Acc560 – week 4 homework chapter 5 & 6 q

ACC 560 – Homework Chapter 5 & 6

 

Chapter 5: Exercises 8, 13, 14, and 17; Problems 1 and 5

Chapter 6: Exercises 5, 10, 13, and 14; Problems 1 and 5

 

Exercise 5-8

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All That Blooms provides environmentally friendly lawn services for homeowners. Its operating costs are as follows.

Depreciation

 

$1,400

per month

Advertising

 

$200

per month

Insurance

 

$2,000

per month

Weed and feed materials

 

$12

per lawn

Direct labor

 

$10

per lawn

Fuel

 

$2

per lawn


All That Blooms charges $60 per treatment for the average single-family lawn.

Determine the company’s break-even point in (a) number of lawns serviced per month and (b) dollars.

(a)

 

Break-even point

 

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(b) Prepare an analysis showing the total contribution margin if the additional hours are:

(1) Divided equally between the products

(2) Allocated entirely to the product identified in part (b)

Exercise 6-14

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The CVP income statements shown below are available for Armstrong Company and Contador Company.

   

Armstrong Co.

 

Contador Co.

Sales

 

$500,000

 

$500,000

Variable costs

 

240,000

 

50,000

Contribution margin

 

260,000

 

450,000

Fixed costs

 

160,000

 

350,000

Net income

 

$100,000

 

$100,000

 

(a)

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Compute the degree of operating leverage for each company. (Round answers to 3 decimal places, e.g. 1.150.)

   

Degree of Operating Leverage

Armstrong

 

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Problem 6-5A

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The following CVP income statements are available for Viejo Company and Nuevo Company.

   

Viejo Company

 

Nuevo Company

Sales

 

$500,000

 

$500,000

Variable costs

 

280,000

 

180,000

Contribution margin

 

220,000

 

320,000

Fixed costs

 

180,000

 

280,000

Net income

 

$40,000

 

$40,000

 

(a1)

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Calculate Contribution margin ratio. (Round answers to 2 decimal places, e.g. 0.32.)

   

Contribution Margin Ratio

Viejo Company

 

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Nuevo Company

 

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(a)    Compute the break-even point in dollars and the margin of safety ration for each company.

(b)   Compute the degree of operating leverage for each company and interpret your results

(c)    Assuming that sales revenue increase by 20%, prepare a CVP income statement for each company.

(d)   Assuming that sales revenue decreases by 20%, prepare a CVP income statement for each company

(e)   Discuss how the cost structure of these two companies affects their operating leverage and profitability.

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