

Managerial Accounting

Lê Bá Khánh Linh
MANAGEMENT FUNCTIONS

Planning Directing Controlling

• Maximize short-term • Coordinate diverse activities • Keep activities on track

& human resources
profit & market share • Determine which goals are

• Commit to environmental • Implement planned objectives met

protection & social • Provide incentives • Decide changes needed to

programs à motivate employees get back on track

• Add value to the business • Hire and train employees • May use an informal or
formal system of
• Produce a smooth-running
evaluations
operation

Lê Bá Khánh Linh
PRODUCT vs PERIOD COSTS
Costs

Product Costs Period Costs

Manufacturing Costs Non-Manufacturing Costs

Direct Materials Selling Expenses

Direct Labor Administrative Expenses

Manufacturing Overhead
• Indirect materials
• Indirect labor
• Other indirect costs

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COST OF GOODS MANUFACTURED

Total Manufacturing Costs = Direct Materials + Direct Labor + MOH

*MOH: Manufacturing Overhead

Lê Bá Khánh Linh
COST OF GOODS
MANUFACTURED
SCHEDULE
(a) Prepare a cost of goods manufactured schedule.

Lê Bá Khánh Linh
(b) Prepare an income statement through gross profit.

Sales Revenue 534,000

Less: Sales Discounts 4,200
Net sales 529,800
Beginning finished goods inventory 96,000
Cost of goods manufactured 386,910
Less: Ending finished goods inventory 75,900
Cost of goods sold 407,010
Gross profit 122,790
Less: Office Utilities Expense 8,650
Net income 114,140

Lê Bá Khánh Linh
(c) Prepare the current assets section of the statement of financial position
at June 30,2017.

Cash 32,000
Accounts Receivable 27,000
Inventory
Ending raw materials 39,600
Ending work in process 18,600
Ending finished goods 75,900 134,100
Total current assets 193,100

Lê Bá Khánh Linh
(a) Prepare a schedule of cost of goods manufactured for October 2020.
Beginning work in process 200,000
Direct Materials
Beginning raw materials 180,000
Raw materials purchases 2,640,000
Less: Ending raw materials 290,000
Direct Materials used 2,530,000
Direct Labor 1,900,000
Manufacturing Overhead
Rent on factory facilities 600,000
Depreciation on factory equipment 310,000
Indirect labor cost 280,000
Utilities expense 90000
Insurance expense 48000
Total manufacturing overhead 1,328,000
Total manufacturing costs 5,758,000
Total cost of work in process 5,958,000
Less: Ending work in process 140,000
Cost of goods manufactured 5,818,000

Lê Bá Khánh Linh
(b) Prepare a correct income statement for October 2020.
Sales Revenue 7,800,000
Beginning finished goods inventory 300,000
Cost of goods manufactured 5,818,000
Less: Ending finished goods inventory 500,000
Cost of goods sold 5,618,000
Gross profit 2,182,000
Less: Operating expenses
Advertising expense 900,000
Selling and administrative salaries 750,000
Depreciation on sales equipment 450,000
Utitlities expense 30000
Insurance expense 32,000 2,162,000
Net income 20,000

Lê Bá Khánh Linh
 CHAPTER 20

Job Order Costing

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PROCESS COST vs JOB ORDER COST

Lê Bá Khánh Linh
 JOB ORDER COST FLOW

Raw material inventories

Payable acc/cash

Work in process Inv Account receivable/Cash

Factory labor MOH Finished Goods Inv Sales revenue
Payable acc/cash Raw material Inv Work in process Inv

Work in process Inv

MOH Cost of Goods sold
MOH Factory labor Finished Goods Inv
Payable acc/cash

Work in process Inv

Pre MOH

Lê Bá Khánh Linh
Exercise 1:
During the current month, Tanaka Tech incurs the following manufacturing costs.

a) Purchased raw materials of $1,800,000 on account.

b) Incurred factory labor of $4,000,000. Of that amount, $3,100,000 relates to wages payable

and $900,000 relates to payroll taxes payable.

c) Factory utilities of $310,000 are payable, prepaid factory property taxes of $270,000 have

expired, and depreciation on the factory building is $950,000.

Lê Bá Khánh Linh
Exercise 1:
a) Raw materials Inventory 1,800,000
Accounts Payable 1,800,000

b) Factory labor 4,000,000

Wages Payable 3,100,000
Payroll taxes Payable 900,000

c) Manufacturing Overhead 1,530,000

Utilities Payable 310,000
Prepaid property taxes 270,000
Accumulated Depreciation 950,000

Lê Bá Khánh Linh
Exercise 2:
The gross earnings of the factory workers for Junhong Ltd. during the month of January are
HK$760,000. The employer’s payroll taxes for the factory payroll are HK$80,000. The fringe
benefits to be paid by the employer on this payroll are HK$60,000. Of the total accumulated cost
of factory labor, 85% is related to direct labor and 15% is attributable to indirect labor.

Instructions

a) Prepare the entry to record the factory labor costs for the month of January.

b) Prepare the entry to assign factory labor to production.

Lê Bá Khánh Linh
Exercise 2:
• Total accumulated cost = 760,000 + 80,000 + 60,000 = HK$900,000

a) Prepare the entry to record the factory labor costs for the month of January.
Factory labor 900,000
Factory wages payable 760,000
Factory payroll taxes 80,000
Fringe benefits 60,000

b) Prepare the entry to assign factory labor to production.

Work in Process Inventory 765,000
Manufacturing Overhead 135,000
Factory labor 900,000

Lê Bá Khánh Linh
Exercise 3:

Lê Bá Khánh Linh
a) Prepare summary journal entries to record
(1) Requisition slips (materials) (3) Assignment of manufacturing overhead to jobs:
Work in Process Inventory 10,400 • 12,500 x 60% = $7,500
Manufacturing Overhead 800 Work in Process Inventory 7,500
Raw materials Inventory 11,200 Manufacturing Overhead 7,500

(2) Time ticket (labor) (4) Completion of Job No.429:

Work in Process Inventory 12,500 • 1,900 x 60% = 1,140
Manufacturing Overhead 1,200 • 1,140 + 2,000 + 2,500 +1,900 = 7,540
Factory labor 13,700
Finished goods Inventory 5,640
Work in Process Inventory 5,640

Lê Bá Khánh Linh
b) Post the entries to Work in Process Inventory and prove the agreement of the control
account with the job cost sheets.
• Work in Process Inventory
May 1 $3,500
May 31 $10,400
May 31 $12,500
May 31 $7,500
May 31 $7,540
May 31 balance $26,360 (= 3,500 + 10,400 + 12,500 + 7,500 – 7,540)

Direct Manufacturing
• Prepare job cost sheets
Job No. Beginning WIP Direct labor
material overhead
Total

(Job No.429 is completed) 430 1,500 3,000 3,500 3,000 x 60% = 1,800 9,800
431 - 7,600 4,400 7,600 x 60% = 4,560 16,560

1,500 10,600 7,900 6,360 26,360

Lê Bá Khánh Linh
PREDETERMINED OVERHEAD RATES
• When established? in the beginning of year
• Who use?
Small companies Large companies
- have different departments
single, company-wide predetermined rate - use a different rate for each department,
which may have a different activity base.

• How to compute? _ Formula

Estimated Annual
Estimated Annual Predetermined
÷ Operating =
Overhead Costs Overhead Rate
Activity

Lê Bá Khánh Linh
Under- or Overapplied Manufacturing Overhead

• A debit balance in manufacturing overhead means that overhead is underapplied.

• A credit balance in manufacturing overhead means that overhead is overapplied.

Lê Bá Khánh Linh
Exercise 4:
For Naidoo Company, the predetermined overhead rate is 130% of direct labor cost. During the
month, Naidoo incurred R1,000,000 of factory labor costs, of which R850,000 is direct labor and
R150,000 is indirect labor. Actual overhead incurred was R1,150,000.

Compute the amount of manufacturing overhead applied during the month and determine the
amount of under- or overapplied manufacturing overhead.

Lê Bá Khánh Linh
Exercise 4:
• Budgeted/Applied overhead: 130% x 850,000 = R1,105,000

• Applied < Actual (1,105,000 < 1,150,000)

à Underapplied overhead

• The amount of underapplied manufacturing overhead:

1,150,000 - 1,105,000 = R45,000

Lê Bá Khánh Linh
Exercise 5:
Ikerd ASA applies manufacturing overhead to jobs on the basis of machine hours used. Overhead
costs are expected to total $300,000 for the year, and machine usage is estimated at 125,000
hours. For the year, $322,000 of overhead costs are incurred and 130,000 hours are used.

Instructions

a) Compute the manufacturing overhead rate for the year.

b) What is the amount of under/overapplied overhead at December 31?

c) Prepare the adjusting entry to assign the under/overapplied overhead for the year to cost of
goods sold.

Lê Bá Khánh Linh
Exercise 5:
a) Compute the manufacturing overhead rate for the year.
!"","""
= $2.4 per machine hour
$%&,"""

b) What is the amount of under/overapplied overhead at December 31?

• Applied overhead: 2.4 x 130,000 = $312,000
• Applied < Actual (312,000 < 322,000) => Underapplied overhead
à The amount: 322,000 - 312,000 = 10,000

c) Prepare the adjusting entry to assign the under/overapplied overhead for the
year to cost of goods sold.

Cost of goods sold 10,000

Manufacturing overhead 10,000

Lê Bá Khánh Linh
a) Compute the predetermined overhead rate.

$,%"","""
• Department D: = 0,8 → 80%
$,&"","""

$,&"","""
• Department E: $%&,"""
= $12 per direct labor hour

."","""
• Department K: $%","""
= $7,5 per machine hour

b) Compute the total manufacturing cots in January.

• Department D: 80% * 120,000 = 96,000

• Department E: 12 * 11,000 = 132,000

• Department K: 7,5 * 10,400 = 78,000

c) Compute the under/overapplied overhead.

Department D E K
under over under
Lê Bá Khánh Linh
• Prepare a schedule showing the individual cost elements and total cost for each job
(job cost sheets)
Direct Manufacturing
Job No. Factory Labor Total
Materials Overhead
16,200
A20 35,240 18,000 69,440
(= 18,000 x 90%)
19,800
A21 42,920 22,000 84,720
(= 22,000 x 90%)
13,500
A22 36,100 15,000 64,600
(= 15,000 x 90%)
22,500
A23 39,270 25,000 86,770
(= 25,000 x 90%)

153,530 80,000 72,000 305,530

Lê Bá Khánh Linh
´ Prepare entries to record the
operations summarized below

Lê Bá Khánh Linh
🖊Self-practice
1) At May 31, 2020, the accounts of Lopez Company show the following.

• May 1 inventories - finished goods $12,600, work in process $14,700, and raw materials $8,200.

• May 31 inventories -finished goods $9,500, work in process $15,900, and raw materials $7,100.

• Debit postings to work in process were direct materials $62,400, direct labor $50,000, and manufacturing overhead
applied $40,000.

• Sales revenue totaled $215,000.

Instructions

a) Prepare a condensed cost of goods manufactured schedule. (Cost of goods manufactured = 151,200)

b) Prepare an income statement for May through gross profit. (Gross profit = 60,700)

c) Indicate the statement of financial position presentation of the manufacturing inventories at May 31,2020.

(Total current assets = 32,500)

~~~Hard work pays off~~~ Lê Bá Khánh Linh

🖊Self-practice
2) Don Lieberman and Associates, a CPA firm, uses job order costing to capture the costs of its audit jobs. There were
no audit jobs in process at the beginning of November. Listed below are data concerning the three audit jobs conducted
during November. Lynn Brian Mike
Direct Materials 600 400 200
Auditor labor costs 5,400 6,600 3,375
Auditor hours 72 88 45

Overhead costs are applied to jobs on basis of auditor hours, and the predetermined overhead rate is $50 per auditor
hour. The Lynn job is the only incomplete job at the end of November. Actual overhead for the month was $11,000.

Instructions

a) Determine the cost of each job.

b) Calculate the ending balance of the Operating Overhead account for November.

~~~Hard work pays off~~~ Lê Bá Khánh Linh

 CHAPTER 21

Process Costing

Lê Bá Khánh Linh
Lê Bá Khánh Linh
PRODUCTION COST REPORT
4 steps in preparation:

• Step 1: Compute physical unit flow

• Step 2: Compute equivalent units of production

• Step 3: Compute unit production costs

• Step 4: Prepare a cost reconciliation schedule

Conversion costs a result of the transformation of raw materials into finished products.

Conversion costs = Direct Labor + Manufacturing Overhead

Lê Bá Khánh Linh
a) Prepare a schedule showing physical units of production
Units to be accounted for Physical units
Beginning work in process 0
Started into production 22,000
Total units 22,000

Units accounted for

Units transferred out 20,000
Ending work in process 2,000
Total units 22,000

b) Determine the equivalent units of production for materials and conversion costs
Units to be accounted for Materials Conversion costs Ending work in process
Units transferred out 20,000 20,000
• Materials: 2,000 * 100% = 2,000
Ending work in process 2000 800
Total units 22,000 20,800 • Conversion: 2,000 * 40% = 800

c) Compute the unit costs of production

Unit costs $.1,"""
• Materials: =9
Materials 9 %%,"""

Conversion costs 8 &!,3""4$$%,1""

Total unit cost 17
• Conversion: %",1""
=8 Lê Bá Khánh Linh
 e) Prepare a production cost report for the Molding
Department for June.
Physical units Materials Conversion costs Total
Quantities
Units to be accounted for
d) Determine the costs to be assigned to the Beginning work in process 0
Started into production 22,000
units transferred out and in process for June. Total units 22,000

Transferred out 340000 Units accounted for

Units transferred out 20,000 20,000 20,000
Ending work in process Ending work in process 2,000 2,000 800
Materials 18000 Total units 22,000 22,000 20,800

Conversion costs 6400 Costs

Total costs 198,000 166,400 364,400
Total costs 364400 Equivalent units 22,000 20,800
Unit costs 9 8 17
Costs to be accounted for
• Transferred out: 17 * 20,000 = 340,000 Beginning work in process 0
Started in to production 364,400
• Materials: 9 * 2,000 = 18,000 Total costs 364,400

• Conversion: 8 * 800 = 6,400 Cost Reconciliation Schedule

Cost accounted for
Transferred out 340000
Ending work in process
Materials 18000
Conversion cost 6400 24400
Lê Bá Khánh Linh
Total costs 364400
a) Determine the equivalent units of production and the unit production costs for the Assembly Department.
Units accounted for Materials Conversion costs • Units transferred out:
Units transferred out 670,000 670,000
(660,000 + 35,000) – 25,000 = 670,000
Ending work in process 25000 10000
Total units 695,000 680,000 Ending work in process
• Materials: 25,000
Unit costs
• Conversion: 25,000 * 40% = 10,000
Materials 2.4
Conversion costs 0.9 Unit cost
Total unit costs 3.3
5.,"""4$,&1.,"""
• Materials: = 2.4
3.&,"""

81,$&"4%%&,.%"4!!5,.!"
• Conversion: = 0.9
31","""

b) Determine assignment of costs to goods transferred out and in process.

Transferred out 2211000
• Transferred out: 3.3 * 670,000 = 2,211,000
Ending work in process
Materials 60000 • Materials: 2.4 * 25,000 = 60,000
Conversion costs 9000 • Conversion: 0.9 * 10,000 = 9,000
Total costs 2280000
Lê Bá Khánh Linh
c) Prepare a production cost report for the Assembly Department
Physical units Materials Conversion costs Total
Quantities
Units to be accounted for
Beginning work in process 35,000
Started into production 660,000
Total units 695,000

Units accounted for

Units transferred out 670,000 670,000 670,000
Ending work in process 25,000 25000 10000
Total units 695,000 695,000 680,000

Costs
Total costs 1,668,000 612,000 2,280,000
Equivalent units 695,000 680,000
Unit cost 2.4 0.9 3.3
Costs to be accounted for
Beginning work in process 127,150
Started into production 2,152,850
Total costs 2,280,000

Cost Reconciliation Schedule

Transferred out 2211000
Costs accounted for
Materials 60000
Conversion costs 9000 69000
Total costs 2280000 Lê Bá Khánh Linh
🖊Self-practice
The Cutting Department of Fontana SA has the following production and cost data for July. Materials are entered at the
beginning of the process. Conversion costs are incurred uniformly during the process.

Production Data % complete

Beginning work in process 0
Started into production 15,000 units
Transferred out 12,000 units
Ending work in process 3,000 units 60%

Costs Data
Beginning work in process 0
Materials 45,000
Labor 16,200
Manufacturing overhead 18,300
Instructions

a) Determine the equivalent units of production for (1) materials and (2) conversion costs.

b) Compute unit cost.

c) Prepare a cost reconciliation schedule.

~~~Hard work pays off~~~ Lê Bá Khánh Linh

 CHAPTER 22

Cost – Volume - Profit

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VARIABLE COSTS

Lê Bá Khánh Linh
FIXED COSTS

Lê Bá Khánh Linh
INCOME STATEMENT

• Contribution margin = Sales – Variable costs

9:;<=>?@<>:; AB=C>;
• Contribution margin ratio = DBEFG

Lê Bá Khánh Linh
BREAK-EVEN POINT

HIJKL MNOPO
• Break-even point in units =
QRIP MNRPSITUPINR VWSXIR

HIJKL MNOPO
• Break-even point in sales =
YNRPSITUPINR VWSXIR SWPIN

Lê Bá Khánh Linh
TARGET NET INCOME

HIJKL MNOPO 4 ZWSXKP RKP IRMNVK

• Required units = QRIP MNRPSITUPINR VWSXIR

HIJKL MNOPO4 ZWSXKP RKP IRMNVK

• Required sales = YNRPSITUPINR VWSXIR SWPIN

Lê Bá Khánh Linh
MARGIN OF SAFETY

- Difference between actual or expected sales and sales at break-even point

- May be expressed in sales or as a ratio

• Margin of safety = Actual/Expected Sales − Break-even sales

• \WSXIR N] OW]KP^
Margin of safety ratio = _MPUW`/bJcKMPKL dW`KO

à The higher the sales percentage, greater margin of safety.

Lê Bá Khánh Linh
a) Prepare a CVP income statement for 2020 based on management's estimates.
Sales 1,800,000
Variable expenses
Cost of goods sold 1,170,000
Selling expenses 70,000
Adminisrative expenses 20,000
Total variable expenses 1,260,000
Contribution margin 540,000
Fixed expenses
Manufacturing overhead 280,000
Selling expenses 65,000
Administrative expenses 60,000
Total fixed expenses 405,000
Net income 135,000

• COGS: 430,000 + 360,000 + 380,000 = 1,170,000

• Contribution margin: 1,800,000 – 1,260,000 = 540,000
• Net income: 540,000 – 405,000 =135,000
Lê Bá Khánh Linh
b) Compute the break-even point in (1) units and (2) sales.
• 50 cents = $0.5
(1) units
Price of 1-liter bottle 0.5 $,%3","""
• Variable cost: = 0.7 or 70%
Variable cost 70% $,1"","""
Variable cost/bottle 0.35 • Variable cost/bottle: 70% * 0.5 = 0.35
Fixed cost 405,000
The number of bottles 2700000 8"&,"""
• Number of bottles: = 2,700,000
".&h".!&

(2) sales 1350000 • Sales: 2,700,000 * 0.5 = 1,350,000

c) Compute the contribution margin ratio and the margin of safety ratio (Round to nearest full %)
&8","""
Contribution margin ratio 30% • Contribution margin ratio: = 30%
$,1"","""

Margin of safety 450,000 • Margin of safety: 1,800,000 – 1,350,000 = 450,000

Margin of safety ratio 25% • Margin of safety ratio:
8&","""
= 25%
$,1"","""

d) Determine the sales dollars required to earn net income of $180,000.

8"&,"""4$1","""
Required sales 1950000 • Required sales: = 1,950,000
!"% Lê Bá Khánh Linh
Exercise 6:
Bora Lee is the advertising manager for Bargain Shoe Store. She is currently working on a major promotional
campaign. Her ideas include the installation of a new lighting system and increased display space that will add
W24,000,000 in fixed costs to the W270,000,000 currently spent. In addition, Bora is proposing that a 5% price
decrease (W40,000 to W38,000) will produce a 20% increase in sales volume (20,000 to 24,000). Variable costs
will remain at W24,000 per pair of shoes. Management is impressed with Bora’s ideas but concerned about the
effects that these changes will have on the break-even point and the margin of safety.

a) Compute the current break-even point in units and compare it to the break-even point in units if Bora’s
ideas are used.

b) Compute the margin of safety ratio for current operations and after Bora’s changes are introduced.
(Round to nearest full percent.)

c) Prepare a CVP income statement for current operations and after Bora’s changes are introduced. (Show
column for total amounts only.) Would you make the changes suggested?
Lê Bá Khánh Linh
a) Compute the current break-even point in units and compare it to the break-even point in units if Bora’s ideas
are used.
current break-even point in units 16875
Sale 40,000 %5",""","""
Variable cost 24,000 • Current break-even: 8","""h%8,""" = 16,875
Fixed cost 270,000,000
• Fixed cost: 270,000,000 + 24,000,000 = 294,000,000
Bora's ideas are used 18375 %.8,""","""
Sale 40,000 • Bora’s ideas: = 18,375
8","""h%8,"""
Variable cost 24,000
Fixed cost 294,000,000

b) Compute the margin of safety ratio for current operations and after Bora’s changes are introduced.
(Round to nearest full percent.)
current operations (units) 16%
%","""h$3,15&
sale 20,000 • Current operations: = 16%
%","""
break-even point 16,875
%8,"""h$1,!5&
Bora's ideas are used 23% • Bora’s ideas: = 23%
%8,"""
sale 24,000
break-even point 18,375
Lê Bá Khánh Linh
c) Prepare a CVP income statement for current operations and after Bora’s changes are introduced. (Show
column for total amounts only.) Would you make the changes suggested?

CURRENT NEW
Sale 800,000,000 960,000,000
Variable expense 480,000,000 576,000,000
Contribution margin 320,000,000 384,000,000
Fixed expense 270,000,000 294,000,000
Net income 50,000,000 90,000,000

CURRENT
• Sale: 20,000 * 40,000 = 800,000,000
• Variable expense: 24,000 * 20,000 = 480,000,000
• Contribution margin: 800,000,000 – 480,000,000 = 320,000,000
• Fixed expense: 270,000,000 (as given)
• Net income: 320,000,000 - 270,000,000 = 50,000,000
Lê Bá Khánh Linh
Exercise 7:
Sandhill Company reports the following operating results for the month of August:
Units 5,000
Sales 400,000
Variable cost 247,000
Fixed cost 98,000

Management is considering the following independent courses of action to increase net income.

1. Increase selling price by 10% with no change in total variable costs or units sold.

2. Reduce variable costs to 59% of sales.

Instructions

Compute the net income to be earned under each alternative. Which course of action will produce
higher net income?

Lê Bá Khánh Linh
Alternative 1 Alternative 1
Sale 440000 • Sale: 400,000 * (100% + 10%) = 440,000
Variable cost 247,000
• Contribution margin: 440,000 – 247,000 = 193,000
Contribution margin 193,000
• Net income: 193,000 – 98,000 = 95,000
Fixed cost 98,000
Net income 95,000

Alternative 2 Alternative 2
Sales 400,000
• Variable cost: 400,000 * 59% = 236,000
Variable cost 236000
• Contribution margin: 400,000 – 236,000 = 164,000
Contribution margin 164,000
Fixed cost 98,000 • Net income: 164,000 – 98,000 = 66,000
Net income 66,000

à Alternative 1 will produce higher net income.

Lê Bá Khánh Linh
Exercise 8:
Felde Bucket Co., a manufacturer of rain barrels, had the following data for 2016.

Sales 2,430 units

Sales price 50 per unit
Variable costs 35 per unit
Fixed costs 18,225
Instructions

a) What is the contribution margin ratio?

b) What is the break-even point in sales?

c) What is the margin of safety and the margin of safety ratio?

d) If the company wishes to increase its total dollar contribution margin by 30% in 2020, by how much
will it need to increase its sales if all other factors remain constant?

Lê Bá Khánh Linh
a) What is the contribution margin ratio? • Sales: 2,430 * 50 = 121,500
Sales 121500
• Variable costs: 2,430 * 35 = 85,050
Variable costs 85050
Contribution margin 36450 • Contribution margin: 121,500 – 85,050 = 36,450
Contribution margin ratio 30%
!3,8&"
Fixed costs 18,225 • Contribution margin ratio: = 30%
$%$,&""
Net income 18,225
• Net income: 36,450 - 18,225 = 18,225
b) What is the break-even point in sales?
$1,%%&
Break-even point in sales 60750 • Break-even point in sales: = 60,750
!"%

c) What is the margin of safety and the margin of safety ratio?

Margin of safety 60750 • Margin of safety: 121,500 - 60,750 = 60,750
Margin of safety ratio 50% 3",5&"
• Margin of safety ratio: = 50%
$%$,&""

d) If the company wishes to increase its total dollar contribution margin by 30% in 2020, by how much will it need to
increase its sales if all other factors remain constant?
• Contribution margin: 36,450 * (1+30%) = 47,385
New contribution margin 47385
85,!1&
Sales 36450 • Sales: = 36,450 Lê Bá Khánh Linh
$!"%
🖊Self-practice
1) Viejol Corporation has collected the following information after its first year of sales. Sales were $1,440,000 on
120,000 units, selling expenses $210,000 (40% variable and 60% fixed), direct materials $504,000, direct labor
$169,400, administrative expenses $276,000 (20% variable and 80% fixed), and manufacturing overhead $382,000
(70% variable and 30% fixed). Top management has asked you to do a CVP analysis so that it can make plans for the
coming year. It has projected that unit sales will increase by 10% next year.

Instructions

a) Compute the contribution margin & fixed costs for the current and contribution margin for the projected year.

b) Compute the break-even point in units and sales dollars for the current year.

c) The company has a target net income of $200,000.What is the required sales for the company to meet its target?

d) If the company meets its target net income number, by what % could its sales fall before it is operating at a loss?
That is, what is its margin of safety ratio?

~~~Hard work pays off~~~ Lê Bá Khánh Linh

🖊Self-practice
2) Xin Industries carries no inventories. Its product is manufactured only when a customer’s order is received. It is then
shipped immediately after it is made. For its fiscal year ended October 31, 2020, Xin's break-even point was $1.3 million. On
sales of $1.2 million, its income statement showed a gross profit of $180,000, direct materials cost of $400,000, and direct
labor costs of $500,000. The contribution margin was $180,000, and variable manufacturing overhead was $50,000.
break-even point 1300000
sale 1200000
direct materials 400000
direct labor 500000
variable MOH 50000
contribution margin 180000
contributin margin ratio 15%
Instructions gross profit 180000

a) Prepare a CVP income statement.

b) Ignoring your answer to part (a), assume that fixed manufacturing overhead was $100,000 and the fixed selling and
administrative expenses were $80,000. The marketing vice president feels that if the company increased its advertising,
sales could be increased by 25%. What is the maximum increased advertising cost that the company can incur and still
report the same income as before the advertising expenditure?
~~~Hard work pays off~~~ Lê Bá Khánh Linh
🖊Self-practice
3) Lika AG makes radios: Selling price $30 per unit

For the coming year, management expects:

Variable costs $18 per unit

Fixed costs $220,000

Instructions

a) Compute the break-even point in sales using the contribution margin (CM) ratio.

b) Compute the margin of safety ratio assuming that Actual sales is 800,000.

c) Compute required sales to earn net income 140,000.

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GOOD LUCK TO YOU!!!

Lê Bá Khánh Linh