Accounting 16 Questions Assignment 2015

| February 25, 2017

Question
Question 1

A company manufactures 1GB flash drives. Price and cost data for a month are as follows:
Sales price per unit (Monthly sales volume is 120,000 units) $20.00

Variable Costs Per Unit:

Direct Materials $ 6.40

Direct Labor 5.00

Variable Manufacturing Overhead 2.20

Variable Selling and Administrative Costs 1.40

Monthly Fixed Costs:

Fixed Manufacturing Overhead $191,400

Fixed Selling and Administrative Expenses 276.600

What is the company’s contribution margin per unit AND contribution margin ratio?

Question 2
1. What would the company’s monthly net income be if the company sold 150,000 units?

Question 3
1. What is the breakeven point in units AND sales dollars?

Question 4
1. How many units would the company have to sell to earn a target monthly profit of $260,000?

Question 5
1. Management is currently in contract negotiations with the labor union. If the negotiations fail, direct labor costs will increase by 10% and fixed costs will increase by $22,500 per month. If these costs increase, how many units will the company have to sell each month to breakeven?

Question 6
1. Go back to your answer in PART 2 (computation of the monthly required net income). What is the company’s current operating leverage factor (round to two decimals)?

Question 7
1. Using your answer in PART 6, by what percentage will operating income rise if the sales increase by 8%?

Question 8
1. Using the information you calculated in PARTS 4 AND 5, what is the Margin of Safety in sales dollars and as a percentage of sales?

Question 9

A lumber company is considering whether it should replace an extrusion machine. The new machine will produce 40% more finished lumber than the old machine. The increase in production will cause fixed selling costs to increase, but variable selling costs will not increase. The new machine will require installation by an engineering firm; the old machine had required a similar installation. If the new machine is purchased, the old machine can be sold as scrap. The old machine requires frequent repairs and maintenance to keep it running. The new machine will require maintenance once a year. The new machine will be paid for by signing a note payable with the bank that will cover the cost of the new machine. The company will pay interest on the note payable. The note payable that was used to pay for the old machine was fully paid off last year.
REQUIRED: For each of the following items, indicate whether it will be relevant(R) or irrelevant(I) to the lumber company in making a decision concerning the purchase of the new machine.

a) Cost of new machine

b) Cost of old machine

c) Additional profits fromincrease in production from the new machine

d) Fixed selling costs

e) Variable selling costs

f) Scrap (salvage) value of old machine

g) Interest expense on new machine

h) Interest expense on old machine

i) Book value of old machine

j) Maintenance cost of new machine

k) Repairs and mainatenance costs of old machine

l) Installation costs of new machine

m) Installation costs of old machine

n) Salary of comany’s CEO

o) Accumulated depreciation on old machine

Question 10

Qualitative costs as well as quantitative costs are important in making any decision. Consider a company that is contemplating outsourcing one of its production activities. List four (4) types of QUALITATIVE COSTS that must be considered in making the decision to outsource its activity.

Question 11

The master budget can be used as both a planning and a performance measurement tool. Identify three specific ways in which the budget is used as a planning tool

Question 12

BRIEFLY explain what management must do to create a budget that can be used as both a planning tool and performance budget at the same time

Question 13

Identify each of the following responsibility centers as being a COST CENTER (C), REVENUE CENTER (R), PROFIT CENTER (P) OR INVESTMENT CENTER (I).
a) The bakery department of a Publix supermarket reports its net income for the current year.

b) Pace Foods is a subsidiary of Campbell Soup Company.

c) The personnel department of State Farm Insurance Comanies prepares its budget and subsequent performance reports on the basis of its expected expenses for the year.

d) The shopping section Burpee.com reports both revenues and expenses.

e) The manager of a BP service station is evaluated on the station’s revenues and expenses.

f) A charter airline records revenues and expenses for each airplane each month. Each airplane’s performance report shows its ratio of operating income to average book value (investment).

g) The manager of the Southwest sales territory is evaluated based on a comparison of current period sales against budgeted sales.

Question 14

A company has two divisions, East and West. East Division manufactures a component that West Division uses. The variable cost to produce this component is $2 per unit. The fixed cost to produce this component is 75 cents per unit. The component sell on the open market for $3.10. However, West Division is able to purchase the component for $3 from an external source.
a) Assuming East Division has excess capacity, what is the lowest price East Division will accept from West Division for the component?

b) Assuming East Division has excess capacity, what is the maximum price that West Division will pay East Division for the componet?

c) How (if at all) would your answers to parts (a) and (b) change if East Division is operating at capacity without considering sales to West Division?

d) What accounting concept guides the actions (or lack of actions) in the above parts?

Question 15

A company has two divisions, East and West. East Division manufactures a component that West Division uses. The variable cost to produce this component is $2 per unit. The fixed cost to produce this component is 75 cents per unit. The component sell on the open market for $3.10. However, West Division is able to purchase the component for $3 from an external source.
a) Assuming East Division has excess capacity, what is the lowest price East Division will accept from West Division for the component?

b) Assuming East Division has excess capacity, what is the maximum price that West Division will pay East Division for the componet?

c) How (if at all) would your answers to parts (a) and (b) change if East Division is operating at capacity without considering sales to West Division?

d) What accounting concept guides the actions (or lack of actions) in the above parts?

Question 16

A company has two divisions, East and West. East Division manufactures a component that West Division uses. The variable cost to produce this component is $2 per unit. The fixed cost to produce this component is 75 cents per unit. The component sell on the open market for $3.10. However, West Division is able to purchase the component for $3 from an external source.
a) Assuming East Division has excess capacity, what is the lowest price East Division will accept from West Division for the component?

b) Assuming East Division has excess capacity, what is the maximum price that West Division will pay East Division for the componet?

c) How (if at all) would your answers to parts (a) and (b) change if East Division is operating at capacity without considering sales to West Division?

d) What accounting concept guides the actions (or lack of actions) in the above parts?

Get a 25 % discount on an order above $ 100
Use the following coupon code:
25%OFF
Positive SSL