# 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

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 \$ \$ \$ \$ \$ \$ \$ \$

(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

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)

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

Degree of Operating Leverage

Armstrong

 Problem 6-5A

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)

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

 Contribution Margin Ratio Viejo Company [removed] Nuevo Company [removed]

(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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ACC560 – Week 4 homework chapter 5 & 6 Q

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