Week 3 - Practice Text Exercises

Week 3 - Practice Text Exercises
ACC 561
July 4, 2011

Question 3-38, Mixed Cost, Choosing Cost Drivers, and High-Low and Visual-Fit Methods, on pp. 121 & 122

2-48 CVP and Financial Statements for a Mega-Brand Company |
  | 2006 | 2007 |
Net sales | $68,222 | $75,044 |
Costs of products sold | $33,125 | $36,438 |
Selling, general, and administrative expense | $21,848 | $21,848 |
Operating income | $13,249 | $16,759 |
| | |
Percentage Change | 26.5% | |

If sales increase by 10% at Procter $ Gamble the operating income would be $16,759, which is a 26.5% increase.   “The phrase incremental effect refers to the change in total results (such as revenue, expenses, or income) under a new condition in comparison with some given or known condition” (Horngren, Sundem, Stratton, & Schatzberg 2008,  p.  61). The sales increase has no bearing on the on the selling, general, and administrative expenses because the selling, general, and administrative expenses are fixed.   A fixed figure will remain the same regardless of sales.    

2-61 CVP in a Modern Manufacturing Environment |
  |   | Old Production Operation | New Production Operation Unit |
variable cost |   |   |
  | Material | $0.88 | $0.88 |
  | Labor | 1.22 | 0.22 |
Total per unit | $2.10 | $1.10 |
Monthly fixed costs |   |   |
  | Rent and depreciation | $450,000 | $875,000 |
  |   Supervisory labor | 80,000 | 175,000 |
  |   Other | 50,000 | 90,000 |
Total per month | $580,000 | $1,140,000 |

  * EXCEL Application Exercise, CVP and Break-Even, on p. 89 (on separate excel attachment)

Question 3-38, Mixed Cost, Choosing Cost Drivers, and High-Low and Visual-Fit Methods, on pp. 121 & 122

  1. Find monthly fixed maintenance cost and the variable maintenance cost per driver unit using the visual-fit method based on each potential cost driver. Explain how you treated the April data.   Maintenance costs are $13,108 plus $2.17 times unites... [continues]

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