Accounting Principles and breakeven analysis at Magic Manufacturing Essay

Accounting Principles 10ThursdayEdition for International Students.Your NameSchool NameE5-1Mr. Lucas has prepared the undermentioned list of statements about service companies andMerchants.

  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: FalseGross 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: FalseThe 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 aremaintained.Solution: FalseIn 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 theaccounting period.Solution: True8.A periodic stock list system provides better control over stock lists than a ageless system.

Solution: FalseSince 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.

undera ageless stock list system.Solution:Dr Merchandise Inventory 23,000Cr Accounts Collectible 23,0002. On April 6, paid cargo costs of $ 900 on ware purchased from Morris.Dr Merchandise Inventory 900Cr Cash 9003. On April 7, purchased equipment on history for $ 26,000.Dr Equipment 26,000Cr Accounts Collectible 26,0004. On April 8, returned damaged ware to Morris Company and was granted a $ 3,000recognition for returned ware.

Dr Accounts Collectible 3000Cr 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 19,600Cr Merchandise Inventory 400 ( 2 % of 20,000 )( B ) Assume that Almond Co. paid the balance due to Morris Company on May 4 alternatively ofApril 15. Fix the journal entry to enter this payment.Dr Accounts Collectible 20,000Cr Cash 20,000E5-13Presented 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 )Solutiona ) Gross saless Return =Sales Revenue – Net Gross saless=90,000-87000=3,000B ) Gross net income =Net Gross saless – Cost of goods sold=87,000-56000=31,000degree Celsiuss ) Net Income =Gross profit-Operating Expenses=31,000-15,000= 16,000vitamin D ) Gross saless Revenue =Sales Returns + Net Gross saless=102,000+5000=107,000vitamin E ) Cost of goods sold = Net Gross saless –Gross Net income=102,000-41,500=60,500degree Fahrenheit ) Operating Expenses = Gross Profit – Net Income= 41,500 – 15,000= 26,500Final 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 salessDae company net income ratesGross net income ?Net gross revenues = 31,000 ?87,000=35.6 %Kim company net income ratesGross net income ?Net gross revenues =41,500 ? 102,000=40.

7 %E18-8Selected comparative statement informations for Navin Products Company are presented on thefollowing page. All balance sheet informations are as of December 31.2013 2012Net gross revenues $ 760,000 $ 720,000Cost of goods sold 480,000 440,000Interest disbursal 7,000 5,000Net income 50,000 42,000Histories receivable 120,000 100,000Inventory 85,000 75,000Entire assets 580,000 500,000Entire common stockholders’ equity 430,000 325,000Instruction manualsCalculate 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= 540,000Notes: Average shareholders ‘ equity = ( Entire common stockholders’ equity 2013 +Entire common stockholders’ equity2012 ) /2= ( 430,000+325,000 ) /2= 377,500E18-9The income statement for Mary Hatch, Inc. , appears below.MARY HATCH, INC.

Income StatementFor the Year Ended December 31, 2012Net gross revenues $ 400,000Cost of goods sold 230,000Gross net income 170,000Expenses ( including $ 16,000 involvement and $ 24,000 income revenue enhancements ) 105,000Net income $ 65,000Extra 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 manualsCalculate the undermentioned ratios for 2012.( a )Net incomes per portion.( B )Price-earnings.( degree Celsius )Payout.( vitamin D )Timess involvement earnedSolutions: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 valueof $ 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 MarginUnit part border = Fixed costs ? Number of sale units to accomplish breakeven= $ 105,000 ? ( $ 350,000 ? $ 7 )= $ 2.10Variable cost per unit = merchandising monetary value per Unit –contribution margin per unit= $ 7.

00 – $ 2.10= $ 4.90ThereforeContribution border ratio = $ 2.10 ? $ 7.00 = 30 %( B ) Break-even gross revenues ( $ ) = Fixed costs ? Contribution border ratioFixed costs = $ 420,000 ? 3= $ 126,000Since fixed costs were $ 105,000 in 2011, the addition in 2012 is= ( $ 126,000 – $ 105,000 ) .= $ 21,000E23-9Duke Company combines its operating disbursals for budget intents in a merchandising andadministrative 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 % , andpublicizing 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 manualsFix 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 for50 cents per 16-ounce bottle to retail merchants, who charge clients 75 cents per bottle. For the twelvemonth2012, direction estimates the undermentioned grosss and costs.

Net gross revenues $ 1,800,000 Selling expenses—variable $ 70,000Direct stuffs 430,000 Selling expenses—fixed 65,000Direct labour 352,000 Administrative disbursalManufacturing overhead variable 20,000Variable 316,000 Administrative disbursals fixed 60,000Manufacturing operating expenseFixed 283,000Instruction 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 soldNo 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 ) IBreak-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 =xThe figure of Unit of measurements required to breakeven is 1,632,000B ) twoNumber of Units required to breakeven = 1,632,000Selling monetary value /Unit = $ 0.75Breakeven in dollars = 1632,000 X 0.75= $ 1,224,000degree Celsius ) Contribution Margin=Sales Price – Variable Cost=0.75- 0.50=0.25Contribution 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= $ 576,000Margin 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 units238,000 = 0.75x – ( 408,000 + 0.50x )238,000+ 408,000 =0.75x- 0.

50×646,000 = 0.25 ten2,584,000 = tenNo of Unit of measurements required to gain net income of $ 238,000 are 2,584,000Gross saless dollars required to gain net income of $ 238,000.= 2,584,000 tens 0.75= $ 1,938,000P22-3AMagic Manufacturing’s gross revenues slumped severely in 2012.

For the first clip in its history, itoperated at a loss. The company’s income statement showed the undermentioned consequences from selling600,000 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 FixedCost of goods sold $ 2,100,000 $ 1,440,000 $ 660,000Selling disbursals 240,000 72,000 168,000Administrative disbursals 200,000 48,000 152,000$ 2,540,000 $ 1,560,000 $ 980,000Management 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 numberWages of $ 60,000 plus a 3 % committee on net gross revenues.3. Purchase new automated equipment that will alter the proportion between variable andFixed 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= $ 4.00Current variable cost per unit = 1,560,000/ 600,000= $ 2.60Break-even= 980,000 + 2.

60x = 4x=980,000 =4x – 2.60x=980,000/1.4x= 700,000 Unit of measurementsIn dollars = 700,000 x 4= $ 2,800,000B )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 measurementsIn dollars = 445,455 x 4.8= $ 2,138,1822.

Change the compensation of sales representatives from fixed one-year wages numbering $ 150,000 to numberWages of $ 60,000 plus a 3 % committee on net gross revenues.SolutionWhen 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 = $ 78,000The entire variable Selling cost will be:$ 72000 + 3 % ten $ 2,400,000= $ 144,000The 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/ UnitThe 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.

72xX = 695,312.50 Unit of measurementsIn dollars= 695,312.50 tens 4= $ 2,781,2503. Purchase new automated equipment that will alter the proportion between variable andFixed cost of goods sold to 54 % variable and 46 % fixed.New variable Cost of goods sold =2,100,000 ten 54 %= $ 1,134,000New fixed Cost of goods sold = 2,100,000 ten 46 %= $ 966,000 Selling monetary value per Unit =2,400,000 / 600,000= $ 4.00New 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 unitNew 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 costsBreak-even=Fixed Costss + Entire Variable Costss = Entire Gross saless=1,286,000 + 2.09x = 4xten = 673,298.43 Unit of measurementsIn 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.