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Flores Nina
Flores Nina, Advanced student and Researcher
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can you help me accounting

Customer Question

I have accounting course I'm in college and the name of the course is Management accounting I will pay the above amt for each answer and if you can do this I will nee your help for the next 6 weeks of my class
Submitted: 11 years ago.
Category: Homework
Expert:  Flores Nina replied 11 years ago.
Just post your questions and we will try to give you the requested assistance.

Thank you.
Expert:  Flores Nina replied 11 years ago.
Here is the first problem:

1.The Yetmar Family Restaurant is open 24 hours/day serving breakfast, lunch, and dinner. Fixed costs are $24,000/month. Variable costs are estimated at $9.60/meal. The average total bill (excluding tax and tip) is $12 per customer.
Required:
a.Compute the number of meals that must be served if the Family Restaurant wishes to earn a profit before taxes of $6,000.
b.Compute the break-even point in meals.
c.Compute the break-even point in dollars.
d.Assume that fixed costs increase to $30,000. How many additional meals must be served if the Yetmar Family Restaurant wishes to earn the same before-tax profit?

a.Compute the number of meals that must be served if the Family Restaurant wishes to earn a profit before taxes of $6,000.

Profit = Income - Expenses =
          = Price*Q - (Fixed costs + Variable costs*Q) =
          = (Price - Variable costs)*Q - Fixed costs =
          
Then:
Q = (Profit + Fixed costs) / (Price - Variable costs) =
    = ($6000 + $24000) / ($12 - $9.60) =
    = 12500 meals per month


b.Compute the break-even point in meals.

Break-even point in units = Fixed Costs / Contribution margin per unit =
                                           = Fixed costs / (Price - Variable Costs) =
                                           = $24000 / ($12 - $9.60) =
                                           = 10000 meals per month


c.Compute the break-even point in dollars.

If we call CMR the Contribution Margin Ratio we have that:

CMR = (Price - Variable costs) / Price = ($12 - $9.60) / $12 = 0.20


Break-even point in dollars = Fixed costs / CMR =
                                             = $24000 / 0.20 = $120000

Note that the above result corresponds with the Break-even point in units times Price:

Break-even point in dollars = Break-even point in units * Price


d.Assume that fixed costs increase to $30,000. How many additional meals must be served if the Yetmar Family Restaurant wishes to earn the same before-tax profit?

Just modify the fixed costs value used in the formula of the point a):

Q = (Profit + Fixed costs) / (Price - Variable costs) =
    = ($6000 + $30000) / ($12 - $9.60) =
    = 15000 meals per month
Expert:  Flores Nina replied 11 years ago.
And here is the second one!!

2.Cleveland Manufacturing, Inc.’s most recent income statement is presented below:

Sales $450,000
Cost of Goods Sold 200,000
Gross Margin 250,000
Other Operating Expenses 196,000
Operating Income $54,000

Cleveland Manufacturing, Inc. has determined that $50,000 of cost of goods sold and $166,000 of operating expenses is fixed.

Required:
a.Compute the contribution margin.
b.Compute the contribution-margin percentage.
c.Compute the break-even volume in sales dollars.
d.Compute the current margin of safety.




Cost of Goods Sold = Fixed Cost of Goods Sold + Variable Cost of Goods Sold = $200000
Fixed Cost of Goods Sold = $50000
then:
Variable Cost of Goods Sold = $200000 - $50000 = $150000


Operating Expenses = Fixed Operating Expenses + Variable Operating Expenses = $196000
Fixed Operating Expenses = $166000
then:
Variable Operating Expenses = $196000 - $166000 = $30000

Fixed Costs = Fixed Cost of Goods Sold + Fixed Operating Expenses = $216000

Total Variable Costs = Variable Cost of Goods Sold + Variable Operating Expenses = $180000


Expenses = Cost of Goods Sold + Other Operating Expenses = $396000

Also remember that:
Expenses = Fixed Costs + Total Variable costs

a.Compute the contribution margin.

Contribution Margin = Sales - Total Variable Costs =
                                 = $450000 - $180000 =
                                 = $270000


b.Compute the contribution-margin percentage.

The contribution-margin percentage is also called the Contribution Margin Ratio (CMR).
Contribution margin percentage (contribution margin ratio) is the contribution margin per unit divided by the selling price:

CMR = (Price - Variable costs per unit) / Price

Hey!! we have not such info, just do a math trick, if Q is the total number of units sold:

CMR = 1*CMR =
        = 1*(Price - Variable costs per unit) / Price =
        = (Q/Q)*(Price - Variable costs per unit) / Price =
        = (Price*Q - Variable costs per unit*Q) / (Price*Q) =
        = (Sales - Total Variable costs) / Sales =
        = Contribution Margin / Sales =
        = $270000 / $450000 =
        = 0.60

The contribution-margin percentage is 60%.


c.Compute the break-even volume in sales dollars.

Break-even volume in dollars = Fixed Costs / CMR =
                                                 = $216000 / 0.60 =
                                                 = $360000


d.Compute the current margin of safety.

The margin of safety is the excess of budgeted (or actual) sales over the break-even volume of sales.

Margin of Safety = Sales - Break Even Sales =             (Can be expressed in units or dollars)
                             = $450000 - $360000 =
                             = $90000

Margin of Safety ratio = Margin of Safety / Sales =
                                     = $90000 / $450000 =
                                     = 0.20 or 20%

Hope that this helps you.
Good luck!!
Expert:  Flores Nina replied 11 years ago.
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