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    Managerial Accounting Problems for Cosgrove, Perrson, Iron Decor

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    Managerial Accounting 560

    Problem 1

    Cosgrove, Inc., is a wholesaler that distributes a single product. The company's revenues and expenses for the last three months are given below:

    Cosgrove Company
    Comparative Income Statement
    For the Three Months Ended June 30

    April May June
    Sales in units 3,000 3,750 4,500

    Sales revenue $420,000 $525,000 $630,000
    Less cost of goods sold 168,000 210,000 252,000
    Gross margin 252,000 315,000 378,000
    Less operating expenses:
    Shipping expense 44,000 50,000 56,000
    Advertising expense 70,000 70,000 70,000
    Salaries and commissions 107,000 125,000 143,000
    Insurance expense 9,000 9,000 9,000
    Depreciation expense 42,000 42,000 42,000
    Total operating expenses 272,000 296,000 320,000
    Net operating income (loss) ($ 22,000) $ 19,000 $ 58,000


    a. Determine which expenses are mixed and, by use of the high-low method, separate each mixed expense into variable and fixed elements. (Use unit sales as the activity measure.) State the cost formula for each mixed expense.

    b. Compute the company's contribution margin for May.

    Problem 2

    Below are cost and activity data for a particular cost over the last four periods. Your boss has asked you to analyze this cost so that management will have a better understanding of how this cost changes in response to changes in activity.

    Activity Cost
    Period 1 46 791
    Period 2 40 738
    Period 3 47 807
    Period 4 41 746


    Using the least-squares regression method, estimate the cost formula for this cost.

    Problem 3

    Perrson Company makes two types of backpacks. Data for the company's activity during a typical month are presented below:

    School Hiker
    Model Model
    Sales units 40,000 40,000
    Selling price per unit $6 $18
    Variable expense per unit $2 $10

    The company's total fixed expenses are $80,000. There are no beginning or ending inventories.


    a. What is the per unit contribution margin for each of the two models?

    b. What is the break-even point in terms of sales dollars if the sales mix remains constant?

    c. If the sales mix is changed to 60,000 units of the school model and 20,000 units of the hiker model, what will be the break-even point in terms of sales dollars?

    Problem 4

    Iron Decor manufactures decorative iron railings. In preparing for next year's operations, management has developed the following estimates:

    Total Per Unit
    Sales (20,000 units) $1,000,000 $50.00
    Direct materials 200,000 10.00
    Direct labor (variable) 50,000 2.50
    Factory overhead:
    Variable 70,000 3.50
    Fixed 80,000 4.00
    Selling and administrative:
    Variable 100,000 5.00
    Fixed 30,000 1.50


    Compute the following items:

    a. Unit contribution margin.

    b. Contribution margin ratio.

    c. Break-even in sales dollars.

    d. Margin of safety percentage.

    e. If the sales volume increases by 20% with no change in total fixed expenses, what will be the change in net operating income?

    f. If the per unit variable production costs increase by 15%, and if fixed selling and administrative expenses increase by 12%, what will be the new break-even point in sales dollars?

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    Solution Summary

    In an Excel file, each of the problems are carefully explained and answered. The formulas and the methodologies are clearly presented.