CHAPTER 5 Cost Volume Profit ASSIGNMENT CLASSIFICATION TABLE Learning Objectives Questions Exercises Do It Exercises Problems Problems Brief A B Distinguish between variable and fixed costs 1 2 3 6 1 1 2 3 4 5 6 1A 6A 1B 6B 1 2 6 7 8 1 3 4 5 1 2 1A 1B 2 7 1 3 4 5 6 10 11 17 6 7 8 9 10 11 12 13 17 1A 2A 3A 4A 5A 6A 1B 2B 3B 4B 5B 6B 12 13 14 8 9 3 4 8 9 10 11 12 13 14 16 17 1A 2A 3A 4A 5A 1B 2B 3B 4B 5B 10 12 14 15 17 2A 5A 6A 2B 5B 6B 4 4 11 16 17 2A 4A 5A 6A 2B 4B 5B 6B 1 2 3 4 5 6 8 Explain the significance of the relevant range 4 5 Explain the concept of mixed costs List the five components of cost volume profit analysis 9 Indicate what contribution margin is and how it can be expressed Identify the three ways to determine the break even point 7 Give the formulas for determining sales required to earn target net income Define margin of safety and give the formulas for computing it 16 15 Copyright 2012 John Wiley Sons Inc Weygandt Managerial Accounting 6 e Solutions Manual For Instructor Use Only 5 1 ASSIGNMENT CHARACTERISTICS TABLE Problem Number Description Determine variable and fixed costs compute break even point prepare a CVP graph and determine net income Prepare a CVP income statement compute break even point contribution margin ratio margin of safety ratio and sales for target net income Compute break even point under alternative courses of action Compute break even point and margin of safety ratio and prepare a CVP income statement before and after changes in business environment Compute contribution margin fixed costs break even point sales for target net income and margin of safety ratio Difficulty Level Time Allotted min Simple 20 30 Moderate 30 40 Simple 20 30 Moderate 20 30 Moderate 20 30 Determine contribution margin ratio break even point and margin of safety Moderate 20 30 Determine variable and fixed costs compute break even point prepare a CVP graph and determine net income Simple 20 30 Prepare a CVP income statement compute break even point contribution margin ratio margin of safety ratio and sales for target net income Compute break even point under alternative courses of action Compute break even point and margin of safety ratio and prepare a CVP income statement before and after changes in business environment Moderate 30 40 Simple 20 30 Moderate 20 30 Compute break even point and margin of safety ratio and prepare a CVP income statement before and after changes in business environment Moderate 20 30 Determine contribution margin ratio break even point and margin of safety Moderate 20 30 1A 2A 3A 4A 5A 6A 1B 2B 3B 4B 5B 6B 5 2 Copyright 2012 John Wiley Sons Inc Weygandt Managerial Accounting 6 e Solutions Manual For Instructor Use Only C o p y r i g h t 2 0 1 2 i l J o h n W e y S o n s I n c W e y g a n d t M a n a g e r i a l A c c o u n t i n g 6 e S o u l t i o n s M a n u a l F o r I n s t r u c t o r U s e O n y l 5 3 Correlation Chart between Bloom s Taxonomy Learning Objectives and End of Chapter Exercises and Problems Application Analysis Synthesis Evaluation Learning Objective 1 Distinguish between variable and fixed costs Knowledge Comprehension E5 4 BE5 1 E5 1 E5 2 DI5 1 2 Explain the significance of the relevant range 3 Explain the concept of mixed costs E5 4 E5 5 DI5 1 E5 1 4 List the five components of cost volume profit analysis Indicate what contribution margin is and how it can be expressed 5 E5 7 Q5 1 Q5 2 Q5 3 Q5 6 Q5 4 Q5 5 Q5 6 Q5 7 BE5 1 Q5 9 Q5 10 6 Identify the three ways to determine the break even point Q5 12 Q5 14 7 Give the formulas for determining sales required to earn target net income 8 Define margin of safety and give the formulas for computing it Broadening Your Perspective BYP5 6 E5 5 E5 2 Q5 8 BE5 4 BE5 5 Q5 11 Q5 17 BE5 6 BE5 7 E5 8 E5 9 Q5 13 BE5 8 BE5 9 DI5 3 DI5 4 E5 8 E5 9 Q5 16 BE5 10 BE5 12 DI5 4 Q5 15 BE5 11 DI5 4 BYP5 4 E5 3 E5 6 P5 1A P5 1B BE5 2 DI5 2 E5 5 E5 6 BE5 3 E5 3 P5 1A P5 1B BE5 6 P5 1A P5 2A P5 1B P5 2B E5 16 P5 1A P5 2A P5 1B P5 2B E5 10 E5 11 E5 12 E5 13 E5 17 E5 10 E5 11 E5 12 E5 13 E5 14 E5 17 P5 2A P5 2B E5 12 E5 14 E5 15 E5 17 E5 17 E5 16 P5 2A P5 2B BYP5 1 BYP5 2 B L O O M S T A X O N O M Y T A B L E P5 6A P5 6B P5 3A P5 3B P5 4A P5 5A P5 6A P5 4B P5 3A P5 4A P5 3B P5 4B P5 5A P5 5B P5 5B P5 6B P5 5A P5 5B P5 6B P5 5A P5 6A P5 5B P5 6B P5 4A P5 6A P5 4B BYP5 5 BYP5 3 BYP5 7 BYP5 8 ANSWERS TO QUESTIONS 1 a Cost behavior analysis is the study of how specific costs respond to changes in the level of activity within a company b Cost behavior analysis is important to management in planning business operations and in deciding between alternative courses of action 2 a The activity index identifies the activity that causes changes in the behavior of costs Once the index is determined it is possible to classify the behavior of costs in response to changes in activity levels into three categories variable fixed or mixed b Variable costs may be defined in total or on a per unit basis Variable costs in total vary directly and proportionately with changes in the activity level Variable costs per unit remain the same at every level of activity 3 Fixed costs remain the same in total regardless of changes in the activity level In contrast fixed costs per unit vary inversely with activity As volume increases fixed costs per unit decline and vice versa the year 4 a The relevant range is the range of activity over which a company expects to operate during b Disagree The behavior of both fixed and variable costs are linear only over a certain range of activity CVP analysis is based on the assumption that both fixed and …