Acct Info Decision Making II
Acct Info Decision Making II ACCT 202
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This 17 page Class Notes was uploaded by Mrs. Rebeka Ankunding on Friday October 30, 2015. The Class Notes belongs to ACCT 202 at The University of Tennessee - Martin taught by Ronald Kilgore in Fall. Since its upload, it has received 11 views. For similar materials see /class/232382/acct-202-the-university-of-tennessee-martin in Accounting at The University of Tennessee - Martin.
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Date Created: 10/30/15
Chapter 1 Management Accounting and Corporate Governance Problem 1 19A The following horizontal financial statements model is not required in the problem It is provided to show the process of computation ll llll II III Record accumulated depreciation as negative amounts under these columns Chapter 1 Management Accounting and Corporate Governance Problem 1 19A continued a Direct materials 18000 Direct labor 16000 Manufacturing overhead 8000 Total product cost 42000 Divided by 5000 Average cost per unit 840 Depreciation of manufacturing equipment 28000 4000 3 8000 Cost of goods sold 840 x 4000 33600 Ending inventory 840 x 5000 4000 8400 400 400 54000 8400 20000 8000 90400 Net cash flow from operating activities 12000 16000 18000 48000 2000 Net cash flow from investing activities 10000 28000 38000 Chapter 1 Management Accounting and Corporate Governance Problem 120A Record accumulated depreciation as negative amounts under these columns Chapter 1 Management Accounting and Corporate Governance Problem 122A a Financial Statements Chekwa Company Income Statement Balance Sheet Statement of Cash Flows Sales Revenue 48000 Assets Operating Activities Operating 72000 Cash2 12000 In ow from Revenue 48000 Expenses1 Net Loss 24000 Total Assets 12000 Out ow for Expenses1 72000 Net Out ow from Operat Act 24000 Equity Investing Activities 0 Common Stk 36000 Financing Activities 36000 Retained Earnings 24000 Net Change in Cash 12000 Total Equity 12000 Beginning Cash Balance 0 Ending Cash Balance 12000 1 The entire 72000 expenditure is a period cost that is recognized as an expense 2 The cash balance will be the same for all three scenarios The company always acquires 36000 of capital earns 48000 and spends 72000 thereby leaving a 12000 ending balance Do not be confused by the fact that the 72000 is used to pay for different things under the alternative scenarios The cash outflow is always 72000 regardless of what is bought Chapter 1 Management Accounting and Corporate Governance Problem 122A continued b Financial Statements Chekwa Company Income Statement Balance Sheet Statement of Cash Flows Sales Revenue 48000 Assets Operating Activities Depreciation Exp1 18000 Cash 12000 In ow from Rev 48000 Net Income 30000 Rental Equipment 72000 Investing Activities Accumulated Dep1 18000 Out ow to Purchase Auto 72000 Total Assets 66000 Financing Activities Issue Stock 36000 Equity Net Change in Cash 12000 Common Stk 36000 Beginning Cash Balance 0 Retained Earnings 30000 Ending Cash Balance 12000 Total Equity 66000 1 The 72000 was used to purchase automobiles that had 4year useful lives with no salvage value The depreciation charge is 18000 ie 72000 0 4 years Since the solution applies to the first year of operation the amount in the accumulated depreciation account and the amount in depreciation expense are equal Chapter 1 Management Accounting and Corporate Governance Problem 122A continued C 1 2 d Financial Statements Chekwa Company Balance Sheet Statement of Cash Flows Income Statement Sales Revenue 48000 Assets Operating Activities Cost of Goods Sold1 32400 Cash 12000 In ow from Rev 48000 Gross Margin 15600 Finished Goods 10800 Out ow for Inventory 33600 Inv Administrative Expense2 2400 Mfg Equipment 36000 Out ow for Admin Exp 2400 Net Income 13200 Accumulated Dep1 9600 Net In ow from Operating Act 12000 Total Assets 49200 Investing Activities Out ow to Purchase Equip 36000 Financing Activities Equity Issue Stock 36000 Common Stk 36000 Net Change in Cash 12000 Retained Earnings 13200 Beginning Cash Balance 0 Total Equity 49200 Ending Cash Balance 12000 The product costs are 9600 for materials 24000 for labor and 9600 for overhead The overhead cost results from depreciation on the manufacturing equipment ie 36000 cost 7200 salvage 3 year life Accordingly total product costs amount to 43200 ie 9600240009600 The cost per unit is 2160 ie 43200 2000 units Since 1500 units were sold ending inventory will be composed of 500 units ie 2000 units 1500 units The amount of cost of goods sold is 32400 ie 2160 x 1500 units The balance in ending inventory would be 10800 ie 2160 x 500 units Salaries of sales and administrative employees It is highly unlikely that Chekwa can determine the exact cost of any particular unit of product Materials and labor usage will differ slightly between units of the same product Cost averaging smooths these differences across units of the same product 16 Chapter 2 Cost Behavior Operating Leverage and Profitability Analysis Problem 217A 21 Chapter 2 Cost Behavior Operating Leverage and Profitability Analysis Problem 218A a No of Houses Cleaned a I Total expected rental costb 600 600 600 IAverage per unit rental cost b a 60 30 20 I I l i l I Type of cost Since the total rental cost remains constant at 600 re gardless of the number of houses cleaned it is a fixed cost b No of Houses Cleaned a Average per unit labor cost b 50 50 50 ITotallaborcostaxb 500 1000 1500 I i a 5 I Type of cost Since the total labor cost increases proportionately with the number of houses cleaned it is a variable cost c No of Houses Cleaned a Average per unit supplies cost b 5 5 5 ITotal cost of supplies a x b 50 100 150 I 39 3 39 I Type of cost Since the total cost of supplies increases proportionately with the number of houses cleaned supplies cost is a variable cost d Total rental cost 600 600 600 Total labor cost 1 1 Total cost of 100 Total cost 1 700 e The amount of total cost shown below was determined in part d No of Houses Cleaned a Total cost b 1150 I ICost per unitba 115 85 75 22 Chapter 2 Cost Behavior Operating Leverage and Profitability Analysis The decline in the cost per unit is caused by the fixed cost behavior that is applicable to the equipment rental f Ms Clement means average cost per unit It would be virtually im possible to determine actual cost per unit Consider these ques tions Exactly how much window cleaner was used in one house versus another Did the maids stay in one house a few minutes longer than another Obviously it would not be practical to deter mine the exact cost of cleaning any specific house The average cost is much easier to determine and more practical for pricing purposes 23 Chapter 2 Cost Behavior Operating Leverage and Profitability Analysis Problem 219A a If a branch fails to process at least 60000 transactions the branch is closed Branches that process more than 90000 transactions are transferred out of the startup division Accordingly the relevant range is 60000 to 90000 transactions b No0fTransactions a 60000 700005 800002 90000 Total teller cost b 39 I IAverage per unit teller cost ba 150 129 113 100 I I l 39 i I Type of Cost Since the total teller cost remains constant at 90000 regardless of the number of transactions processed it is a fixed cost c No of Branches Teller costs per branch b 90000 900 90000 90000 Total teller cost lagging 900000 1350000 1800000 2250000l Type of cost Since the total teller cost increases proportionately with the number of branches in operation the cost is a variable cost Problem 221A 2 4 Chapter 2 Cost Behavior Operating Leverage and Profitability Analysis Part 1 a Since the total cost remains constant at 5000 regardless of how many students attend the course the cost of instruction is a fixed cost b c and d Number of Students 18 Chane 20 Changi 22 2 Revenue 400 per student 7200 c10 8000 gt10gt 8800 Cost of instruction Fixed 5000 5000 5000 Profit 2200 c27lt 3000 27gt 3800 Percentage change in revenue i800 8000 110 Percentage change in profit i800 3000 127 Operating leverage caused the percentage increase in profitability to be greater than the percentage increase in revenue Since the fixed costs have been covered and no variable costs exist each additional dollar of revenue contributes directly to additional profitability D Part 2 f Since the total cost changes proportionately with changes in the number of students the cost of instruction is a variable cost h and i 1 Percentage change in revenue i800 8000 110 Percentage change in profit i300 3000 110 j Since costs as well as revenue change in direct proportion to changes in the number of students attending the course the change in profit is proportional to the change in revenue 25 Chapter 2 Cost Behavior Operating Leverage and Profitability Analysis Part 3 k Number of Students Attem tin to Attend 18 Number of students accepted a 18 20 Total cost of workbooks b20 x 25 500 500 500 Cost per student b a 2778 25 25 Since the workbooks must be produced in advance the total cost is incurred before any workbook is sold Subsequently the number of workbooks sold does not affect the total cost This is therefore a fixed cost KTS faces the risk of producing too many or too few workbooks When too many are produced the company will incur expenses due to waste When too few are produced the company will miss the opportunity to earn additional profits Also KTS faces risk asso ciated with incurring holding costs such as storage maintenance and interest A justintime inventory system would produce goods as needed to meet sales demand Accordingly there would be no risk of over or under production Further there would be no stockpiling of invento ry therefore inventory holding costs such as storage maintenance and interest would be avoided 26 Chapter 2 Cost Behavior Operating Leverage and Profitability Analysis Problem 222A a Tuition Revenue 20 x 360 7200 39 7200 Total Cost of Instruction 6000 20 x 300 6000 Net Income 1200 1200 b I Tuition Revenue 40 x 200 8000 Total Cost of Instruction fixed 6000 Net Income 2000 C I E i i Tuition Revenue 40 x 200 8000 Total Cost of Instruction Variable 40 x 300 12000 Net income Loss 4000 El d The strategy in Part b produced a profit because East s cost of in struction is fixed Accordingly the increase in the number of stu dents did not increase the total cost of instruction In contrast the cost of instruction for West is variable As a result when the number of students increased the total cost of instruction increased as well Since the increase in revenue was not sufficient to cover the increase in the cost of instruction the strategy in Part c produced a loss e Tuition Revenue 15 x 360 5400 5400 Total Cost of Instruction 6000 15 x 300 4500 Net Income Loss 600 900 27 Chapter 2 Cost Behavior Operating Leverage and Profitability Analysis Problem 222A continued f When volume is insufficient to produce revenue that is above the level of fixed cost the enterprise will produce a loss This condition is demonstrated in Part e above The loss could be avoided if the cost of instruction were variable Accordingly fixed costs are not always better than variable costs When the revenue per unit is below the variable cost per unit the enterprise will incur additional losses for each unit produced and sold This condition is depicted in Part c above As demonstrated in Part b lower per unit revenue can be offset by increases in sales vo lume when costs are fixed Accordingly variable costs are not al ways better than fixed costs 28 Chapter 2 Cost Behavior Operating Leverage and Profitability Analysis Problem 224A Total cost a 39 1600 1600 1600 1600 1600 1 600 1 600 No people b 500 400 100 500 900 1000 600 Per unita b 320 400 1600 320 178 160 267 Cost per unit 2 320 400 1600 320 178 2 160 E 267 Markup 300 300 300 300 300 300 300 Ticket price 620 700 1900 620 478 460 567 c A more rational pricing policy would base the computation of aver age cost on weekly totals Total rental cost is 11200 ie 1600 x 7 days Total expected attendance for the week is 4000 Average cost per ticket sold is 280 ie 11200 4000 tickets Given a desired profit of 300 per ticket the price would be set at 580 ie 280 300 d As indicated in Part b prices based on daily attendance would vary from a low of 460 per ticket to a high of 1900 per ticket This pricing structure is unrealistic It suggests that higher prices should be charged when demand is low If implemented the pricing policy would likely drive the small number of Wednesday night customers away Very few people would be interested in 1900 movie tickets 29 Chapter 2 Cost Behavior Operating Leverage and Profitability Analysis Problem 227A a December March October November Total Cost 30000 24000 18000 12000 0 800 1600 2400 3200 4000 of Cabinets produced Chapter 2 Cost Behavior Operating Leverage and Profitability Analysis Problem 227A continued b The total cost of producing 2000 units should be about 29000 c of Cabinets Total Cost Produced High 32500 3600 Low 16500 400 16000 3200 500 per cabinet variable cost Fixed cost 32500 500 x 3600 14500 Total cost 500 x Number of cabinets 14500 Total Cost 30000 24000 18000 12000 0 800 1600 2400 3200 4000 of Cabinets produced
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