亨格瑞管理会计英文第15版练习答案05

......CHAPTER5COVERAGEOFLEARNINGOBJECTIVESFUNDA-MENTAL

CRITICALTHINKING

CASES,EXCEL,COLLAB.&LEARNING

ASSIGNMENTEXERCISESAND

INTERNETOBJECTIVELO1:Discriminatebetweenrelevantand

MATERIAL

EXERCISES23,30,37,38

PROBLEMS49,50,51,54,57

EXERCISES66irrelevantinformationformakingdecisions.LO2:Applythedecisionprocesstomakebusinessdecisions.

28,29,39LO3:Constructabsorptionandcontribution-margin

A1,B1 24,31,32,33, 4834,35incomestatementsandidentifytheirrelevancefordecisionmaking.LO4:DecidetoacceptA2,B2orrejectaspecialorderusingthecontributionmargintechnique.36,4055,56,6263,64LO5:Explainwhy pricingdecisionsdependonthecharacteristicsofthemarket.25,4258LO6:Identifythefactorsthatinfluencepricingdecisionsinpractice.26,4147,52,5365LO7:Computeatargtsalespricebyvariousapproaches,andcomparetheadvantagesanddisadvantagesoftheseapproaches.43,44LO8:Usetargetgtodecidewhethertoaddanewproduct.27,45,4659,60,61CHAPTER5RelevantInformationforDecisionMakingwithaFocusonPricingDecisions5-A1 (40-50min.) INDEPENDENCEContributionIncomeStatementFortheYearEndedDecember31,(inthousandsofdollars)Sales$2,200LessvariableexpensesDirectmaterial$400Directlabor330Variablemanufacturingoverhead(Schedule1)150Totalvariablemanufacturingcostofgoodssold$880Variablesellingexpenses80Variableadministrativeexpenses25Totalvariableexpenses985Contributionmargin$1,215Lessfixedexpenses:Fixedmanufacturingoverhead(Schedule2)$345Sellingexpenses220Administrativeexpenses119Totalfixedexpenses684Operatingincome$531INDEPENDENCECOMPANYAbsorptionIncomeStatementFortheYearEndedDecember31,(inthousandsofdollars)Sales$2,200Lessmanufacturingcostofgoodssold:Directmaterial$400Directlabor330Manufacturingoverhead(Schedules1and2)495Totalmanufacturingcostofgoodssold1,225Grossmargin$975Less:Sellingexpenses$300Administrativeexpenses144444Operatingincome$531INDEPENDENCECOMPANYSchedulesofManufacturingOverheadFortheYearEndedDecember31,(inthousandsofdollars)Schedule1:VariableCostsSupplies$20Utilities,variableportion40Indirectlabor,variableportion90$150Schedule2:FixedCostsUtilities,fixed$15Indirectlabor,fixedportion50Depreciation200Propertytaxes20Supervisorysalaries60345Totalmanufacturingoverhead$495Changeinrevenue $200,000Changeintotalcontributionmargin:Contributionmarginratioinpartis$1,215÷$2,200=.552Ratiotimesdecreaseinrevenueis.552×$200,000 $Operatingincomebeforechange Newoperatingincome $420,600Thisanalysisisreadilydonebyusingdatafromthecontributionincomestatement.Incontrast,thedataintheabsorptionincomestatementmustbeanalyzedandsplitintovariableandfixedcategoriesbeforetheeffectonoperatingincomecanbeestimated..5-APAGE3.5-APAGE3(25-30min.)....Acontributionformat,whichissimilartoExhibit5-6,clarifiestheanalysis.WithoutSpecialOrderEffectofSpecialOrderWithSpecialOrderUnits2,000,000150,0002,150,000Sales$11,000,000Total$660,000PerUnit$4.401$11,660,000Lessvariableexpenses:Manufacturing$3,500,000$322,500$2.152$3,822,500Selling&administrative800,00035,250.2353835,250Totalvariableexpenses$4,300,000$357,750$2.385$4,647,250Contributionmargin$6,700,000$302,250$2.015$7,002,250Lessfixedexpenses:Manufacturing$3,000,00000.00$3,000,000Selling&administrative2,200,00000.002,200,000Totalfixedexpenses$5,200,00000.00$5,200,000Operatingincome$ 1,500,000$302,250$2.015$1,802,2501$660,000÷150,000=$4.402Regularunitcost=$3,500,000÷2,000,000=$1.75Logo.40Variablemanufacturingcosts$2.153Regularunitcost=$800,000÷2,000,000=$.40Lesssalescommissionsnotpaid(3%of$5.50)(.165)Regularunitcost,excludingsalescommission$.235Operatingincomefromselling7.5%moreunitswouldincreaseby$302,250÷$1,500,000=20.15%.Notealsothattheaveragesellingpriceonregularbusinesswas$5.50.Thefullcost,includingsellingandadministrativeexpenses,was$4.75.The$4.75,plusthe40¢perlogo,lesssavingsincommissionsof.165¢cameto$4.985.Thepresidentapparentlywanted$4.985+.08($4.985)=$4.985+.3988=$5.3838perpen.Moststudentswillprobablycriticizethepresidentforbeingtoostubborn.Thecosttothecompanywastheforgoingof$302,250ofincomeinordertoprotectthecompany'simageandgeneralmarketposition.Whether$302,250wasawiseinvestmentinthefutureisajudgmentthatmanagersarepaidforrendering.Thepurposeofthisproblemistounderscoretheideathatanyofanumberofgeneralformulasmightbeusedthat,properlyemployed,wouldachievethesametargetsellingprices.Desiredsales=$7,500,000+$1,500,000=$9,000,000.Thetargetmarkuppercentagewouldbe:100%ofdirectmaterialsanddirectlaborcostsof$4,500,000.Computationis:($9,000,000-$4,500,000)÷$4,500,000=100%50%ofthefullcostofjobsof$6,000,000.Computationis:($9,000,000-$6,000,000)÷$6,000,000=50%3. [$9,000,000–($3,500,000+$1,000,000+$700,000)]÷$5,200,000=73.08%4. ($9,000,000-$7,500,000)÷$7,500,000=20%5. [$9,000,000–($3,500,000+$1,000,000+$700,000+$500,000)]÷$5,700,000=$3,300,000÷$5,700,000=57.9%Ifthecontractorisunabletomaintaintheseprofitpercentagesconsistently,thedesiredoperatingincomeof$1,500,000cannotbeobtained...5-A4(15-20minutes)1.Revenue($360×70,000)$25,200,000Totalcostoverproductlife16,000,000Estimatedcontributiontoprofit$9,200,000Desired(target)contributiontoprofit40%×$25,200,00010,080,000Deficiencyinprofit$ 880,000Theproductshouldnotbereleasedtoproduction.2.PrevioustotalestimatedcostCostsavingsfromsuppliers$16,000,000.20×.70×$8,000,0001,120,000Revisedtotalestimatedcost$14,880,000Revisedtotalcontributiontoprofit:$25,200,000-$14,880,000$10,320,000Desired(target)contributiontoprofit10,080,000Excesscontributiontoprofit$ 240,000Theproductshouldbereleasedtoproduction.3.Previousrevisedtotalestimatedcostfromrequirement2.$14,880,000Processimprovementsavings:.25×.30×$8,000,000$600,000Lesscostofnewtechnology220,000380,000Revisedtotalestimatedcost14,500,000Revisedtotalcontributiontoprofit:$25,200,000-$14,500,000$10,700,000Desired(target)contributiontoprofit10,080,000Excesscontributiontoprofit$ 620,000Theproductshouldbereleasedtoproduction.5-B1 (40-50min.) KINGLANDContributionIncomeStatementFortheYearEndedDecember31,2009(Inthousandsofdollars)Sales$13,000Lessvariableexpenses:Directmaterial$4,000Directlabor2,000Variableindirectmanufacturingcosts(Schedule1)960Totalvariablemanufacturingcostofgoodssold$6,960Variablesellingexpenses:Salescommissions$500Shippingexpenses300800Variableclericalsalaries400Totalvariableexpenses8,160Contributionmargin$4,840Lessfixedexpenses:Manufacturing(Schedule2)$702Selling(advertising)400Administrative-executivesalaries100Totalfixedexpenses1,202Operatingincome$ 3,638KINGLANDMANUFACTURINGAbsorptionIncomeStatementFortheYearEndedDecember31,(Inthousandsofdollars)Sales$13,000Lessmanufacturingcostofgoodssold:Directmaterial$4,000Directlabor2,000Indirectmanufacturingcosts(Schedules1and2)1,662Grossprofit5,338Sellingexpenses:Salescommissions$500Advertising400Shippingexpenses300$1,200Administrativeexpenses:Executivesalaries$100Clericalsalaries4005001,700Operatingincome$3,638KINGLANDMANUFACTURINGSchedules1and2IndirectManufacturingCostsFortheYearEndedDecember31,(Inthousandsofdollars)Schedule1:VariableCostsCuttingbits$60Abrasivesformachining100Indirectlabor800$ 960Schedule2:FixedCostsFactorysupervisors'salaries$100Factorymethodsresearch40Long-termrent,factory100Fireinsuranceonequipment2Propertytaxesonequipment30Depreciationonequipment400Factorysuperintendent'ssalary30702Totalindirectmanufacturingcosts$1,662Operatingincomewoulddecreasefrom$3,638,000to$3,268,000:Decreaseinrevenue $1,000,000Decreaseintotalcontributionmargin*:Ratiotimesrevenueis.37×$1,000,000 $Decreaseinfixedexpenses Operatingincomebeforeincrease 3,638,000Newoperatingincome $3,268,000*Contributionmarginratioincontributionincomestatementis$4,840÷$13,000=.37(rounded).Theaboveanalysisisreadilycalculatedbyusingdatafromthecontributionincomestatement.Incontrast,thedataintheabsorptionincomestatementmustbeanalyzedanddividedintovariableandfixedcategoriesbeforetheeffectonoperatingincomecanbeestimated.5-B21.

(30-40min.)

DANUBECOMPANYIncomeStatementFortheYearEndedDecember31,20X0TotalPerUnitSales$40,000,000$20.00Lessvariableexpenses:Manufacturing$18,000,000Selling&administrative9,000,00027,000,00013.50Contributionmargin$13,000,000$6.50Lessfixedexpenses:Manufacturing$4,000,000Selling&administrative6,000,00010,000,0005.00Operatingincome$3,000,000$1.50Additionaldetailsareeitherinthestatementoftheproblemorinthesolutiontorequirement1:Total PerUnitFullmanufacturingcostVariablecost:$22,000,000$11.00Manufacturing$18,000,000$9.00Sellingandadministrative9,000,0004.50Totalvariablecost$27,000,000$13.50Fullcost=fullyallocatedcost*Fullmanufacturingcost$22,000,000$11.00Sellingandadministrativeexpenses15,000,0007.50Fullcost$37,000,000$18.50Grossmargin($40,000,000-$22,000,000)$18,000,000$9.00Contrib.margin($40,000,000-$27,000,000)*Studentsshouldbealertedtothelooseuseofthesewords.$13,000,000Theirmeaningmay$6.50notbeexactlythesamefromcompanytocompany.Thus,"fullyallocatedcost"insomecompaniesmaybeusedtorefertomanufacturingcostsonly.Ricardo’sanalysisisincorrect. Hewasontherighttrack,buthedidnotdistinguishsufficientlybetweenvariableandfixedcosts.Forexample,whenmultiplyingtheadditionalquantityorderedbythe$11fullmanufacturingcost,hefailedtorecognizethat$2.00ofthe$11fullmanufacturingcostwasa"unitized"fixedcostallocation.Thefirstfallacyisinregardingthetotalfixedcostasthoughitfluctuatedlikeavariablecost.Aunitfixedcostcanbemisleadingifitisusedasabasisforpredictinghowtotalcostswillbehave.Asecondfalseassumptionisthatnosellingandadministrativeexpenseswillbeaffectedexceptcommissions.Shippingexpensesandadvertisingallowancesbeaffectedalso--unlessarrangementswithCostcoontheseitemsdifferfromtheregulararrangements.WithoutSpecialOrderEffectofSpecialOrderWithSpecialOrderUnits2,000,000100,0002,100,000Sales $40,000,000Total$1,600,000PerUnit$16.00$41,600,000Manufacturing $18,000,000$900,000$9.00$18,900,000Sellingandadministrative9,000,000330,0003.30*9,330,000Totalvariableexpenses$27,000,000$1,230,000$12.30$28,230,000Contributionmargin$13,000,000$370,000$3.70$13,370,000Lessfixedexpenses:Manufacturing$4,000,00000.00$4,000,000WithoutSpecialOrderEffectofSpecialOrderWithSpecialOrderUnits2,000,000100,0002,100,000Sales $40,000,000Total$1,600,000PerUnit$16.00$41,600,000Manufacturing $18,000,000$900,000$9.00$18,900,000Sellingandadministrative9,000,000330,0003.30*9,330,000Totalvariableexpenses$27,000,000$1,230,000$12.30$28,230,000Contributionmargin$13,000,000$370,000$3.70$13,370,000Lessfixedexpenses:Manufacturing$4,000,00000.00$4,000,000Sellingandadministrative6,000,00020,0000.20**6,020,000Totalfixedexpenses$10,000,00020,0000.20$10,020,000Operatingincome$3,000,000$350,000$3.50$3,350,000Lessvariableexpenses:* Regularvariablesellingandadministrativeexpenses,$9,000,000÷2,000,000= $4.50Less:Averagesalescommissionat6%of$20= (1.20)Regularvariablesell.andadmin.expenses,lesscommission $3.30**Fixedsellingandadministrativeexpenses,specialcommission,$20,000÷100,000 .20Somestudentsmaywishtoenterthe$20,000asanextravariablecost,makingtheunitvariablesellingandadministrativecost$3.50andthusaddingnofixedcost.Thefinalresultwouldbethesame;inanyevent,thecostisrelevantbecauseitwouldnotexistwithoutthespecialorder.Someinstructorsmaywishtopointoutthata5%increaseinvolumewouldcausean11.7%increaseinoperatingincome,whichseemslikeahighinvestmentbyDanubetomaintainarigidpricingpolicy.Ricardoisincorrect.Operatingincomewouldhavedeclinedfrom$3,000,000to$2,850,000,adeclineof$150,000. Ricardo’sfaultyanalysisfollows:Oldfixedmanufacturingcostperunit,$4,000,000÷2,000,000=Newfixedmanufacturingcostperunit,$4,000,000÷2,500,000="Savings"Lossonvariablemanufacturingcostsperunit,$8.70-$9.00NetsavingsperunitinmanufacturingcostsTheanalyticalpitfallsofunit-costanalysiscanbeavoidedbyusingcontributionapproachandconcentratingonthetotals:

$2.001.60$.40(.30)$.10Without Effectof WithSpecial Special SpecialOrder Order OrderSalesVariablemanufacturing$40,000,000$4,350,000a$44,350,000costs$18,000,000$4,500,000b$22,500,000Othervariablecosts9,000,00009,000,000Totalvariablecosts$27,000,000$4,500,000$31,500,000Contributionmargin$13,000,000$(150,000)c$12,850,000a500,000×$8.70sellingpriceofspecialorderb500,000×$9.00variablemanufacturingcostperunitofspecialorderc500,000×$.30negativecontributionmarginperunitofspecialorderNomatterhowfixedmanufacturingcostsareunitized,orspreadovertheunitsproduced,theirtotalof$4,000,000remainsunchangedbythespecialorder.5-B3 (10-15min.)Cost-pluspricingisaddingaspecifiedmarkuptocosttocoverthosecomponentsofthevaluechainnotincludedinthecostplusadesiredprofit.Inthiscasethemarkupis30%ofproductioncost.Pricechargedforpistonpin=1.30×$50.00=$65.00.Iftheestimatedsellingpriceisonly$46andthispricecannotbeinfluencedbyCaterpillar,amanagerwouldbeunlikelytofavorreleasingthisproductforproduction.Targetcostingassumesthemarketpricecannotbeinfluencedbycompaniesexceptbychangingthevalueoftheproducttoconsumers.Thepricechargedwouldthenbethe$46estimatedbymarketresearch.Thehighestacceptablemanufacturedcostortargetcost,T,isDollarsTargetPrice $46.00TargetCost TTargetGrossMargin $.30T46–T=.30T1.30T=46T=46÷1.30=$35.38Therequiredcostreductionovertheproduct’slifeisExistingmanufacturingcost$50.00Targetmanufacturingcost35.38Requiredcostreduction$14.62StepsthatCaterpillarmanagerscantaketomeettherequiredcostreductionincludevalueengineeringduringthedesignphase,Kaizencostingduringtheproductionphase,andactivity-basedmanagementthroughouttheproduct’slife.Precisionisameasureoftheaccuracyofcertaindata.Itisaquantifiableterm.Relevanceisanindicationofthepertinenceofcertainfactsfortheproblemathand.Ideally,datashouldbebothpreciseandrelevant,butrelevancegenerallytakespriority.Decisionsmayhavebothquantitativeandqualitativeaspectscorrespondingtothenatureofthefactsbeingconsideredbeforedeciding.Quantitativeimplicationsofalternativechoicescanbeexpressedinmonetaryornumericalterms,suchasvariablecosts,initialinvestment,etc.Otherrelevantfeaturesmaynotbequantifiable,suchasthequalityoflifeinachoicebetweenlocatinginSanFranciscoorNewYork.Theadvantageofquantitativeinformationisthatitismoreobjectiveandofteneasiertocomparealternativesthanwithqualitativejudgments.Theaccountant'sroleindecision-makingisprimarilythatofatechnicalexpertonrelevantinformationanalysis,especiallyrelevantcosts.Theaccountantisusuallyaninformationprovider,notthedecisionmaker,althoughtheaccountantmaybepartofamanagementteamchargedwithmakingdecisions.No.Onlyfuturecoststhataredifferentunderdifferentalternativesarerelevanttoadecision.Pastdataareunchangeableregardlessofpresentorfutureactionandthuswouldnotdifferunderdifferentalternatives.Pastcostsmaybebasesforformulatingpredictions.However,pastcostsarenotinputstothedecisionmodelitselfbecausepastcostscannotbechangedbythedecision.Thecontributionapproachhasseveraladvantagesovertheabsorptionapproach,includingabetteranalysisofcost-volume-profitrelationships,clearerpresentationofallvariablecosts,andmorerelevantarrangementofdataforsuchdecisionsasmake-or-buyorproductexpansion.Thetermsthatdescribeanincomestatementthatemphasizesthedifferencesbetweenvariableorfixedcostsarecontributionapproach,variablecosting,ordirectcosting.Thecommonaltyofapproachisthefocusonthedifferencesbetweenfuturecostsandrevenuesofdifferentavailablealternatives.No,fixedcostsarenotalwaysirrelevant.Oftentheyarenotrelevant.However,theycanberelevantiftheyareaffectedbythedecisionbeingconsidered.Customersareoneofthefactorsinfluencingpricingdecisionsbecausetheycanbuyordowithouttheproduct,theycanmaketheproductthemselves,ortheycanusuallypurchaseasimilarproductfromanothersupplier.Targetcostperunitistheaveragetotalunitcostovertheproduct’slifecyclwillyieldthedesiredprofitmargin...Valueengineeringisacost-reductiontechnique,usedprimarilyduringthedesignfunctioninthevaluechain,thatusesinformationaboutallvaluechainfunctionstosatisfycustomerneedswhilereducingcosts.KaizencostingistheJapanesetermforcontinuousimprovementduringmanufacturing.Intargetcosting,managersstartwithamarketprice.Thentheytrytodesignaproductwithcostslowenoughtobeprofitableatthatprice.Thus,pricesessentiallydeterminecosts.Customerdemandsandrequirementsareimportantintheproductdevelopmentprocess.Manycompaniesseekcustomerinputonthedesignofproductfeatures.Theyseektoreducenon-value-addedcostswithoutaffectingproductfeaturesthatarevaluabletocustomers.Suppliersarealsoimportant.Companiespurchasemanyofthematerialsusedinproducts.Theyhavetoworkwithsupplierstogetthelowestcostforthesematerials.Notnecessarily.Thereareotherimportantfactorsthatmanagementmustconsiderbeforediscontinuingaproduct.Theproductmaybenecessarytoroundoutaproductline.Theproductmaybethecompany’sattempttobreakintoanewmarketareaornewproductclass.Thevariablecostsofajobcanbemisusedasaguidetopricing.However,theadjustedmarkuppercentagesbasedonvariablecostscanhavethesamepriceresultasthosebasedontotalcosts,plustheyhavetheadvantageofindicatingtheminimumpriceatwhichanysalemaybeconsideredprofitableevenintheshortrun.Threeexamplesofpricingdecisionsare(1)pricingnewproducts,(2)pricingproductssoldunderprivatelabels,and(3)respondingtonewpricesofacompetitor'sproducts.Threepopularmarkupformulasare(1)asapercentageofvariablemanufacturingcosts,(2)asapercentageoftotalvariablecosts,and(3)asapercentageoffullcosts.Twolong-runeffectsthatinhibitpricecuttingare(a)theeffectsonlonger-runpricestructuresand(b)theeffectsonlonger-runrelationswithcustomers.Fullcostsaremorepopularthanvariablecostsforpricingbecausepricestabilityisencouragedandinthelongrunallcostsmustberecoveredtostayinbusiness.No.Thereisaconfusionbetweentotalfixedcostsandunitfixedcosts.Increasingsalesvolumewilldecreaseunitfixedcosts,butnottotalfixedcosts.Thisassumesthatthevolumeincreaseresultsinoperatinglevelsthatarestillwithintherelevantrange..5-24Managers.5-24Managersgenerallyfindcontributionmarginincomestatementsmoreuseful,....especiallyiftheyareconcernedwithshort-termresults.Thecontributionmarginstatementprovidesinformationontheimmediateprofitimpactofincreasesordecreasesinsales.Marginalcostistheadditionalcostresultingfromproducingandsellingoneadditionalunit.Itchangesasproductionvolumechanges.Withagivenfixedcapacity,marginalcostgenerallydecreasesuptoapointandthenincreases.Variablecostistheaccountant'sapproximationtomarginalcost.Itremainsconstantovertherelevantrangeofvolume.Becausethedifferencebetweenthesetwocostsoftenisnotmaterial(withintherelevantrange),insuchcaseswecanusethevariable-costestimateofmarginalcostfordecision-makingpurposes.Pricingdecisionsmustbemadewithinlegalconstraints.Theselawshelpprotectcompaniesfrompredatoryanddiscriminatorypricing.Predatorypricinginvolvessettingpricessolowthattheydrivecompetitorsoutofthemarket.Discriminatorypricingischargingdifferentpricestodifferentcustomersforthesameproductorservice.Managersaredirectlyinvolvedintheresearchanddevelopmentandthedesignfunctions.Duringtheinitialproductresearchphase,managersoftenareinvolvedinsurveys,focusgroups(withmajorairlines),andothermarketresearchactivitiestoexplorethepotentialforanewairplane.Duringprocessandproductdesign,managershelpwithsuchtasksasnegotiationswithsuppliersandcostanalyses.Productionmanagersprovideinputregardingcostreductionideas.Marketingmanagersprovideinputregardingcustomerneeds(asuperlargeplanewithmorethan500seatsversusmoremedium-sizedplanesthatcanservemoremarkets).Distributionmanagersprovideinputregardingthecostsofvariouschannelsofdistribution.Finally,managersinvolvedwithcustomerrelationsprovideinputregardingthelikelycost-to-serveprofileforexpectedcustomersforanewproduct.5-28 (5min.)Allthedatagivenarehistoricalcosts.Moststudentswillidentifythe$5and$7pricesasrelevant.Theywillalsodeclarethatthe$3priceofpopcornisirrelevant.Pressthemtoseethattherelevantadmissionpricesareexpectedfuturecoststhatwilldifferbetweenthealternatives.Thepastpricesarebeingusedasabasisforpredictingthefutureprices.Similarly,thepastpricesofpopcornwerenotdifferent.Hence,theyareregardedasirrelevantundertheassumptionthatthefuturepriceswillnotdiffer..5-29(20.5-29(20min.)Somestudentsmayforgettoapplythe10%wagerateincreasetoboth....alternatives.(A) (B)Historical OtherInformation PredictionPredictionsastodecisionmodelDecisionModelImplementationandEvaluationFeedback(A) (B)Historical OtherInformation PredictionPredictionsastodecisionmodelDecisionModelImplementationandEvaluationFeedback(2)Directmaterialcostsareexpectedtofallby10%,or50¢perunit.Directlaborcostsareaffectedbya10%increaseanda5%increaseinlabortimeifthenewmaterialisused.(3)Costcomparisonsperunit:OldMaterialNewMaterialDirectmaterial$5.00$4.50DirectlaborDecisionsbymanagers$6.00×110%6.60withaidof$6.00×110%×105%6.93decisionmodelExpectedfuturecost$11.60$11.43(4)Thechosenactionisimplemented,andtheevaluationofperformancebe-comesaprincipalsourceoffeedback.Thishistoricalinformationaidsthedecisionprocess(prediction,decision,andimplementation)offuturedecisions..5-30(10.5-30(10min.)....Relevantcostsarethefuturecoststhatdifferbetweenalternatives.Amongtheirrelevantcostsarethecostofticketstothesymphony,automobilecosts,andbaby-sittingcostforthefirstfourhours.Therelevantcostsare:SymphonyGameDifferenceTickets,2$20each$0$40$40Parking066Baby-sitting,1extrahour$7077Total$0$53$53Thebaseballgameis$53morecostlytothePetrocelisthanisthesymphony.(10min.)Thisisabasicexercise.Answersareinthousandsofdollars.1. 200+200+170=5702. 800-570=2303. 230-150=804. 570=370;or200+170=370(10-15min.)Thisisabasicexercise.Sales ¥950Variableexpenses:Directmaterials ¥290Directlabor 160Variablefactoryoverhead 60Variablemanufacturingcostofgoodssold¥510Variablesellingandadmin.expenses100Totalvariableexpenses610(b)Contributionmargin¥340Fixedexpenses:Fixedfactoryoverhead¥120Fixedsellingandadministrativeexpenses45165(c)Operatingincome¥175.5-33(15-20min.).5-33(15-20min.)....Thisisastraightforwardexerciseinbasictermsandrelationships.Tofillalltheblanks,bothabsorptionandcontributionincomestatementsmustbeprepared.Dataareinmillionsofdollars.Requiredanswersareinitalics.Absorption Approach ApproachSalesDirectmaterialsused$350$920$350$920Directlabor210210Variableindirectmanufacturingcosts100100f. VariablemanufacturingcostgoodssoldVariablesellingandadministrative

660expenses90Totalvariableexpenses750k.Contributionmargin170Fixedfactoryoverhead5050g.Manufacturingcostofgoodssold710j.Grossprofit210Fixedsellingandadministrativeexpenses8080130VariablesellingandadministrativeexpensesOperatingincome

90 170$40

$40.5-34(10-20.5-34(10-20min.)Answersareinthousandsofrands(ZAR).....Primecosts=Directmaterial+Direct600=370+DLDL=230Thebodyofamodelincomestatementfollows.Thecomputationsareexplainedforeachitemthatwasoriginallyblank.Numbersgivenintheproblemareinbold.Sales,780+120DirectmaterialsZAR370ZAR900Directlabor,600-370230Factoryoverhead,780-(370+230)180Manufacturingcostofgoodssold780GrossmarginZAR120Sellingandadministrativeexpenses*100Operatingincome*120-20ZAR205-35 (15-20min.)Thedataareplacedintheformatoftheincomestatement,andtheunknownsarecomputedasshown:Sales$890VariableexpensesDirectmaterials$150Directlabor170Variableindirectmanufacturing110Variablemanufacturingcostofgoodssold4301Variablesellingandadministrativeexpenses2602Totalvariableexpenses(890-200)690Contributionmargin200FixedexpensesFixedindirectmanufacturing$903Fixedsellingandadministrativeexpenses100190Operatingincome$101150+170+110=4302890-200=690;690-430=2603Totalfixedexpenses=200-10=190Fixedindirectmanufacturing=190-100=90......5-36 (10-15min.)Operatingincomewouldincreaseby$300iftheorderisaccepted.WithoutSpecialEffectofSpecialOrderWithSpecialOrderUnits2,0001002,100Sales$36,000$1,500$37,500Purchasecost20,0001,00021,000Variableprintingcost4,0002004,200Totalvariablecost24,0001,20025,200Contributionmargin12,00030012,300Fixedcost8,00008,000Operatingincome$4,000$300$4,300Ifmaximizingoperatingincomeintheshortrunweretheonlygoal,theordershouldbeaccepted.However,ifqualitativeconsiderationsfavoringrejectionareworthmorethanthe$300increaseinoperatingincome,themanagerwouldrejecttheoffer.Forexample,acceptingtheofferfromF.C.Kitsapmaygeneratesimilaroffersfromotherclubswhonowwillinglypaythe$18normalprice.Lostprofitsonsuchbusinessmightmorethanoffsetthe$300gainonthissale.Ontheotherhand,thismightbeawayofgainingF.C.Kitsapasaregularcustomerwhowillthenbuyotheritemsthatgenerateaprofitwellinexcessofthe$300...5-37 (20min.) TotalVariableCosts

TotalFixedCosts$9 $150VolumeinofLunchesTotalCosts

VolumeinofLunchesVariableFixedVolumeinofLunchesTherearecorrectwaysandincorrectwaystoanalyzethedata.Acorrectwayfollows:Totalcost=TotalFC+TotalVC=$150peryear+$9perLetX=ThenumberoflunchesThen,Unitcost=($150÷X)+$9If1lunch,Unitcost=($150÷1)+$9=$159.00perlunchIf12lunches,Unitcost=($150÷12)+$9=$21.50perlunchIf200lunches,Unitcost=($150÷200)+$9=$9.75perlunch(a)TheCPAcancompareeithertotalannualcostsorunitcosts.LetX=thetotalnumberoflunchesinquestion.ElsewhereTotalCostsAtClubUnitCostsElsewhere AtClubIngeneral$10X$150+$9X$10.0($150X)+$9For1lunch$ 10$150+$9=$159$10.00$159.00For12lunches$120$150+$108=$258$10.00$21.50For200lunches $2,000$150+$1,800=$1,950$10.00$ 9.75LetX=Numberoflunches$10X=$150+$9XX=150lunchesispointofindifference.(b)Elsewhere,200×$10$2,000AtClub,$150+200($9)1,950Savings$ 50Theprecedingpartsconcentratedonhowtotalcostsbehaveinrelationtochosenvolumelevels.Generally,thedecisionmakershouldtakeastraightforward,analyticalapproachbythinkingintermsoftotalcostsratherthanunitcosts.Bykeepinganeyeonthetotalpicture,themanagerislesslikelytofallintosomeanalyticaltrapsthatcomefrommisinterpretingunitcosts.Inaddition,ofcourse,thequalitativeaspectsshouldnotbeignored.Forexample,theremaybeanintangiblebenefitofdiningwithactualandpotentialclientsattheluncheonclub.5-38 (15min.)Exceptfortheadvertisingcosts,thefixedcostsareirrelevantinthissituation.Thecontributionmarginperstudentis:$14,500-$7,900=$6,600Break-evenpointforthecampaignis:$1,650,000÷$6,600=250additionalstudents.2. 350×$6,600=$2,310,0003. 100×$6,600=$660,0005-39 (10min.)CostperUnitofProductVariablemanufacturingcost$10.00$10.00$10.00Variablesellingandadmin.cost4.004.00(a)Totalvariablecost$14.00Fixedmanufacturingcost6.00*6.00(b)Fullmanufacturingcost