ACTG 2300 Lecture 3: Day 3 Notes

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purplecicada511

7 Feb 2017

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Volume = quantity sold / units of production. =total contribution margin (amount of money that contributes to covering the fixed cost) Unit variable cost does not change when volume changes within a relevant range. Unit fixed cost does change when volume changes. --- unit fixed cost decreases when volume increases. Def: cost remains unchanged for a range of cost driver, then jumps to a higher cost for the next range of cost driver. Ex: when you pay for data on your phone, it stair steps upwards as you pass the limit. Rent is flat based off of cost driver or unit of production: flat for 1 unit, flat, but increased for the next unit. Ex: working over hours: for every hour you work up to a certain point you get the same amount, then money increases. Ex: phone plans: pay a flat rate, then pay increasingly more as you go over.

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Oslo Company prepared the following contribution format Income Statement based on a sales volume of 1,000 units (the relevant range of production is 500 units to 1,500 units):

Sales $20,000

Variable Expense ($12,000)

Contribution Margin $ 8,000

Fixed Expenses ($6, 000)

Net Operating Income $2, 000

Required:

1. What is the contribution margin per unit?

2. What is the contribution margin ratio?

3. What is the variable expense ratio?

4. If sales increase to 1,001 units, what would be the net operating income?

5. If sales decline to 900 units, what would be the net operating income?

6. If the selling price increase by $2 per unit and the sales volume decreases by 100 units, what would be the net operating income?

7. If the variable cost per unit increases by $1, spending on advertising increases by $1,500, and unit sales increases by 250 units. What would be the net operating income?

8. What is the break-even point in unit sales?

9. What is the break-even point in dollar sales?

10. How many units must be sold to achieve a target profit of $5,000?

11. What is the margin of safety in dollars? What is the margin of safety percentage?

12. What is the degree of operating leverage?

13. Using the degree of operating leverage, what is the estimated percentage increase in net operating income of a 5% increase in sales?

14. Assume that the amounts of the company's total variable expenses and total fixed expenses were reversed. In other words, assume that the total variable expenses are $6,00 and the total fixed expenses are $12,000. Under this scenario and assuming that total sales remain the same, what is the degree of operating leverage?

15. Using the degree of operating leverage that you compute in the previous question, what is the estimated percentage increase in net operating income of a 5$ increase in sales?

harlequinotter996

(TCO A) Wages paid to an assembly line worker in a factory are a(Points : 6) Prime Cost YES.....Conversion Cost YES. Prime CostYES.....Conversion Cost NO. Prime Cost NO....Conversion Cost NO.Prime Cost NO.....Conversion Cost YES. Question 2. 2. (TCO A) Thecosts of staffing and operating the accounting department atCentral Hospital would be considered by the department of surgeryto be (Points : 6) indirect costs. sunk costs. incremental costs.direct costs. Question 3. 3. (TCO A) The cost of lubricants used togrease a production machine in a manufacturing company is anexample of a(n) (Points : 6) period cost. direct material cost.indirect manufacturing cost. direct product cost. None of the aboveQuestion 4. 4. (TCO C) When the activity level is expected toincrease within the relevant range, what effects would beanticipated with respect to each of the following? (Points : 6)Fixed costs per unit decrease and variable costs per unit do notchange. Fixed costs per unit increase and variable costs per unitdo not change. Fixed costs per unit do not change and variablecosts per unit do not change. Fixed costs per unit do not changeand variable costs per unit increase. Question 5. 5. (TCO B) EmcoCompany uses direct labor cost as a basis for computing itspredetermined overhead rate. In computing the predeterminedoverhead rate for last year, the company included in direct laborcost a portion of indirect labor. The effect of thismisclassification will be to (Points : 6) overstate thepredetermined overhead rate. understate the predetermined overheadrate. have no effect on the predetermined overhead rate. Thiscannot be determined from the information given. Question 6. 6.(TCO B) Under a job-order costing system, the product beingmanufactured (Points : 6) is homogeneous. passes from onemanufacturing department to the next before being completed. can becustom manufactured. has a unit cost that is easy to calculate bydividing total production costs by the units produced. Question 7.7. (TCO B) The weighted-average method of process costing differsfrom the FIFO method of process costing in that theweighted-average method (Points : 6) can be used under anycost-flow assumption. does not require the use of predeterminedoverhead rates. keeps costs in the beginning inventory separatefrom current period costs. does not consider the degree ofcompletion of units in the beginning work-in-process inventory whencomputing equivalent units of production. Question 8. 8. (TCO C)The contribution margin ratio always decreases when the (Points :6) fixed expenses increase. fixed expenses decrease. variableexpenses as a percentage of net sales increase. variable expensesas a percentage of net sales decrease. Question 9. 9. (TCO C) Whichof the following would not affect the break-even point? (Points :6) Variable expense per unit Number of units sold Total fixedexpenses Selling price per unit Question 10. 10. (TCO D) In anincome statement prepared using the variable costing method, fixedmanufacturing overhead would (Points : 6) not be used. be used inthe computation of the contribution margin. be used in thecomputation of net operating income but not in the computation ofthe contribution margin. be treated the same as variablemanufacturing overhead.

turquoisemuskrat237

Genuine Spice Inc. began operations on January 1, 2016. Thecompany produces eight-ounce bottles of hand and body lotion calledEternal Beauty. The lotion is sold wholesale in 12-bottle cases for$100 per case. There is a selling commission of $20 per case. TheJanuary direct materials, direct labor, and factory overhead costsare as follows:

DIRECT MATERIALS
	Cost Behavior	Units per Case	Cost per Unit	Cost per Case
Cream base	Variable	100 ozs.	$0.02	$ 2.00
Natural oils	Variable	30 ozs.	0.30	9.00
Bottle (8-oz.)	Variable	12 bottles	0.50	6.00
				$17.00

DIRECT LABOR
Department	Cost Behavior	Time per Case	Labor Rate per Hour	Cost per Case
Mixing	Variable	20 min	$18.00	$6.00
Filling	Variable	5	14.40	1.20
		25 min.		$7.20

FACTORY OVERHEAD
	Cost Behavior	Total Cost
Utilities	Mixed	$600
Facility lease	Fixed	14,000
Equipment depreciation	Fixed	4,300
Supplies	Fixed	660
		$19,560

Part AâBreak-Even Analysis

The management of Genuine Spice Inc. wishes to determine thenumber of cases required to break even per month. The utilitiescost, which is part of factory overhead, is a mixed cost. Thefollowing information was gathered from the first six months ofoperation regarding this cost:

2016	CaseProduction	Utility Total Cost
January	500	$600
February	800	660
March	1,200	740
April	1,100	720
May	950	690
June	1,025	705

	Required-Part A:
1.	Determine the fixed andvariable portion of the utility cost using the high-lowmethod.
2.	Determine the contributionmargin per case.
3.	Determine the fixed costs permonth, including the utility fixed cost from part (1).
4.	Determine the break-even numberof cases per month.

Part BâAugust Budgets

During July of the current year, the management of Genuine SpiceInc. asked the controller to prepare August manufacturing andincome statement budgets. Demand was expected to be 1,500 cases at$100 per case for August. Inventory planning information isprovided as follows:

Finished Goods Inventory:

	Cases	Cost
Estimated finished goods inventory,August 1, 2016	300	$12,000
Desired finished goods inventory,August 31, 2016	175	7,000

Materials Inventory:

	CreamBase	Oils	Bottles
	(ozs.)	(ozs.)	(bottles)
Estimated materials inventory,August 1, 2016	250	290	600
Desired materials inventory, August31, 2016	1,000	360	240

There was negligible work in process inventory assumed foreither the beginning or end of the month; thus, none was assumed.In addition, there was no change in the cost per unit or estimatedunits per case operating data from January.

Required-Part B:

Prepare the August productionbudget.*

Prepare the August directmaterials purchases budget.*

Prepare the August direct laborbudget. Round the hours required for production to the nearesthour.*

Prepare the August factoryoverhead budget. If an amount box does not require an entry, leaveit blank. (Entries of zero (0) will be cleared automatically byCNOW.)*

Prepare the August budgetedincome statement, including selling expenses. NOTE: Because you arenot required to prepare a cost of goods sold budget, the cost ofgoods sold calculations will be part of the budgeted incomestatement. *

* Enter all amounts as positivenumbers.

Part CâAugust Variance Analysis

During September of the current year, the controller was askedto perform variance analyses for August. The January operating dataprovided the standard prices, rates, times, and quantities percase. There were 1,500 actual cases produced during August, whichwas 250 more cases than planned at the beginning of the month.Actual data for August were as follows:

	Actual Direct Materials
	Priceper Unit	Quantity per Case
Cream base	$0.016per oz.	102ozs.
Natural oils	$0.32per oz.	31ozs.
Bottle (8-oz.)	$0.42per bottle	12.5bottles

	Actual Direct	Actual Direct Labor
	LaborRate	Timeper Case
Mixing	$18.20	19.50min.
Filling	14.00	5.60min.

Actual variable overhead	$305.00
Normal volume	1,600cases

The prices of the materials were different than standard due tofluctuations in market prices. The standard quantity of materialsused per case was an ideal standard. The Mixing Department used ahigher grade labor classification during the month, thus causingthe actual labor rate to exceed standard. The Filling Departmentused a lower grade labor classification during the month, thuscausing the actual labor rate to be less than standard.

	Required-Part C:
10.	Determine and interpret thedirect materials price and quantity variances for the threematerials.
11.	Determine and interpret thedirect labor rate and time variances for the two departments. Roundhours to the nearest hour.
12.	Determine and interpret thefactory overhead controllable variance.
13.	Determine and interpret thefactory overhead volume variance.

apricotlocust201

ACTG 2300 Lecture 3: Day 3 Notes

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