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Principles of Managerial Accounting

by: Jaylon Lebsack

Principles of Managerial Accounting ACG 2071

Marketplace > University of Central Florida > Accounting > ACG 2071 > Principles of Managerial Accounting
Jaylon Lebsack
University of Central Florida
GPA 3.77

Verner Smith

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Verner Smith
Class Notes
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This 8 page Class Notes was uploaded by Jaylon Lebsack on Thursday October 22, 2015. The Class Notes belongs to ACG 2071 at University of Central Florida taught by Verner Smith in Fall. Since its upload, it has received 36 views. For similar materials see /class/227572/acg-2071-university-of-central-florida in Accounting at University of Central Florida.

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Date Created: 10/22/15
ACG 2071 Chapter 13 S Smith Sample Questions 1 Tom s Tire Company is considering dropping one of the ten models of tires it manufactures and sells Sales of a special whiteraised truck tire have been disappointing and based on the latest financial information the tires appear to be losing money WhiteLetter All Other Truck Tires Tires Total Sales 15500 150000 165500 LessDirect Materials 8000 50600 58600 Direct Labor 2000 30000 32000 Variable OH 1 000 12 000 13 000 Contribution Margin 4500 57400 61900 Less Fixed Overhead M 21 000 28 000 Net Income 2500 36400 33900 If the whiteletter truck tires are dropped from the product line 5000 of the fixed costs allocated to the line would be reallocated to other product lines What would be the effect on net income if the whiteletter truck tires are dropped from the product line A 2500 decrease B 2500 increase C 5000 increase D 5000 decrease Correct answer is A Lost Revenue 15500 Avoidable Costs Variable Costs 11000 Fixed Costs 2000 Net effect 2500 2 Refer to the previous question What would be the effect on net income if the total fixed costs of 7000 could be eliminated by discontinuing the white letter tire line A 2500 decrease B 2500 increase C 7000 increase D 5000 decrease Correct answer is B Lost Revenue 15500 Avoidable Costs Variable Costs 11000 Fixed Costs 7000 Net effect 2500 3 Iron Mountain which has excess capacity received a special order for 2000 units at a price of 12 per unit Currently production and sales are budgeted for 10000 units without considering the special order Budget information for the current year is as follows Sales 160000 Variable Expenses 100000 Fixed Expenses 20000 If the special order is accepted the company s income will A Increase by 4000 B Remain the same C Decrease by 4000 D Decrease by 8000 Correct answer is A New Sales Received for Special Order 12 x 2000 24000 Less Additional Costs to Provide Special Order10 x 2000 20000 Increase to Income 4000 Note The additional costs are the additional variable costs Fixed costs do not change in total for the special order To calculate the variable cost per unit take total variable costs of 100000 10000 units 10 per unit 4 Sound Inc reported the following results from sale of 24000 radios Sales 528000 Variable manufacturing costs 288000 Fixed manufacturing costs 120000 Variable selling costs 52800 Fixed administrative costs 35200 Rhythm Company has offered to purchase 3000 radios at 16 each There would be no variable selling costs for the purchase What would be the change in net income to Sound if the special order was accepted A Increase by 3000 B Decrease by 3000 C Decrease by 12000 D Increase by 12000 Correct answer is D New Sales Received for Special Order 16 x 3000 48000 Less Additional Costs to Provide Special Order 12 x 3000 36000 Increase to Income 12000 Note The additional costs are the additional variable manufacturing costs Fixed costs do not change in total for the special order and the variable selling costs are speci cally excluded for the special order To calculate the variable cost per unit take total variable costs of 288000 24000 units 12 per unit 5 The term outsourcing is most closely associated with A Special Order decisions B Make or Buy decisions C Sell or Process Further decisions D Decisions involving limited resources Correct answer is B 6 XeBex Company is considering whether to make or buy a component that is used in the production of fax machines The annual cost of producing the 100000 units needed by the company is as follows Traceable variable manufacturing costs 300000 Traceable fixed manufacturing costs 100000 Allocated corporate overhead common costs 50000 If Xebex were to discontinue production of the component traceable fixed manufacturing costs would be reduced by 80 Ignoring any qualitative issues Xebex should buy the 100000 components if the perunit cost of purchasing is less than what amount A 300 B 350 C 380 D 400 Correct answer is C Calculate the cost savings avoidable costs if the company stops making Avoidable costs are Traceable Variable Manufacturing Costs 300000 80 0f the Traceable Fixed manufacturing Costs 80000 Total Avoidable Costs 380000 Per Unit 380000 100000 units 380 If you can buy the component for less than the per unit amount of cost savings then you are better off buying 7 Refer to the previous question The irrelevant costs in the make or buy decision are A 50000 B 70000 C 800000 D 100000 Correct answer is B The costs that don t change Whether you make or buy They would be Common Costs 50000 20 0f Traceable Fixed Costs 20000 Total 70000 8 Berkshire Corporation is composed of five divisions and each division is allocated a share of Berkshire overhead to make division managers aware of the cost of running the corporate headquarters The following information relates to one of the divisions the Norwood Division Sales 6800000 Variable operating costs 4700000 Traceable fixed operating costs 1600000 Allocated corporate overhead 700000 If the Norwood division is closed 100 of the traceable fixed operating costs can be eliminated What will be the impact on Berkshire s overall profitability if the Norwood Division is closed A Increase by 200000 B Decrease by 500000 C Decrease by 1400000 D Decrease by 2100000 Correct answer is B Lost Revenue 6800000 Avoidable Costs Cost Savings Variable Operating Costs 4700000 Traceable Fixed Operating Costs 1600000 Net Impact on closing of Division 500000 9 Lido manufactures two products A and B from a joint process cost 80000 Five thousand pounds of A can be sold at the splitoff point for 20 per pound or processed further at an additional cost of 20000 and then sold for 25 Ten thousand pounds of B can be sold at the splitoff point for 15 per pound or processed further at an additional cost of 20000 and later sold for 16 If Lido decides to process product B further net operating income will A Increase by 10000 B Increase by 20000 C Decrease by 10000 D Decrease by 20000 Correct answer is C Additional Revenue 1615 X 10000 10000 Additional Costs 120000 Net Effect on Operating Income 10000 10 The Caston Corporation has 4000 obsolete units of a product that are carried in inventory at a manufacturing cost of 80000 If the units are remachined for 20000 they could be sold for 36000 Alternatively the units could be sold for scrap for 14000 Which alternative is more desirable and what are the total relevant costs for that alternative A Remachine39 20000 B Remachine39 100000 C Scrap 66000 D Scrap 80000 Correct answer is A Remachining the units will increase net operating income by 16000 or 36000 20000 Scrapping the units will increase net operating income by only 14000 As such remachining the units is the more desirable alternative The relevant cost of the remachining alternative is 20000 which is the cost of remachining the units The manufacturing costs of 80000 are sunk and therefore irrelevant


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