5 questions related to managerial accounting

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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.

.45pt;margin-right:26.4pt;margin-bottom:
0in;margin-left:5.8pt;margin-bottom:.0001pt”>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.

.45pt;margin-right:6.5pt;margin-bottom:
0in;margin-left:5.8pt;margin-bottom:.0001pt”>

.45pt;margin-right:26.4pt;margin-bottom:
0in;margin-left:5.8pt;margin-bottom:.0001pt”>.45pt;margin-right:6.5pt;margin-bottom:
0in;margin-left:5.8pt;margin-bottom:.0001pt”>
=”msonormal”>
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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.

.45pt;margin-right:11.75pt;margin-bottom:
0in;margin-left:5.8pt;margin-bottom:.0001pt”>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.

.45pt;margin-right:8.1pt;margin-bottom:
0in;margin-left:5.8pt;margin-bottom:.0001pt”>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.

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