Problems

ACC 601 Managerial Accounting Group Case 2 (100 points)

Instructions:

1. As a group, complete the following activities in good form. Use excel or word only. Provide all supporting calculations to show how you arrived at your numbers. Answers without the all the supporting calculations will earn zero grade even if your answers are correct.

2. Add only the names of group members who participated in the completion of this assignment.

3. Submit only one copy of your completed work via Moodle. Do not send it to me by email.

4. Due: No later than the last day of Module 4. Please note that your professor has the right to change the due date of this assignment

Part 1: CVP Analysis (35 points)

Eag le Co mp any makes the MusicFind er, a so p histicated satellite rad io . Eag le has exp erienc ed a stead y g ro wth in sales f o r the p ast f ive years. Ho wever, Ms. Luray, Eag le's CEO, b elieves that to maintain th e co mp any' s p resent g ro wth will req uire an ag g ressive ad vertising camp aig n next year. To p rep are f o r th e camp aig n, the co mp any' s acco untant, Mr. Bed narik, has p rep ared and p resented to Ms. Luray the f o llo wing d ata f o r the curren t year, Year 1:

Variab le co sts:

Direct lab o r (p er unit) $ 82 Direct materials (p er unit) 37 Variab le o verhead (p er unit) 15

unit)

To tal variab le co sts (p er

$ 134

Fixed co sts (annu al): Manuf act u ring $ 400,000 Selling 297,000 Ad ministrativ e 795,000

To tal f ixed co sts (annual ) $ 1,492,0 0 0

Selling p rice (p er unit) 411

Exp ected sales revenu es , Year 1

(22,00 0 units) $ 9,042,00 0

Eag le has an inco me tax rate o f 35 p ercent.

Ms. Luray has set the sales targ et f o r Year 2 at a level o f $10,686 , 0 0 0 (o r 26,000 rad io s).

Require d : (a) What is the p ro jected af ter-ta x o p erating p ro f it f o r Year 1?

(b)Wh a t is the b reak-ev e n in units and d o llars f o r Year 1?

(c) Ms. Luray b elieves that to attain the sales targ et (26,00 0 rad io s) will req uire ad d itio nal selling exp e n s e s o f $287,0 0 0 f o r ad vertising in Year 2, with all o ther co sts remaining co nstant. What will b e the af ter-t a x o p erating p ro f it f o r Year 2 if the f irm sp end s the ad d itio nal $287,00 0 ?

(d)Wh a t will b e the b reak-ev en p o int in sales d o llars f o r Year 2 if the f irm sp end s the ad d itio nal $287,0 0 0 f o r ad vertising ?

(e) If the f irm sp end s the ad d itio nal $287,0 0 0 f o r ad vertising in Year 2, what is the sales level in d o llars req uired to eq ual the Year 1 af ter-tax o p erating p ro f it?

(f) At a sales level o f 26,000 units, what is the maximu m amo unt the f irm can sp end o n ad vertising to earn an af ter-t ax o p erating p ro f it o f $757,0 0 0?

Part 4: Estimated Net Realizable Value and Effects of Processing Further (30 points)

Fletcher Fab ricatio n, Inc., p ro d uces three p ro d ucts b y a jo int p ro d uctio n p ro cess. Raw materi als are p ut into p ro d uctio n in Dep artm e nt X, and at the end o f p ro cessing in this d ep artm en t, three p ro d ucts ap p ear. Pro d uct A is so ld at the sp lit-o f f p o int with no f urther p ro cessing . Pro d ucts B and C req uire f urther p ro cessing b ef o re they are so ld . Pro d uct B is p ro cessed in Dep art m en t Y, and p ro d uct C is p ro cessed in Dep artm e n t Z. The co mp any uses the estimated net realizab le value metho d o f allo cating jo int p ro d uctio n co sts. Fo llo wing is a summa ry o f co sts and o ther d ata f o r the q uarte r end ed June 30.

No invento ries were o n hand at the b eg inning o f the q uarter. No raw material was o n hand at June 30.

All units o n hand at the end o f the q uarter were f ully co mp lete as to p ro cessing .

Pro d ucts A B C

Po und s so ld 22,000 59,000 65,000 Po und s o n hand at June 30 48,000 0 36,000 Sales revenu es $17,600 $73,75 0 $117,00 0

Dep artm e n ts X Y Z Raw material co st $55,000 $ 0 $ 0 Direct lab o r co st 26,000 37,750 95,900 Manuf act u ring o verhead 10,000 12,450 39,775

Require d : (a) Determi n e the f o llo wing amo unts f o r each p ro d uct.

(1) Estimated net realizab le value used f o r allo cating jo int co sts.

(2) Jo int co sts allo cated to each o f the three p ro d ucts.

(3) Co st o f g o o d s so ld .

(4) Finished g o o d s invento ry co sts, June 30.

(b)Assu me that the entire o utp ut o f p ro d uct A co uld b e p ro cessed f urther at an ad d itio nal co st o f $1.75

p er p o und and then so ld f o r $5.10 p er p o und . Co mp ute the increme nt al inco me f ro m f urther p ro cessing A.

(c) Co nsid ering the results o f p art b , sho uld the co mp any p ro cess p ro d uct A f urther? Exp lain.