variable costs

Increase selling price by 10% with no change in total variable costs or sales volume.

Current selling price

New selling price

(Round to nearest cent)

?

?

Total sales

Less: variable costs

Contribution margin

Less: fixed costs

Net income

2.

3.

?

?

?

Value

?

Reduce variable costs to 58% of sales.

Total Sales

Less: variable costs

Contribution margin

Less: fixed costs

Net income

Value

Value

?

Value

?

Reduce fixed costs by $15,000.

Total Sales

Less: variable costs

Contribution margin

Less: fixed costs

Net income

Value

Value

?

Value

?

After you have completed E6-3, consider the following additional questions.

1.

Assume that unit selling price increased 5% with no change in total variable costs or sales volume.

2.

Assume variable costs decreased to 53% of sales.

3.

Assume that fixed costs increased by $20,000.

Which course of action will produce the highest net income?

CD6 EXCEL Tutorial

CURRENT DESIGNS

Current Designs manufactures two different types of kayak, rotomolded kayaks and composite kayaks.

The following information is available for each product line.

Sales price/unit

Variable costs/unit

Rotomolded

$950

$570

Composite

$2,000

$1,340

The company’s fixed costs are $820,000. An analysis of the sales mix identifies that rotomolded kayaks

make up 80% of the total units sold.

Instructions

(a) Determine the weighted-average unit contribution margin for Current Designs.

(b) Determine the break-even points in units for Current Designs and identify how many units of each

type of kayak will be sold at the break-even point. (Round to the nearest whole number.)

(c ) Assume that the sales mix changes, and rotomolded kayaks now make up 70% of total units sold.

Calculate the total number of units that would need to be sold to earn a net income of $2,000,000

and identify how many units of each type of kayak will be sold at this level of income. (Round to the

nearest whole number.)

(d) Assume that Current Designs will have sales of $3,000,000 with two-thirds of the sales dollars in

rotomolded kayaks and one-third of the sales dollars in composite kayaks. Assuming $660,000 of fixed

costs are allocated to the rotomolded kayaks and $160,000 to the composite kayaks, prepare a CVP

income statement for each product line.

(e ) Using the information in part (d), calculate the degree of operating leverage for each product line and

interpret your findings. (Round to two decimal places.)

(a) Determine the weighted-average unit contribution margin for Current Designs.

Sales price/unit

Variable costs/unit

Unit Contribution margin (UCM)

Product mix

Weighted Average UCM

Rotomolded

Kayaks

Value

Value

?

Value

?

+

Composite

Kayaks

Value

Value

?

Value

?

?

(b) Determine the break-even points in units for Current Designs and identify how many units of each

type of kayak will be sold at the break-even point. (Round to the nearest whole number.)

Fixed costs

Weighted Average UCM

Breakeven units

Breakeven unit distribution

Value

Value

?

Rotomolded

Kayaks

?

Composite

Kayaks

?

(c ) Assume that the sales mix changes, and rotomolded kayaks now make up 70% of total units sold.

Calculate the total number of units that would need to be sold to earn a net income of $2,000,000

and identify how many units of each type of kayak will be sold at this level of income. (Round to the

nearest whole number.)

Target net income in units:

Sales price/unit

Variable costs/unit

Unit Contribution margin (UCM)

Product mix

Weighted Average UCM

Rotomolded

Kayaks

Value

Value

?

Value

?

Required sales in units:

Total fixed costs

Target net income

Total required sales (dollars)

Weighted Average UCM

Required sales in units

Value

Value

?

?

?

+

Composite

Kayaks

Value

Value

?

Value

?

?

Value

Value

?

?

?

(d) Assume that Current Designs will have sales of $3,000,000 with two-thirds of the sales dollars in

rotomolded kayaks and one-third of the sales dollars in composite kayaks. Assuming $660,000 of fixed

costs are allocated to the rotomolded kayaks and $160,000 to the composite kayaks, prepare a CVP

income statement for each product line.

Sales

Variable Costs

Contribution Margin

Fixed Costs

Net Income

Rotomolded

Kayaks

Value

Value

?

Value

?

Composite

Kayaks

Value

Value

?

Value

?

(e ) Using the information in part (d), calculate the degree of operating leverage for each product line and

interpret your findings. (Round to two decimal places.)

Rotomolded

Kayaks

Contribution Margin (a)

Value

Value

Net Income (b)

Degree of Operating Leverage (a ÷ b

?

Composite

Kayaks

Value

Value

?

Interpretation of findings:

After you have completed CD6, consider the following additional question.

1. Assume that variable cost per unit for the rotomolded kayak and composite kayak changed to $610 and

$1,400 respectively. Show impact of these changes on each of the scenarios provided.

P7-3A Determine if product should be sold or processed further.

Thompson Industrial Products Inc. (TIPI) is a diversified industrial-cleaner processing company. The company’s Dargar plant

produces two products: a table cleaner and a floor cleaner from a common set of chemical inputs (CDG). Each week 900,000

ounces of chemical input are processed at a cost of $210,000 into 600,000 ounces of floor cleaner and 300,000 ounces of table

cleaner. The floor cleaner has no market value until it is converted into a polish with the trade name FloorShine. The additional

processing costs for this conversion amount to $240,000.

FloorShine sells at $20 per 30-ounce bottle. The table cleaner can be sold for $17 per 25-ounce bottle. However, the table

cleaner can be converted into two other products by adding 300,000 ounces of another compound (TCP) to the 300,000 ounces

of table cleaner. This joint process will yield 300,000 ounces each of table stain remover (TSR) and table polish (TP). The

additional processing costs for this process amounts to $100,000. Both table products can be sold for $14 per $25-ounce bottle.

The company decided not to process the table cleaner into TSR and TP based on the following analysis.

Production in ounces

Revenue

Costs:

CDG costs

TCP costs

Total costs

Weekly gross profit

Table

Cleaner

300,000

$204,000

70000*

0

70,000

$134,000

Process Further

Table Stain

Table

Remover (TSR)

Polish (TP)

300,000

300,000

$168,000

$168,000

52,500

50,000

102,500

$65,500

52,500

50,000

102,500

$65,500

Total

$336,000

105,000 **

100,000

205,000

$131,000

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