ACC 601 Managerial Accounting Group Case 2 (100 points)
Instructions:
1. As a group, complete the following activities in good
form. Use excel or
word only. Provide all supporting calculations to show how
you arrived at
your numbers
2. Add only the names of group members who participated in
the completion
of this assignment.
3. Submit only one copy of your completed work via Moodle. Do
not send it to
me by email.
4. Due: No later than the last day of Module 4. Please note
that your professor
has the right to change the due date of this
assignment.
Part A: Fixed and Variable Cost
Stuart Manufacturing produces metal picture frames. The
company’s income statements for the last two years are given
below:
Units sold…………………………………………… Sales………………………………………………….. Cost
of goods sold ………………………………. Gross margin ……………………………………… Selling
and administrative expense ……….. Net operating income
…………………………..
Last year 50,000 $800,000 550,000 250,000 150,000 $100,000
This year 70,000 $1,120,000 710,000 410,000 190,000 $
220,000
The company has no beginning or ending inventories.
Required:
Estimate the company’s total variable cost per unit and its
total fixed costs per year. (Remember that this is a manufacturing
firm.)
Compute the company’s contribution margin for this year.
Part B: Cost-Volume-Profit Analysis
Belli-Pitt, Inc, produces a single product. The results of
the company’s operations for a typical month are summarized in
contribution format as follows:
Sales…………………………….. Variable expenses………….. Contribution
margin ………. Fixed expenses ……………… Net operating income
……..
$540,000 360,000 180,000 120,000
$ 60,000
The company produced and sold 120,000 kilograms of product
during the month. There were no beginning or ending
inventories.
Required:
Given the present situation, compute
The break-even sales in kilograms.
The break-even sales in dollars.
The sales in kilograms that would be required to produce net
operating income of
$90,000.
The margin of safety in dollars.
An important part of processing is performed by a machine that
is currently being leased for $20,000 per month. Belli-Pitt has
been offered an arrangement whereby it would pay $0.10 royalty per
kilogram processed by the machine rather than the monthly lease.
Should the company choose the lease or the royalty plan?
Under the royalty plan compute break-even point in kilograms.
Under the royalty plan compute break-even point in dollars.
Under the royalty plan determine the sales in kilograms that
would be required to
produce net operating income of $90,000.
Part C: Relevant Cost/Special Order
Gottshall Inc. makes a range of products. The company’s
predetermined overhead rate is $19 per direct labor-hour, which was
calculated using the following budgeted data:
Variable manufacturing overhead ……. Fixed manufacturing
overhead ………… Direct labor-hours…………………………..
$225,000 $630,000 45,000
Component P0 is used in one of the company’s products. The
unit cost of the component according to the company’s cost
accounting system is determined as follows:
Direct materials ………………………………….. Direct labor…………………………………………
Manufacturing overhead applied…………… Unit product cost
…………………………………
$21.00 40.80 32.30
$94.10
An outside supplier has offered to supply component P0 for
$78 each. The outside supplier is known for quality and
reliability. Assume that direct labor is a variable cost, variable
manufacturing overhead is really driven by direct labor-hours, and
total fixed manufacturing overhead would not be affected by this
decision. Gottshall chronically has idle capacity.
Required:
Is the offer from the outside supplier financially
attractive? Why?
Part D: Relevant Cost/Make or Buy Decision
Part U67 is used in one of Broce Corporation’s products. The
company’s Accounting Department reports the following costs of
producing the 7,000 units of the part that are needed every
year.
Direct materials…………………………………… Direct labor …………………………………………
Variable overhead ……………………………….. Supervisor’s salary……………………………….
Depreciation of special equipment ………… Allocated general
overhead……………………
Per Unit $8.70 $2.70 $3.30 $1.90 $1.80 $5.50
An outside supplier has offered to make the part and sell it
to the company for $21.40 each. If this offer is accepted, the
supervisor’s salary and all of the variable costs, including direct
labor, can be avoided. The special equipment used to make the part
was purchased many years ago and has no salvage value or other use.
The allocated general overhead represents fixed costs of the entire
company. If the outside supplier’s offer were accepted, only $6,000
of these allocated general overhead costs would be avoided.
Required:
Prepare a report that shows the effect on the company’s total
net operating income of buying part U67 from the supplier rather
than continuing to make it inside the company.
Which alternative should the company choose?
Part E: Relevant Cost/Sell or Process Further
Farrugia Corporation produces two intermediate products, A
and B, from a common input. Intermediate product A can be further
processed into end product X. Intermediate product B can be further
processed into end product Y. The common input is purchased in
batches that cost $36 each and the cost of processing a batch to
produce intermediate products A and B is $15. Intermediate product
A can be sold as is for $21 or processed further for $14 to make
end product X that is sold for $32. Intermediate product B can be
sold as is for $44 or processed further for $28 to make end product
Y that is sold for $64.
Required:
Assuming that no other costs are involved in processing potatoes
or in selling products, how much money does the company make from
processing one batch of the common input into the end products X
and Y? Show your work!
Should each of the intermediate products, A and B, be sold as
is or processed further into an end product? Explain.
Part F: Relevant Cost/Dropping a Product
The management of Woznick Corporation has been concerned for
some time with the financial performance of its product V86O and
has considered discontinuing it on several occasions. Data from the
company’s accounting system appear below:
Sales ………………………………………………………. Variable
expenses…………………………………….. Fixed manufacturing expenses ……………………
Fixed selling and administrative expenses ……
$150,000 $72,000 $50,000 $33,000
In the company’s accounting system all fixed expenses of the
company are fully allocated to products. Further investigation has
revealed that $30,000 of the fixed manufacturing expenses and
$13,000 of the fixed selling and administrative expenses are
avoidable if product V86O is discontinued.
A. According to the company’s accounting system, what is the
net operating income earned by product V86O?
B. What would be the effect on the company’s overall net
operating income if product V86O were dropped?
