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Management accounting

Probem 1
The following information was collected for the Omaha Division of the ABC corporation:
Sales Revenue $4,000,000
Uncontrollable fixed costs traceable to the division 1,300,000
Allocated Corporate overhead 200,000
Controllable Fixed costs traceable to the division 1,000,000
Variable costs 30% of Sales Revenue

Required:
A. Compute the following for the Omaha Division:
1. Segment contribution margin.
2. Profit margin controllable by segment manager.
3. Segment profit margin.

B. Which of the three preceding measures should be used when evaluating the Omaha Division as an investment of ABC corporation's resources? Why?

C. Assume that management made the decision to prepare a segmented income statement that reflected Omaha's five operating departments.
Would all $1,000,000 of the controllable fixed costs be easily traced to the departments? Please make sure you explain your answer.

D. Which of the five-dollar amounts presented in the body of the problem would be used in computing the income before taxes of ABC Corporation?

Problem 2
Greens Technologies produces two synthesizers that are popular in the music/entertainment industry: A2.
The company is very concerned about quality and has provided the following quality cost information about A2:

Warranty repair costs $150,000
Reliability engineering 300,000
Rework at the manufacturing plant 50,000
Manufacturing inspection 40,000
Transportation costs to customer sites to fix problems with the A2 20,000
Quality Training for employees 70,000

Required
A. Classify the costs that relate to A2 as prevention, appraisal, internal failure, or external failure. Explain why you categorized these costs into each of the quality type.
B. Using your answer in requirement "A," compute prevention, appraisal, internal failure, and external failure costs as a percentage of A2's total quality costs. Use Exhibit 12-8 on page 519 as your guide.
C. Comment on your findings. Make sure you discuss the different categories of quality and how this company is "investing" in quality.

Problem 1
Round Sound, Inc. reported the following total results from the normal sale of 24,000 units of IT-54:
Sales $500,000
Variable manufacturing costs 300,000
Fixed manufacturing costs 100,000
Variable selling costs 50,000
Fixed administrative costs 35,000

Rhythm Company has offered to purchase 3,000 IT-54s at $16 each. Round Sound has available capacity, and the president is in favor of accepting the order.
She feels it would be profitable because no variable selling costs will be incurred. The plant manager is opposed because the "full cost" of production is $17.

Required:
1. What would be the change in income if the special order is accepted?Ã? Make sure you show your computations.
2. Explain what costs are irrelevant and why you did not include in your calculation in #1.

Problem 2
XYZ Enterprises, which has three departments, recently reported the following results:
A B C
Sales Revenue 40,000 48000 12000
Less: Operating costs 55,000 59000 11000
Operating income(loss) -15,000 -11,000 1,000

The company incurred variable operating costs as well as $30,000 of fixed operating costs.
The $30,000 amount was allocated to A, B, and C on the basis of sales revenue and is included in the cost figures noted above.
Required:
1. Should XYZ close any of its departments based on financial information? Show computations to support your answer.

Problem 3
Lido manufactures A and B from a joint process cost equal $40,000.
Four thousand pounds of A can be sold at split-off for $21 per pound or processed further at an additional cost of $10,000 and then sold for $23.
Ten thousand pounds of B can be sold at split-off for $16 per pound or processed further at an additional cost of $25,000 and later sold for $19.

Required:
Which products should be processed further or not? Why? Give the dollar impact to income based on your recommendation.

Problem 4
Assuming the company has 18,000 machine hours available and both products use this machine. Below is the following product demand, usage, and financial data:
Carpet Kleen Floor Deodorizer
Unit demand 4000 5000
Machine hours used per unit 2 3
Sales price per unit $10 $10
Variable cost per unit $8 $4

Required:
1. How do you know that the company has a scarce resource? Show calculations to support your answer.
2. How many units of each product should be produced to optimize profit? Make sure you show your calculations.

Problem 5
The management of Outer Industries is evaluating whether the company should continue making a component or buy it from an outside supplier.
Outer Industries makes many different components in its factory. The following is the cost per component:
Per unit
Direct materials 9
Direct labor 10
Variable 8
Fixed overhead allocated 12
Total manufacturing costs 39

Outside Purchase price $28
Number of units 30,000

Required:
1. Based on the information above would you recommend buying or making the components. Why? What will be the impact on income of the
company based on your decision in comparison to the other alternative?

Problem 1
Superior Company is involved in a competitive bidding situation. The following costs are anticipated for a project to be bid with the City of Southlake:
Direct material $300,000
Direct labor 600,000
Variable overhead 40,000
Allocated fixed costs 100,000

Required:
What should be the minimum bid price if Superior has excess capacity?Ã? Explain your answer.

Problem 2
Wagner Furniture manufactures easy-to-assemble wooden furniture for home and office.
The firm is considering modification of a bookcase, and the company's marketing department surveyed potential buyers regarding five proposed changes (A-E).
The buyers' responses, in order of preference, along with Wagner's related unit costs for the modifications, follow.
Order of preference Change Cost
1 A $7.50
2 D 5.00
3 B 4.00
4 C 1.50
5 E 5.50

The bookcase currently costs $81 to produce and distribute, and Wagner's selling price for this unit averages $108.
An analysis of competitive products in the marketplace revealed a variety of features, with some models having all of the changes that Wagner is considering and other models having only a few.
The current manufacturers' selling prices on these bookcases average $120.

Required:
A. Why is there a need in target costing to (a) focus on the customer and (b) have a marketing team become involved with product design?
B. Management desires to earn approximately the same rate of profit on sales that is being earned with the current design.
1. If Wagner uses target costing and desires to meet the current competitive selling price, what is the maximum cost of the modified bookcase?
2. Which of the modifications should Wagner consider?
C. Assume that Wagner wanted to add a modification or two that you excluded in your answer to requirement "B2." What process might management adopt to allow the company to make its target profit for the bookcase? Briefly explain.Ã? 

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Solution Summary

Probem 1
The following information was collected for the Omaha Division of the ABC corporation:
Sales Revenue $4,000,000
Uncontrollable fixed costs traceable to the division 1,300,000
Allocated Corporate overhead 200,000
Controllable Fixed costs traceable to the division 1,000,000
Variable costs 30% of Sales Revenue

Required:
A. Compute the following for the Omaha Division:
1. Segment contribution margin.
2. Profit margin controllable by segment manager.
3. Segment profit margin.

B. Which of the three preceding measures should be used when evaluating the Omaha Division as an investment of ABC corporation's resources? Why?

C. Assume that management made the decision to prepare a segmented income statement that reflected Omaha's five operating departments.
Would all $1,000,000 of the controllable fixed costs be easily traced to the departments? Please make sure you explain your answer.

D. Which of the five-dollar amounts presented in the body of the problem would be used in computing the income before taxes of ABC Corporation?

$2.19