Solution manual managerial accounting by cabrera 2010 chapter 07 answer

CHAPTER 7GROSS PROFIT VARIATION ANALYSIS AND EARNINGS PER SHARE DETERMINATION I.. Quantity Factor Increase in Sales... Gross Profit rate in 2005 12% Problem III Requirement A: Tony Corpo

CHAPTER 7

GROSS PROFIT VARIATION ANALYSIS AND EARNINGS PER SHARE DETERMINATION

I Problems

Problem I

The Dawn Mining Company Gross Profit Variation Analysis

For 2006 Increase 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)

Problem II

1 Selling Price Factor

Less: Sales in 2006 at 2005 prices

2 Cost Factor

Less: Cost of Sales in 2006 at 2005 costs 176,000

3 Quantity Factor

Increase in Sales

Sales in 2006 at 2005 prices P200,000

Less: 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 132,000

* This may also be obtained using the following presentation:

Quantity Factor:

Multiplied by: Ave Gross Profit rate in 2005 12%

Problem III

Requirement A:

Tony Corporation Statement Accounting for Gross Profit Variation

For 2006 Increase (Decrease) in Sales accounted for as follows:

Price Factor

Less: Sales this year at last year’s prices

269,500

Quantity Factor

Sales this year at last year’s prices (P210,210 ÷ 78%) P269,500

Favorable (Unfavorable) P 77,000 Net Increase (decrease) in sales P 17,710 Increase (decrease) in Cost of Sales accounted for as follows:

Cost Factor

Less: Cost of Sales this year at last

(Favorable) Unfavorable P 3,700 Quantity Factor

Cost of Sales this year at last year’s

Less: Cost of Sales last year 115,500 (Favorable) Unfavorable P 46,200 Net increase (decrease) in Cost of Sales P 49,900 Net increase (decrease) in Gross Profit P (32,190)

Increase (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 IV

Quantity 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) 130,000

Price Factor

3 Decrease in Sales due to the decrease in rate per

Increase in operating revenues

P 59,000

Supporting 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

Decrease in rate or

Problem V

XYZ Corporation Gross Profit Variation Analysis

For 2006 Price Factor

Less: Sales in 2006 at 2005 prices

B (75 x P20) 1,500 1,750 Increase (decrease) in gross profit P - Cost Factor:

Less: Cost of sales in 2006 at 2005 costs:

B (75 x P10) 750 875 Increase (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

Less: Average gross profit per unit in 2005 7.50

Multiplied by: Total quantity in 2006 100 Increase (decrease) in gross profit P125.00

Less: Cost of sales in 2006 at 2005 prices 875 Gross profit in 2006 at 2005 prices P 875 Average 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

Adjustment for 25%

stock

12/1/2006 6,000 (6,000) - - -

Problem VII (Computation of Basic EPS and Diluted EPS)

1 Basic EPS = P 90,000

100,000

2 Diluted EPS =

=

= P0.82 (rounded off)

Problem VIII

Requirements (1) and (2)

Basic earnings and shares P122,000a ÷ 33,333b = P3.66 Basic Stock option share increment 293c

Tentative DEPS1 amounts P122,000 ÷ 33,626 = P3.63 DEPS1

10% bond interest expense savingse 13,300d

Increment in shares 4,400d

Tentative DEPS2 amounts P135,300 ÷ 38,026 = P3.56 DEPS2

7.5% preference dividend savingse 28,500d

Increment in shares 9,310d

P163,800 ÷ 47,336 = P3.46 DEPS3

Diluted 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 33,333

cIncrement due to stock options:

Reacquired

Increment in shares 293

dImpact on diluted earnings per share and ranking:

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 )

Impact Ranking

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 Questions

* Supporting computation for no 11:

Diluted EPS for 12/31/2006 =

P3,500,000 + (P800,000 x 65%) 400,000 + 25,000 + 225,000 P4,020,000

650,000

[(0.10 x P200,000) – P1,000] x 0.7

(0.058 x P540,000) x 0.7

(0.075 x P380,000) 3,800 x 2.45 = P28,5009,310