ACT 5733 Homework 3 Spring 2015

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ACT 5733 – Advanced Managerial Accounting

Spring 2 2015

HW #3

 

Directions: Answer all five questions. Please submit your work in Word or PDF formats only. You can submit an Excel file to support calculations, but please “cut and paste” your solutions into the Word or PDF file. Be sure to show how you did your calculations. Please be sure to document any source you use. Please run spell check and proofread your answers.

Question #1

Consider the following information:

 

Q1

Q2

Q3

Beginning inventory (units)

0

300

200

Budgeted units to be produced

40,000

40,000

40,000

Actual units produced

39,600

40,300

40,500

Units sold

39,300

40,400

40,500

Variable manufacturing costs per unit produced

$70

$70

$70

Variable selling costs per unit sold

$20

$20

$20

Fixed manufacturing costs

$4,000,000

$4,000,000

$4,000,000

Fixed selling costs

$1,000,000

$1,000,000

$1,000,000

Selling price per unit

$240

$240

$240

 

There are no price, efficiency, or spending variances, and any production-volume variance is directly written off to cost of goods in the quarter in which it occurs.

 

a) Prepare income statements for Q1, Q2, and Q3 using variable costing and absorption costing.

 

b) Explain the differences in operating income between the two costing systems for each quarter. Be specific!

 


Question #2

a) Under which inventory costing method would managers have an incentive to build excess inventory? What is it about that method that provides the incentive? Be sure to justify your answer.

 

b) What steps can a manager take to reduce the incentive to build excess inventory? Be specific!

 

Question #3

a) How does the choice of the denominator level capacity impact income reported under variable costing? Be sure to justify your answer.

 

b) How does the choice of the denominator level capacity impact income reported under full absorption costing? Be sure to justify your answer.

 

Question #4

A firm expects to sell 365,000 units of its product annually. It estimates that it costs $7,300 to place an order and that each unit costs $4.00 annually to carry in inventory. It takes 9 days to receive an order once it is placed. Assume that the store is open every day of the year.

 

a) How many units should the firm order at a time if it wants to minimize the sum of ordering and carrying costs?

 

b) How many orders will it place in a year?

 

c) What will its average inventory level be during the year?

 

d) What is its reorder point?

 

Question #5

If a firm is considering implementing a JIT inventory system, list and describe the accounting issues that the firm should consider when making this decision. 

 

 

 

 

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