5 Management Accounting Questions

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Here are 5 questions related to managerial accounting.
1.

TX Companyproduces avarietyof electricmotors. Management follows apricingpolicyof manufacturing cost plus 60 percent. In responseto a request from Sporting Goods, the followingpricehas beendeveloped for an order of300 Mini Motors (the smallest motor TP Companyproduces):

Manufacturing Costs

DirectMaterials

……………..

$10,000

DirectLabor

……………..

$12,000

FactoryOverhead

……………..

$18,000

Total

………………………………………………

$40,000

Markup (60%)……………………………………….

$24,000

Sellingprice…………………………………………..

$64,000

Mr Smith, the president of SportingGoods, rejected this price and offeredto purchasethe 300

Minimotors at a priceof$44,000. Thefollowing additional information is available.

· TP Companyhas sufficient excess capacityto producethe motors.

· Factoryoverhead is $400,000 for the currentyear. Ofthis amount, $100,000 is fixed.

Ofthe $18,000 offactoryoverheadassigned to Mini Motors, only$13,500 is driven bythe special order; $3,500 is afacility-level cost.

· Sellingand administrative expenses arebudgetedas follows: Fixed……………………$90,000peryear (facilitylevel) Variable ………………..$20 per unit manufactured and sold

Required:

a. Thepresident of TP Companywants to know ifheshould allow Ms Smith to havethe

MiniMotors for $44,000. Determinetheeffect onprofits of acceptingMrSmith’s

offer.

b. Brieflyexplain why certain costs should beomitted from the analysisin requirement

(a).

c. Assume TP Companyisoperatingat capacityandcould sellthe 300 Mini Motors at its regular markup.

1. Determinethe opportunitycost ofacceptingMr Smith’s offer.

2. Determinetheeffect on profits of acceptingMr Smith’s offer.

2.

Frontier Companyis preparingabudget for Januaryand Februaryof nextyear. Thebalance sheet as ofDecember 31,2011 follows:

FrontCompany

BalanceSheet

31Dec11

Assets

Liabilties&Stockholders’Equity

Cash

$ 100,000

Accountspayable

$ 125,000

AccountsReceivable

$ 60,000

Operatingexpensepayable

$ 10,000

Inventory

$ 30,000

Miscellaneouspayable

$ 20,000

EquipmentLeasehold

$ 60,000

Capitalstock

$ 25,000

Retainedearnings

$ 70,000

Totalassets

$ 250,000

Totalliabilities&equity

$ 250,000

.png”>.png”>.png”>.png”>.png”>Monthlysales dataforthe currentyear and the budgeted data for thenextyear are as follows:

November2011

……………..

$180,000

February2012

……………..

$250,000

December2011

……………..

$100,000

March2012

……………..

$260,000

January2012

……………..

$240,000

April2012

……………..

$280,000

For 2012, the followingareexpected:

· Fortypercent of the salesrevenueiscollected duringthe month of sale, with the balancecollected during the followingmonth.

· Cost of goods sold is 60 percent of sales. MerchandiseInventorysufficient for20 percent of thenext month’s sales is to bemaintained at the end of each month. All purchasesforresale is paid in the month followingthe month of purchase.

· Operatingexpenses for each month are estimatedat 10percent of sales revenue. All operatingexpenses arepaid for duringthe followingmonth.

· Income taxes are estimated are40percent of income beforetaxes. Incometaxes are paid 15 days after the end of thequarter. Therewereno taxpayable on December31. Themiscellaneous payables as at December31, 2011 are to be paid duringJanuary

2012.

Required:

a. Prepare a contribution margin statement for thequarterendingMarch 31,2012. Do

not preparemonthlystatements.

b. Prepare abudgetedbalancesheetas at March 31,2012. (Hint: Preparepurchases and cash budgets.)

3.

=”msonormal”>=”msonormal”>IT producesavarietyof computer accessories. To improvefinancial incentives, the Production Department and the Sales Department arebothtreated as profitcenters, with all goods produced in theProduction Department being“sold”to theSales department at 150 percent of variable cost. The costsof theAdministrativeDepartment are allocated equallyto the Production and Salesdepartments. Thefollowingperformancereportsarefor the Production and Sales Departments fortheyear 2010:

ComputerIT

ProductionDepartmentPerformanceReport

.png”>.png”>Forthe year2010

UnitSales

Actual

10,000

Budget

8,000

Variance

Salesrevenue

Lessvariablemanufacturingcosts

DirectMaterials

$ 241,500 (69,000)

$ 147,000 (35,000)

DirectLabor

(32,000)

(21,000)

ManufacturingOverhead

(60,000)

(42,000)

Total

(161,000)

(98,000)

Contribution Margin

Less:FixedCosts

Manufacturingoverhead

80,500 (24,000)

49,000 (25,000)

Administrative

(15,000)

(10,000)

Total

(39,000)

(35,000)

Manufacturingprofit

41,500

14,000

27,500 F

ComputerIT

SalesDepartmentPerformanceReport

.png”>For theyear2010

UnitSales

Actual

10,000

Budget

8,000

Variance

Salesrevenue

Lessvariablecosts

Costofgoodssold

$ 310,000 (241,500)

$ 217,000 (147,000)

Sellinganddistribution

(50,000)

(35,000)

Total

(291,500)

(182,000)

ContributionMargin

Less:FixedCosts

Sellinganddistribution

18,500 (8,000)

35,000 (8,000)

Administrative

(15,000)

(10,000)

Total

(23,000)

(18,000)

Sellingprofit/ (loss)

(4,500)

17,000

(21,500)U

Management congratulated the Production department supervisorforanother outstanding performanceand offeredhimaraise. Themanager oftheSales department, on the other hand, was called to a special meetingof theboardof directorsand told that unless she provided an adequateexplanation ofher department’s performance, shewould be terminated.

.png”>Required:

Extremelyconcernedabout herfuture with theorganization, the manager ofthe Sales

.png”>department hasaskedyou

(1)To evaluate the 2010 performancereports for each department and

(2)To assist in preparingrevised 2010 performancereports for each department and the companyas awhole.

4.

GCompanybuysavarietyof fruits from growers and then processes the fruitinto a product line offresh fruit, juices and fruitflavorings. Themost recentyear’s sales revenue was $4,200,000. Variable costswere60 percent of sales and fixed coststotalled $1,300,000. Garden Companyis evaluatingtwo alternatives designed toenhanceprofitability.

· Onestaff member has proposed that Garden Companypurchasemoreautomated processingequipment. This strategywould increasefixed costsby$300,000 but decreasevariablecoststo 54 percent of sales.

· Another staffmemberhas suggested that GardenCompanyrelymoreon outsourcing for fruitprocessing. This would reducefixed costsby$300,000 but increasevariable coststo 65 percent of sales.

Required:

Please assist Garden Companymanagement byansweringthe followingquestions:

a. What is the current break-even pointin sales dollars?

b. Assumingan income taxrate of34 percent, what dollar sales volumeis current required to obtain anafter-taxprofitof $500,000.

c. In theabsenceof incometaxes, at what sales volume will both alternatives

(automation and outsourcing) providethe same profit?

d. Brieflydescribeonestrength and oneweakness of both the automation and the outsourcing alternatives.

5.

OTCompanymanufacturesorangejam. Becauseof bad weather,its orange cropwas small. The followingdatahave beengatheredforthe summer quarter of2012.

Beginninginventory(cases)……………………………0

Casesproduced…………………………………………10,000

Casessold……………………………………………… 9,400

Salespricepercase……………………………………. $60

Directmaterialspercase………………………………. $8

Directlaborpercase……………………………………$9

Variable manufacturingoverheadpercase……………. $3

Totalfixed manufacturingoverhead……………………$400,000

Variablesellingandadministrativecostpercase………$2

Fixedsellingandadministrativecostpercase………… $48,000

Required:

a. Prepare an incomestatement for thequarter using absorption costing.

b. Prepare an incomestatement for the quarter usingvariable costing. c. What is the value of endinginventoryunder absorption costing?

d. What is the value of endinginventoryunder variable costing?

e. Explain the differenceinendinginventoryunder absorption costingand variable costing.

=”msonormal”>=”msonormal”>=”msonormal”>=”msonormal”>

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