Five Managerial Accounting Questions

Here are 5 questions related to managerial accounting.

1.     TX Company produces a variety of electric motors. Management follows a pricing policy of manufacturing cost plus 60 percent. In response to a request from Sporting Goods, the following price has been developed for an order of 300 Mini Motors (the smallest motor TP Company produces):

Mr Smith, the president of Sporting Goods, rejected this price and offered to purchase the 300 Mini motors at a price of $44,000. The following additional information is available.

· TP Company has sufficient excess capacity to produce the motors.

· Factory overhead is $400,000 for the current year. Of this amount, $100,000 is fixed.

Of the $18,000 of factory overhead assigned to Mini Motors, only$13,500 is driven by the special order; $3,500 is a facility-level cost.

· Selling and administrative expenses are budgeted as follows: Fixed……………………$90,000per year (facility level) Variable ………………..$20 per unit manufactured and sold

Required:

a. The president of TP Company wants to know if he should allow Ms Smith to have the

Mini Motors for $44,000. Determine the effect on profits of accepting Mr Smith’s offer.

b. Briefly explain why certain costs should be omitted from the analysis in requirement

(a).

c. Assume TP Company is operating at capacity and could sell the 300 Mini Motors at its regular mark up.

1. Determine the opportunity cost of accepting Mr Smith’s offer.

2. Determine the effect on profits of accepting Mr Smith’s offer.

2.     Frontier Company is preparing a budget for January and February of next year. The balance sheet as of December 31, 2011 follows:

Monthly sales data for the current year and the budgeted data for the next year are as follows:

For 2012, the following are expected:

· Forty percent of the sales revenue is collected during the month of sale, with the balance collected during the following month.

· Cost of goods sold is 60 percent of sales. Merchandise Inventory sufficient for 20 percent of the next month’s sales is to be maintained at the end of each month. All purchases for resale is paid in the month following the month of purchase.

· Operating expenses for each month are estimated at 10percent of sales revenue. All operating expenses are paid for during the following month.

· Income taxes are estimated are 40percent of income before taxes. Income taxes are paid 15 days after the end of the quarter. There were no tax payable on December31. The miscellaneous payables as at December31, 2011 are to be paid during January 2012.

Required:

a. Prepare a contribution margin statement for the quarter ending March 31, 2012. Do not prepare monthly statements.

b. Prepare a budgeted balance sheet as at March 31, 2012. (Hint: Prepare purchases and cash budgets.)

3.     IT produces a variety of computer accessories. To improve financial incentives, the Production Department and the Sales Department are both treated as profit centers, with all goods produced in the Production Department being “sold” to the Sales department at 150 percent of variable cost. The costs of the Administrative Department are allocated equally to the Production and Sales departments. The following performance reports are for the Production and Sales Departments for the year 2010:

Computer IT

Production Department Performance Report

For the year2010

Computer IT

Sales Department Performance Report

For theyear2010

Management congratulated the Production department supervisor for another outstanding performance and offered him a raise. The manager of the Sales department, on the other hand, was called to a special meeting of the board of directors and told that unless she provided an adequate explanation of her department’s performance, she would be terminated.

Required:

Extremely concerned about her future with the organization, the manager of the Sales department has asked you

(1)To evaluate the 2010 performance reports for each department and

4.     G Company buys a variety of fruits from growers and then processes the fruit into a product line of fresh fruit, juices and fruit flavorings. The most recent year’s sales revenue was $4,200,000. Variable costswere 60 percent of sales and fixed costs totalled $1,300,000. Garden Company is evaluating two alternatives designed to enhance profitability.

One staff member has proposed that Garden Company purchase more automated processing equipment. This strategy would increase fixed costs by $300,000 but decrease variable costs to 54 percent of sales.

Another staff member has suggested that Garden Company rely more on outsourcing for fruit processing. This would reduce fixed costsby$300,000 but increase variable costs to 65 percent of sales.

Required:

Please assist Garden Company management by answering the following questions:

a. What is the current break-even point in sales dollars?

b. Assuming an income tax rate of 34 percent, what dollar sales volume is current required to obtain an after-tax profit of $500,000.

c. In the absence of income taxes, at what sales volume will both alternatives (automation and outsourcing) provide the same profit?

d. Briefly describe one strength and one weakness of both the automation and the outsourcing alternatives.

5.     OT Company manufactures orange jam. Because of bad weather, its orange crop was small. The following data have been gathered for the summer quarter of2012.

Beginning inventory (cases)……………………………0

Cases produced…………………………………………10,000

Cases sold……………………………………………… 9,400

Sales price per case……………………………………. $60

Direct materials per case………………………………. $8

Direct labor per case……………………………………$9

Variable manufacturing overhead per case……………. $3

Total fixed manufacturing overhead……………………$400,000

Variable selling and administrative cost per case………$2

Fixed selling and administrative cost per case………… $48,000

Required:

a. Prepare an income statement for the quarter using absorption costing.

b. Prepare an income statement for the quarter using variable costing.

c. What is the value of ending inventory under absorption costing?

d. What is the value of ending inventory under variable costing?

e. Explain the difference inending inventory under absorption costing and variable costing.