In making the decision to buy the model 230 machine rather than the model 330 machine, the differential cost was: A. $34,000 B. $38,000 C. $4,000 D. $67,000
Review Questions M/C
B. $38,000
Differential cost = $323,000 – $285,000 = $38,000
Review Questions M/C
81. In making the decision to buy the model 230 machine rather than the model 330 machine, the sunk cost was: A. $319,000 B. $386,000 C. $285,000 D. $323,000
Review Questions M/C
A. $319,000 The $319,000 cost of the old machine is a sunk cost.
Review Questions M/C
82. In making the decision to invest in the model 230 machine, the opportunity cost was: A. $386,000 B. $319,000 C. $285,000 D. $323,000
Review Questions M/C
A. $386,000 The $386,000 return from alternative investment is an opportunity cost.
Comparison of the Contribution Income Statement
with the Traditional Income Statement
Traditional FormatContribution Format
Sales100,000$ Sales100,000$
Cost of goods sold70,000 Variable expenses60,000
Gross margin30,000$ Contribution margin40,000$
Selling & admin. expenses20,000 Fixed expenses30,000
Net operating income10,000$ Net operating income10,000$
Sheet1
| Comparison of the Contribution Income Statement | |||||||||||
| with the Traditional Income Statement | |||||||||||
| Traditional Format | Contribution Format | ||||||||||
| Sales | $ 100,000 | Sales | $ 100,000 | ||||||||
| Cost of goods sold | 70,000 | Variable expenses | 60,000 | ||||||||
| Gross margin | $ 30,000 | Contribution margin | $ 40,000 | ||||||||
| Selling & admin. expenses | 20,000 | Fixed expenses | 30,000 | ||||||||
| Net operating income | $ 10,000 | Net operating income | $ 10,000 |
Sheet2
Sheet3
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Sheet5
Sheet6
Sheet7
Sheet8
Sheet9
Sheet10
Sheet11
Sheet12
Sheet13
Sheet14
Sheet15
Sheet16
Traditional format
Sales
1.COGS
Gross margin
SG&A
Profit
Calculation of cost of goods sold
Variable
Variable cost as a 60% of sales (need to be calculated) +Fixed costs of manufacturing (given)
Contribution format
Sales
2. Variable COGS
Other variable expenses
=Contribution margin
Fixed COGS
Other Fixed costs
=Profit
Variable COGS
Variable cost as a 60% of sales (need to be calculated)
Sales
Contribution margin
3. Fixed costs
Projected profit
3. Fixed cost =
Fixed costs of manufacturing + Fixed selling and administrative costs
60% COGS 50% COGS
Sales with 10% increase
Less: Variable COGS
Less: Other variable costs
Contribution margin
Fixed COGS
Other fixed costs