Instructor Guide

Balakrishnan, Sivaramakrishnan, & Sprinkle

Managerial Accounting

Chapter 1: Accounting: Information for Decision Making

Chapter Summary

Chapter 1 sets the stage for the book. We discuss the foundations of decision making and the
four integral steps associated with making good decisions: (1) Specifying the problem, including
the goals; (2) Identifying options; (3) Measuring the benefits and costs (value) of each option;
and, (4) Making the decision, choosing the option with the highest value. Since we are
particularly interested in studying decision making in organizations, we discuss how individual
decision making differs from decision making in group settings. We note that organizations tend
to have more focused goals than individuals (e.g., profit maximization) and, because
organizations are a collection of individuals, there are issues associated with getting everyone on
the same page (goal congruence). This naturally leads to a discussion of the three methods
organizations use to achieve goal congruence – policies and procedures, monitoring, and
incentive schemes and performance evaluation.

The second part of the chapter begins with a discussion about the dynamic nature of decision
making – organizations continuously go through cycles of planning and control. We next turn
our attention to the role of accounting in the decision-making process, noting that accounting
pertains to step 3 of the four-step framework. That is, the primary role of accounting is to help
measure the costs and benefits of decision options. We discuss the salient differences between
financial and managerial accounting, and the important role managerial accounting plays in
supporting planning and control decisions. We conclude the chapter with a discussion of ethics,
and how ethics relate to every step of the decision framework.

Lecture Outline & Recommended In-Class Problems

We usually devote two days to teaching Chapter 1 material. The Day 1 outline follows: Please
note that material in { } corresponds to discussion with instructors, whereas all other material is
formally presented to students either using the board or via a handout.

Day 1:

A. Life is a series of decisions!

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 Therefore, the quality of our life depends on the quality of our decisions.

It behooves us to understand how to make good decisions.

{We peel the above back to discuss the many layers – e.g., the decisions we as
individuals make every day, month, etc. as well as the many decisions businesses
make. We provide students with a laundry list of examples}

B. Four-Step framework for decision making.

Step 1: Specify the decision problem, including the decision maker’s goals.

Step 2: Identify options

Step 3: Measures costs and benefits to determine the value of each option.

Step 4: Make the decision, choosing the option with the highest value.

Some noteworthy points…

Framework applies to individuals and business decisions.

Successful business persons excel at steps 1, 2, and/or 3

Business courses/majors geared towards helping you get better at steps 1, 2,

and/or 3

Management & marketing (steps 1 and 2)

Finance (step 2 – e.g., debt vs. equity) and Accounting (step 3)

Four-step framework works for “almost all” decisions

Some decisions are automatic/visceral/instinctive

Helps us see the value of the PIER cycle.

C. {We then proceed to homework problem 1.55, “Natalie’s Knick Knacks,” to illustrate the
four-step framework. This exercise asks students to specify the decision problem, identify
options, calculate the costs and benefits of each option, and make the best decision. The problem
also allows instructors to illustrate how a novel option (using a sequential/staggered discount

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strategy) could further increase cash flows – this reinforces to students the importance of
identifying good options}

D. Faced with the same option yielding the same financial costs and benefits, different
individuals often make different decisions.

Why?

Different goals

Since organizations are a collection of individuals, we need to worry about how

individual goals mesh with organizational goals.

Otherwise, we get “funny” decisions

E. Three broad methods organizations use to motivate employees to achieve organizational goals
(maximize profit).

Policies and procedures

Monitoring

Incentive schemes and performance evaluation

F. {We next go over problem 1.58, “Monitoring in Casinos,” to starkly illustrate issues related to
goal congruence and the mechanisms firms use to shore up the inherent conflicts of interest in
organizations}

Day 2:

A. Accounting is about MEASUREMENT (i.e., accounting pertains to step 3 of the 4-step

decision making process.

Accounting is important because, if you mis-estimate costs and benefits (even if you do a
great job on steps 1 and 2), you could end up with a bad decision.

{We provide several examples – a firm mis-estimates demand and introduces a new
product when it shouldn’t; we mis-estimate the costs and benefits of a particular career
choice, etc.}

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 {We also discuss the differences between financial accounting and managerial
accounting, asking students to list the salient dimensions – invariably, we end up
reproducing exhibit 1.4 on the board}

B. Managerial accounting system tailored to the decision problem/situation.

{We then go over problem 1.71, “Managerial accounting, organizational goals,” in detail
to illustrate the above point}

C. Ethics

Relate to every aspect of the framework

A bit like beauty – lies in the eyes of the beholder – often no bright line test for what is
ethical

{We then go over problem 1.45, “Ethics and Decision Making, Travel Expenses” – this
problem does not have a clear correct answer as students usually generate at least five
different expense reports – each being readily justifiable}

Chapter 2: Identifying and Estimating Cost and Benefits

Chapter Summary

In Chapter 1, students learned that the primary role of managerial accounting is to measure the
costs and benefits of decision options. In Chapter 2, we inform students that this step consists of
two tasks—identifying the costs and benefits to measure, and then estimating the amount of each
identified cost and benefit. Our primary focus in the chapter is on the principles that help
managers accomplish these two tasks.

We first discuss the two principles, controllability and relevance, that determine which costs and
benefits to measure. Briefly, a controllable cost or benefit is one that a decision maker chooses to
incur, relative to doing nothing. For a business, controllable costs and benefits are the
incremental revenues and costs relative to current revenues and costs, or the status quo. A
relevant cost/benefit is one that differs across viable options.

Using the principle of controllability, we offer students a way for grouping business decisions by
their horizon—the time span within which an organization reaps the benefits and incurs the costs
of a decision. That is, there is an important link between time and controllability – commitments

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and contractual obligations expire with the passage of time. Based on this link, we distinguish
between short- and long-term decisions.

We then describe the two key principles for estimating costs and benefits: variability and
traceability. Variability is the relation between a cost or benefit and an activity, whereas
traceability is the degree to which we can directly relate a cost or a benefit to a decision option.
We use variability to convert changes in activities to changes in benefits and costs, whereas
traceability pertains to our confidence in this estimate (e.g., we generally are more confident in
direct costs than indirect costs that require some allocation). In the final part of the chapter, we
extend the principle of variability to develop a hierarchy of costs, which helps to increase the
accuracy of estimated costs.

Students often report that this chapter is one of the more difficult in the text – candidly, many
students struggle with concepts, finding them to be more amorphous than strict rules. We have
found that providing students with numerous “simple” examples from everyday life and business
helps greatly. We also remind students that while concepts can be difficult to grasp, they also are
crucial in developing one’s critical thinking and problem-solving skills.

Lecture Outline & Recommended In-Class Problems

We usually devote two days to teaching Chapter 2 material. The Day 1 outline follows: Please
note that material in { } corresponds to discussion with instructors, whereas all other material is
formally presented to students either using the board or via a handout.

Day 1:

A. {We begin by giving students a brief 10-15 min. QUIZ over Chapter 1 and Chapter 2 – the
latter portion only focuses on concepts and ensures that students have read the material prior to
class}

B. As we know from Chapter 1, Accounting is about MEASUREMENT.

There are two steps involved in measurement:

Identifying costs and benefits

Estimating costs and benefits

{We discuss the above in detail, noting that identifying costs and benefits is just
asking “what’s going to change?” and estimation relates to “how much is it going
to change?” We provide several personal and business examples of this two-step
process. For example, we discuss personal decisions related to choosing a college

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 or choosing what to do on a Friday night. We discuss business decisions such as
Nike making a new shoe – asking students what costs they believe will change –
e.g., R & D, advertising, materials, labor, shipping, and so on}

C. Two principles associated with identifying costs and benefits

Controllability

Relevance

{We ask students to define each principle. We also provide several personal examples,
such as choosing between places to eat at a food court in the mall – e.g., the meal cost is
controllable but often not relevant. We also provide several business examples, such as
deciding between which type of shoe Nike should introduce or where a new business
might locate – really, just about any decision will do}

D. {We then draw exhibit 2.3 “Controllability and Relevance are Closely Related Concepts” on
the board, giving students a few minute to reflect on the concepts just introduced. This exhibit,
plus a few additional examples, helps students see the relation between controllability and
relevance. Our experience has shown that the more examples students have, the better}

E. {Next, we go over problem 2.33 “Controllability and Relevance: Akawasi Sudawa” in class.
This problem crisply helps students see the relation between controllability and relevance and
how variations in the status quo lead to variations in what is controllable and relevant – a very
important point. Even though the problem is quite straightforward, it leads to some remarkably
good in-class discussion}

F. {We ask students to complete problem 2.45, “Controllability and Relevance: Rams
Ramachandran” as an in-class exercise. We give students 10 minutes to work on the problem.
This problem helps solidify concepts of controllability and relevance. The problem also, in part
b, gets students thinking about estimation – value equals the change in controllable costs and
benefits}

Day 2:

A. Two principles associated with estimating costs and benefits

Variability

{We draw pictures of fixed, variable, and mixed costs on the board. We also use a
business example, such as Nike making a new shoe, to help students see the distinction

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 between fixed costs (e.g., R & D), variable costs (e.g., materials, such as shoelaces) and
mixed costs (e.g., utilities). We also use personal examples including students’ rent, auto,
food, tuition, etc. costs}

Variability allows us to convert changes in activity to changes in costs and

benefits.

For example, Controllable cost = the change in fixed costs + the change in
activity × the unit variable cost.

Traceability

The degree to which we can relate a cost/benefit to a particular decision

Direct = Entire amount

Indirect = Only part

Need allocations. Imprecise.

{We provide several examples, including how students naturally

pay for their own tuition, but typically share costs associated with
rent and groceries. Interestingly, many students “split” items such
as milk and bread, but purchase other items, such as cereal or ice
cream, individually. We also provide several business examples of
direct and indirect costs – continuing with, e.g., the Nike example,
or using others such as producing multiple products using a single
piece of equipment.}

B. {We go over problem 2.58 “traceability, variability, controllability, and relevance,” skipping
part c. This problem, which relates to a ski trip with friends, helps students better understand
traceability and variability and, more generally, the concepts presented in the chapter using a
decision that almost all students can relate to}

C. Cost Hierarchy

Extends principle of variability to help increase the accuracy of estimated costs.

Not all costs fall neatly into fixed, variable categories with respect to one
activity…

There are unit-, batch-, product-, and facility-level costs

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D. {We go over problem 2.42, “Hierarchical Cost Structure: Creative Tiles.” This problem helps
students see, using an intuitive example, the not all costs fall neatly into fixed and variable
categories. That is, students see the value of the cost hierarchy for a relatively “simple” business}

E. {We next ask students to work on problem 2.59, “Cost variability, step costs” in class. This
problem uses an intuitive example, a school, to help students think about whether costs are
Fixed, Variable, Mixed, or Step. Students see just how difficult it can be to make such
classifications even in relatively straightforward settings. In turn, this shows students the
importance of understand these concepts and the value of the material being studied}

Chapter 3: Cost Flows and Cost Terminology

Chapter Summary

In this chapter, we illustrate how firms accumulate costs for financial reporting purposes. We
then examine cost accumulation in three types of organizations: service, merchandising, and
manufacturing. We discuss the similarities and differences in the flow of costs in these
organizations, focusing particularly on how they accumulate costs for valuing inventory and
reporting income. Because cost allocations play an integral role in this process, we end with a
brief overview of the mechanics of cost allocations.

Chapter 3 is important because we need data to estimate costs and benefits. Invariably, we get
the data from the accounting system and most systems are set up to comply with GAAP.
Accordingly, it behooves us to understand how such systems work. Our experience shows that
students at all levels respond quite well to Chapter 3, encountering minimal difficulties with the
material. Naturally, students with previous exposure to financial accounting tend to fare
somewhat better than those without this foundation. That said, we have found the chapter to be
quite accessible for students with minimal, or no, exposure to financial accounting.

Lecture Outline & Recommended In-Class Problems

We usually devote two days to teaching Chapter 3. The Day 1 outline follows: Please note that
material in { } corresponds to discussion with instructors, whereas all other material is formally
presented to students either using the board or via a handout.

Day 1:

A. {We begin by giving students a brief 10-15 min. QUIZ over Chapter 2 and Chapter 3 – the
latter portion only focuses on concepts and ensures that students have read the material prior to
class}

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B. To estimate costs and benefits, we need data!

Q: Where do we get the data?

A: From the accounting system.

{We let this point “sit” for a moment. It is important for students to understand
that the data must come from somewhere and, again, that accounting is about
measurement.}

C. Most accounting systems are set up to comply with GAAP.

Distinguish product costs from period costs

Revenues
- Cost of goods sold PRODUCT COSTS
= Gross margin
- Selling, general, & administrative costs PERIOD COSTS
= Profit

This is OK for external decision making.

Why?

{Here, we remind students of some of the discussion in Chapter 1

pertaining to the role of financial accounting. We also discuss the
matching principle and how investors buy a piece of the entire firm and
not a fraction thereof. In many instances, a summary metric showing
overall returns is sufficient}

This is NOT OK for internal decision making.

Why?

Co-mingles controllable costs and non-controllable costs and fixed

costs/variable costs.

{Here, we show students how costs of goods sold includes

both non-controllable, fixed costs such as rent and
controllable, variable costs such as materials. Such

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 mingling makes it difficult to use cost of goods sold as a
summary metric of what’s going to change as, say, volume
increases in the short-term. Analogously, selling and
administrative expenses include both non-controllable,
fixed items such as salaries and controllable, variable items
such as commissions and shipping.}

{We note that such concerns are true for service,

merchandising, and manufacturing firms}

D. Thus, we need to modify financial data to suit our needs.

Before doing this, we need to understand how costs flow through an organization…

E. Most Complicated Setting – Manufacturing.

{We reproduce exhibit 3.12, “Flow of costs through inventory accounts in manufacturing
firms,” on the board. We find this exhibit to be particularly helpful to students – they can
visually see how costs cascade down, ultimately finding their way to the income
statement. We then spend a chunk of time discussing how to work forwards and
backwards using the t-accounts. Finally, we inform students that if they can understand
the manufacturing setting, then they also will understand cost flows in merchandising and
service settings.}

F. {We conclude day 1 of Chapter 3 by going over problem 3.44, “Natalie’s Knick Knacks: Cost
flows in merchandising.” This problem is more challenging than it appears because calculating
revenues is not easy. Moreover, the problem helps students see the GAAP income statement and
how to work with the merchandise inventory account.}

Day 2:

We cover the following continue to go over problems in class to ensure students understand the
material presented in Chapter 3.

A. {Mini-Case 3.56, “Baber, Inc.: Cost flows and overhead application.” This is a
comprehensive problem that touches on all aspects of the chapter.}

B. {We next cover problem 3.51, “Pringle and Company: Allocations and GAAP Inventory
Valuation.” This problem focuses on the mechanics of cost allocations and illustrates how
changing the allocation base can change product cost.}

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C. {To ensure mastery of the Chapter 3 content, we ask student to complete two additional
problems in class. We typically assign problem 3.54, “Traveler Corporation: Allocation
mechanics, choice of driver,” to ensure that students understand the fundamentals of cost
allocations. We next assign problem 3.39, “Dan Wenman: Cost flows in manufacturing,” to
ensure that students are comfortable with cost flows.}

Chapter 4: “Techniques for Estimating Fixed and Variable Costs”

Chapter Summary

Chapter 4 focuses on the value of contribution margin statements and the three techniques
organizations use to separate fixed costs from variable costs: Account classification, the high-
low method, and regression analysis. Chapter 4 is important because most organizations’
accounting systems are set up to comply with GAAP, as discussed in Chapter 3. Unfortunately,
GAAP-based statements, with their emphasis on grouping costs by business function, frequently
are not suitable for decision making. For example, costs related to property, plant, and equipment
are fixed and non-controllable in the short-term. Yet, such costs are included in cost of goods
sold, along with other variable and controllable manufacturing costs such as materials and labor.
Likewise, selling, general, and administrative expenses include both fixed and variable
components. This co-mingling of controllable and non-controllable costs makes it problematic to
use gross margin or net income, the two summary metrics produced by GAAP-based statements,
for decision making.

Moreover, variable costs typically are relevant and controllable for short-term decisions whereas
fixed costs are not. Recognizing the need to modify GAAP-based statements to separate variable
costs from fixed costs, Chapter 4 first shows students the value of contribution margin
statements, which separate variable costs from fixed costs, for decision making. This then leads
to a natural question: How can we modify traditional income statements to get a contribution
margin statement. We discuss the three common techniques organizations use to accomplish this
objective: Accounting classification, the high-low method, and regression analysis. The
mechanics of each method, along with the associated benefits and costs, are discussed in detail.
Chapter 4 concludes with a discussion of segmented contribution margin statements, the natural
extension of contribution margin statements to firms that offer multiple products and/or have
multiple lines of business (regions, customers, etc.). This allows students to see the
generalizability and applicability of the contribution margin statement to a wide-variety of
businesses and decision settings. Finally, we offer students a glimpse of Chapter 5 and cost-
volume-profit analysis, which follows directly from the contribution-margin statement studied in
Chapter 4.

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Lecture Outline & Recommended In-Class Problems

We usually devote two days to teaching Chapter 4. At the beginning of the first day, we give
students a quiz over the Chapter 3 problems and Chapter 4 concepts – we allot anywhere from 10
to 20 minutes for the quiz.

The Day 1 outline follows: Please note that material in { } corresponds to discussion with
instructors, whereas all other material is formally presented to students either using the board or
handout.

Day 1:

A. {We start by making the following claim} In the short-term, we need to modify the GAAP-
based [traditional] income statement to get a contribution margin statement.

Why?

In the short-term, many costs are fixed and non-controllable.

Examples include costs related to property, plant, equipment, and

management salaries.

In contrast, most variable costs are controllable in the short-term.

Examples include costs related to materials, hourly labor, sales

commissions, and shipping.

Therefore, it makes sense to separate costs by variability because this division

corresponds extremely well with controllability.

Unfortunately, the GAAP-based income statements we studied in Chapter 3 co-

mingle fixed and variable costs in both cost of goods sold (CGS) as well as selling
and administrative expenses (S & A). For example, equipment depreciation and
factory rent are part of CGS and management salaries are part of S & A expenses.
These costs, which are fixed and non-controllable in the short-term, are combined
with the costs of, for example, materials and sales commissions which are
variable and controllable in the short-term.

In contrast to the traditional income statement, the contribution margin statement

separates costs by their variability. {We then show the relation between the Gross Margin
statement and the contribution margin statement using an exhibit like the following}.

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B. {Following a discussion of the exhibit, we then state}: There are three techniques
organizations use to accomplish the task of going from a traditional income statement to a
contribution margin income statement:

Account Classification
High-low method
Regression Analysis

How does each method work? Let’s look at some examples…

C. {We then proceed to the homework problems to illustrate the value of the contribution margin
statement and the 3 techniques to construct such statements. We do two problems to close out
Day 1 of Chapter 4}

1. Problem 4.34 (Jindal Manufacturing Company)

{We use this problem to illustrate the differences and similarities between
traditional income statements and the contribution margin statement. The problem
essentially requires students to work through an exhibit like the one above,
parsing out CGS and S&A costs into their fixed and variable components. We
note to students that revenues and profit stay the same, whereas what goes above
the line as well as the margin of interest differs. Such “minor” differences in
format can have a dramatic effect on decision making.}

2. Problem 4.36 (Mega Manufacturing)

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 {We use this problem to illustrate the account classification method. The problem
shows students how the method works and also illustrates just how subjective and
daunting implementing the account-classification method could be in practice}

Day 2:

A. {For this day, we cover problems 4.38, 4.55, 4.45, and 4.59, working all problems out on the
board. We make the following points for each problem.}

1. 4.38 (Silk Flowers & More)

{We use this problem to illustrate the high-low method, emphasizing to students
that we select the two data points using the high and low activity levels. The
problem also provides a nice context for showing students the value of separating
costs into fixed and variable components. In this particular problem, it allows Silk
Flowers & More to learn what “free” shipping costs and assess how shipping
costs change as the number of arrangements changes.}

2. 4.55 (Frank Fletch)

{We use this problem to illustrate the regression method and how to use Excel to
implement this method. The problem also illustrates the importance of knowing
the data and not blindly implementing a statistical method – it is important to have
a keen understanding of the firm’s operations and accounting systems.}

3. 4.45 (Omega Corporation)

{We use this problem to illustrate segmented contribution margin statements, the
natural extension of the contribution margin statement to firms with multiple
products, geographical regions, etc. The problem has students first prepare a
segmented contribution margin statement by region and then by product line.
Students see the value of decomposing overall profit into the various pieces,
learning that one region and product are particularly profitable, whereas others are
not. This helps students see the value of such statements for decision making}

4. 4.59 (Zeron)

{This problem focuses on learning curves and cost estimation, the subject of the
appendix to Chapter 4. This is a challenging problem that few students fully solve
correctly. The problem nicely illustrates the effects of learning on cost and just
how much firms save when learning effects are present. We typically link the
problem to a discussion of auto and aircraft manufacturers, noting that these firms
operate in the “red” in the early years of a project, planning to recoup costs at a
later date.}

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Chapter 5: Cost-Volume-Profit Analysis

Chapter Summary

Chapter 5 focuses on the Cost-Volume-Profit (CVP) relation. We begin the chapter by

showing students how the CVP relation follows directly from the contribution margin statement
in Chapter 4. Moreover, we illustrate that the CVP relation is simply a convenient way to express
the contribution margin statement. We then illustrate how firms use the CVP relation for profit
planning – we show students how to estimate profit at different sales volumes and how to
calculate breakeven volume and breakeven revenues. We then extend the discussion to include
target profit calculations and taxes.

The next part of the chapter focuses on using the CVP relation for decision making. We
illustrate how the CVP relation can be used to evaluate price changes (price/quantity tradeoffs)
and short-term changes in cost structure. In the latter contexts, we show how the CVP relation
can help in assessing operating risk – we discuss two metrics, margin of safety and operating
leverage, and how they emanate from the CVP relation. We then extend the CVP relation to
include multiple products, using both a weighted unit contribution margin and a weighted
contribution margin ratio. Finally, we discuss the limitations of CVP analysis.

Lecture Outline & Recommended In-Class Problems

We usually devote two days to teaching Chapter 5 material. The Day 1 outline follows: Please
note that material in { } corresponds to discussion with instructors, whereas all other material is
formally presented to students either using the board or via a handout.

Day 1:

A. {We begin by giving students a brief 10-15 min. QUIZ over Chapter 4 and Chapter 5 – the
latter portion only focuses on concepts and ensures that students have read the material prior to
class}

B. CVP relation

Follows directly from the contribution margin statement we studied in Chapter 4.

Revenues =P×Q
- Variable costs = UVC × Q
= Contribution margin = (P – UVC) × Q
- Fixed costs =F
= Profit = (P – UVC) × Q – F

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 The CVP relation is useful for

(a) Profit planning

(b) Decision making
(c) Assessing operating risk

We will examine each of these uses, extending the basic CVP relation along
the way.

C. {We proceed to work on problem 5.32, “CVP relation and Profit Planning, Contribution
Margin Ratio Approach.” In completing the problem, we first illustrate to students that if we
multiply the right hand side of the basic CVP relation by P/P, then we get a CVP relation with a
contribution margin ratio setup – i.e., profit = CMR × Revenues – F}

D. {We then complete problem 5.35, “CVP relation and solving for unknowns, contribution
margin ratio approach.” Collectively, 5.32 and 5.35 provide students a solid understand of the
basic CVP relation using a contribution margin ratio formulation.}

E. {We next work through problem 5.47 (Garnet’s Gym), “CVP relation, profit planning, unit
contribution margin approach, extensions to decision making.” This problem provides students
with a basic understanding of the garden-variety CVP relation and how it can be used for
decision making.}

E. {Finally, we ask students to complete problems 5.30 and 5.31 in class. These problems help
ensure that students have mastered the “basics” of the CVP relation.}

Day 2:

We continue to go over problems in class to ensure students understand the CVP relation and its
many uses.

A. {We start with problem 5.43, “Cottage Bakery: CVP relation and decision making, margin of
safety, operating leverage, cash-basis breakeven analysis.” This problem is more complex than it
first appears, requiring students to use current operating results to back out fixed costs and, in
turn, calculate the firm’s breakeven point. Students then calculate margin of safety, operating
leverage, and cash breakeven – this leads to an interesting discussion of how the CVP relation is
useful for assessing operating risk and when/where cash breakeven analysis is most appropriate}.

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B. {We next cover problem 5.44, “Mountain Maples: Multiproduct CVP analysis, unit
contribution margin approach.” Before starting this problem, we illustrate the two approaches for
solving the multiproduct CVP problem: Weighted unit contribution margin and weighted
contribution margin ratio. We discuss what each is trying to accomplish conceptually and then
walk students through some rudimentary calculations using hypothetical data. We then walk
students through Problem 5.44 to further illustrate how the weighted unit contribution margin
approach works.}

C. {We next discuss problem 5.58, “University Bookstore: Multiproduct CVP analysis, weighted
contribution margin ratio approach.” This problem, which students find challenging, illustrates
the multiproduct CVP relation using a weighted contribution margin ratio approach. It also helps
students understand the salient differences between the two formulations.}

D. {Finally, we ask students to work through problem 5.45, “Select Auto Imports: Multiproduct
CVP analysis, contribution margin ratio approach,” in class. This problem, which is markedly
easier than the previous problem, solidifies students understanding of multiproduct CVP
analysis.}

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