cost estimation cvp analysis and decision making luke corporation produces a variety 691001

Aug 30, 2021 | Uncategorized

Cost Estimation, CVP Analysis, and Decision Making

Luke Corporation produces a variety of products, each within their own division. Last year, the managers at Luke developed and began marketing a new chewing gum, Bubbs, to sell in vending machines. The product, which sells for $5.25 per case, has not had the market success that managers expected and the company is considering dropping Bubbs. The product line income statement for the past twelve months follows:

All products at Luke receive an allocation of corporate overhead costs, which is computed as 5 percent of product revenue. The 5 percent rate is computed based on the most recent year’s corporate cost as a percentage of revenue. Data on corporate costs and revenues for the past two years follow:

Roy O. Andre, the product manager for Bubbs, is concerned about whether the product will be dropped by the company and has employed you as a financial consultant to help with some analysis.  In addition to the information given above, Mr. Andre provides you with the following data on product costs for Bubbs:

Required

a. Bunk Stores has requested a quote for a special order of Bubbs. This order would not be subject to any corporate allocation (and would not affect corporate costs). What is the minimum price Mr. Andre can offer Bunk without reducing profit t any further?

b. How many cases of Bubbs does Luke have to sell in order to break even on the product?

c. Suppose Luke has a requirement that all products have to earn 5 percent of sales (after tax and corporate allocations) or they will be dropped. How many cases of Bubbs does Mr. Andre need to sell to avoid seeing Bubbs dropped?

d. Assume all costs and prices will be the same in the next year. If Luke drops Bubbs, how much will Luke’s profits increase or decrease? Assume that fixed production costs can be avoided if Bubbs is dropped.

pear computers assembles computer parts into finished systems for sale through mass 691004

Aug 30, 2021 | Uncategorized

Pear Computers assembles computer parts into finished systems for sale through mass market retailers. It sells two models differentiated by the speed of the processor and other peripherals, the X3G and the X2G. Data on the two models for April follow. The time required for either unit is the same. Pear Computers uses operations costing and assigns direct labor and overhead based on the number of units assembled. Compute the cost of the X3G and X2G models for April.

basic cost flow model assume that the following events occurred at a division of gen 691007

Aug 30, 2021 | Uncategorized

Basic Cost Flow Model

Assume that the following events occurred at a division of Generic Electric for March of the current year.

1. Purchased $45 million in direct materials.

2. Incurred direct labor costs of $24 million.

3. Determined that manufacturing overhead was $40.5 million.

4. Transferred 80 percent of the materials purchased to work in process.

5. Completed work on 72 percent of the work in process. Costs are assigned equally across all work in process.

6. The inventory accounts have no beginning balances. All costs incurred were debited to the appropriate account and credited to Accounts Payable.

Required

Give the amounts for the following items in the Work in Process account:

a. Transfers in ( TI ).

b. Transfers out ( TO ).

c. Ending balance ( EB ).

basic product costing enviro corporation manufactures a special liquid cleaner at it 691011

Aug 30, 2021 | Uncategorized

Basic Product Costing

Enviro Corporation manufactures a special liquid cleaner at its Green plant. Operating data for June follow:

The Green plant produced 850,000 gallons in June. The plant never has any beginning or ending inventories.

Required

Compute the cost per gallon of liquid cleaner produced in June.

basic product costing kim amp smith refiners starts business on march 1 the followin 691013

Aug 30, 2021 | Uncategorized

Basic Product Costing

Kim & Smith Refiners starts business on March 1. The following operations data are available for March for the one lubricant it produces:

Costs incurred in March follow:

All production at Kim & Smith is sold as it is produced (there are no finished goods inventories).

Required

a. Compute cost of goods sold for March.

b. What is the value of work in process inventory on March 31?

basic product costing ethical issues old tyme soda produces one flavor of a popular 691014

Aug 30, 2021 | Uncategorized

Basic Product Costing: Ethical Issues

Old Tyme Soda produces one flavor of a popular local soft drink. It had no work in process on October 31 in its only inventory account. During November, Old Tyme started 10,000 barrels. Work in process on November 30 is 1,200 barrels. The production supervisor estimates that the ending work in process inventory is 30 percent complete. An examination of Old Tyme’s accounting records shows direct material costs of $18,072 and conversion costs of $20,400 for November. All production is sold as it is produced.

Required

a. Compute cost of goods sold for November.

b. What is the value of work in process inventory on November 30?

c. The president tells the controller that stock analysts expect higher income for the month and asks the controller to change the production manager’s estimate about the ending work inprocess inventory.

(1) If the controller wanted to comply with the president’s request would he raise or lower the estimated percentage complete from the 30 percent estimate of the production supervisor? Explain.

(2) What should the controller do?

process costing van goe produces paints on january 1 it had no work in process inven 691015

Aug 30, 2021 | Uncategorized

Process Costing

Van Goe produces paints. On January 1, it had no work in process inventory. It starts production of 300,000 gallons of paint in January and completes 240,000 gallons. The costs of the resources used by Van Goe in January consist of the following:

Required

The production supervisor estimates that the ending work in process is 80 percent complete. Compute the cost of paint transferred to finished goods and the amount in work in process ending inventory as of January 31.

process costing opech inc produces oil and ships it in a pipeline on may 1 it had no 691016

Aug 30, 2021 | Uncategorized

Process Costing

Opech, Inc., produces oil and ships it in a pipeline. On May 1, it had no work in process inventory. It started production of 300 million barrels of oil in May and shipped 270 million barrels in the pipeline. The costs of the resources used by Opech in May consist of the following:

Required

The production supervisor estimates that the ending work in process is 70 percent complete on May 31. Compute the cost of oil shipped in the pipeline and the amount in work in process ending inventory as of May 31.

process costing oholics ltd produces chocolate that it sells to candy makers on apri 691017

Aug 30, 2021 | Uncategorized

Process Costing

Oholics, Ltd., produces chocolate that it sells to candy makers. On April 1, it had no work in process inventory. It started production of 20,000 pounds of chocolate in April and completed production of 19,000 pounds. The costs of the resources used by Oholics in April consist of the following:

Required

The production supervisor estimates that the ending work in process is 60 percent complete on April 30. Compute the cost of chocolate completed and the cost of the chocolate in work in process ending inventory as of April 30.

predetermined overhead rates tiger furnishings produces two models of cabinets for h 691018

Aug 30, 2021 | Uncategorized

Predetermined Overhead Rates

Tiger Furnishings produces two models of cabinets for home theater components, the Basic and the Dominator. Data on operations and costs for March follow:

Required

Compute the predetermined overhead rate assuming that Tiger Furnishings uses direct labor hours to allocate overhead costs.

predetermined overhead rates tiger furnishings produces two models of cabinets for h 691019

Aug 30, 2021 | Uncategorized

Predetermined Overhead Rates

Tiger Furnishings produces two models of cabinets for home theater components, the Basic and the Dominator. Data on operations and costs for March follow:

Required

Compute the predetermined overhead rate assuming that Tiger Furnishings uses direct labor costs to allocate overhead costs.

tiger furnishings produces two models of cabinets for home theater components the ba 691020

Aug 30, 2021 | Uncategorized

Tiger Furnishings produces two models of cabinets for home theater components, the Basic and the Dominator. Data on operations and costs for March follow:

Required

Compute the predetermined overhead rate assuming that Tiger Furnishings uses machine hours to allocate overhead costs.

learning curves appendix b refer to the example in appendix b the numbers in exhibit 690988

Aug 30, 2021 | Uncategorized

Learning Curves (Appendix B)

Refer to the example in Appendix B. The numbers in Exhibit 5.21 for the fifth, sixth, and seventh units were given.

Exhibit 5.21

Learning Curve Time and Costs

1 Going down the column, the labor time for each unit comes from the formula, Y = aX^b. For example, the labor time to produce the third unit is found as follows: Y _ 100 hours to produce the first unit times 3, because this is the third unit produced, to the exponent 0.3219, which is the learning rate coefficient for an 80% learning rate.

So,

Y = 100 × 3 ^0.3219 = 70.21 hours

2 This is the sum of the hours worked on the units. For example, three units requires

100.00 + 80.00 + 70.21 = 250.21 hours

3 This is the total cost of the labor time worked, which is the cumulative total time in labor hours times the $50 per hour labor cost given in the text on page 169. For example, the total cost of producing three units = 250.21 hours × $50 = $12,510.50.

4 This is the average cost per unit, which is the total cost of the units produced divided by the number of units produced. For example, the average cost per unit of producing three units = $12,510.50 ÷ 3 = $4,170.17.

Required

Using the formula Y = aX^b and the data given in the problem, verify the labor time required and the cost amounts for the fi fth, sixth, and seventh units. (“Verify” means that you should check the accuracy of the amounts given in Exhibit 5.21.)

account analysis the accounting department of a large limousine company is analyzing 690989

Aug 30, 2021 | Uncategorized

Account Analysis

The accounting department of a large limousine company is analyzing the costs of its services. The cost data and level of activity for the past 16 months follow:

In addition to the above information, you learn that the accounting department had the following total costs for the past 16 months for each of the following:

Required

a. What is the cost per unit for (1) paychecks processed, (2) customer accounts maintained, and (3) special analyses performed?

b. Assuming the following level of cost driver volumes for a month, what are the accounting department’s estimated costs of doing business using the account analysis approach?

• 1,000 paychecks processed

• 200 customer accounts maintained

• 3 special analyses

regressions from published data obtain 13 years of data from the published financial 690990

Aug 30, 2021 | Uncategorized

Regressions from Published Data

Obtain 13 years of data from the published financial statements of a company. You will be able to find the data on the Internet. Also, Moody’s, Standard & Poor’s, and Value Line are good sources of financial data. Using the first 12 years of data, perform a regression analysis in which the dependent variable is cost of goods sold and the independent variable is revenue (some companies call it sales ).

Required

a. Use the results from the regression on the first 12 years of data to estimate the cost of goods sold for year 13. How far off was your estimate of cost of goods sold for year 13?

b. Prepare a report that describes your work and discusses reasons why your estimate of cost of goods sold is different than the actual cost of goods sold for year 13.

make versus buy the liquid chemical company manufactures and sells a range of high g 690967

Aug 30, 2021 | Uncategorized

Make versus Buy

The Liquid Chemical Company manufactures and sells a range of high grade products. Many of these products require careful packaging. The company has a special patented lining made that it uses in specially designed packing containers. The lining uses a special material known as GHL. The firm operates a department that maintains and repairs its packing containers to keep them in good condition and that builds new ones to replace units that are damaged beyond repair.

Mr. Walsh, the general manager, has for some time suspected that the firm might save money  and get equally good service by buying its containers from an outside source. After careful inquiries, he has approached a firm specializing in container production, Packages, Inc., and asked for a quotation. At the same time, he asked Mr. Dyer, his chief accountant, to let him have an up to date statement of the costs of operating the container department. Within a few days, the quotation from Packages, Inc., arrived. The firm proposed to supply all the new containers required—at that time, running at the rate of 3,000 per year—for $1,250,000 a year, the contract to run for a guaranteed term of five years and thereafter renewable from year to year. If the number of containers required increased, the contract price would increase proportionally. Packages, Inc., also proposed to perform all maintenance and repair work on existing packaging containers for a sum of $375,000 a year, on the same contract terms.

Mr. Walsh compared these figures with Mr. Dyer’s cost figures, which covered a year’s operations of the container department of the Liquid Chemical Company and appear in Exhibit 4.13.

Walsh concluded that he should immediately close the packing container department and sign the contracts offered by Packages, Inc. He felt an obligation, however, to give the manager of the department, Mr. Duffy, an opportunity to question his decision before acting. Walsh told Duffy that Duffy’s own position was not in jeopardy. Even if Walsh closed his department, another managerial position was becoming vacant to which Duffy could move without any loss of pay or prospects. The manager Duffy would replace also earned $80,000 per year. Moreover, Walsh knew that he was paying $85,000 per year in rent for a warehouse a couple of miles away that was used for other corporate purposes. If he closed Duffy’s department, he’d have all the warehouse space he needed without renting additional space.

Duffy gave Walsh a number of considerations to think about before he closed the department: “For instance,” he said, “what will you do with the machinery? It cost $1,200,000 four years ago, but you’d be lucky if you’d get $200,000 for it now, even though it’s good for another five years. And then there’s the stock of GHL (a special chemical) we bought a year ago. That cost us $1,000,000, and at the rate we’re using it now, it’ll last another four years. We used up only about one fifth of it last year. Dyer’s figure of $700,000 for materials includes $200,000 for GHL. But it’ll be tricky stuff to handle if we don’t use it up. We bought it for $5,000 a ton, and you couldn’t buy it today for less than $6,000. But you’d get only $4,000 a ton if you sold it, after you’d covered all the handling expenses.”

Walsh also worried about the workers if he closed the department. “I don’t think we can find room for any of them elsewhere in the firm. However, I believe Packages would take all but Hines and Walters. Hines and Walters have been with us since they left school 40 years ago. I’d feel bound to give them a supplemental pension—$15,000 a year each for five years, say. Also, I’d figure a total severance pay of $20,000 for the other employees, paid in a lump sum at the time we sign the contract with Packages.”

Duffy showed some relief at this. “But I still don’t like Dyer’s figures,” he said. “What about this $225,000 for general administrative overheads? You surely don’t expect to sack anyone in the general office if I’m closed, do you?” Walsh agreed. “Well, I think we’ve thrashed this out pretty well,” said Walsh, “but I’ve been turning over in my mind the possibility of perhaps keeping on the maintenance work ourselves. What are your views on that, Duffy?”

“I don’t know,” said Duffy, “but it’s worth looking into. We wouldn’t need any machinery for that, and I could hand the supervision over to the current supervisor who earns $50,000 per year. You’d need only about one fifth of the workers, but you could keep on the oldest and save the pension costs.

You’d still have the $20,000 severance pay, I suppose. You wouldn’t save any space, so I suppose the rent would be the same. I don’t think the other expenses would be more than $65,000 a year.”

“What about materials?” asked Walsh.

“We use 10 percent of the total on maintenance,” Duffy replied.

“Well, I’ve told Packages that I’d give them my decision within a week,” said Walsh. “I’ll let you know what I decide to do before I write to them.”

Assume the company has a cost of capital of 10 percent per year and uses an income tax rate of 40 percent for decisions such as these. Liquid Chemical would pay taxes on any gain or loss on the sale of machinery or the GHL at 40 percent. (Depreciation for book and tax purposes is straight line over eight years.) The tax basis of the machinery is $600,000. Also assume the company had a five year time horizon for this project and that any GHL needed for Year 5 would be purchased during Year 5.

Required

a. What are the four alternatives available to Liquid Chemical?

b. What action should Walsh take? Support your conclusion with a net present value analysis of all the mutually exclusive alternatives. Be sure to consider factors not explicitly discussed in the case that you think should have a bearing on Walsh’s decision.

c. What, if any, additional information do you think Walsh needs to make a sound decision? Why?

brown rsquo s baskets makes decorative baskets for sale at local craft shops mary br 690968

Aug 30, 2021 | Uncategorized

Brown’s Baskets makes decorative baskets for sale at local craft shops. Mary Brown, the owner and founder, has collected the following information on costs based on two years of operations and has asked you to help her analyze the behavior of her overhead costs. Mary summarized monthly data as two year totals:

After visiting the workshop and discussing operations with Mary, you determine that three costs—indirect materials, indirect labor, and the power to run the machines—are variable. All other costs are fixed.

Prepare three analyses of overhead costs that, using the account analysis method, calculate the monthly average fixed costs and the variable rate per (1) direct labor hour,  (2) machine hour, and (3) unit of output.

the following computer output presents the results of two simple regressions for the 690969

Aug 30, 2021 | Uncategorized

The following computer output presents the results of two simple regressions for the Brown’s Baskets overhead costs using (1) direct labor hours and (2) units of output (baskets) as the independent variables. Each regression has 24 data points, one data point per month for two years. Which activity base, units of output or labor hours, do you believe best explains variation in overhead costs?

Continue

[[Discussion Questions]]

methods of estimating costs account analysis the accounting records for miller fixtu 690974

Aug 30, 2021 | Uncategorized

Methods of Estimating Costs: Account Analysis

The accounting records for Miller Fixtures report the following production costs for the past year:

Production was 210,000 units. Fixed manufacturing overhead was $240,000.

For the coming year, costs are expected to increase as follows: direct materials costs by 20 percent, excluding any effect of volume changes; direct labor by 4 percent; and fixed manufacturing overhead by 10 percent. Variable manufacturing overhead per unit is expected to remain the same.

Required

a. Prepare a cost estimate for a volume level of 220,000 units of product this year.

b. Determine the costs per unit for last year and for this year.

methods of estimating costs account analysis a consulting firm rsquo s accounting re 690975

Aug 30, 2021 | Uncategorized

Methods of Estimating Costs: Account Analysis

A consulting firm’s accounting records show the following costs for year 1:

Production was 150,000 billable hours. Fixed overhead was $600,000. For year 2, direct materials costs are expected to increase by 10 percent per unit. Direct labor costs are expected to increase by 15 percent. Variable overhead per billable hour is expected to remain the same, but fixed overhead is expected to increase by 5 percent.

Required

a. Year 2 production is expected to be 195,000 billable hours. What are the estimated direct materials, direct labor, variable overhead, and fixed overhead costs for year 2?

b. Determine the total costs per billable hour for year 1 and year 2.

methods of estimating costs high low ethical issues oak island amusements center pro 690976

Aug 30, 2021 | Uncategorized

Methods of Estimating Costs: High Low, Ethical Issues

Oak Island Amusements Center provides the following data on the costs of maintenance and the number of visitors for the last three years:

Required

a. Use the high low method to estimate the fixed cost of maintenance annually and the variable cost of maintenance per visitor.

b. The company expects a record 2,600,000 visitors next year. What would be the estimated maintenance costs?

c. Company management is considering eliminating the maintenance department and contracting with an outside firm. Management is especially concerned with the fixed costs of maintenance. The maintenance manager tells you, the cost analyst, that 2,375 visitors is an outlier and should not be used in the analysis. Assume that this will lower estimated fixed costs. Is it ethical to treat this observation as an outlier?

methods of estimating costs high low adriana corporation manufactures football equip 690977

Aug 30, 2021 | Uncategorized

Methods of Estimating Costs: High Low

Adriana Corporation manufactures football equipment. In planning for next year, the managers want to understand the relation between activity and overhead costs. Discussions with the plant supervisor suggest that overhead seems to vary with labor hours, machine hours, or both. The following data were collected from last year’s operations:

Required

a. Use the high low method to estimate the fixed and variable portions of overhead costs based on machine hours.

b. Managers expect the plant to operate at a monthly average of 7,500 machine hours next year. What are the estimated monthly overhead costs, assuming no inflation?

methods of estimating costs high low adriana corporation manufactures football equip 690978

Aug 30, 2021 | Uncategorized

Methods of Estimating Costs: High Low

Adriana Corporation manufactures football equipment. In planning for next year, the managers want to understand the relation between activity and overhead costs. Discussions with the plant supervisor suggest that overhead seems to vary with labor hours, machine hours, or both. The following data were collected from last year’s operations:

Required

Prepare a scattergraph based on the overhead and machine hour data

methods of estimating costs simple regression simple reression results from the data 690979

Aug 30, 2021 | Uncategorized

Methods of Estimating Costs: Simple Regression

Simple reression results from the data of Adriana Corporation  are as follows:

Required

Estimate overhead if the company expects the plant to operate at a monthly average of 9,000 machine hours next year.

methods of estimating costs simple regression simple regression results from the dat 690980

Aug 30, 2021 | Uncategorized

Methods of Estimating Costs: Simple Regression

Simple regression results from the data of Adriana Corporation are as follows:

Required

Estimate overhead if the company expects the plant to operate at a monthly average of 3,000 laborhours next year.

methods of estimating costs multiple regression multiple regression results from the 690981

Aug 30, 2021 | Uncategorized

Methods of Estimating Costs: Multiple Regression

Multiple regression results from the data of Adriana Corporation are as follows:

Required

Estimate overhead using the multiple regression results, assuming that the company expects the plant to operate at a monthly average of 9,000 machine hours and 3,000 labor hours next year.

interpretation of regression results multiple choice cortez company is planning to i 690982

Aug 30, 2021 | Uncategorized

Interpretation of Regression Results: Multiple Choice

Cortez Company is planning to introduce a new product that will sell for $96 a unit. The following manufacturing cost estimates have been made on 20,000 units to be produced the first year:

Manufacturing overhead costs have not yet been estimated for the new product, but monthly data on total production and overhead costs for the past 24 months have been analyzed using simple linear regression. The following results were derived from the simple regression and provide the basis for overhead cost estimates for the new product.

Required

a. What percentage of the variation in overhead costs is explained by the independent

variable?

(1) 84.8%.

(2) 45.0%.

(3) 92.1%.

(4) 8.48%.

(5) Some other amount.b. What is the total overhead cost for an estimated activity level of 50,000 direct labor hours?

(1) $120,000.

(2) $370,000.

(3) $250,000.

(4) $320,000.

(5) Some other amount.c. How much is the variable manufacturing cost per unit, using the variable overhead estimated by the regression (assuming that direct materials and direct labor are variable costs)?

(1) $88.00.

(2) $82.00.

(3) $86.80.

(4) $72.00.

(5) 161Some other amount.

d. What is the expected contribution margin per unit to be earned during the first year on 20,000 units of the new product? (Assume that all marketing and administrative costs are fixed.)

(1) $96.

(2) $24.

(3) $56.

(4) $14.

(5) Some other amount.e. What is the manufacturing cost equation implied by these results?

(1) Total cost = $640,000 + $5.00 × Number of units.

(2) Total cost = $120,000 + $86.80 × Number of units.

(3) Total cost = $120,000 + $72.00 ×Number of units.

(4) Some other equation.

interpretation of regression results brodie company rsquo s advertising manager want 690983

Aug 30, 2021 | Uncategorized

Interpretation of Regression Results

Brodie Company’s advertising manager wants to know whether the company’s advertising program is successful. The manager used a spreadsheet program to estimate the relation between advertising expenditures (the independent variable) and sales dollars. Monthly data for the past two years were entered into the program. The regression results indicated the following relation:

Sales dollars = $169,000 ($200 × Advertising expenditures)

Correlation coefficient = .864

These results seemed to imply that advertising was reducing sales. The manager was about to conclude that statistical methods were so much nonsense when you walked into the room.

Required

Help the manager. What might cause the negative relationship between advertising expenditures and sales?

interpretation of regression results ross enterprises maintains a fleet of agricultu 690984

Aug 30, 2021 | Uncategorized

Interpretation of Regression Results

Ross Enterprises maintains a fleet of agricultural equipment for rental to local farmers. Ross maintains all its equipment in a company owned facility. Data on maintenance costs and operating hours of the equipment have been collected for the past 24 months to help managers plan financial needs. Managers at Ross were initially excited about having the data and the analysis available for planning, but the initial regression results revealed the following equation:

Maintenance costs = $10,564 $67.13 × Operating hours

The coefficient on operating hours was highly significant and the adjusted R 2 was 0.89.

Required

How would you explain a negative coefficient; does it seem likely that the more the equipment is operated, the less the company spends on maintenance?

interpretation of regression results simple regression a local restaurant fred rsquo 690985

Aug 30, 2021 | Uncategorized

Interpretation of Regression Results: Simple Regression

A local restaurant, Fred’s Fish Fry, is estimating nonfood kitchen costs (labor, supervision, utilities,  etc.) based on food cost. Data were gathered for the past 24 months and analyzed using a spreadsheet program. The following output was generated:

The company is planning to operate at a level of $15,000 of food costs per month for the coming year.

Required

a. Use the regression output to write the nonfood cost equation.

b. Based on the cost equation, compute the estimated nonfood kitchen costs (labor, supervision, utilities, etc.) per month for the coming year.

c. Fred has asked you for advice on whether he should rely on the estimate. What will you say?

learning curves assume that general dynamics which manufactures high technology inst 690986

Aug 30, 2021 | Uncategorized

Learning Curves

Assume that General Dynamics, which manufactures high technology instruments for spacecraft, is considering the sale of a navigational unit to a government agency in India that wishes to launch its own communications satellite. The government agency plans to purchase 8 units, although it would also consider buying 16 units. General Dynamics has started a chart relating labor time required to units produced.

Required

a. Complete the chart by filling in the labor time required to produce 8 and 16 units.

b. Assume that labor time costs $125 per hour. Compare the cost of producing the first unit to the cost of producing the 16th unit. What is the percentage of the cost of the 16th unit to the cost of the first unit?

learning curves assume that whee cheatham and howe is an auditing firm that has foun 690987

Aug 30, 2021 | Uncategorized

Learning Curves

Assume that Whee, Cheatham, and Howe is an auditing firm that has found that its summer interns are subject to a 90 percent learning curve for one of its important tasks, proofreading financial statements. For one of its interns, Kim Down, the firm has started to analyze the relation between time and financial statement proofreading.

Required

a. Complete the chart by filling in the time required to proofread 4, 8, and 16 financial statements.

b. Assume that Kim’s labor time costs $20 per hour. Compare the cost of proofreading the first financial statement to the cost of proofreading the 16th financial statement. What is the percentage of the cost of proofreading the 16th financial statement to the cost of proofreading the first financial statement?

special order andreasen corporation manufactures thermostats for office buildings th 690942

Aug 30, 2021 | Uncategorized

Special Order

Andreasen Corporation manufactures thermostats for office buildings. The following is the cost of each unit:

Simpson Company has approached Andreasen with an offer to buy 5,000 thermostats at a price of $30 each. The regular price is $50. Andreasen has the capacity to produce the 5,000 additional units without affecting its current production of 100,000 units. Simpson requires that each unit use their branding, which requires a more expensive label, resulting in an additional $1 per unit material cost. The labor cost of affixing the label will be the same as for the current models. The Simpson order will also require a one time rental of packaging equipment for $15,000.

Required

a. Prepare a schedule to show the impact of filling the Simpson order on Andreasen’s profits for the year.

b. Would you recommend that Andreasen accept the order?

c. Considering only profit t, what is the minimum quantity of thermostats in the special order that would make it profit table assuming capacity is available?

special order mission electronics manufactures and sells basic dvd players for sale 690943

Aug 30, 2021 | Uncategorized

Special Order

Mission Electronics manufactures and sells basic DVD players for sale under various generic store brand names. The cost of one of their models follows:

Pacific Cash & Carry, a chain of low price electronic sales and rental outlets, has asked Mission to supply them with 30,000 players for a special promotion Pacific is planning. Pacific has offered to pay Mission a unit price of $42 per DVD player. The regular selling price is $60. The special order would require some modification to the basic model. These modifications would add $4.00 per unit in material cost, $1.50 per unit in labor cost, and $0.50 in variable overhead cost. Although Mission has the capacity to produce the 30,000 units without affecting its regular production of 450,000 units, a one time rental of special testing equipment to meet Pacific’s requirements would be needed. The equipment rental would be $45,000 and would allow Mission to test up to 50,000 units.

Required

a. Prepare a schedule to show the impact of filling the Pacific order on Mission’s profits for the year.

b. Would you recommend that Mission accept the order?

c. Considering only profit t, what is the minimum quantity of DVD players in the special order that would make it profit table?

make or buy decisions mobility partners makes wheelchairs and other assistive device 690947

Aug 30, 2021 | Uncategorized

Make or Buy Decisions

Mobility Partners makes wheelchairs and other assistive devices. For years it has made the rear wheel assembly for its wheelchairs. A local bicycle manufacturing firm, Trailblazers, Inc., offered to sell these rear wheel assemblies to Mobility. If Mobility makes the assembly, its cost per rear wheel assembly is as follows (based on annual production of 2,000 units):

Trailblazers has offered to sell the assembly to Mobility for $110 each. The total order would amount to 2,000 rear wheel assemblies per year, which Mobility’s management will buy instead of make if Mobility can save at least $10,000 per year. Accepting Trailblazers’s offer would eliminate annual fixed overhead of $40,000.

Required

Should Mobility make rear wheel assemblies or buy them from Trailblazers? Prepare a schedule that shows the differential costs per rear wheel assembly.

make or buy decisions mel rsquo s meals 2 go purchases cookies that it includes in t 690948

Aug 30, 2021 | Uncategorized

Make or Buy Decisions

Mel’s Meals 2 Go purchases cookies that it includes in the 10,000 box lunches it prepares and        sells annually. Mel’s kitchen and adjoining meeting room operate at 70 percent of capacity. Mel’s purchases the cookies for $0.60 each but is considering making them instead. Mel’s can bake each cookie for $0.20 for materials, $0.15 for direct labor, and $0.45 for overhead without increasing its capacity. The $0.45 for overhead includes an allocation of $0.30 per cookie for fixed overhead. However, total fixed overhead for the company would not increase if Mel’s makes the cookies.

Mel himself has come to you for advice. “It would cost me $0.80 to make the cookies, but only $0.60 to buy. Should I continue buying them?” Materials and labor are variable costs, but variable overhead would be only $0.15 per cookie. Two cookies are put into every lunch.

Required

How would you advise Mel? Prepare a schedule to show the differential costs.

dropping product lines atlantic soup company is presently operating at 75 percent of 690949

Aug 30, 2021 | Uncategorized

Dropping Product Lines

Atlantic Soup Company is presently operating at 75 percent of capacity. Worried about the company’s performance, the president is considering dropping its clam chowder line. If clam chowder is dropped, the revenue associated with it would be lost and the related variable costs saved. In addition, the company’s total fixed costs would be reduced by 15 percent.

Required

Prepare a differential cost schedule like the one in Exhibit 4.8 to indicate whether Atlantic should drop the clam chowder product line.

Exhibit 4.8 Differential Analysis— U Develop

dropping product lines free flight airlines is presently operating at 70 percent of 690950

Aug 30, 2021 | Uncategorized

Dropping Product Lines

Free flight Airlines is presently operating at 70 percent of capacity. Management of the airline is considering dropping Freeflight’s routes between Europe and the United States. If these routes are dropped, the revenue associated with the routes would be lost and the related variable costs saved. In addition, the company’s total fixed costs would be reduced by 20 percent. Segmented income statements for a typical month appear as follows (all amounts in millions of dollars):

Required

Exhibit 4.8 Differential Analysis— U Develop

Prepare a differential cost schedule like the one in Exhibit 4.8 to indicate whether Free flight should drop the routes between the United States and Europe.

theory of constraints playful pens inc makes a single model of a pen the cartridge f 690952

Aug 30, 2021 | Uncategorized

Theory of Constraints

Playful Pens, Inc., makes a single model of a pen. The cartridge for the pen (which contains the ink) is manufactured on one machine. The cartridge holder (which you hold when you hold the pen) is manufactured on another machine. Monthly capacities and production levels are as follows:

The company could sell 1,000,000 pens per month. The units (cartridge inside of holder) sell for $10 each and have a variable cost of $4 each. Fixed costs are $4,000,000 per month.

Required

a. Is there a bottleneck at Playful Pens? If so, where is it?

b. Playful Pens’s production supervisors state they could increase machine 2’s capacity by 200,000 per month by producing holders on the weekend. Producing on the weekend would not affect the sales price. Variable cost per unit would increase by $1 for those produced on the weekend because of the premium paid to labor. Fixed costs would also increase by $800,000 per month. Should Playful Pens produce holders on the weekend?

c. Independent of the situation in requirement ( b ), Playful Pens could expand the capability of machine 2 by adding additional workers to perform ongoing maintenance. This would increase its capacity by 100,000 holders per month. This would not affect sales price or fixed costs, but would increase variable cost to $4.50 per unit for all units produced. Should Playful Pens expand machine 2’s capability by adding these additional workers?

special order hi speed electronics manufactures low cost consumer grade computers it 690953

Aug 30, 2021 | Uncategorized

Special Order

Hi Speed Electronics manufactures low cost, consumer grade computers. It sells these computers to various electronics retailers to market under store brand names. It manufactures two computers, the Lightning 2.0 and the Lightning 2.4, which differ in terms of speed, included memory, and included hard drive capacity. The following information is available:

The average wage rate is $20 per hour. Variable overhead varies with the quantity of direct labor hours. The plant has a capacity of 20,000 direct labor hours, but current production uses only 10,000 direct labor hours.

Required

a. A nationwide discount chain has offered to buy 2,500 Lightning 2.0 computers and 2,500 Lightning 2.4 computers if the price is lowered to $200 and $250, respectively, per unit. If Hi Speed accepts the offer, how many direct labor hours will be required to produce the additional computers? How much will the profit t increase (or decrease) if Hi Speed accepts this proposal? Prices on regular sales will remain the same.

b. Suppose that the nationwide discount chain has offered instead to buy 3,500 each of the two models at $200 and $250, respectively. This customer will purchase the 3,500 units of each model only in an all or nothing deal. That is, Hi Speed Electronics must provide all 3,500 units of each model or none. Hi Speed’s management has decided to fill the entire special order for both models. In view of its capacity constraints, Hi Speed will reduce sales to regular customers as needed to fill the special order. How much will the profits change if the order is accepted? Assume that the company cannot increase its production capacity to meet the extra demand.

c. Answer the question in requirement ( b ), assuming instead that the plant can work overtime. Direct labor costs for the overtime production increase to $30 per hour. Variable overhead costs for overtime production are $5 per hour more than for normal production.

special orders sherene nili manages a company that produces wedding gowns she produc 690954

Aug 30, 2021 | Uncategorized

Special Orders

Sherene Nili manages a company that produces wedding gowns. She produces both a custom product that is made to order and a standard product that is sold in bridal salons. Her accountant prepared the following forecasted income statement for March, which is a busy month:

Ms. Nili already has orders for the 10 custom dresses reflected in the March forecasted income statement. The depreciation charges are for machines used in the respective product lines. Machines depreciate at the rate of $1 per hour based on hours used, so these are variable costs. In March, cutting and sewing machines are expected to operate for 900 hours, of which 600 hours will be used to make custom dresses. The rent is for the building space, which has been leased for several years at $7,000 per month. The rent, heat, and light are allocated to the product lines based on the amount of floor space occupied.

A valued customer, who is a wedding consultant, has asked Ms. Nili for a special favor. This customer has a client who wants to get married in early April. Ms. Nili’s company is working at capacity and would have to give up some other business to make this dress. She can’t renege on custom orders already agreed to, but she can reduce the number of standard dresses produced in March to 10. Ms. Nili would lose permanently the opportunity to make up the lost production of standard dresses because she has no unused capacity for the foreseeable future. The customer is willing to pay $25,000 for the special order. Materials and labor for the order will cost $6,000 and $10,000, respectively. The special order would require 140 hours of machine time. Ms. Nili’s company would save 150 hours of machine time from the standard dress business given up. Rent, heat and light, and other production costs would not be affected by the special order.

Required

a. Should Ms. Nili take the order? Explain your answer.

b. What is the minimum price Ms. Nili should accept to take the special order?

c. What are the other factors, if any, besides price that she should consider?

pricing decisions sam martina aretha roxi and tomas smart operate a management consu 690955

Aug 30, 2021 | Uncategorized

Pricing Decisions

Sam, Martina, Aretha, Roxi, and Tomas (SMART) operate a management consulting firm. The firm has just received an inquiry from a prospective client about its prices for educational seminars to teach its supervisors better communications skills. The prospective client wants bids for three alternative activity levels: (1) one seminar with 20 participants, (2) four seminars with 20 participants each (80 participants total), or (3) eight seminars with 140 participants in total. The consulting firm’s accountants have provided the following differential cost estimates:

In addition to the preceding differential costs, SMART allocates fixed costs to jobs on a directlabor cost basis, at a rate of 75 percent of direct labor costs (excluding setup costs). For example, if direct labor costs are $100, SMART would also charge the job $75 for fixed costs. SMART charges clients for its costs plus 25 percent. For the purpose of charging customers, costs equal the setup costs plus materials costs plus differential labor costs plus allocated fixed costs. SMART has enough excess capacity to handle this job with ease.

Required

a. Assume SMART’s bid equals the total cost, including fixed costs allocated to the job, plus the 25 percent markup on cost. What should SMART bid for each of the three levels of activity?

b. Compute the differential cost (including setup costs) and the contribution to profit t for each of the three levels of activity. Note that fixed costs are not differential costs.

c. Assume the prospective client gives three options. It is willing to accept either of SMART’s bids for the one seminar or four seminar activity levels, but the prospective client will pay only 85 percent of the bid price for the eight seminar package. SMART’s president responds, “We can’t make money in this business by shaving our bids! Let’s take the four seminar option because we make the most profit t on it.” Do you agree? What would be the contribution to profit t for each of the three options?

comprehensive differential costing problem davis kitchen supply produces stoves for 690957

Aug 30, 2021 | Uncategorized

Comprehensive Differential Costing Problem

Davis Kitchen Supply produces stoves for commercial kitchens. The costs to manufacture and market the stoves at the company’s normal volume of 6,000 units per month are shown in the following table.

Unless otherwise stated, assume that no connection exists between the situation described in each question; each is independent. Unless otherwise stated, assume a regular selling price of $370 per unit. Ignore income taxes and other costs that are not mentioned in the table or in the question itself.

Required

a. Market research estimates that volume could be increased to 7,000 units, which is well within production capacity limitations if the price were cut from $370 to $325 per unit. Assuming that the cost behavior patterns implied by the data in the table are correct, would you recommend taking this action? What would be the impact on monthly sales, costs, and income?

b. On March 1, the federal government offers Davis a contract to supply 1,000 units to military bases for a March 31 delivery. Because of an unusually large number of rush orders from its regular customers, Davis plans to produce 8,000 units during March, which will use all available capacity. If it accepts the government order, it would lose 1,000 units normally sold to regular customers to a competitor. The government contract would reimburse its “share of March manufacturing costs” plus pay a $50,000 fixed fee (profit t). (No variable marketing costs would be incurred on the government’s units.) What impact would accepting the government contract have on March income? (Part of your problem is to figure out the meaning of “share of March manufacturing costs.”)

c. Davis has an opportunity to enter a highly competitive foreign market. An attraction of the foreign market is that its demand is greatest when the domestic market’s demand is quite low; thus, idle production facilities could be used without affecting domestic business. An order for 2,000 units is being sought at a below normal price to enter this market. For this order, shipping costs will total $40 per unit; total (marketing) costs to obtain the contract will be $4,000.

No other variable marketing costs would be required on this order, and it would not affect domestic business. What is the minimum unit price that Davis should consider for this order of 2,000 units?

d. An inventory of 460 units of an obsolete model of the stove remains in the stockroom. These must be sold through regular channels (thus incurring variable marketing costs) at reduced prices or the inventory will soon be valueless. What is the minimum acceptable selling price for these units?

e. A proposal is received from an outside contractor who will make and ship 2,000 stoves per month directly to Davis’s customers as orders are received from Davis’s sales force. Davis’s fixed marketing costs would be unaffected, but its variable marketing costs would be cut by 20 percent for these 2,000 units produced by the contractor. Davis’s plant would operate at two thirds of its normal level, and total fixed manufacturing costs would be cut by 30 percent. What in house unit cost should be used to compare with the quotation received from the supplier? Should the proposal be accepted for a price (that is, payment to the outside contractor) of $215 per unit?

f. Assume the same facts as in requirement ( e ) except that the idle facilities would be used to produce 1,600 modified stoves per month for use in extreme climates. These modified stoves could be sold for $450 each, while the costs of production would be $275 per unit variable manufacturing expense. Variable marketing costs would be $50 per unit. Fixed marketing and manufacturing costs would be unchanged whether the original 6,000 regular stoves were manufactured or the mix of 4,000 regular stoves plus 1,600 modified stoves were produced. Should the proposal be accepted for a price of $215 per unit to the outside contractor?

make or buy king city specialty bikes kcsb produces high end bicycles the costs to m 690958

Aug 30, 2021 | Uncategorized

Make or Buy

King City Specialty Bikes (KCSB) produces high end bicycles. The costs to manufacture and market the bicycles at the company’s volume of 2,000 units per month are shown in the following table:

The company has the capacity to produce 2,000 units per month and always operates at full capacity.

The bicycles sell for $600 per unit.

Required

a. KCSB receives a proposal from an outside contractor who will assemble 800 of the 2,000 bicycles per month and ship them directly to KCSB’s customers as orders are received from KCSB’s sales force. KCSB would provide the materials for each bicycle, but the outside contractor would assemble, box, and ship the bicycles. The variable manufacturing costs would be reduced by 40 percent for the 800 bicycles assembled by the outside contractor. KCSB’s fixed nonmanufacturing costs would be unaffected, but its variable nonmanufacturing costs would be cut by 60 percent for these 800 units produced by the outside contractor. KCSB’s plant would operate at 60 percent of its normal level, and total fixed manufacturing costs would becut by 20 percent. What in house unit cost should be compared with the quotation received from the outside contractor? Should the proposal be accepted for a price (that is, payment to the contractor) of $140 per unit?

b. Assume the same facts as in requirement (a) but assume that the idle facilities would be used to produce 80 specialty racing bicycles per month. These racing bicycles could be sold for  $8,000 each, while the costs of production would be $5,600 per unit variable manufacturing cost. Variable marketing costs would be $200 per unit. Fixed nonmanufacturing and manufacturing costs would be unchanged whether the original 2,000 regular bicycles were manufactured or the mix of 1,200 regular bicycles plus 80 racing bicycles was produced. Considering this opportunity to use the freed up space, what is the maximum purchase price per unit that KCSB should be willing to pay the outside contractor to assemble regular bicycles? Should the contractor’s proposal of $140 per unit be accepted?

decision whether to add or drop carson corporation produces and sells three products 690959

Aug 30, 2021 | Uncategorized

Decision Whether to Add or Drop

Carson Corporation produces and sells three products, Alpha, Beta, and Gamma, in a local market and in a regional market. At the end of the first quarter of the current year, the following income statement (in thousands of dollars) has been prepared:

Management has expressed special concern with the regional market because of the extremely poor return on sales. This market was entered a year ago because of excess capacity. It was originally believed that the return on sales would improve with time, but after a year, no noticeable improvement can be seen from the results as reported in the preceding quarterly statement.

In attempting to decide whether to eliminate the regional market, the following information has been gathered:

All administrative costs and fixed manufacturing costs would not be affected by eliminating the regional market. Marketing costs that are not listed above as variable are fixed for the period and separable by market. Fixed marketing costs assigned to the regional market would be saved if that market was eliminated.

Required

a. Assuming there are no alternative uses for Carson’s present capacity, would you recommend dropping the regional market? Why or why not?

b. Prepare the quarterly income statement showing contribution margins by products. Do not allocate fixed costs to products.

c. It is believed that a new product can be ready for sale next year if Carson decides to go ahead with continued research. The new product would replace Gamma and can be produced by simply converting equipment presently used in producing product Gamma. This conversion will increase fixed costs by $120,000 per quarter. What must be the minimum contribution margin per quarter for the new product to make the changeover financially feasible?

decision whether to close a store power music owns five music stores where it sells 690960

Aug 30, 2021 | Uncategorized

Decision Whether to Close a Store

Power Music owns five music stores, where it sells music, instruments, and supplies. In addition, it rents instruments. At the end of last year, the new accounts showed that although the business as a whole was profit table, the Fifth Avenue store had shown a substantial loss. The income statement for the Fifth Avenue store for last month follows:

Additional computations:

^aThese costs would be saved if the store was closed.

^bThe rent would be saved if the store was closed.

^cAssessed annually on the basis of average inventory on hand each month.

^d8.5 percent of cost of departmental equipment. The equipment has no salvage value, and

Power Music would incur no costs in scrapping it.

^eAllocated on the basis of store sales as a fraction of total company sales. Management estimates that 10% of these costs allocated to the Fifth Avenue store could be saved if the store was closed.

^fBased on average inventory quantity multiplied by the company’s borrowing rate for three month loans.

Analysis of these results has led management to consider closing the Fifth Avenue store. Members of the management team agree that keeping the Fifth Avenue store open is not essential to maintaining good customer relations and supporting the rest of the company’s business. In other words, eliminating the Fifth Avenue store is not expected to affect the amount of business done by the other stores.

Required

What action do you recommend to Power Music’s management? Write a short report to management recommending whether or not to close the Fifth Avenue store. Include the reasons for your recommendation.

closing a plant you have been asked to assist the management of ironwood corporation 690961

Aug 30, 2021 | Uncategorized

Closing a Plant

You have been asked to assist the management of Ironwood Corporation in arriving at certain decisions. Ironwood has its home office in Michigan and leases factory buildings in Wisconsin, Minnesota, and North Dakota, all of which produce the same product. Ironwood’s management provided you a projection of operations for next year as follows:

The sales price per unit is $5.

Due to the marginal results of operations of the factory in North Dakota, Ironwood has decided to cease its operations and sell that factory’s machinery and equipment by the end of this year. Ironwood expects that the proceeds from the sale of these assets would equal all termination costs. Ironwood, however, would like to continue serving most of its customers in that area if it is economically feasible and is considering one of the following three alternatives:

·         Expand the operations of the Minnesota factory by using space presently idle. This move would result in the following changes in that factory’s operations:

Under this proposal, variable costs would be $2 per unit sold.

·         Enter into a long term contract with a competitor who will serve that area’s customers. This competitor would pay Ironwood a royalty of $1 per unit based on an estimate of 30,000 units being sold.

·         Close the North Dakota factory and not expand the operations of the Minnesota factory. Total home office costs of $100,000 will remain the same under each situation.

Required

To assist the management of Ironwood Corporation, prepare a schedule computing Ironwood’s estimated operating profit t from each of the following options:

a. Expansion of the Minnesota factory.

b. Negotiation of long term contract on a royalty basis.

c. Shutdown of North Dakota operations with no expansion at other locations.

optimum product mix austin enterprises makes and sells three types of dress shirts m 690962

Aug 30, 2021 | Uncategorized

Optimum Product Mix

Austin Enterprises makes and sells three types of dress shirts. Management is trying to determine the most profit table mix. Sales prices, demand, and use of manufacturing inputs follow:

The company faces two limits: (1) the volume of each type of shirt that it can sell (see maximum annual demand) and (2) 30,000 direct labor hours per year caused by the plant layout.

Required

Show supporting data in good form.

a. How much operating profit t could the company earn if it were able to satisfy the annual demand?

b. Which of the three product lines makes the most profit table use of the constrained resource, direct labor?

c. Given the information in the problem so far, what product mix do you recommend?

d. How much operating profit t should your recommended product mix generate?

e. Suppose that the company could expand its labor capacity by running an extra shift that could provide up to 10,000 more hours. The direct labor cost would increase from $16 to $19 per hour for all hours of direct labor used. What additional product(s) should Austin manufacture and what additional profit t would be expected with the use of the added shift?

optimum product mix the bubble company produces a variety of bottles from recycled p 690963

Aug 30, 2021 | Uncategorized

Optimum Product Mix

The Bubble Company produces a variety of bottles from recycled plastic. The company has one particular machine on which it can produce either of two types of water bottles, 1 liter bottles or 1/2 liter bottles. Sales demand for both products is such that the machine could operate at full capacity on either of the products, and Bubble can sell all output at current prices. One unit of the 1/2 liter product requires one hour of machine time per unit of output and one unit of the 1 liter bottle requires two hours of machine time. Each “unit” is a box that contains 150 bottles. Following are the costs per unit for the bottles:

a This item is a variable cost because it is based on machine usage.

b This item is a fixed cost because it is unaffected by the usage of the machine.

All other costs are the same whether Bubble produces 1 liter bottles, 1/2 liter bottles, or both, so you may ignore them.

Required

Should Bubble produce 1 liter bottles, 1/2 liter bottles, or both?

optimum product mix excel solver slavin corporation manufactures two products alpha 690964

Aug 30, 2021 | Uncategorized

Optimum Product Mix Excel Solver

Slavin Corporation manufactures two products, Alpha and Delta. Each product requires time on a single machine. The machine has a monthly capacity of 500 hours. Total market demand for the two products is limited to 150 units (each) monthly. Slavin is currently producing 110 Alphas and 110 Deltas each month. Cost and machine usage data for the two products is shown in the following spreadsheet, which Slavin managers use for planning purposes:

Required

a. What is the optimal production schedule for Slavin? In other words, how many Alphas and Deltas should the company produce each month to maximize monthly profit t?

b. If Slavin produces at the level found in (a), how much will monthly profit t increase over the current production schedule?

optimum product mix excel solver layton machining company lmc manufactures two versi 690965

Aug 30, 2021 | Uncategorized

Optimum Product Mix Excel Solver

Layton Machining Company (LMC) manufactures two versions of a basic machine tool. One version is a standard model and one is a custom model, which requires some additional work and slightly higher grade materials. The manufacturing process at LMC requires that each product go through two departments, Grinding and Finishing. The process in each department uses a single type of machine. Total machine capacity in Grinding is 50,000 hours, and in Finishing, total machine capacity is 30,000 hours. (Each department has multiple machines.) Total market demand is limited to 100,000 standard units and 120,000 custom units monthly. LMC is currently producing 90,000 standard units and 50,000 custom units each month. Cost and machine usage data for the two products follow:

Required

a. What is the optimal production schedule for LMC? In other words, how many standard units and custom units should the company produce each month to maximize monthly profit t?

b. If LMC produces at the level found in requirement (a), how much will monthly profit t increase over the current production schedule?

[[Integrative Cases]]

the effect of cost structure on predatory pricing to win a predatory pricing case la 690966

Aug 30, 2021 | Uncategorized

The Effect of Cost Structure on Predatory Pricing

To win a predatory pricing case, law enforcement offcials traditionally have had to prove that a company has sold products or services for less than their average variable cost. Companies with relatively high fixed costs and low variable costs are less likely to be accused of predatory pricing than are companies with high variable and low fixed costs. A court case in which the U.S. Department of Justice alleged that American Airlines had committed predatory pricing against smaller airlines demonstrates this point.

The airline industry has relatively high fixed costs and low variable costs, as least in the short run. If one defines a “unit” as a passenger flying an already scheduled flight, the additional cost of a passenger is small—charges for credit cards, a small amount of fuel because of extra weight, a beverage or two, and not much else. If one defines a “unit” as a flight, then more costs are variable—flight crew costs, fuel, and the cost of baggage handling, for example. Even if the unit is a flight, a large portion of the total costs is fixed.

American Airlines had dropped its fares when smaller airlines scheduled competing flights from the Dallas–Fort Worth airport to Kansas City, Wichita, and other cities, arguing that this was simply business competition in the marketplace. The judge in the case acknowledged that American had been a tough competitor but ruled that American had priced its tickets above their average variable cost. Therefore, he ruled that the case against American should be dropped.

Required

a. Why is the relation between price and variable cost an issue in predatory pricing?

b. Identify companies or industries in which variable costs are relatively low compared to fixed costs, thus making predatory pricing hard to prove.

c. Identify companies in which variable costs are relatively high compared to fixed costs.

cvp analysis mdash sensitivity analysis spreadsheet recommended alameda tile sells p 690917

Aug 30, 2021 | Uncategorized

CVP Analysis—Sensitivity Analysis (spreadsheet recommended)

Alameda Tile sells products to many people remodeling their homes and thinks that they could profitably offer courses on tile installation, which might also increase the demand for their products. The basic installation course has the following (tentative) price and cost characteristics:

Required

a. What enrollment will enable Alameda Tile to break even?

b. How many students will enable Alameda Tile to make an operating profit t of $40,000 for the year?

c. Assume that the projected enrollment for the year is 800 students for each of the following (considered independently):

1. What will be the operating profit t (for 800 students)?

2. What would be the operating profit t if the tuition per student (that is, sales price) decreased by 10 percent? Increased by 20 percent?

3. What would be the operating profit t if variable costs per student decreased by 10 percent? Increased by 20 percent?

4. Suppose that fixed costs for the year are 10 percent lower than projected, whereas variable costs per student are 10 percent higher than projected. What would be the operating profit t for the year?

extensions of the cvp model mdash semifixed step costs sam rsquo s sushi serves only 690918

Aug 30, 2021 | Uncategorized

Extensions of the CVP Model—Semifixed (Step) Costs

Sam’s Sushi serves only a fixed price lunch. The price of $10 and the variable cost of $4 per meal remain constant regardless of volume. Sam can increase lunch volume by opening and staffing additional check out lanes. Sam has three choices:

Required

a. Calculate the break even point(s).

b. If Sam can sell all the meals he can serve, should he operate at one, two, or three lanes? Support your answer.

extensions of the cvp model mdash semifixed step costs cesar rsquo s bottlers bottle 690919

Aug 30, 2021 | Uncategorized

Extensions of the CVP Model—Semifixed (Step) Costs

Cesar’s Bottlers bottles soft drinks in a factory that can operate either one shift, two shifts, or three shifts per day. Each shift is eight hours long. The factory is closed on weekends. The sales price of $2 per case bottled and the variable cost of $0.90 per case remain constant regardless of volume. Cesar’s Bottlers can increase volume by opening and staffing additional shifts. The company has the following three choices:

Required

a. Calculate the break even point(s).

b. If Cesar’s Bottlers can sell all the units it can produce, should it operate at one, two, or three shifts? Support your answer.

extensions of the cvp model mdash taxes odd wallow drinks is considering adding a ne 690920

Aug 30, 2021 | Uncategorized

Extensions of the CVP Model—Taxes

Odd Wallow Drinks is considering adding a new line of fruit juices to its merchandise products. This line of juices has the following prices and costs:

Required

a. Compute Odd Wallow Drinks’s break even point in units per year.

b. How many cases must Odd Wallow Drinks sell to earn $1,872,000 per year after taxes on the juice?

extensions of the cvp model mdash taxes frightproof commuter airlines is considering 690921

Aug 30, 2021 | Uncategorized

Extensions of the CVP Model—Taxes

Frightproof Commuter Airlines is considering adding a new flight to its current schedule from Metro to Hicksville. This route has the following prices and costs:

Required

a. Compute Frightproof’s break even point in number of passengers per flight.

b. How many passengers per flight must Frightproof have to earn $1,050 per flight after taxes?

c. Each aircraft has the capacity for 70 passengers per flight. In view of this capacity limitation, can Frightproof carry enough passengers to break even? Can the company carry enough passengers to earn $1,050 per flight after taxes?

extensions of the cvp model mdash taxes lomas electronics manufactures a portable te 690922

Aug 30, 2021 | Uncategorized

Extensions of the CVP Model—Taxes

Lomas Electronics manufactures a portable testing device for use in oil exploration. The product’s price and cost characteristics are:

Required

The company must sell 10,000 units annually in order to earn $117,000 in profits after taxes. What is Lomas Electronics’s tax rate?

extensions of the cvp analysis mdash taxes eagle company makes the musicfinder a sop 690924

Aug 30, 2021 | Uncategorized

Extensions of the CVP Analysis—Taxes

Eagle Company makes the MusicFinder, a sophisticated satellite radio. Eagle has experienced a steady growth in sales for the past five years. However, Ms. Luray, Eagle’s CEO, believes that to maintain the company’s present growth will require an aggressive advertising campaign next year. To prepare for the campaign, the company’s accountant, Mr. Bednarik, has prepared and presented to Ms. Luray the following data for the current year, Year 1:

Eagle has an income tax rate of 35 percent.

Ms. Luray has set the sales target for Year 2 at a level of $11,200,000 (or 28,000 radios).

Required

a. What is the projected after tax operating profit t for Year 1?

b. What is the break even point in units for Year 1?

c. Ms. Luray believes that to attain the sales target (28,000 radios) will require additional selling expenses of $300,000 for advertising in Year 2, with all other costs remaining constant. What will be the after tax operating profit t for Year 2 if the firm spends the additional $300,000?

d. What will be the break even point in sales dollars for Year 2 if the firm spends the additional $300,000 for advertising?

e. If the firm spends the additional $300,000 for advertising in Year 2, what is the sales level in dollars required to equal the Year 1 after tax operating profit t?

f. At a sales level of 28,000 units, what is the maximum amount the firm can spend on advertising to earn an after tax operating profit t of $750,000?

extensions of the cvp model mdash multiple products on the go inc produces two model 690925

Aug 30, 2021 | Uncategorized

Extensions of the CVP Model—Multiple Products

On the Go, Inc., produces two models of traveling cases for laptop computers: the Programmer and the Executive. The bags have the following characteristics:

The total fixed costs per year for the company are $819,000.

Required

a. What is the anticipated level of profits for the expected sales volumes?

b. Assuming that the product mix is the same at the break even point, compute the break even point.

c. If the product sales mix were to change to nine Programmer style bags for each Executive style bag, what would be the new break even volume for On the Go?

extensions of the cvp model mdash multiple products sundial inc produces two models 690926

Aug 30, 2021 | Uncategorized

Extensions of the CVP Model—Multiple Products

Sundial, Inc., produces two models of sunglasses: AU and NZ. The sunglasses have the following characteristics:

The total fixed costs per year for the company are $1,104,000.

Required

a. What is the anticipated level of profits for the expected sales volumes?

b. Assuming that the product mix is the same at the break even point, compute the break even point.

c. If the product sales mix were to change to four pairs of AU sunglasses for each pair of NZ sunglasses, what would be the new break even volume for Sundial, Inc.?

extensions of the cvp model mdash multiple products sell block prepares three types 690927

Aug 30, 2021 | Uncategorized

Extensions of the CVP Model—Multiple Products

Sell Block prepares three types of simple tax returns: individual, partnerships, and (small) corporations.

The tax returns have the following characteristics:

The total fixed costs per year for the company are $3,690,000.

Required

a. What is the anticipated level of profits for the expected sales volumes?

b. Assuming that the product mix is the same at the break even point, compute the break even point.

c. Suppose the product sales mix changes so that, for every ten tax returns prepared, six are for individuals, one is for a partnership, and three are for corporations. Now what is the breakeven  volume for Sell Block?

extensions of the cvp basic model mdash multiple products and taxes assume that ocea 690929

Aug 30, 2021 | Uncategorized

Extensions of the CVP Basic Model—Multiple Products and Taxes

Assume that Ocean King Products sells three varieties of canned seafood with the following prices and costs:

extensions of the cvp model mdash multiple products and taxes assume that limitless 690931

Aug 30, 2021 | Uncategorized

Extensions of the CVP Model—Multiple Products and Taxes

Assume that Limitless Labs, Inc., offers three basic drug testing services for professional athletes. Here are its prices and costs:

Variable costs include the labor costs of the medical technicians at the lab. Fixed costs of $390,000 per year include building and equipment costs and the costs of administration. A basic “unit” is a routine drug test administered. A retest is given if there is concern about the results of the fi rest test, particularly if the test indicates that the athlete has taken drugs that are on the banned drug list. Retests are not done by the laboratory that performed the basic test. A “vital” test is the laboratory’s code for a high profit le case. This might be a test of a famous athlete and/ or a test that might be challenged in court. The laboratory does extra work and uses expensive expert technicians to ensure the accuracy of vital drug tests. Limitless Labs is subject to a 40 percent tax rate.

Required

a. Given the above information, how much will Limitless Labs earn each year after taxes?

b. Assuming the above sales mix is the same at the break even point, at what sales revenue does Limitless Labs break even?

c. At what sales revenue will the company earn $180,000 per year after taxes assuming the above sales mix?

d. Limitless Labs is considering becoming more specialized in retests and vital cases. What would be the company’s break even revenues per year if the number of retest   increased to 400 per year and the number of vital tests increased to 200 per year, while the number of basic tests dropped to 100 per year? With this change in product mix, the company would increase fixed costs to $420,000 per year. What would be the effect of this change in product mix on Limitless Labs’s earnings after taxes per year? If the laboratory’s managers seek to maximize the company’s after tax earnings, would this change be a good idea?

extensions of the cvp model mdash multiple products and taxes assume that painless d 690932

Aug 30, 2021 | Uncategorized

Extensions of the CVP Model—Multiple Products and Taxes

Assume that Painless Dental Clinics, Inc., offers three basic dental services. Here are its prices and costs:

Variable costs include the labor costs of the dental hygienists and dentists. Fixed costs of $400,000 per year include building and equipment costs, marketing costs, and the costs of administration. Painless Dental Clinics is subject to a 30 percent tax rate on income.

A cleaning “unit” is a routine teeth cleaning that takes about 45 minutes. A filling “unit” is the work done to fill one or more cavities in one session. A capping “unit” is the work done to put a crown on one tooth. If more than one tooth is crowned in a session, then the clinic counts one unit per tooth (e.g., putting crowns on two teeth counts as two units).

Required

a. Given the above information, how much will Painless Dental Clinics, Inc., earn each year after taxes?

b. Assuming the above sales mix is the same at the break even point, at what sales revenue does Painless Dental Clinics, Inc., break even?

c. Assuming the above sales mix, at what sales revenue will the company earn $140,000 per year after taxes?

d. Painless Dental Clinics, Inc., is considering becoming more specialized in cleanings and fillings. What would be the company’s revenues per year if the number of cleanings increased to 12,000 per year, the number of fillings increased to 1,000 per year, while the number of capping dropped to zero? With this change in product mix, the company would increase its fixed costs to $450,000 per year. What would be the effect of this change in product mix on the clinic’s earnings after taxes per year? If the clinic’s managers seek to maximize the clinic’s after tax earnings, would this change be a good idea?

financial modeling three entrepreneurs were looking to start a new brewpub near sacr 690933

Aug 30, 2021 | Uncategorized

Financial Modeling

Three entrepreneurs were looking to start a new brewpub near Sacramento, California, called Roseville Brewing Company (RBC). Brewpubs provide two products to customers—food from the restaurant segment and freshly brewed beer from the beer production segment. Both segments are typically in the same building, which allows customers to see the beer brewing process. After months of research, the owners created a financial model that showed the following projections for the first year of operations:

In the process of pursuing capital through private investors and financial institutions, RBC was approached with several questions. The following represents a sample of the more common questions asked:

• What is the break even point?

• What sales dollars will be required to make $200,000? To make $500,000?

• Is the product mix reasonable? (Beer tends to have a higher contribution margin ratio than food, and therefore product mix assumptions are critical to profit t projections.)

• What happens to operating profit t if the product mix shifts?

• How will changes in price affect operating profit t?

• How much does a pint of beer cost to produce?

It became clear to the owners of RBC that the initial financial model was not adequate for answering these types of questions. After further research, RBC created another financial model that provided the following information for the first year of operations:

Required

a. What were potential investors and financial institutions concerned with when asking the questions listed in the case?

b. Why was the first financial model prepared by RBC inappropriate for answering most of the questions asked by investors and bankers? Be specific.

c. If you were deciding whether to invest in RBC, how would you quickly check the reasonableness of RBC’s projected operating profit t?

d. Why is the question “How much does a pint of beer cost to produce?” difficult to answer?

e. Perform sensitivity analysis by answering the following questions.

1. What is the break even point in sales dollars for RBC?

2. What is the margin of safety for RBC?

3. Why can’t RBC find the break even point in units?

4. What sales dollars would be required to achieve an operating profit t of $200,000? $500,000? What assumptions are made in this calculation?

live oak products has an annual plant capacity to produce 50 000 units its predicted 690934

Aug 30, 2021 | Uncategorized

Live Oak Products has an annual plant capacity to produce 50,000 units. Its predicted operations for the year follow:

Should the company accept a special order for 4,000 units at a selling price of $15 each, which is subject to half the usual sales commission rate per unit? Assume no effect on fixed costs or regular sales at regular prices. What is the effectof the decision on the company’s operating profit t?

on the move inc manufactures two types of roof racks for automobiles bikerac and kay 690936

Aug 30, 2021 | Uncategorized

On the Move, Inc., manufactures two types of roof racks for automobiles: BikeRac and KayakRac. Data concerning selling prices and costs for each unit follow:

Management decided that at least 5,000 BikeRacs and at least 2,000 KayakRacs must be manufactured and sold each month.

The company’s production facilities are limited by machine capacity in the Assembly Department. Each BikeRac requires 6 minutes and each KayakRac requires 3 minutes in the Assembly Department. A total of 650 hours (39,000 minutes) is available per month in the Assembly Department; there are no other relevant constraints on production.

a. What is the contribution per unit for BikeRacs? For KayakRacs?

b. At the required monthly levels of production (5,000 BikeRacs and 2,000 KayakRacs), how many minutes are used in the Assembly Department?

c. Suppose there is unlimited demand for BikeRacs and KayakRacs at current prices. What production schedule (number of BikeRacs and number of KayakRacs) should On the Move adopt to maximize profit t while meeting its constraint to produce and sell at least 5,000 BikeRacs and 2,000 KayakRacs.

d. Suppose demand is limited to 2,500 units of KayakRacs.  What production schedule should On the Move adopt to maximize profit t while meeting its constraint on the minimum levels for the two products?

special orders maria rsquo s food service provides meals that nonprofit organization 690938

Aug 30, 2021 | Uncategorized

Special Orders

Maria’s Food Service provides meals that nonprofit organizations distribute to handicapped andelderly people. Here is her forecasted income statement for April, when she expects to produce and sell 3,000 meals:

Fixed costs included in this income statement are $4,500 for meal production and $600 for administrative costs. Maria has received a special request from an organization sponsoring a picnic to raise funds for the Special Olympics. This organization is willing to pay $3.50 per meal for 300 meals on April 10. Maria has sufficient idle capacity to fill this special order. These meals will incur all of the variable costs of meals produced, but variable administrative costs and total fixed costs will not be affected.

Required

a. What impact would accepting this special order have on operating profit t?

b. Should Maria accept the order?

special orders carlsbad enterprises has a capacity to produce 400 000 computer cases 690939

Aug 30, 2021 | Uncategorized

Special Orders

Carlsbad Enterprises has a capacity to produce 400,000 computer cases per year. The company is currently producing and selling 320,000 cases per year at a selling price of $40 per case. The cost of producing and selling one case follows:

The company has received a special order for 20,000 cases at a price of $25 per case. Because it does not have to pay a sales commission on the special order, the variable selling and administrative costs would be only $5 per case. The special order would have no effect on total fixed costs. The company has rejected the offer based on the following computations:

Required

a. What is the impact on profit t for the year if Carlsbad accepts the special order? Show computations.

b. Do you agree with the decision to reject the special order? Explain.

pricing decisions assume that cold rock sells ice cream for 4 80 per gallon the cost 690940

Aug 30, 2021 | Uncategorized

Pricing Decisions

Assume that Cold Rock sells ice cream for $4.80 per gallon. The cost of each gallon follows:

One of Cold Rock’s regular customers asked the company to fill a special order of 400 gallons at a selling price of $3.60 per gallon for a fund raising picnic for a local charity. Cold Rock has capacity to fill it without affecting total fixed costs for the month. Cold Rock’s general manager was concerned about selling the ice cream below the cost of $3.90 per gallon and has asked for your advice.

Required

a. Prepare a schedule to show the impact on Cold Rock’s profits of providing 400 gallons of ice cream in addition to the regular production and sales of 20,000 gallons per month.

b. Based solely on the data given, what is the lowest price per gallon at which the ice cream in the special order could be sold without reducing Cold Rock’s profits?

c. What other factors might the general manager want to consider in setting a price for the special order?

pricing decision mother rsquo s bottlers inc is a small bottling company that bottle 690941

Aug 30, 2021 | Uncategorized

Pricing Decision

Mother’s Bottlers, Inc., is a small bottling company that bottles and sells cold teas for $5 per unit. The cost of each unit follows:

One of Mother’s regular customers asked the company to fill a special order of 2,000 units at a selling price of $3.50 per unit. Mother’s can fill the order using existing capacity without affecting total fixed costs for the month. However, Mother’s manager was concerned about selling at a price below the $4.00 cost per unit and has asked for your advice.

Required

a. Prepare a schedule to show the impact of providing the special order of 2,000 units on Mother’s profits in addition to the regular production and sales of 20,000 units per month.

b. Based solely on the data given, what is the lowest price per unit at which the bottled teas could be sold for the special order without reducing Mother’s profits?

c. What other factors might Mother’s managers want to consider in setting a price for the special order?

cost allocation and regulated prices the city of imperial falls contracts with everg 690888

Aug 30, 2021 | Uncategorized

Cost Allocation and Regulated Prices

The City of Imperial Falls contracts with Evergreen Waste Collection to provide solid waste collection to households and businesses. Until recently, Evergreen had an exclusive franchise to provide this service in Imperial Falls, which meant that other waste collection firms could not operate legally in the city. The price per pound of waste collected was regulated at 20 percent above the average total cost of collection.

Cost data for the most recent year of operations for Evergreen are as follows:

Data on customers for the most recent year are:

The City Council of Imperial Falls is considering allowing other private waste haulers to collect waste from businesses, but not from households. Service to businesses from other waste collection firms would not be subject to price regulation. Based on information from neighboring cities, the price that other private waste collection firms will charge is estimated to be $0.04 per pound (= $80 per ton).

Evergreen’s CEO has approached the city council with a proposal to change the way costs are allocated to households and businesses, which will result in different rates for households and businesses. She proposes that administrative costs and truck operating costs be allocated  based on the number of customers and the other collection costs be allocated based on pounds collected. The total costs allocated to households would then be divided by the estimated number of pounds collected from households to determine the cost of collection. The rate would then be 20 percent above the cost. The rate for businesses would be determined using the same calculation.

Required

a. Based on cost data from the most recent year, what is the price per pound charged by Evergreen for waste collection under the current system (the same rate for both types of customers)?

b. Based on cost and waste data from the most recent year, what would be the price per pound charged to households and to businesses by Evergreen for waste collection if the CEO’s proposal were accepted?

c. As a staff member to one of the council members, would you support the proposal to change the way costs are allocated? Explain.

reconstruct financial statements san ysidro company manufactures hiking equipment th 690889

Aug 30, 2021 | Uncategorized

Reconstruct Financial Statements

San Ysidro Company manufactures hiking equipment. The company’s administrative and manufacturing operations share the company’s one building. Eighty percent of the building is used for manufacturing and the remainder is used for administrative activities. Indirect labor is 8 percent of direct labor.

The cost accountant at San Ysidro has compiled the following information for the year ended December 31:

Required

Prepare a cost of goods manufactured and sold statement and an income statement.

analyze the impact of a decision on income statements you were appointed the manager 690890

Aug 30, 2021 | Uncategorized

Analyze the Impact of a Decision on Income Statements

You were appointed the manager of Drive Systems Division (DSD) at Tunes2Go, a manufacturer of portable music devices using the latest developments in hard drive technology, on December 15 last year. DSD manufactures the drive assembly, M 24, for the company’s most popular product.  Your bonus is determined as a percentage of your division’s operating profits before taxes.  One of your fist major investment decisions was to invest $3 million in automated testing equipment for the M 24. The equipment was installed and in operation on January 1 of this year.

This morning, J. Bradley Finch III, the assistant manager of the division (and, not coincidentally, the grandson of the company founder and son of the current CEO) told you about an offer by Pan Pacific Electronics. Pan Pacific wants to rent to DSD a new testing machine that could be installed on December 31 (only two weeks from now) for an annual rental charge of $690,000. The new equipment would enable you to increase your division’s annual revenue by 7 percent. This new, more efficient machine would also decrease fixed cash expenditures by 6 percent.

Without the new machine, operating revenues and costs for the year are estimated to be as shown below. Revenues and fixed and variable operating costs are all cash.

If you rent the new testing equipment, DSD will have to write off the cost of the automated testing equipment this year because it has no salvage value. Equipment depreciation shown in the income statement is for this automated testing equipment. Equipment losses are included in the bonus and operating profit computation.

Because the new machine will be installed on a company holiday, there will be no effect on operations from the changeover. Ignore any possible tax effects. Assume that the data given in your expected income statement are the actual amounts for this year and next year if the current equipment is kept.

Required

a. Assume the new testing equipment is rented and installed on December 31. What will be the impact on this year’s divisional operating profit t?

b. Assume the new testing equipment is rented and installed on December 31. What will be the impact on next year’s divisional operating profit t?

c. Would you rent the new equipment? Why or why not?

finding unknowns bs amp t partners has developed a new hubcap with the model name sp 690892

Aug 30, 2021 | Uncategorized

Finding Unknowns

BS&T Partners has developed a new hubcap with the model name Spinnin’ Wheel. Production and sales started August 3. As of August 2, there were no direct materials in inventory. Data for the month of August include the following:

a Unit cost based on units produced in August.

b Unit cost based on units sold in August.

Required

Complete the table.

the following information for jennifer rsquo s framing supply is given for march sal 690893

Aug 30, 2021 | Uncategorized

The following information for Jennifer’s Framing Supply is given for March:

Compute the following:

a. Monthly operating profit t when sales total $360,000 (as here).

b. Break even number in units.

c. Number of units sold that would produce an operating profit t of $120,000.

d. Sales dollars required to earn an operating profit t of $20,000.

e. Number of units sold in March.

f. Number of units sold that would produce an operating profit t of 20 percent of sales dollars.

suppose hdc rents spaces for both rvs and tent camping the price and cost characteri 690895

Aug 30, 2021 | Uncategorized

Suppose HDC rents spaces for both RVs and tent camping. The price and cost characteristics for each are as follows (one unit is a tent or RV space rented for one day):

The fixed costs of HDC are $60,000 annually. Assuming the mix of tent and RV spaces is the same as the current mix, how many tent spaces and how many RV spaces must be rented annually for HDC to break even?

basic decision analysis using cvp ana rsquo s amusement center has collected the fol 690899

Aug 30, 2021 | Uncategorized

Basic Decision Analysis Using CVP

Ana’s Amusement Center has collected the following data for operations for the year:

Required

a. What is the average selling price for a ticket?

b. What is the average variable cost per ticket?

c. What is the average contribution margin per ticket?

d. What is the break even point?

e. An has decided that unless the operation can earn at least $43,750 in operating profits, she will close it down. What number of tickets must be sold for Ana’s Amusements to make a $43,750 operating profit t for the year on ticket sales?

cvp analysis mdash ethical issues mark ting desperately wants his proposed new produ 690901

Aug 30, 2021 | Uncategorized

CVP Analysis—Ethical Issues

Mark Ting desperately wants his proposed new product, DNA diamond, to be accepted by top management. DNA diamond is a piece of jewelry that contains the DNA of a boy or girl friend, spouse, or other loved one. Top management will not approve this product in view of its high break even point.

Mark knows that if he can reduce the fixed costs in his proposal, then the break even point will  be reduced to a level that top management finds acceptable. Working with a friend in the company’s finance department, Mark finds ways to credibly misstate the estimated fixed costs of producing DNA diamonds below those that any objective person would estimate. Mark knows that if the product is successful (and he is certain that it will be), then top management will not find out about the understatement of fixed costs. Mark believes that this product, once it is successful, will benefit the shareholders and employees of the company.

Required

Are Mark’s actions ethical? Explain.

basic decision analysis using cvp cambridge inc is considering the introduction of a 690902

Aug 30, 2021 | Uncategorized

Basic Decision Analysis Using CVP

Cambridge, Inc., is considering the introduction of a new calculator with the following price and cost characteristics:

Required

a. What number must Cambridge sell per month to break even?

b. What number must Cambridge sell to make an operating profit t of $16,000 for the month?

basic decision analysis using cvp cambridge inc is considering the introduction of a 690903

Aug 30, 2021 | Uncategorized

Basic Decision Analysis Using CVP

Cambridge, Inc., is considering the introduction of a new calculator with the following price and cost characteristics:

Assume that the projected number of units sold for the year is 7,000. Consider requirements ( b ), ( c ), and ( d ) independently of each other.

Required

a. What will the operating profit be?

b. What is the impact on operating profit t if the sales price decreases by 10 percent? Increases by  20 percent?

c. What is the impact on operating profit t if variable costs per unit decrease by 10 percent? Increase by 20 percent?

d. Suppose that fixed costs for the year are 10 percent lower than projected, and variable costs per unit are 10 percent higher than projected. What impact will these cost changes have on operating profit t for the year? Will profit t go up? Down? By how much?

basic decision analysis using cvp balance inc is considering the introduction of a n 690904

Aug 30, 2021 | Uncategorized

Basic Decision Analysis Using CVP

Balance, Inc., is considering the introduction of a new energy snack with the following price and cost characteristics:

Required

a. What number must Balance sell per month to break even?

b. What number must Balance sell per month to make an operating profit of $100,000?

analysis of cost structure foxx company rsquo s cost structure is dominated by varia 690906

Aug 30, 2021 | Uncategorized

Analysis of Cost Structure Foxx Company’s cost structure is dominated by variable costs with a contribution margin ratio of .25 and fixed costs of $100,000. Every dollar of sales contributes 25 cents toward fixed costs and profit t. The cost structure of a competitor, Beyonce, Inc., is dominated by fixed costs with a higher contribution margin ratio of .80 and fixed costs of $400,000. Every dollar of sales contributes 80 cents toward fixed costs and profit t. Both companies have sales of $600,000 per month.

Required

a. Compare the two companies’ cost structures using the format shown in Exhibit 3.5.

b. Suppose that both companies experience a 20 percent increase in sales volume. By how much would each company’s profits increase?

Exhibit 3.5.

using microsoft excel to perform cvp analysis cambridge inc is considering the intro 690908

Aug 30, 2021 | Uncategorized

Using Microsoft Excel to Perform CVP Analysis

Cambridge, Inc., is considering the introduction of a new calculator with the following price and cost characteristics:

Required

Using the Goal Seek function in Microsoft Excel,

a. What number must Cambridge sell to break even?

b. What number must Cambridge sell to make an operating profit t of $6,000 per month?

using microsoft excel to perform cvp analysis balance inc is considering the introdu 690909

Aug 30, 2021 | Uncategorized

Using Microsoft Excel to Perform CVP Analysis

Balance, Inc., is considering the introduction of a new energy snack with the following price and cost characteristics:

Required

Using the Goal Seek function in Microsoft Excel,

a. What number must Balance, Inc., sell to break even?

b. What number must Balance, Inc., sell to make an operating profit t of $8,000 per month?

cvp with income taxes crest industries sells a single model of satellite radio recei 690910

Aug 30, 2021 | Uncategorized

CVP with Income Taxes

Crest Industries sells a single model of satellite radio receivers for use in the home. The radios have the following price and cost characteristics:

Crest is subject to an income tax rate of 40 percent.

Required

a. How many receivers must Crest sell every month to break even?

b. How many receivers must Crest sell to earn a monthly operating profit t of $90,000 after taxes?

multiproduct cvp analysis rio coffee shoppe sells two coffee drinks a regular coffee 690911

Aug 30, 2021 | Uncategorized

Multiproduct CVP Analysis

Rio Coffee Shoppe sells two coffee drinks, a regular coffee and a latte. The two drinks have the following prices and cost characteristics:

The monthly fixed costs at Rio are $6,720. Based on experience, the manager at Rio knows that the store sells 60 percent regular coffee and 40 percent lattes.

Required

How many cups of regular coffee and lattes must Rio sell every month to break even?

multiproduct cvp analysis mission foods produces two flvors of tacos chicken and fis 690912

Aug 30, 2021 | Uncategorized

Multiproduct CVP Analysis

Mission Foods produces two flvors of tacos, chicken and fish, with the following characteristics:

Required

The total filed costs for the company are $117,000.

a. What is the anticipated level of profits for the expected sales volumes?

b. Assuming that the product mix would be 40 percent chicken and 60 percent fish at the breakeven point, compute the break even volume.

c. If the product sales mix were to change to four chicken tacos for each fish taco, what would be the new break even volume?

cvp analysis and price changes argentina partners is concerned about the possible ef 690913

Aug 30, 2021 | Uncategorized

CVP Analysis and Price Changes

Argentina Partners is concerned about the possible effects of inflation on its operations. Presently, the company sells 60,000 units for $30 per unit. The variable production costs are $15, and fixed costs amount to $700,000. Production engineers have advised management that they expect unit labor costs to rise by 15 percent and unit materials costs to rise by 10 percent in the coming year. Of the $15 variable costs, 50 percent are from labor and 25 percent are from materials. Variable  overhead costs are expected to increase by 20 percent. Sales prices cannot increase more than 10 percent. It is also expected that fixed costs will rise by 5 percent as a result of increased taxes and other miscellaneous fixed charges.

The company wishes to maintain the same level of profit in real dollar terms. It is expected  that to accomplish this objective, profits must increase by 6 percent during the year.

Required

a. Compute the volume in units and the dollar sales level necessary to maintain the present profit t level, assuming that the maximum price increase is implemented.

b. Compute the volume of sales and the dollar sales level necessary to provide the 6 percent increase in profits, assuming that the maximum price increase is implemented.

c. If the volume of sales were to remain at 60,000 units, what price increase would be required to attain the 6 percent increase in profits?

cvp analysis and price changes scholes systems supplies a particular type of office 690914

Aug 30, 2021 | Uncategorized

CVP Analysis and Price Changes

Scholes Systems supplies a particular type of office chair to large retailers such as Target, Costco, and Office Max. Scholes is concerned about the possible effects of inflation on its operations. Presently, the company sells 80,000 units for $60 per unit. The variable production costs are $30, and fixed costs amount to $1,400,000. Production engineers have advised management that they expect unit labor costs to rise by 15 percent and unit materials costs to rise by 10 percent in the coming year. Of the $30 variable costs, 50 percent are from labor and 25 percent are from materials. Variable overhead costs are expected to increase by 20 percent. Sales prices cannot increase more than 10 percent. It is also expected that fixed costs will rise by 5 percent as a result of increased taxes and other miscellaneous fixed charges.

The company wishes to maintain the same level of profit t in real dollar terms. It is expected that to accomplish this objective, profits must increase by 6 percent during the year.

Required

a. Compute the volume in units and the dollar sales level necessary to maintain the present profit t level, assuming that the maximum price increase is implemented.

b. Compute the volume of sales and the dollar sales level necessary to provide the 6 percent  increase in profits, assuming that the maximum price increase is implemented.

c. If the volume of sales were to remain at 80,000 units, what price change would be required to attain the 6 percent increase in profits?

cvp analysis mdash missing data durant manufacturers has performed extensive studies 690915

Aug 30, 2021 | Uncategorized

CVP Analysis—Missing Data

Durant Manufacturers has performed extensive studies on its costs and production and estimates the following annual costs based on 150,000 units (produced and sold):

Required

a. Compute Durant’s unit selling price that will yield a profit t of $300,000, given sales of 150,000 units.

b. Compute Durant’s dollar sales that will yield a projected 20 percent profit t on sales, assuming variable costs per unit are 60 percent of the selling price per unit and fixed costs are $420,000.

c.Of the $30 variable costs, 50 percent are from labor and 25 percent are from materials. Variable overhead costs are expected to increase by 20 percent. Sales prices cannot increase more than 10 percent.

basic concepts the following data apply to the provision of psychological testing se 690858

Aug 30, 2021 | Uncategorized

Basic Concepts

The following data apply to the provision of psychological testing services.

Required

Give the amount for each of the following (one unit _ one test):

a. Variable production cost per unit.

b. Variable cost per unit.

c. Full cost per unit.

d. Full absorption cost per unit.

e. Prime cost per unit.

f. Conversion cost per unit.

g. Contribution margin per unit.

h. Gross margin per unit.

i. Suppose the number of units decreases to 800 tests per month, which is within the relevant range. Which parts of (a) through ( h ) will change? For each amount that will change, give the  new amount for a volume of 800 tests.

cost allocation mdash ethical issues in one of its divisions an aircraft components 690860

Aug 30, 2021 | Uncategorized

Cost Allocation—Ethical Issues

In one of its divisions, an aircraft components manufacturer produces experimental navigational  equipment for spacecraft and for private transportation companies. Although the products are essentially identical, they carry different product numbers. The XNS 12 model is sold to a government agency on a cost reimbursed basis. In other words, the price charged to the government is equal to the computed cost plus a fixed fee. The JEF 3 model is sold to the private transportation companies on a competitive basis. The product development cost, common to both models, must be allocated to the two products in order to determine the cost for setting the price of the XNS 12.

Required

a. How would you recommend the product development cost be allocated between the two products?

b. What incentives do managers have to allocate product development costs? Why?

prepare statements for a service company chuck rsquo s brokerage service cbs is a di 690863

Aug 30, 2021 | Uncategorized

Prepare Statements for a Service Company

Chuck’s Brokerage Service (CBS) is a discount financial services firm offering clients investment advice, trading services, and a variety of mutual funds for investment. Chuck has collected the following  information for October:

Required

Prepare an income statement for October for CBS.

prepare statements for a manufacturing company the following balances are from the a 690866

Aug 30, 2021 | Uncategorized

Prepare Statements for a Manufacturing Company

The following balances are from the accounts of Secol Machining Company:

Direct materials purchased during the year amount to $299,000, and the cost of goods sold for the year was $1,086,200.

Required

Reconstruct a cost of goods sold statement and fill in the following missing data:

a. Cost of direct materials used during the year.

b. Cost of goods manufactured during the year.

c. Total manufacturing costs incurred during the year.

prepare statements for a merchandising company the cost accountant for sun amp surf 690867

Aug 30, 2021 | Uncategorized

Prepare Statements for a Merchandising Company

The cost accountant for Sun & Surf Apparel Shop has compiled the following information for last year’s operations: