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Principles of Accounting II

by: Audie McGlynn

Principles of Accounting II ACCT 2102

Audie McGlynn

GPA 3.69

Lee Taylor

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About this Document

Lee Taylor
Class Notes
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This 5 page Class Notes was uploaded by Audie McGlynn on Friday October 2, 2015. The Class Notes belongs to ACCT 2102 at Abraham Baldwin Agricultural College taught by Lee Taylor in Fall. Since its upload, it has received 44 views. For similar materials see /class/217661/acct-2102-abraham-baldwin-agricultural-college in Accounting at Abraham Baldwin Agricultural College.


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Date Created: 10/02/15
L 5quot 99 F EYE OPENERS Total variable costs vary in direct proportion to changes in the level of activity Unit variable costs remain the same with changes in the level of activity a Variablecosts b Variable costs c Variable costs a Total fixed costs remain the same as the level of activity increases b Unit fixed costs decrease as the level of activity increases a Fixed costs b Fixed costs c Fixed costs Mixed costs are separated into their fixed and variable cost components The total variable cost variable cost per unit times total units produced at either the highest or lowest level of production is determined and this amount is subtracted from the total cost at that level to determine the total fixed cost a No impact on the contribution margin b Income from operations would decrease A high contribution margin ratio coupled with idle capacity indicates a potential for in creased income from operations if additional sales can be made A large percentage of each additional sales dollar would be available after providing for variable costs to cover promotion efforts and to increase income from operations Thus a substantial sales promotion campaign should be considered in order to expand sales to maximum capacity and to take advantage of the low ratio of variable costs to sales Decreases in unit variable costs such as a decrease in the unit cost of direct materials will decrease the breakeven point Increases in total fixed costs will increase the breakeven point Stratton Company had lower fixed costs and higher percentage of variable costs to sales than did Callahan Company Such a situation resulted in a lower breakeven point for Stratton Company 157 15 CVP analysis depends upon five primary assumptions They are 1 total sales and total costs can be represented by straight lines 2 within the relevant range of operating activity the efficiency of operations does not change 3 costs can be accurately divided into fixed and variable components 4 the sales mix is constant and 5 there is no change in the inventory quantities during the period The individual products are treated as components of one overall enterprise product These components are weighted by the sales mix percentages Operating leverage measures the relative mix of a business s variable costs and fixed costs It is computed as follows Contribution Margin Operating Leverage Income from Operations 158 PRACTICE EXERCISES PE 19 1A FIN MAN PE 4 1A MAN a 28 per unit 250000 1800005000 2500 b 110000 250000 28 x 5000 or 180000 28 x 2500 PE 19 1B FIN MAN PE 4 1B MAN a 75 per unit 140000 800001600 800 b 20000 140000 75 x 1600 or 80000 75 x 800 PE 19 2A FIN MAN PE 4 2A MAN a 10 20 1820 or 300000 270000300000 b 2 per unit 20 18 c Qales 300000 15000 units x 20 per unit Variable costs 270000 15000 units x 18 per unit Contribution margin 30000 15000 units x 2 per unit Fixed costs 10000 Income from operations 20000 PE 19 2B FIN MAN PE 4 2B MAN a 15 40 3440 or 200000 170000200000 b 6 per unit 40 34 c Qales 200000 5000 units x 40 per unit Variable costs 170000 5000 units x 34 per unit Contribution margin 30000 5000 units x 6 per unit Fixed costs 10000 Income from operations 20000 159 PE 19 3A FIN MAN PE 4 3A MAN a 5000 units 2500025 20 b 3125 units 2500028 20 PE 1943 FIN MAN PE 4 3B MAN a 2000 units 40000120 100 b 4000 units 40000110 100 PE 19 4A FIN MAN PE 4 4A MAN a 2500 units 2500080 70 b 5000 units 25000 2500080 70 PE 19 4B FIN MAN PE 4 4B MAN a 7000 units 140000100 80 b 8500 units 140000 30000100 80 PE 19 5A FIN MAN PE 45A MAN Unit selling price of E 100 x 060 140 x 040 116 Unit variable cost of E 60 x 060 125 x 040 86 Unit contribution margin of E 30 BreakEven Sales units 5000 units 15000030 PE 19 5B FIN MAN PE 4 5B MAN Unit selling price of E 90 x 020 75 x 080 78 Unit variable cost of E 70 x 020 65 x 080 Unit contribution margin of E 5 BreakEven Sales units 10000 units 12000012 160 PE 19 6A FIN MAN PE 4 6A MAN 14 600000 250000600000 350000250000 PE 19 63 FIN MAN PE 4 GB MAN 20 900000 400000900000 500000250000 PE 19 7A FIN MAN PE 4 7A MAN 20 1000000 8000001000000 PE 19 7B FIN MAN PE 4 7B MAN 30 200000 140000200000 161 250000 400000 100000 250000


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