Solution manual managerial accounting by cabrera 2010 chapter 07 answer

MANAGEMENT ACCOUNTING (VOLUME I) - Solutions Manual CHAPTER 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) 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 Increase in Gross Profit P 51,000 (256,500) P 307,500 Problem II Selling Price Factor Sales in 2006 Less: Sales in 2006 at 2005 prices (P210,000 ÷ 105%) Favorable Cost Factor Cost of Sales in 2006 Less: Cost of Sales in 2006 at 2005 costs Favorable P(12,000) Quantity Factor Increase in Sales 7-1 P210,000 200,000 P 10,000 P164,000 176,000 Chapter Gross Profit Variation Analysis and Earnings Per Share Determination Sales in 2006 at 2005 prices P200,000 Less: Sales in 2005 Favorable P 50,000 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 Unfavorable P 44,000 Net favorable quantity factor Increase in Gross Profit 150,000 132,000 6,000* P 28,000 * This may also be obtained using the following presentation: Quantity Factor: Sales in 2006 at 2005 prices Less: Sales in 2005 Increase in Sales Multiplied by: Ave Gross Profit rate in 2005 Net favorable variance P200,000 150,000 P 50,000 12% P 6,000 Problem III Requirement A: Tony Corporation Statement Accounting for Gross Profit Variation For 2006 Increase (Decrease) in Sales accounted for as follows: Price Factor Sales this year Less: Sales this year at last year’s prices 269,500 Favorable (Unfavorable) Quantity Factor Sales this year at last year’s prices (P210,210 ÷ 78%) Less: Sales last year Favorable (Unfavorable) Net Increase (decrease) in sales P210,210 P(59,290) P269,500 192,500 P 77,000 P 17,710 Increase (decrease) in Cost of Sales accounted for as follows: 7-2 Gross Profit Variation Analysis and Earnings Per Share Determination Chapter Cost Factor Cost of Sales this year Less: Cost of Sales this year at last year’s costs (Favorable) Unfavorable P 165,400 161,700 P 3,700 Quantity Factor Cost of Sales this year at last year’s costs (115,500 x 140%) Less: Cost of Sales last year (Favorable) Unfavorable P 161,700 115,500 P 46,200 Net increase (decrease) in Cost of Sales Net increase (decrease) in Gross Profit P 49,900 P (32,190) Gross Profit, this year Gross Profit, last year Increase (Decrease) in Gross Profit P 44,810 77,000 P(32,190) Requirement B: (1) Change in Quantity (2) Change in Unit Costs P 77,000 P192,500 = = P 3,700 P161,700 = = 40% increase 2.38% increase Problem IV Quantity Factor Decrease in Sales due to decrease in the number of customers [(1,000) x 18 MCF x P2.50)] P(45,000) Increase in Sales due to increase in consumption rate per customer (26,000 x MCF x P2.50) Net Increase 130,000 P 85,000 Price Factor Decrease in Sales due to the decrease in rate per MCF [P(.05) x 520,000] 7-3 (26,000) Chapter Gross Profit Variation Analysis and Earnings Per Share Determination 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 MCF/customer (b) 27,000 - 26,000 = 1,000 decrease in number of customers (c) Price 2006 2005 Decrease in rate or price per MCF sold P2.45 2.50 P(.05) Problem V XYZ Corporation Gross Profit Variation Analysis For 2006 Price Factor Sales in 2006 Less: Sales in 2006 at 2005 prices A (25 x P10) B (75 x P20) Increase (decrease) in gross profit P 1,750 P 250 1,500 Cost Factor: Cost of sales in 2006 Less: Cost of sales in 2006 at 2005 costs: A (25 X P5) P 125 B (75 x P10) 750 Increase (decrease) in gross profit Quantity Factor: Increase (decrease) in total quantity Multiplied by: Average gross profit per unit in 2005 (P750 ÷ 100) 7-4 1,750 P P P P 875 875 - 7.50 Gross Profit Variation Analysis and Earnings Per Share Determination Chapter Increase (decrease) in gross profit P Sales Mix Factor: Average gross profit per unit in 2006 at 2005 prices Less: Average gross profit per unit in 2005 Increase (decrease) - P8.75 * 7.50 P1.25 Multiplied by: Total quantity in 2006 Increase (decrease) in gross profit Increase in Gross Profit 100 P125.00 P125.00 * Sales in 2006 at 2005 prices Less: Cost of sales in 2006 at 2005 prices Gross profit in 2006 at 2005 prices P1,750 875 P 875 Average Gross Profit on 2006 at 2005 prices: P875 100 (volume in 2006) = P8.75 Problem VI (Computation of Weighted Average Number of Ordinary Shares) Date 1/1/2006 2/15/2006 4/1/2006 6/1/2006 9/1/2006 12/1/2006 Total Number of Shares Adjustment for 25% stock As Unadjusted dividend Adjusted 16,000 4,000 20,000 3,200 800 4,000 (3,000) (750) (3,750) 1,400 350 1,750 6,400 1,600 8,000 6,000 (6,000) 30,000 30,000 Multiplier 12/12 10.5/12 9/12 7/12 4/12 - Problem VII (Computation of Basic EPS and Diluted EPS) Basic EPS = = P 90,000 100,000 P0.90 7-5 Weighted Shares 20,000 3,500 (2,812) 1,020 2,667 24,375 Chapter Gross Profit Variation Analysis and Earnings Per Share Determination Diluted EPS = P90,000 + (10% x P500,000 x 65%) P500,000 100,000 + P1,000 x 100 P90,000 + P32,500 150,000 = P0.82 (rounded off) = Problem VIII Requirements (1) and (2) Explanation Earnings Basic earnings and shares P122,000a Stock option share increment Tentative DEPS amounts P122,000 10% bond interest expense savings e 13,300d Increment in shares Tentative DEPS amounts P135,300 7.5% preference dividend savings e 28,500 d Increment in shares P163,800 5.8% bonds 21,924 Diluted earnings and shares P185,724 a Shares ÷ ÷ 33,333b = P3.66 Basic 293c 33,626 = P3.63 DEPS ÷ 4,400 d 38,026 = P3.56 DEPS ÷ ÷ = Per Share 9,310d 47,336 = P3.46 DEPS 6,264 53,600 = P3.465 Diluted P122,000 = P150,500 (net income) - P28,500 (preference dividends) Weighted average shares: b Weighted average shares c ÷ 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 33,333 Increment due to stock options: Issued Reacquired 4,000 4,000 x ( P33 + P5 ) P41 = (3,707) Increment in shares d 293 Impact on diluted earnings per share and ranking: 7-6 Gross Profit Variation Analysis and Earnings Per Share Determination Chapter Ranking P13,300 4,400 P3.02 = P21,924 6,264 P3.50 = P28,500 9,310 P3.06 [(0.10 x P200,000) – P1,000] x 0.7 = 200 x 22 10% bonds: (0.058 x P540,000) x 0.7 540 x 11.6 5.8% bonds: (0.075 x P380,000) 3,800 x 2.45 7.5% preference: e Impact Dilutive effect on diluted earnings per share: 10% bonds: P3.02 impact < P3.63 (DEPS 1), therefore dilutive 7.5% preference: P3.06 impact < P3.56 (DEPS 2), therefore dilutive 5.8% bonds: P3.50 impact > P3.46 (DEPS 3), therefore exclude from EPS Requirement 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 B B C D A B B B A 10 A 11 D * 12 C 13 14 15 16 A D C A 17 18 19 20 A B C D 21 C 22 A 23 B * Supporting computation for no 11: P3,500,000 + (P800,000 x 65%) 400,000 + 25,000 + 225,000 P4,020,000 or P6.18 650,000 Diluted EPS for 12/31/2006 = = 7-7 ... Increase in Sales Multiplied by: Ave Gross Profit rate in 2005 Net favorable variance P200,000 150,000 P 50,000 12% P 6,000 Problem III Requirement A: Tony Corporation Statement Accounting for Gross... quantity Multiplied by: Average gross profit per unit in 2005 (P750 ÷ 100) 7-4 1,750 P P P P 875 875 - 7.50 Gross Profit Variation Analysis and Earnings Per Share Determination Chapter Increase... P33 + P5 ) P41 = (3, 707) Increment in shares d 293 Impact on diluted earnings per share and ranking: 7-6 Gross Profit Variation Analysis and Earnings Per Share Determination Chapter Ranking P13,300