Tuesday, March 30th, 1999
Announcements: no class on Thursday

Lecture notes:

Net Sales	900,000
- VC	- 630,000
CM	270,000
- FC	- 300,000
Net Income	- 30,000

Sales price per unit = $300
Units = net sales / price per unit = 900,000 / 300 = 3,000

Variable Cost per Unit
VC / units = 630,000 / 3,000 = $210

CM per Unit
300 - 210 = $90

CM Ratio
CM / sales = 90 / 300 = 30%

How many additional units need to be sold in order to break even?

Change in CM seeking / CM per unit = 30,000 / 90 = 33 units

What is the change in net income if sales increase by 500 units?

Change in CM = 500 x 90 = $45,000

What happens to the breakeven point when:

• Fixed costs change: FC increase = BE increase, FC decrease = BE decrease
• Variable costs change: VC increase = BE increase, VC decrease = BE decrease
• Change in selling price: SP increase = BE decrease, SP decrease = BE increase

Fixed Costs Increase $60,000
Net Income decreases $60,000
Breakeven Point increases 667 units

Sales Price Increases $15 per Unit
Sales Price = $315
VC = 210
CM per Unit = 315 - 210 = 105

New Breakeven Point
FC / CM per Unit = 360,000 / 105 = 3,429
Change = 96 Units

Example:

	# Units Produced:
	1000	1500
Utilities Cost	600	850

VC per Unit = change in cost / change in units produced = 250 / 500 = 0.5

VC = 1,000 x 0.5 = 500

FC = 600 - 500 = $100

Chapter 17

1998 est. overhead = 360,000
1998 est. machine hours = 30,000

Predetermined Overhead Rate
360,000 / 30,000 = $12 per machine hour

Actual machine hours incurred in 1998 = 31,000

1998 applied Overhead
31,000 x 12 = 372,000
1998 Actual Overhead = 380,000
Underapplied Overhead = 380,000 - 372,000 = 8,000

Example:

	1/1/98		12/31/98
AR	37,000	31,000
Inventory	29,000	41,000
AP	17,000	15,000
Equipment	100,000	112,000
AD--Equip.	15,000	18,000

1998 net sales = 75,000
1998 COGS = 50,000
Gain on sale of equip. = 4,000
1998 dep. exp. = 10,000
1998 equip. purchase = 20,000

Cash Collected form Customers
75,000 + 6,000 = 81,000

COGS	50,000
+ change in Inv.	+ 12,000
+ change in AP	+ 2,000
	64,000

Selling Price of Old Equipment

Cost of Old Equip.	8,000
- AD, Old	- 7,000
Book Value	1,000
+ Gain	+ 4,000
Selling Price	5,000

1)	900,000 / 6 = 150,000 units
	150,000 x 23 = $3,450,000
2)	(900,000 + 240,000) / 6 = 90,000 units
3a)	30,000 x 6 = 180,000
3b)	841,000 +210,000 - 180,000 = 871,000 871,000 / 130,000 = $6.70