Questions and Answers on Managerial Accounting

Topics: Variable cost, Costs, Cash flow Pages: 7 (820 words) Published: December 8, 2014

Thomas Edison State College
Principles of Managerial Accounting (ACC-102)
Final Project

1.  Cost-volume-profit relationships (15 points)

The following data are available for a product manufactured and sold by Logan Company:

  
Compute the following:
(a) Contribution margin per unit: $_______________

Solution: Computation of the Contribution margin per unit

Contribution margin per unit = Selling price per unit – Variable Cost per unit

Where as

Selling price per unit = 212

Variable Cost per unit =128

Contribution margin per unit = 212 – 128

Contribution margin per unit = $84

(b) Number of units that must be sold to break-even: _______________ units Solution: Computation of the Number of units that must be sold to break-even

Break-even Point = Fixed cost / Contribution Margin

Fixed cost = 468000

Contribution Margin = 84

Break-even Point = 468000 / 84

Break-even Point = 5572

Hence the Break Even point in units 5572

(c) Dollar sales volume to produce income of $864,000 before taxes: $_______________

Solution: Computation of the Dollar sales volume

Break-even Point = (Fixed cost + Desired profit) / Contribution Margin

Fixed cost = 468000

Desired profit= 864000

Contribution Margin = 84

Break-even Point = (468000+864000) / 84

Break-even Point = 15857.14

Break-even Point in dollars = 15857.14*212

Break-even Point in dollars = $3,361,714
Hence the Break Even point in dollar $3,361,714
2. Incremental analysis (20 points)

Information regarding current operations of the Farrell Corporation is given below:   
A proposed addition to Farrell’s factory is estimated by the sales manager to increase sales by a maximum of $750,000. The company’s accountants have determined that the proposed addition will add $320,000 to fixed costs each year. Variable costs are expected to be at the same percentage as they currently are before the proposed addition.

(a) Explain why the existing $310,000 of fixed costs is a sunk cost while the $320,000 of fixed costs associated with the proposed addition is an out-of-pocket cost.

Solution: Computation of the following

The $310,000 of current fixed cost is a result of past decisions and cannot be changed as a result of the decision at hand. It is therefore a sunk cost.

The $320,000, on the other hand, is a fixed cost associated with the proposed addition.

This cost has not yet been incurred. Because it is necessary to the proposed addition it is an out-of-pocket cost

(b) Calculate by how much the proposed addition will either increase or reduce operating income. Show all work.

Solution: Computation of the following
Operating income = ($750,000 Sales - $450,000 variable costs - $320,000 fixed costs). Operating income = ($750,000 - $450,000 - $320,000).
Operating income = -$20,000
The proposed addition will decrease operating income by $20,000;

3. Responsibility income statement-preparation (20 points) Gameland Village is segmented into two sales departments: software and video games. During April, these two departments reported the following operating results:

Complete the following segmented income statement for Gameland Village. Follow the contribution margin approach, and show percentages as well as dollar amounts. Conclude your income statement with the company’s income from operations

GAMELAND VILLAGE
Income Statement by Product Lines
For the Month Ended April 30, 20__

Segments

Gameland Village
Software
Video Games

Dollars

%
Dollars

%
Dollars

%
Sales
$

$400,000

100
$200,000

100
Variable Costs

65

56

$

$

$

Solution: Computation of the following
4. Standard cost system labor variance (25 points)...
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