Accounting Week 5

Week

5

Cost Volume Profit Analysis

Topics

• Cost Volume Profit Analysis
• Break Even Analysis
• Contribution Margin Calculation
• Analysis

Safety Margin

Outcomes

• Compute the flow of costs through manufacturing cycles and the determination of product (or service) cost.
• Discuss the impact of flow of costs and product cost on decision making.
• Describe the issues and procedures for the allocation of overhead costs, including activity-based costing
• Use commonly used tools for performance evaluation (e.g., ROI, residual income).
• Discuss the impact of performance evaluation on decision making.

Prepare and explain the flow of cash as relating to operating, investing, and financing activities, free cash flow, and the impact that it has on decision making.

Learning Resources

• eBook: Managerial accounting: Creating value in a dynamic business environment. Chapter 7 (Including Appendix) Cost Volume Profit Analysis

Introduction – Text

Complete these Assignments

• Assignment 5.1 McGraw Hill Connect Week 5
• Quiz 5.1

Research Paper 5.1 Finalize and Submit Research Paper

Quiz 5.1 Chapters 1, 2, 3, &

6

Question 1 (10 points)An accountant recently debited Work-in-Process Inventory and credited Manufacturing Overhead at a company that uses normal costing. The accountant was:Question 1 options:recognizing the completion of production.recording a year-end adjustment for an insignificant amount of underapplied overhead.recognizing receipt of the factory utilities bill.applying a predetermined overhead amount to production.recognizing actual overhead incurred during the period.

Question 2 (10 points)

The following data relate to the Torrence Company for May and August:

MayAugust

,000

7,000

Maintenance hours				25	29,000
Maintenance cost	$ 1,175,000	$ 1,2			4

May and August were the lowest and highest activity levels, and Torrence uses the high-low method to analyze cost behavior. If maintenance hours are estimated to be 26,000 hours in October, which of the following statements is true?

Question 2 options:Total maintenance costs will be $1,193,000.Total maintenance costs will be $1,247,000.Total maintenance costs will be $1,221,000.Total maintenance costs will be $1,182,000.Total maintenance costs will be $1,175,000.

Question 3 (10 points)

Which type of production process is ideal for a low production volume and one-of-a-kind products?Question 3 options:Job ShopBatchAssemblyContinuous FlowDirect assembly

Question 4 (15 points)

Troski Corporation sells a number of products to groups that provide educational workshops and seminars. One of the products involves a combination leather case and note pad. The company purchases the case and pad combination from a supplier and encloses a $2 pen that contains the educational groups’ name and logo.

Troski began to carry this product at the start of 2021, acquiring

12

,000 cases from Executive Supply for $96,000 along with an identical number of pens from Accent Goods.

During 2021, 8,900 of the cases and pens were issued to Troski’s assembly operation where the pen was added.

Seventy percent of these cases were completed as of December 31, and a review of the December 31 finished-goods inventory found 2,000 completed cases in the warehouse.

Conversations with salespeople revealed that 70 finished sets were used in various company marketing activities throughout the year.

Respond to the following:

Determine the cost of the cases and pens that would appear in Troski’s raw materials, work in process, and finished-goods inventory as of December 31.

Determine the cost of the cases and pens that would appear in the company’s cost of goods sold for 2021.

Compare and Contrast the following types of costs:

1. variable and step-variable
2. fixed and step-fixed?

Question 5 options:

Question 6 (15 points)

Consider the six costs that follow:

1. Advertising and promotion costs of a do-it-yourself retailer
2. Surgical supplies used in a hospital’s operating room
3. Aircraft depreciation charges of an airline
4. Utility charges that include a minimum-use fee, for a small business
5. Annual business licensing fee paid by a daycare center
6. Truck fuel consumed by a road construction company

Respond to the following:

1. Classify each of these costs as variable, committed fixed, discretionary fixed, or semi-variable.
2. Briefly describe the behavior of a per-unit variable cost as activity changes.
3. What elements are present in a semi-variable cost that cause it to behave in a semi-variable manner?
4. Generally speaking, does management have more flexibility when dealing with committed fixed costs or discretionary fixed costs?

ACC 5100 Accounting

Research Paper 5.1 (500 points)

In Week 5 you will submit a research paper. The research paper will be graded on both content and format and will represent 25% of the final course grade. The topic will be submitted in Week 1 and approved by your instructor in order to move forward with the research paper.

Topic

Prepare a 10 pages paper on the firm of your choice that is operating in the international business environment. The 8 – 10 pages requirement does not include appendices, title page, table of contents, abstract, references, and bibliography. The minimum is 8 full pages of written material. Any paper not at 8 full pages will earn a maximum percentage of 60%.

This paper should be prepared consistent with the current APA Manual and will have a minimum of ten different references (No Wiki’s or Pedia’s). Some of the bibliography and references will most likely come from the source documents, e.g., annual reports, and financial statements of the firm you have chosen. As such this reduces the need for peer reviewed sources. However, peer reviewed sources are still important and should be listed in the bibliography/reference section(s) and cited in the paper as appropriate. The paper must be in Times New Roman 12pt font. Graphs and charts that take up more than ¼ of a page should not be in the body of the paper and put as an appendix and referenced in the body of the paper. This paper is due the last day of Week 5.

Required Sections of Research Paper

Section I Introduction:This serves as an introduction to the Research Paper. Provide an overview of the research design of the paper. Introduce the various topics that will be addressed in the research paper. Identify the method(s) that will be used to collect the data for the topics and how that data will be evaluated.

Section II The Firm:There will be a brief discussion of the firm to include its principle goods and services, market share, geographic locations where it operates, and major competitors.

Section III Activity Based Costing:Evaluate and discuss whether the firm could benefit by using Activity Based Costing (ABC). The discussion should include what factor(s) influenced your decision, the ramifications of implementing ABC in the international business environment, and how you would structure the distribution of costs using ABC for your firm.

Section IV Standard Costs:Evaluate and discuss whether the firm could benefit by using standard costs. The discussion should include what factor(s) influenced your decision, the ramifications of costs, quantity, and variances, and the ramifications of using standard costs in the international business environment.

Section V Future Plans:Evaluate and discuss how the firm could benefit by analyzing future projects in terms relevant costs. This discussion should include the firm’s future plans, such as, expansion, consolidation, and downsizing and how relevant costs could be used in the decision making.

Section VI Summary and Conclusions:Summary and conclusion(s). The discussion should provide a brief summary of the previous sections, and the conclusions you have reached.

Grading Criteria

● Section I Introduction (10%)

● Section II The Firm (15%)

● Section III Activity Based Costing (15%)

● Section IV Standard Costs (15%)

● Section V Future Plans (15%)

● Section VI Summary and Conclusions (15%)

● APA style (10%)

● Language, Grammar, Spelling (5%)

● Length requirement (8 – 10 pages) (Less than 8 pages the grade will be reduced to 60% of earned grade)

Assignment 5.1 McGraw Hill Connect Week 5

Required information

[The following information applies to the questions displayed below.]

Corrigan Enterprises is studying the acquisition of two electrical component insertion systems for producing its sole product, the universal gismo. Data relevant to the systems follow.

Model number 6754:

Variable costs, $17.00 per unit

Annual fixed costs, $986,200

Model number 4399:

Variable costs, $11.80 per unit

Annual fixed costs, $1,1

13

,900

Corrigan’s selling price is $63 per unit for the universal gismo, which is subject to a 15 percent sales commission. (In the following requirements, ignore income taxes.)

REQUIRED:

1.How many units must the company sell to break even if Model 6754 is selected?

Note: Do not round intermediate calculations and round your final answer up to nearest whole number.

break-even point = x units? answer

question 2

Required information[The following information applies to the questions displayed below.]Corrigan Enterprises is studying the acquisition of two electrical component insertion systems for producing its sole product, the universal gismo. Data relevant to the systems follow.Model number 6754:Variable costs, $17.00 per unitAnnual fixed costs, $986,200Model number 4399:Variable costs, $11.80 per unitAnnual fixed costs, $1,113,900Corrigan’s selling price is $63 per unit for the universal gismo, which is subject to a 15 percent sales commission. (In the following requirements, ignore income taxes.)

2-a.Calculate the net income of the two systems if sales and production are expected to average 61,200 units per year.

model number 6753 = net income?

model number 4399 = net income?

2-b.Which of the two systems would be more profitable?

question 3

Required information

Skip to question

[The following information applies to the questions displayed below.]Corrigan Enterprises is studying the acquisition of two electrical component insertion systems for producing its sole product, the universal gismo. Data relevant to the systems follow.Model number 6754:Variable costs, $17.00 per unitAnnual fixed costs, $986,200Model number 4399:Variable costs, $11.80 per unitAnnual fixed costs, $1,113,900Corrigan’s selling price is $63 per unit for the universal gismo, which is subject to a 15 percent sales commission. (In the following requirements, ignore income taxes.)

3.Assume Model 4399 requires the purchase of additional equipment that is not reflected in the preceding figures. The equipment will cost $420,000 and will be depreciated over a five-year life by the straight-line method. How many units must Corrigan sell to earn $958,000 of income if Model 4399 is selected? As in requirement 2, sales and production are expected to average 61,200 units per year.

required sales = x units?

Note: Do not round intermediate calculations and round your final answer up to nearest whole number.

question 4

Required information[The following information applies to the questions displayed below.]Corrigan Enterprises is studying the acquisition of two electrical component insertion systems for producing its sole product, the universal gismo. Data relevant to the systems follow.Model number 6754:Variable costs, $17.00 per unitAnnual fixed costs, $986,200Model number 4399:Variable costs, $11.80 per unitAnnual fixed costs, $1,113,900Corrigan’s selling price is $63 per unit for the universal gismo, which is subject to a 15 percent sales commission. (In the following requirements, ignore income taxes.)

4.Ignoring the information presented in part 3, at what volume level will the annual total cost of each system be equal?

Note: Do not round intermediate calculations and round your final answer up to nearest whole number.

volume level = x units? answer!

question 5

Required information[The following information applies to the questions displayed below.]

Cincinnati Tool Company (CTC) manufactures a line of electric garden tools that are sold in general hardware stores. The company’s controller, Will Fulton, has just received the sales forecast for the coming year for CTC’s three products: hedge clippers, weeders, and leaf blowers. CTC has experienced considerable variations in sales volumes and variable costs over the past two years, and Fulton believes the forecast should be carefully evaluated from a cost-volume-profit viewpoint. The preliminary budget information for 20×2 follows:

Unit sales

50,000

Unit selling price

Variable manufacturing cost per unit131225Variable selling cost per unit546

		Weeders			Hedge Clippers			Leaf Blowers
					50,000			100,000
		$ 28			$ 36			$ 48

For 20×2, CTC’s fixed manufacturing overhead is budgeted at $2,000,000, and the company’s fixed selling and administrative expenses are forecasted to be $600,000. CTC has a tax rate of 40 percent.

REQUIRED:

1. Determine CTC’s budgeted net income for 20x2.

Budget net income equal?

question 6

Required informationSkip to question[The following information applies to the questions displayed below.]Cincinnati Tool Company (CTC) manufactures a line of electric garden tools that are sold in general hardware stores. The company’s controller, Will Fulton, has just received the sales forecast for the coming year for CTC’s three products: hedge clippers, weeders, and leaf blowers. CTC has experienced considerable variations in sales volumes and variable costs over the past two years, and Fulton believes the forecast should be carefully evaluated from a cost-volume-profit viewpoint. The preliminary budget information for 20×2 follows:WeedersHedge ClippersLeaf BlowersUnit sales50,00050,000100,000Unit selling price$ 28$ 36$ 48Variable manufacturing cost per unit131225Variable selling cost per unit546For 20×2, CTC’s fixed manufacturing overhead is budgeted at $2,000,000, and the company’s fixed selling and administrative expenses are forecasted to be $600,000. CTC has a tax rate of 40 percent.

2. Assuming the sales mix remains as budgeted, determine how many units of each product CTC must sell in order to break even in 20×2.

Note: Do not round intermediate calculations.

weeders = x units

hedge clippers = x units

leaf blowers = x units

total of x units

question 7

Required information[The following information applies to the questions displayed below.]Cincinnati Tool Company (CTC) manufactures a line of electric garden tools that are sold in general hardware stores. The company’s controller, Will Fulton, has just received the sales forecast for the coming year for CTC’s three products: hedge clippers, weeders, and leaf blowers. CTC has experienced considerable variations in sales volumes and variable costs over the past two years, and Fulton believes the forecast should be carefully evaluated from a cost-volume-profit viewpoint. The preliminary budget information for 20×2 follows:WeedersHedge ClippersLeaf BlowersUnit sales50,00050,000100,000Unit selling price$ 28$ 36$ 48Variable manufacturing cost per unit131225Variable selling cost per unit546For 20×2, CTC’s fixed manufacturing overhead is budgeted at $2,000,000, and the company’s fixed selling and administrative expenses are forecasted to be $600,000. CTC has a tax rate of 40 percent.

After preparing the original estimates, management determined that its variable manufacturing cost of leaf blowers would increase by 20 percent, and the variable selling cost of hedge clippers could be expected to increase by $1.00 per unit. However, management has decided not to change the selling price of either product. In addition, management has learned that its leaf blower has been perceived as the best value on the market, and it can expect to sell three times as many leaf blowers as each of its other products. Under these circumstances, determine how many units of each product CTC would have to sell in order to break even in 20×2.

Note: Do not round intermediate calculations.weeders = x units

hedge clippers = x units

leaf blowers = x unitstotal of x units