管理会计 chapter 11.doc

Practice Eleven1The managers of a firm are in the process of deciding whether to accept or reject a special offer for one of its products. A cost that is not relevant in their decision is the:A）common fixed overhead that will continue if the special offer is not accepted.B）direct materials.C）fixed overhead that will be avoided if the special offer is accepted.D）variable overhead.2Costs that are always relevant in decision-making are:A）avoidable costs. B）fixed costs. C）sunk costs. D）variable costs.3The Crete Corporation has 2,000 obsolete units of a product that are carried in inventory at a manufacturing cost of $40,000. If the units are remachined for $10,000, they could be sold for $18,000. Alternatively, the units could be sold for scrap for $2,000. Which alternative is more desirable and what are the total relevant costs for that alternative?A）Remachine; $10,000. B）Remachine; $50,000.C）Scrap; $40,000. D）Scrap; $18,0004The Calculex Company has 800 obsolete calculators that are carried in inventory at a total cost of $53,400. If these calculators are upgraded at a total cost of $20,000, they can be sold for a total of $60,000. As an alternative, the calculators can be sold in their present condition for $22,400. The sunk cost in this situation is:A）$0 B）$20,000. C）$22,400. D）$53,400.5A study has been conducted to determine if one of the departments of Marigold Company should be discontinued. The contribution margin in the department is $150,000 per year. Fixed expenses charged to the department are $195,000 per year. It is estimated that $120,000 of these fixed expenses could be eliminated if the department is discontinued. These data indicate that if the department is discontinued, Marigolds overall net operating income would:A）decrease by $30,000 per year. B）increase by $30,000 per year.C）decrease by $75,000 per year. D）increase by $75,000 per year.6Bushen Company produces 3,000 parts per year, which are used in the assembly of one of its products. The unit product cost of these parts is:Variable manufacturing cost$36Fixed manufacturing cost27Unit product cost$63The part can be purchased from an outside supplier at $60 per unit. If the part is purchased from the outside supplier, two thirds of the fixed manufacturing costs can be eliminated. The annual impact on the companys net operating income as a result of buying the part from the outside supplier would be:A）$9,000 increase. B）$9,000 decrease. C）$18,000 decrease. D）$18,000 increase.7The following are the Wardley Companys unit costs of making and selling an item at a volume of 30,000 units per month (which represents the companys capacity):Manufacturing: Direct materials$3.00 Direct labor 6.00 Variable overhead1.00 Fixed overhead 2.00Selling and administrative: Variable 4.00 Fixed 5.00Assume the company has 300 units left over from last year which have small defects and which will have to be sold at a reduced price as scrap. This would have no effect on the companys other sales. The variable selling and administrative costs would have to be incurred to sell the defective units. What cost is relevant as a guide for setting a minimum price on these defective units?A）$4.00 B）$12.00 C）$16.00 D）$21.008Reddy Corporation manufactures coolers. The company can manufacture 600,000 coolers a year at a variable cost of $1,500,000 and a fixed cost of $900,000. Based on managements predictions for next year, 480,000 coolers will be sold at the regular price of $10.00 each. In addition, a special order was placed for 120,000 coolers to be sold at a 40% discount off the regular price. Total fixed costs would be unaffected by this order. By what amount would the companys net operating income be increased as a result of the special order?A）$240,000 B）$300,000 C）$420,000 D）$720,0009Hopkins Company sells its product for $63 per unit. The companys unit product cost based on the full capacity of 600,000 units is as follows:Direct materials$12Direct labor 15Manufacturing overhead 18 Unit product cost$ 45A special order offering to buy 60,000 units has been received from a foreign distributor. The only selling costs that would be incurred on this order would be $9 per unit for shipping. The company has sufficient idle capacity to manufacture the additional units. One-third of the manufacturing overhead is fixed and would not be affected by this order. Assume that direct labor is an avoidable cost in this decision. In negotiating a price for the special order, the minimum acceptable selling price per unit should be:A） $42. B） $45. C）$48. D）$54.10Consider the following production and cost data for two products, A and B:Product AProduct BContribution margin per unit$260$240Machine set-ups needed per unit20 set-ups16 set-upsThe company can only perform 130,000 machine set-ups each period due to limited skilled labor and there is unlimited demand for each product. What is the largest possible total contribution margin that can be realized each period?A）$1,690,000. B）$1,950,000. C）$1,820,000. D）$3,640,000.11A study has been conducted to determine if one of the departments of Lucy Company should be discontinued. The contribution margin in the department is $100,000 per year. Fixed expenses charged to the department are $130,000 per year. It is estimated that $80,000 of these fixed expenses could be eliminated if the department is discontinued. These data indicate that if the department is discontinued, Lucys overall net operating income would:A）decrease by $20,000 per year. B）increase by $20,000 per year.C）decrease by $50,000 per year. D）increase by $50,000 per year.12Brown Company produces 2,000 parts per year, which are used in the assembly of one of its products. The unit product cost of these parts is:Variable manufacturing cost$32Fixed manufacturing cost18Unit product cost$50The part can be purchased from an outside supplier at $40 per unit. If the part is purchased from the outside supplier, two thirds of the fixed manufacturing costs can be eliminated. The annual impact on Browns net operating income as a result of buying the part from the outside supplier would be:A）$4,000 increase. B）$4,000 decrease. C）$8,000 increase. D）$8,000 decrease.13The following are the Goodman Companys unit costs of making and selling an item at a volume of 20,000 units per month (which represents the companys capacity):Manufacturing: Direct materials$2.00 Direct labor 4.00 Variable overhead 1.00 Fixed overhead 1.80Selling and administrative: Variable 3.00 Fixed 1.20Assume the company has 100 units left over from last year which have small defects and which will have to be sold at a reduced price as scrap. This would have no effect on the companys other sales. The variable selling and administrative costs would have to be incurred to sell the defective units. What cost is relevant as a guide for setting a minimum price on these defective units?A） $3.00 B）$7.00 C）$10.00 D）$13.0014Chapman Company sells its product for $42 per unit. The companys unit product cost based on the full capacity of 400,000 units is as follows:Direct materials$ 8Direct labor 10Manufacturing overhead 12 Unit product cost$ 30A special order offering to buy 40,000 units has been received from a foreign distributor. The only selling costs that would be incurred on this order would be $6 per unit for shipping. The company has sufficient idle capacity to manufacture the additional units. Two-thirds of the manufacturing overhead is fixed and would not be affected by this order. Assume that direct labor is an avoidable cost in this decision. In negotiating a price for the special order, the minimum acceptable selling price per unit should be:A）$28. B）$30. C）$32. D）$36.PROBLEM 1 Dropping or Retaining a FlightProfits have been decreasing for several years at Pegasus Airlines. In an effort to improve the companys performance, consideration is being given to dropping several flights that appear to be unprofitable. A typical income statement for one such flight (flight 482) is given below (per flight):Ticket revenue (200 seats 50% occupancy $240 ticket price)$24,000100.0%Less variable expenses ($60 per person)6,000 25.0 Contribution margin18,00075.0%Less flight expenses:Salaries, flight crew5,100Flight promotion700Depreciation of aircraft1,600Fuel for aircraft6,000Liability insurance4,200Salaries, flight assistants800Baggage loading and flight preparation1,400Overnight costs for flight crew and assistants at destination400Total flight expenses20,200Net operating loss$(2,200)The following additional information is available about flight 482:a.Members of the flight crew are paid fixed annual salaries, whereas the flight assistants are paid by the flight.b.One-third of the liability insurance is a special charge assessed against flight 482 because in the opinion of the insurance company, the destination of the flight is in a “high-risk” area. The remaining two-thirds would be unaffected by a decision to drop flight 482.c.The baggage loading and flight preparation expense is an allocation of ground crews salaries and depreciation of ground equipment. Dropping flight 482 would have no effect on the companys total baggage loading and flight preparation expenses.d.If flight 482 is dropped, Pegasus Airlines has no authorization at present to replace it with another flight.e.Depreciation of aircraft is due entirely to obsolescence. Depreciation due to wear and tear is negligible.f.Dropping flight 482 would not allow Pegasus Airlines to reduce the number of aircraft in its fleet or the number of flight crew on its payroll.Required:1.Prepare an analysis showing what impact dropping flight 482 would have on the airlines profits.2.The airlines scheduling officer has been criticized because only about 50% of the seats on Pegasus Airlines flights are being filled compared to an average of 60% for the industry. The scheduling officer has explained that Pegasus Airlines average seat occupancy could be improved considerably by eliminating about 10% of the flights, but that doing so would reduce profits. Explain how this could happen.PROBLEM 2 Make or Buy a ComponentTroy Engines, Ltd., manufactures a variety of engines for use in heavy equipment. The company has always produced most of the parts for its engines, including all of the pistons. An outside supplier has offered to sell one type of piston to Troy Engines, Ltd., at a cost of $39.00 per unit. To evaluate this offer, Troy Engines has gathered the following information relating to its own cost of producing the piston internally:30,000 UnitsPer Unitper YearDirect materials$21$630,000Direct labor6180,000Variable manufacturing overhead4120,000Fixed manufacturing overhead, traceable9*270,000Fixed manufacturing overhead, allocated12360,000Total cost$52$1,560,000 *One-third supervisory salaries; two-thirds depreciation of special equipment (no resale value).Required:1.Assuming that the company has no alternative use for the facilities that are now being used to produce the pistons, should the outside suppliers offer be accepted? Show all computations.2.Suppose that if the pistons were purchased, Troy Engines, Ltd., could use the freed capacity to launch a new product. The segment margin of the new product would be $250,000 per year. Should Troy Engines, Ltd., accept the offer to buy the pistons for $39.00 per unit? Show all computations.PROBLEM 3 Accept or Reject a Special OrderPolaski Company manufactures and sells a single product called a Ret. Operating at capacity, the company can produce and sell 20,000 Rets per year. Costs associated with this level of production and sales are given below: UnitTotalDirect materials$12.00$240,000Direct labor6.00120,000Variable manufacturing overhead4.0080,000Fixed manufacturing overhead7.00140,000Variable selling expense3.0060,000Fixed selling expense4.0080,000Total cost$36.00$720,000The Rets normally sell for $42.00 each. Fixed manufacturing overhead is constant at $140,000 per year within the range of 15,000 through 20,000 Rets per year.Required:1.Assume that due to a recession, Polaski Company expects to sell only 15,000 Rets through regular channels next year. A large retail chain has offered to purchase 5,000 Rets if Polaski Company is willing to accept a 15% discount off the regular price. There would be no sales commissions on this order; thus, variable selling expenses would be slashed by 80%. However, Polaski Company would have to purchase a special machine to engrave the retail chains name on the 5,000 units. This machine would cost $5,000. Polaski Company has no assurance that the retail chain will purchase additional units in the future. Determine the impact on profits next year if this special order is accepted.2.Refer to the original data. Assume again that Polaski Company expects to sell only 15,000 Rets through regular channels next year. The U.S. Army would like to make a one-time-only purchase of 5,000 Rets. The Army would pay a fixed fee of $7.00 per Ret, and it would reimburse Polaski Company for all costs of production (variable and fixed) associated with the units. Since the Army would pick up the Rets with its own trucks, there would be no variable selling expenses associated with this order. If Polaski Company accepts the order, by how much will profits increase or decrease for the year?3.Assume the same situation as that described in (2) above, except that the company expects to sell 20,000 Rets through regular channels next year. Thus, accepting the U.S. Armys order would require giving up regular sales of 5,000 Rets. If the Armys order is accepted, by how much will profits increase or decrease from what they would be if the 5,000 Rets were sold through regular channels?PROBLEM 4 Dropping or Retaining a SegmentAdams County Senior Services is a nonprofit organization devoted to providing essential services to seniors who live in their own homes within the Adams County area. Three services are provided for seniorshome nursing, meals on wheels, and housekeeping. In the home nursing program, nurses visit seniors on a regular basis to check on their general health and to perform tests ordered by their physicians. The meals on wheels program delivers a hot meal once a day to each senior enrolled in the program. The housekeeping service provides weekly housecleaning and maintenance services. Data on revenue and expenses for the past year follow:Home NursingMeals on WheelsHouse-keepingTotalSales$290,000$440,000$270,000$1,000,000Variable expenses130,000220,000180,000530,000Contribution margin160,000220,00090,000470,000Fixed expenses:Depreciation9,00037,00018,00064,000Liability insurance21,0009,00016,00046,000Program administrators salaries42,00039,00038,000119,000General administrative overhead*66,700101,20062,100230,000Total fixed expenses138,700186,200134,100459,000Net operating income (loss)$21,300$33,800$(44,100) $11,000*Allocated on the basis of program revenuesThe head administrator of Adams County Senior Services, Mariam Santoya, is concerned about the organizations finances and considers the net operating income of $11,000 last year to be razor-thin. (Last years results were very similar to the results for previous years and are representative of what would be expected in the future.) She feels that the organization should be building its financial reserves at a more rapid rate in order to prepare for the next inevitable recession. After seeing the above report, Ms. Santoya asked for more information about the financial advisability of perhaps discontinuing the housekeeping program.The depreciation in housekeeping is for a small van that is used to carry the housekeepers and their equipment from job to job. If the program were discontinued, the van would be donated to a charitable organization. None of the general administrative overhead would be avoided if the housekeeping program were dropped, but the liability insurance and the salary of the program administrator would be avoided.Required:1.Should the housekeeping program be discontinued? Explain. Show computations to support your answer.2.Recast the above data in a format that would be more useful to management in assessing the long-run financial viability of the various services.PROBLEM 5 Utilization of a Constrained ResourceThe Walton Toy Company manufactures a line of dolls and a doll dress sewing kit. Demand for the dolls is increasing, and management requests assistance from you in determining an economical sales and production mix for the coming year. The company has provided the following data: ProductDemand Next Year (units)Selling Price per UnitDirect MaterialsDirect LaborDebbie80,000$34.40$4.80$ 8.00Trish50,00018.001.005.00Sarah40,00039.806.2012.00Mike45,00028.001.808.00Sewing kit340,00020.002.904.00The following additional information is available:a.The companys plant has a capacity of 150,000 direct labor-hours per year on a single-shift basis. The companys present employees and equipment can produce all five products.b.The direct labor rate of $20.00 per hour is expected to r