MANAGERIAL ACCOUNTING F/MGRS.
MANAGERIAL ACCOUNTING F/MGRS.
5th Edition
ISBN: 9781259969485
Author: Noreen
Publisher: RENT MCG
Question
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Chapter 1, Problem 1.19P

1.

To determine

Introduction:

Contribution margin: It is the difference between Sales and variable costs.Contribution margin is calculated on the basis of unit details when the details given are in units and in lump sum amount in case of consolidated amount is given as details.

To prepare: A contribution format income statement.

1.

Expert Solution
Check Mark

Answer to Problem 1.19P

    Contribution Format Income Statement of T Company
    Sl.No.ParticularsAmount(in $)Amount (in $)
    1.Sales300000
    2.Variable cost:
    Cost of goods sold(note 1)213000
    Selling expenses15000
    Administrative expenses (note 2)12000240000
    3.Contribution Margin (1-2)60000
    4.Fixed expenses:
    Selling expenses (note 3)30000
    Administrative expenses1200042000
    5.Net operating income (3-4)18000

Therefore, the net operating income under contribution format income statement would be $18000.

Explanation of Solution

  Contribution=Selling price per unitVariable cost per unit ; andContribution=SalesVariable cost

Both the formulasare used based on the information given. Ultimately, contribution refers to that fixed cost which is not utilized by variable cost.

Units sold= 1000 units.

When the financial statements of a company are observed, it shows the financial position of the company. Income statement is one such important financial statement which shows the profitability that is earned by the company during a specific period. All the incomes, expenses, gains and losses for that period are accounted. When the revenues and expenses are compared, we get the difference of Net income during that specific period. Let us now calculate the net operating income under contribution format. In this format, all the fixed costs are subtracted from the contribution margin.

The formula for contribution margin is:- Contribution=SalesVariable cost

Note 1:Calculation of cost of goods sold:

  Cost of good sold=Beginning merchandise inventory+PurchasesEnding merchandise inventory$20000+$200000+$7000$213000

Therefore, cost of goods sold would be $213000.

Note 2: Calculation of Variable Administrative expenses:

  Variable Administrative expenses=Total variable costCost of goods soldVariable selling expenses$240000$213000$15000$12000

Note 3: Calculation of Fixed selling expenses.

We need to calculate total fixed costs:

  Total fixed costs=Contribution marginNet operating income$60000$18000=$42000

Therefore, using the values of total fixed costs and fixed administrative expenses, let us calculate the fixed selling expenses.

  Fixed Selling expenses=Total fixed costsFixed administrative expenses$42000$12000=$30000

2.

To determine

Concept Introduction:

Contribution margin: It is the difference between Sales and variable costs.Contribution margin is calculated on the basis of unit details when the details given are in units and in lumpsum amount in case of consolidated amount is given as details.

  Contribution=Selling price per unitVariable cost per unit ; andContribution=SalesVariable cost

So, both the formulasare used based on the information given. Ultimately, contribution refers to that fixed cost which is not utilized by variable cost.

To prepare: A traditional format income statement.

2.

Expert Solution
Check Mark

Answer to Problem 1.19P

    Traditional Format Income Statement of T Company
    Sl.No.ParticularsAmount(in $)Amount (in $)
    1.Sales300000
    2.Variable cost:
    Cost of goods sold(note 1)213000
    3.Gross margin (1-2)87000
    4.Selling and administrative expenses:
    Fixed Selling expenses (note 3)30000
    Variable selling expenses15000
    Fixed administrative expenses12000
    Administrative expenses (note 2)1200069000
    5.Net operating income (3-4)18000

Therefore the net operating income under traditional format would be $18000.

Explanation of Solution

Units sold= 1000 units.

Let us now calculate the net operating income under traditional format. In this format, net operating income is calculated by subtracting all selling and administrative expenses from the gross margin.

Therefore the net operating income under traditional format would be $18000.

3.

To determine

Concept Introduction:

Contribution margin: It is the difference between Sales and variable costs.Contribution margin is calculated on the basis of unit details when the details given are in units and in lumpsum amount in case of consolidated amount is given as details.

  Contribution=Selling price per unitVariable cost per unit ; and

  Contribution=SalesVariable cost

So, both the formulasare used based on the information given. Ultimately, contribution refers to that fixed cost which is not utilized by variable cost.

The Selling price per unit.

3.

Expert Solution
Check Mark

Answer to Problem 1.19P

The selling price per unit would be $300.

Explanation of Solution

Units sold= 1000 units.

Let us now calculate the selling price per unit.

  Selling price per unit=Total salesUnits sold$3000001000 units=$300

Therefore, the selling price per unit would be $300.

4.

To determine

Introduction:

Contribution margin: It is the difference between Sales and variable costs.Contribution margin is calculated on the basis of unit details when the details given are in units and in lumpsum amount in case of consolidated amount is given as details.

  Contribution=Selling price per unitVariable cost per unit ; andContribution=SalesVariable cost

So, both the formulasare used based on the information given. Ultimately, contribution refers to that fixed cost which is not utilized by variable cost.

The variable cost per unit.

4.

Expert Solution
Check Mark

Answer to Problem 1.19P

The variable cost per unit would be $240.

Explanation of Solution

Units sold= 1000 units.

Let us now calculate the variable cost per unit.

  Variable cost per unit=Total variable costUnits sold$2400001000 units=$240

Therefore, the variable cost per unit would be $240.

5.

To determine

Introduction:

Contribution margin: It is the difference between Sales and variable costs.Contribution margin is calculated on the basis of unit details when the details given are in units and in lumpsum amount in case of consolidated amount is given as details.

  Contribution=Selling price per unitVariable cost per unit ; and

  Contribution=SalesVariable cost

So, both the formulasare used based on the information given. Ultimately, contribution refers to that fixed cost which is not utilized by variable cost.

The contribution margin per unit.

5.

Expert Solution
Check Mark

Answer to Problem 1.19P

The contribution margin per unit would be $60.

Explanation of Solution

Units sold= 1000 units.

Let us now calculate the contribution margin per unit.

  Contribution margin per unit=Selling price per unitVariable cost per unit$300$240=$60

Therefore, the contribution margin per unit would be $60.

6.

To determine

Introduction:

Contribution margin: It is the difference between Sales and variable costs.Contribution margin is calculated on the basis of unit details when the details given are in units and in lumpsum amount in case of consolidated amount is given as details.

  Contribution=Selling price per unitVariable cost per unit ; andContribution=SalesVariable cost

So, both the formulasare used based on the information given. Ultimately, contribution refers to that fixed cost which is not utilized by variable cost.

To analyze: The requirement of income statement in estimating changes in net operating income with respect to changes in unit sales.

6.

Expert Solution
Check Mark

Answer to Problem 1.19P

The contribution format is more beneficial because of the organization of cost on the basis of cost behavior.

Explanation of Solution

Units sold= 1000 units.

When both the formats of income statements are compared, i.e., contribution format and the traditional format, we find that the contribution format is more beneficial as it organizes the costs according to its nature of cost behavior. Further, this contribution format helps the managers to quickly compute the change of variable costs in respect to change in unit sales.

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