Concept explainers
Suppose that Kicker had the following sales and cost experience (in thousands of dollars) for May of the current year and for May of the prior year:
In May of the prior year, Kicker started an intensive quality program designed to enable it to build original equipment manufacture (OEM) speaker systems for a major automobile company. The program was housed in research and development. In the beginning of the current year, Kicker’s accounting department exercised tighter control over sales commissions, ensuring that no dubious (e.g., double) payments were made. The increased sales in the current year required additional warehouse space that Kicker rented in town. (Round ratios to four decimal places. Round sales dollars computations to the nearest dollar.)
Required:
- 1. Calculate the contribution margin ratio for May of both years.
- 2. Calculate the break-even point in sales dollars for both years.
- 3. Calculate the margin of safety in sales dollars for both years.
- 4. CONCEPTUAL CONNECTION Analyze the differences shown by your calculations in Requirements 1, 2, and 3.
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Chapter 7 Solutions
Managerial Accounting: The Cornerstone of Business Decision-Making
- You are currently involved in planning for the audit of Spot Light Ltd (SLL), a national company producing curtains and blinds. The curtain and the blind market is highly competitive, and SLL has been experiencing declining sales over the past three years. Cost-cutting has proven very difficult, as the cost of materials used in the company’s production lines has increased each year. SLL’s bank has continued to provide SLL with loan facilities; however, it has indicated that it expects to see improved results in the next financial report and has placed a number of quite restrictive covenants in SLL’s lending agreements. Recent articles appearing in the financial press concerning SLL’s expected financial results have been very pessimistic about its likely performance. Required: Based on the information provided: (a) Discuss the overall impact on audit risk. Which specific component(s) of audit risk would be affected? (b) In refer to Question No. 5, for each matter explains from 1 to 3,…arrow_forwardYou are currently involved in planning for the audit of Spot Light Ltd (SLL), a national company producing curtains and blinds. The curtain and the blind market is highly competitive, and SLL has been experiencing declining sales over the past three years. Cost-cutting has proven very difficult, as the cost of materials used in the company’s production lines has increased each year. SLL’s bank has continued to provide SLL with loan facilities; however, it has indicated that it expects to see improved results in the next financial report and has placed a number of quite restrictive covenants in SLL’s lending agreements. Recent articles appearing in the financial press concerning SLL’s expected financial results have been very pessimistic about its likely performance. Required: Based on the information provided: Discuss the overall impact on audit risk. Which specific component(s) of audit risk would be affected? (4 marks) In refer to Question No. 5, for each matter explains from 1 to…arrow_forwardIn response to intense foreign competition, Florex Company has taken steps to improve the quality of its products. A summary of its quality costs (in thousands) over the past two years is given below: Inspection Quality engineering Depreciation of test equipment Rework labor Statistical process control Cost of field servicing Supplies used in testing Systems development Warranty repairs Prevention costs: Total prevention costs Appraisal costs Total appraisal costs Internal failure costs: Costs (in thousands) Last Year Total internal failure costs External failure costs: $630 $ $ $ 420 $588 1,050 $0 1,260 $ 42 $840 $ 4,200 $420 $840 $ 2,520 $630 Net cost of scrap Product testing Product recalls Disposal of production defects. Sales have been flat over the past few years, at $84,000,000 per year. Total external failure costs Total quality cost This Year $ 1,008 Required: 1. Prepare a quality cost report for this year and last year. Note: Enter amount values in thousands. Round your…arrow_forward
- In response to intense foreign competition, Florex Company has taken steps to improve the quality of its products. A summary of its quality costs (in thousands) over the past two years is given below: Inspection Quality engineering Depreciation of test equipment Rework labor Statistical process control Cost of field servicing Prevention costs: Total prevention costs Appraisal costs Total appraisal costs Internal failure costs: Total internal failure costs External failure costs: Costs (in thousands) Last Year This Year $ 630 $ 918 $ 540 $ 720 $ 180 Supplies used in testing Systems development Warranty repairs Net cost of scrap Product testing Product recalls $ 720 $ 990 $ 2,610 Disposal of production defects $ 900 Sales have been flat over the past few years, at $90,000,000 per year. Required: 1. Prepare a quality cost report for this year and last year. Note: Enter amount values in thousands. Round your percentage answers to 2 decimal places (i.e 0.1234 should be entered as 12.34).…arrow_forwardWillingham Construction is in the business of building high-priced, custom, single-family homes. The company,headquartered in Anaheim, California, operates throughout the Southern California area. The construction periodfor the average home built by Willingham is six months, although some homes have taken as long as nine months.You have just been hired by Willingham as the assistant controller and one of your first tasks is to evaluate thecompany’s revenue recognition policy. The company presently recognizes revenue upon completion for all of itsprojects and management is now considering whether revenue recognition over time is appropriate.Required:Write a 1- to 2-page memo to Virginia Reynolds, company controller, describing the differences between theeffects of recognizing revenue over time and upon project completion on the income statement and balance sheet.Indicate any criteria specifying when revenue should be recognized. Be sure to include references to GAAP asthey pertain to…arrow_forwardWhich enhancing quality best describes the business scenario below? Target Corporation issues its quarterly (10Q) report immediately after each quarter ends. Home Depot has used straight-line depreciation since it began operations General Mills and Kellogg’s both use the FIFO cost flow assumption Ford Motor Company’s annual reports are audited by certified public accountants.arrow_forward
- The new chief executive officer (CEO) of Richard Manufacturing has asked for a variety of information about the operations of the firm from last year. The CEO is given the following information, but with some data missing: (Click the icon to view the variety of operations information.) Read the requirements, Requirement 1. Find (a) total sales revenue, (b) selling price, (c) rate of return on investment, and (d) markup percentage on full cost for this product. (a) The total sales revenue is (Round your answer to the nearest cent.) (b) The selling price per unit is (Round the retum on investment to the nearest whole percent, X%.) (c) The rate of return on investment is (d) Calculate the markup percentage on full cost for this product. (Round your intermediary calculations to the nearest cent and the markup to the nearest hundredth percent XXX%) The markup percentage on full cost for this product is Requirement 2. The new CEO has a plan to reduce fixed costs by $200,000 and variable…arrow_forwardIn response to Intense foreign competition, Florex Company has taken steps to improve the quality of its products. A summary of its quality costs (in thousands) over the past two years is given below: Inspection Quality engineering Depreciation of test equipment Rework labor Statistical process control Cost of field servicing Supplies used in testing Systems development Warranty repairs Net cost of scrap Prevention costs: Total prevention costs Appraisal costs Total appraisal costs Internal failure costs: Product testing Product recalls Disposal of production defects Sales have been flat over the past few years, at $84,000,000 per year. Required: 1. Prepare a quality cost report for this year and last year. Note: Enter amount values in thousands. Round your percentage answers to 2 decimal places (l.e 0.1234 should be entered as 12.34). Total internal failure costs External failure costs: Costs (in thousands) Last Year This Year $ 840 $1,218 $ 420 $ 630 $ 630 $ 420 $ 1,260 Total…arrow_forwardABC Manufacturing is a producer of a local product used in house cleaning, called Agent C. The production manager is required to present a production report for the month August, however he got no idea on what information he needed for the report, and what analysis could be made to help the top management on their decision-making. The production manager sought your expertise on the subject matter and gave to you the following information: Sales (in Pesos) 4,957,875.00 Sales Volume 22,500.00 Variable Costs: Cost of Direct Raw Materials 895,000.00 Cost of Direct Labor 530,000.00 Cost of Packaging Materials 124,200.00 Fixed Costs: Monthly Depreciation Monthly Rent of Warehouse Fixed Monthly Allowance for Electricity 650,000.00 100,000.00 675,000.00 Other Fixed Manufacturing Overhead 146,700.00 Required: 13. If the fixed cost is increased by P 500,000 per month and 20% income tax is imposed on the net income, compute the following: a. How many units must ABC produce and sell to breakeven?…arrow_forward
- A corporation has an excess input VAT due to its excessive local purchases of goods and services. This excess input VAT is accumulating every month and reached a significant value. The management is considering to deal with the excess input VAT. Assume that the excess input VAT is directly attributable to its Zero-rated VAT Sales, explain the options that could possibly be considered by the management.arrow_forwardWith the goal of attracting as much customers as possible in the CALABARZON, Jhet Company engaged in a customer satisfaction program and marketing strategy for two of their major lines of products: (1) electrical appliances and (2) household and office furniture. All branches in the region are participating in the company’s promotions. In the customer satisfaction program, Jhet provides one-year warranty replacement of parts and labor of the electrical appliances sold. Based on past experience, the estimated warranty cost is 3% of sales. During 2021, total sales of electrical appliances was ₱7,200,000. Replacement parts and labor for warranty work totaled ₱184,000 during 2021. In the company’s marketing strategy for the household and office furniture section, customers are given a coupon for every ₱1,000 spent on these items. Customers may exchange 10 coupons plus ₱500 for a “hot and cold” water dispenser. Each water dispenser cost ₱1,200 and estimates that 40% of the coupons given to…arrow_forwardABC Manufacturing is a producer of a local product used in house cleaning, called Agent C. The production manager is required to present a production report for the month August, however he got no idea on what information he needed for the report, and what analysis could be made to help the top management on their decision-making. The production manager sought your expertise on the subject matter and gave to you the following information: Sales (in Pesos) 4,957,875.00 22,500.00 Sales Volume Variable Costs: Cost of Direct Raw Materials 895,000.00 530,000.00 124,200.00 Cost of Direct Labor Cost of Packaging Materials Fixed Costs: Monthly Depreciation Monthly Rent of Warehouse Fixed Monthly Allowance for Electricity Other Fixed Manufacturing Overhead 650,000.00 100,000.00 675,000.00 146,700.00 Required: SENSITIVITY ANALYSIS If the selling price per unit is increased by 20% of its current price while the variable cost per unit is also increased by 30%, compute the following: a. Compute the…arrow_forward
- Managerial Accounting: The Cornerstone of Busines...AccountingISBN:9781337115773Author:Maryanne M. Mowen, Don R. Hansen, Dan L. HeitgerPublisher:Cengage LearningManagerial AccountingAccountingISBN:9781337912020Author:Carl Warren, Ph.d. Cma William B. TaylerPublisher:South-Western College Pub