chapter 07 - answer
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CHAPTER 6
MANAGEMENT ACCOUNTING - Solutions Manual
Chapter 7 Gross Profit Variation Analysis and Earnings Per Share DeterminationGross Profit Variation Analysis and Earnings Per Share Determination Chapter 7
CHAPTER 7GROSS PROFIT VARIATION ANALYSIS AND EARNINGS PER SHARE DETERMINATION
I.Problems
Problem I The Dawn Mining Company
Gross Profit Variation Analysis
For 2006Increase in Sales:
Quantity Factor [(24,000) x P8]
P(192,000)
Price Factor (105,000 x P3)
315,000
Quantity/Price Factor [(24,000) x P3]
(72,000)P 51,000
Less: Increase (decrease) in Cost of Sales:
Quantity Factor [(24,000) x P9]
P(216,000)
Cost Factor [105,000 x (P.50)]
(52,500)
Quantity/Cost Factor [(24,000) x (P.50)] 12,000(256,500)
Increase in Gross Profit
P 307,500
Problem II1. Selling Price Factor
Sales in 2006
P210,000
Less: Sales in 2006 at 2005 prices
(P210,000 ( 105%)
200,000Favorable
P 10,0002. Cost Factor
Cost of Sales in 2006
P164,000
Less: Cost of Sales in 2006 at 2005 costs
176,000Favorable
P(12,000)
3. Quantity Factor
Increase in Sales
Sales in 2006 at 2005 prices
P200,000
Less: Sales in 2005
150,000Favorable
P 50,000Less: Increase in Cost of Sales
Cost of Sales in 2006 at 2005 costs
(P132,000 x 133-1/3%)
P176,000
Less: Cost of Sales in 2005
132,000Unfavorable
P 44,000Net favorable quantity factor
6,000*
Increase in Gross Profit
P 28,000* This may also be obtained using the following presentation:
Quantity Factor:
Sales in 2006 at 2005 prices
P200,000
Less: Sales in 2005
150,000Increase in Sales
P 50,000
Multiplied by: Ave. Gross Profit rate in 2005
12%Net favorable variance
P 6,000
Problem IIIRequirement A:Tony Corporation
Statement Accounting for Gross Profit Variation
For 2006Increase (Decrease) in Sales accounted for as follows:
Price Factor
Sales this year
P210,210
Less: Sales this year at last years prices
269,500Favorable (Unfavorable)
P(59,290)
Quantity Factor
Sales this year at last years
prices (P210,210 ( 78%)
P269,500
Less: Sales last year
192,500Favorable (Unfavorable)
P 77,000
Net Increase (decrease) in sales
P 17,710
Increase (decrease) in Cost of Sales accounted for as follows:
Cost Factor
Cost of Sales this year
P 165,400
Less: Cost of Sales this year at last
years costs
161,700(Favorable) Unfavorable
P 3,700Quantity Factor
Cost of Sales this year at last years
costs (115,500 x 140%)
P 161,700
Less: Cost of Sales last year
115,500(Favorable) Unfavorable
P 46,200Net increase (decrease) in Cost of Sales
P 49,900Net increase (decrease) in Gross Profit
P (32,190)Gross Profit, this year
P 44,810
Gross Profit, last year
77,000Increase (Decrease) in Gross Profit
P(32,190)
Requirement B:
(1)Change in Quantity= P 77,000 = 40% increase
P192,500
(2) Change in Unit Costs = P 3,700 = 2.38% increase
P161,700
Problem IVQuantity Factor
1.Decrease in Sales due to decrease in the number
of customers [(1,000) x 18 MCF x P2.50)]
P(45,000)
2.Increase in Sales due to increase in consumption
rate per customer (26,000 x 2 MCF x P2.50)
130,000Net Increase
P 85,000Price Factor
3.Decrease in Sales due to the decrease in rate per
MCF [P(.05) x 520,000]
(26,000)
Increase in operating revenues
P 59,000Supporting Computations:Average Consumption:
(a)2006 = 520,000 ( 26,000 = 20 MCF/customer
2005 = 486,000 ( 27,000 = 18 MCF/customer
Increase in Consumption
per customer 2 MCF/customer
(b)27,000 - 26,000 = 1,000 decrease in number of customers
(c)Price 2006
P2.45
2005
2.50
Decrease in rate or
price per MCF sold
P(.05)
Problem VXYZ Corporation
Gross Profit Variation Analysis
For 2006Price Factor
Sales in 2006
P 1,750
Less: Sales in 2006 at 2005 prices
A (25 x P10)
P 250
B (75 x P20)
1,500
1,750Increase (decrease) in gross profit P -
Cost Factor:
Cost of sales in 2006
P 875
Less: Cost of sales in 2006 at 2005 costs:
A (25 X P5)
P 125
B (75 x P10)
750 875Increase (decrease) in gross profit P -
Quantity Factor:
Increase (decrease) in total quantity
Multiplied by: Average gross profit
per unit in 2005 (P750 ( 100)
P 7.50
Increase (decrease) in gross profit P -
Sales Mix Factor:
Average gross profit per unit in 2006 at
2005 prices
P8.75*
Less: Average gross profit per unit in 2005
7.50Increase (decrease)
P1.25
Multiplied by: Total quantity in 2006
100
Increase (decrease) in gross profit
P125.00Increase in Gross Profit
P125.00*Sales in 2006 at 2005 prices
P1,750
Less: Cost of sales in 2006 at 2005 prices 875Gross profit in 2006 at 2005 prices
P 875Average Gross Profit on 2006 at 2005 prices:
P875
= P8.75
100 (volume in 2006)
Problem VI (Computation of Weighted Average Number of Ordinary Shares)Number of Shares
DateUnadjustedAdjustment for 25% stock dividendAs
AdjustedMultiplierWeighted Shares
1/1/200616,0004,00020,00012/1220,000
2/15/20063,2008004,00010.5/123,500
4/1/2006(3,000)(750)(3,750)9/12(2,812)
6/1/20061,4003501,7507/121,020
9/1/20066,4001,6008,0004/122,667
12/1/2006 6,000(6,000) - - -
Total30,000 - 30,00024,375
Problem VII (Computation of Basic EPS and Diluted EPS)
1.Basic EPS
=
= P0.90
2.Diluted EPS=
=
= P0.82 (rounded off)
Problem VIII
Requirements (1) and (2)
Explanation
Earnings(
Shares=Per Share
Basic earnings and shares
P122,000a(
33,333b=P3.66 Basic
Stock option share increment
293cTentative DEPS1 amounts
P122,000(
33,626=P3.63 DEPS110% bond interest expense savingse 13,300dIncrement in shares
4,400dTentative DEPS2 amounts
P135,300(
38,026=P3.56 DEPS27.5% preference dividend savingse 28,500dIncrement in shares
9,310d
P163,800(
47,336=P3.46 DEPS35.8% bonds
21,924
6,264Diluted earnings and shares
P185,724(
53,600=P3.465 Diluted
aP122,000 = P150,500 (net income) - P28,500 (preference dividends)
bWeighted average shares:
25,000 x 1.20 = 30,000 x 7/12 = 17,500
32,000 x 1.20 = 38,400 x 4/12 = 12,800
38,400 - 2,000 = 36,400 x 1/12 = 3,033 Weighted average shares
33,333cIncrement due to stock options:
Issued
4,000
Reacquired
Increment in shares
293dImpact on diluted earnings per share and ranking:
Impact Ranking
10% bonds:
P3.025
5.8% bonds:
P3.503
7.5% preference:
P3.062
eDilutive effect on diluted earnings per share:
10% bonds: P3.02 impact < P3.63 (DEPS1), therefore dilutive
7.5% preference: P3.06 impact < P3.56 (DEPS2), therefore dilutive
5.8% bonds: P3.50 impact > P3.46 (DEPS3), therefore exclude from EPS
Requirement 3
Fuego Company would report basic earnings per share of P3.66 and diluted earnings per share of P3.46 on its 2005 income statement.
II.Multiple Choice Questions1. B5. A9. A13. A17. A21. C
2. B6. B10. A14. D18. B22. A
3. C7. B11. D *15. C19. C23. B
4. D8. B12. C16. A20. D
* Supporting computation for no. 11:
Diluted EPS for 12/31/2006 =
=
or P6.18P4,020,000
650,000
P3,500,000 + (P800,000 x 65%)
400,000 + 25,000 + 225,000
P 90,000
100,000
P90,000 + (10% x P500,000 x 65%)
P500,000
P1,000
100,000 + x 100
P90,000 + P32,500
150,000
4,000 x ( P33 + P5 )
P41
= (3,707)
[(0.10 x P200,000) P1,000] x 0.7
200 x 22
=
P13,300
4,400
(0.058 x P540,000) x 0.7
540 x 11.6
=
P21,924
6,264
(0.075 x P380,000)
3,800 x 2.45
=
P28,500
9,310
7-17-87-7