Week 3 Assignments

Jennifer Rangel

June 29th, 2015

Dr. Kenneth Thompson

Ex. 20.1
Listed below are nine technical accounting terms introduced in this chapter:

Variable costs            Relevant range              Contribution margin
Break-even point        Fixed costs                  Semivariable costs
Economies of scale    Sales mix                    Unit contribution margin

Each of the following statements may (or may not) describe one of these technical terms. For each statement, indicate the accounting term described, or answer "None" if the statement does not correctly describe any of the terms.

a.   The level of sales at which revenue exactly equals costs and expenses. = Break Even Point

b.   Costs that remain unchanged despite changes in sales volume . = Fixed Costs

c.   The span over which output is likely to vary and assumptions about cost behavior generally remain valid. = Relevant Range

d.   Sales revenue l ess variable costs and expenses= Contribution Margin

e.   Unit sales price minus variable cost per unit . = Unit Contribution Margin

f.   The reduction in unit cost achieved from a higher level of output . = Economies of Scale

g.   Costs that respond to changes in sales volume by less than a proportionate amount . = Semivariable Costs

h.   Operating income less variable costs= None

Ex. 20.7
MURDER TO GO! writes and manufactures murder mystery parlor games that it sells to retail stores. The following is per-unit information relating to the manufacture and sale of this product:

Unit sales price . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . \$ 30
Variable cost per unit . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
Fixed costs per year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 360,000

Determine the following, showing as part of your answer the formula that you used in your computation.

For example, the formula used to determine the contribution margin ratio (part   a)   is:

Contribution Margin Ratio = Unit Sales Price   -   Variable Costs per Unit / Unit Sales Price

a.   Contribution margin ratio.
(30-6)/30 =.8 is a 2 0% contribution margin

b.   Sales volume (in dollars) required to break even.

360000/2 0 %= \$ 1,800,000 need to be sold to break even

c.   Sales volume (in dollars) required to earn an annual operating income of \$440,000.
360,000+440,000=800,000/2 0% = \$4,000,000 needs to be sold to earn an operating income of \$440,000

d.   The margin of safety (in dollars) if annual sales total 60,000 units.
1,800,000 /20%= 9,000,000
Sales for 60,000= 1,800,000

Margin of safety is 1,800,000-= 1,800,000

e.   Operating income if annual sales total 60,000 units.

1,800,000 x20%= \$360,000

Ex. 21.2

Read the footnote in Appendix A referring to   Home Depot's   decision to close all of its remaining big box stores in China. Write a short paragraph identifying the incremental, sunk, and opportunity costs associated with this decision. Assume that any cost savings will be invested elsewhere in more productive stores.

When the Home Depot closed the stores in China they incurred \$10 million in opportunity costs. This amount was due to the amount of inventory markdowns which could have been sold if the stores had stayed open. The sunk and incremental costs were the remaining \$135 million. The sunk costs would be a fee that is unavoidable like