MANAGEMENT ACCOUNTING (VOLUME I) - Solutions Manual

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
Inrease in !ales"
#$antity Fator %&2'(000) * P+, P&-.2(000)
Prie Fator &-0/(000 * P0) 0-/(000
#$antity1Prie Fator %&2'(000) * P0, &22(000) P /-(000
3ess" Inrease &4erease) in Cost of !ales"
#$antity Fator %&2'(000) * P., P&2-6(000)
Cost Fator %-0/(000 * &P./0), &/2(/00)
#$antity1Cost Fator %&2'(000) * &P./0), -2(000 &2/6(/00)
Inrease in Gross Profit P 002(/00
Problem II
-. !elling Prie Fator
!ales in 2006 P2-0(000
3ess" !ales in 2006 at 200/ pries
&P2-0(000 -0/5) 200(000
Fa6ora7le P -0(000
2. Cost Fator
Cost of !ales in 2006 P-6'(000
3ess" Cost of !ales in 2006 at 200/ osts -26(000
Fa6ora7le P&-2(000)
0. #$antity Fator
Inrease in !ales
7-
C!a"ter 7 Gross Profit Variation Analysis and Earnings Per Share Determination
!ales in 2006 at 200/ pries P200(000
3ess" !ales in 200/ -/0(000
Fa6ora7le P /0(000
3ess" Inrease in Cost of !ales
Cost of !ales in 2006 at 200/ osts
&P-02(000 * -008-105) P-26(000
3ess" Cost of !ales in 200/ -02(000
9nfa6ora7le P ''(000
:et fa6ora7le ;$antity fator 6(000<
Inrease in Gross Profit P 2+(000
< This may also 7e o7taine4 $sing the following presentation"
#$antity Fator"
!ales in 2006 at 200/ pries P200(000
3ess" !ales in 200/ -/0(000
Inrease in !ales P /0(000
M$ltiplie4 7y" A6e. Gross Profit rate in 200/ -25
:et fa6ora7le 6ariane P 6(000
Problem III
Requirement A:
Tony Corporation
!tatement Ao$nting for Gross Profit Variation
For 2006
Inrease &Derease) in !ales ao$nte4 for as follows"
Prie Fator
!ales this year P2-0(2-0
3ess" !ales this year at last year=s pries 26.(/00
Fa6ora7le &9nfa6ora7le) P&/.(2.0)
#$antity Fator
!ales this year at last year=s
pries &P2-0(2-0 2+5) P26.(/00
3ess" !ales last year -.2(/00
Fa6ora7le &9nfa6ora7le) P 22(000
:et Inrease &4erease) in sales P -2(2-0
Inrease &4erease) in Cost of !ales ao$nte4 for as follows"
Cost Fator
7-#
Gross Profit Variation Analysis and Earnings Per Share Determination C!a"ter 7
Cost of !ales this year P -6/('00
3ess" Cost of !ales this year at last
year=s osts -6-(200
&Fa6ora7le) 9nfa6ora7le P 0(200
#$antity Fator
Cost of !ales this year at last year=s
osts &--/(/00 * -'05) P -6-(200
3ess" Cost of !ales last year --/(/00
&Fa6ora7le) 9nfa6ora7le P '6(200
:et inrease &4erease) in Cost of !ales P '.(.00
:et inrease &4erease) in Gross Profit P &02(-.0)
Gross Profit( this year P ''(+-0
Gross Profit( last year 22(000
Inrease &Derease) in Gross Profit P&02(-.0)
Requirement B:
&-) Change in #$antity > P 22(000 > '05 inrease
P-.2(/00
&2) Change in 9nit Costs > P 0(200 > 2.0+5 inrease
P-6-(200
Problem IV
#$antity Fator
-. Derease in !ales 4$e to 4erease in the n$m7er
of $stomers %&-(000) * -+ MCF * P2./0), P&'/(000)
2. Inrease in !ales 4$e to inrease in ons$mption
rate per $stomer &26(000 * 2 MCF * P2./0) -00(000
:et Inrease P +/(000
Prie Fator
0. Derease in !ales 4$e to the 4erease in rate per
MCF %P&.0/) * /20(000, &26(000)
Inrease in operating re6en$es P /.(000
7-$
C!a"ter 7 Gross Profit Variation Analysis and Earnings Per Share Determination
Supporting Computations:
A6erage Cons$mption"
&a) 2006 > /20(000 26(000 > 20 MCF1$stomer
200/ > '+6(000 22(000 > -+ MCF1$stomer
Inrease in Cons$mption
per $stomer 2 MCF1$stomer
&7) 22(000 8 26(000 > -(000 4erease in n$m7er of $stomers
&) Prie 2006 P2.'/
200/ 2./0
Derease in rate or
prie per MCF sol4 P&.0/)
Problem V
?@A Corporation
Gross Profit Variation Analysis
For 2006
Prie Fator
!ales in 2006 P -(2/0
3ess" !ales in 2006 at 200/ pries
A &2/ * P-0) P 2/0
B &2/ * P20) -(/00 -(2/0
Inrease &4erease) in gross profit P 8
Cost Fator"
Cost of sales in 2006 P +2/
3ess" Cost of sales in 2006 at 200/ osts"
A &2/ ? P/) P -2/
B &2/ * P-0) 2/0 +2/
Inrease &4erease) in gross profit P 8
#$antity Fator"
Inrease &4erease) in total ;$antity
M$ltiplie4 7y" A6erage gross profit
per $nit in 200/ &P2/0 -00) P 2./0
Inrease &4erease) in gross profit P 8
7-%
Gross Profit Variation Analysis and Earnings Per Share Determination C!a"ter 7
!ales Mi* Fator"
A6erage gross profit per $nit in 2006 at
200/ pries P+.2/ <
3ess" A6erage gross profit per $nit in 200/ 2./0
Inrease &4erease) P-.2/
M$ltiplie4 7y" Total ;$antity in 2006 -00
Inrease &4erease) in gross profit P-2/.00
Inrease in Gross Profit P-2/.00
< !ales in 2006 at 200/ pries P-(2/0
3ess" Cost of sales in 2006 at 200/ pries +2/
Gross profit in 2006 at 200/ pries P +2/
A6erage Gross Profit on 2006 at 200/ pries"
P+2/ > P+.2/
-00 &6ol$me in 2006)
Problem VI (Com"utation o& 'ei(!te) A*era(e Number o& Or)inar+
S!ares)
Number of Shares
Date Unadjusted
Adjustment
for 25%
sto!
di"idend
As
Adjusted #u$tip$ier
%eighted
Shares
-1-12006 -6(000 '(000 20(000 -21-2 20(000
21-/12006 0(200 +00 '(000 -0./1-2 0(/00
'1-12006 &0(000) &2/0) &0(2/0) .1-2 &2(+-2)
61-12006 -('00 0/0 -(2/0 21-2 -(020
.1-12006 6('00 -(600 +(000 '1-2 2(662
-21-12006 6(000 &6(000) 8 8 8
&ota$ 00(000 8 00(000 2'(02/
Problem VII (Com"utation o& ,asi- EPS an) .ilute) EPS)

-. Basi CP! >
> P0..0
7-/
P.0(000 D &-05 * P/00(000 * 6/5)
P/00(000
P-(000
-00(000 D
* -00
P .0(000
-00(000
C!a"ter 7 Gross Profit Variation Analysis and Earnings Per Share Determination
2. Dil$te4 CP! >
>
> P0.+2 &ro$n4e4 off)
Problem VIII
Requirements '() and '2)
C*planation Carnings !hares > Per !hare
Basi earnings an4 shares P-22(000
a
00(000
7
> P0.66 Basi
!toE option share inrement 2.0

Tentati6e DCP!- amo$nts P-22(000 00(626 > P0.60 DCP!-

-05 7on4 interest e*pense sa6ings
e
-0(000
4
Inrement in shares '('00
4
Tentati6e DCP!2 amo$nts P-0/(000 0+(026 > P0./6 DCP!2
2./5 preferene 4i6i4en4 sa6ings
e
2+(/00
4
Inrement in shares .(0-0
4
P-60(+00 '2(006 > P0.'6 DCP!0
/.+5 7on4s 2-(.2' 6(26'
Dil$te4 earnings an4 shares P-+/(22' /0(600 > P0.'6/ Dil$te4
a
P-22(000 > P-/0(/00 &net inome) 8 P2+(/00 &preferene 4i6i4en4s)
7
Feighte4 a6erage shares" 2/(000 * -.20 > 00(000 * 21-2 > -2(/00
02(000 * -.20 > 0+('00 * '1-2 > -2(+00
0+('00 8 2(000 > 06('00 * -1-2 > 0(000
Feighte4 a6erage shares 00(000

Inrement 4$e to stoE options"

Iss$e4 '(000
Gea;$ire4
Inrement in shares 2.0
4
Impat on 4il$te4 earnings per share an4 ranEing"
Impat
GanEing
7-0
P.0(000 D P02(/00
-/0(000
'(000 * & P00 D P/ )
P'-
> &0(202)
Gross Profit Variation Analysis and Earnings Per Share Determination C!a"ter 7
-05 7on4s" P0.02 /
/.+5 7on4s" P0./0 0
2./5 preferene" P0.06 2
e
Dil$ti6e effet on 4il$te4 earnings per share"
-05 7on4s" P0.02 impat H P0.60 &DCP!-)( therefore 4il$ti6e
2./5 preferene" P0.06 impat H P0./6 &DCP!2)( therefore 4il$ti6e
/.+5 7on4s" P0./0 impat I P0.'6 &DCP!0)( therefore e*l$4e from CP!
Requirement *
F$ego Company wo$l4 report 7asi earnings per share of P0.66 an4 4il$te4
earnings per share of P0.'6 on its 200/ inome statement.
II. Multiple Choice Questions
-. B /. A .. A -0. A -2. A 2-. C
2. B 6. B -0. A -'. D -+. B 22. A
0. C 2. B --. D < -/. C -.. C 20. B
'. D +. B -2. C -6. A 20. D
< Supporting omputation for no+ ((:
Dil$te4 CP! for -210-12006 >
> or P6.-+
7-7
P0(/00(000 D &P+00(000 * 6/5)
'00(000 D 2/(000 D 22/(000
P'(020(000
6/0(000
%&0.-0 * P200(000) J P-(000, * 0.2
200 * 22
>
P-0(000
'('00
&0.0/+ * P/'0(000) * 0.2
/'0 * --.6
>
P2-(.2'
6(26'
&0.02/ * P0+0(000)
0(+00 * 2.'/
>
P2+(/00
.(0-0