ACCT 2200 Study Guide - Contribution Margin, Deutsche Luft Hansa, Material Handling
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1 | Variable costs per unit: | |
2 | Direct materials | $121.00 |
3 | Direct labor | 28.00 |
4 | Factory overhead | 49.00 |
5 | Selling and administrative expenses | 37.00 |
6 | Total | $235.00 |
7 | Fixed costs: | |
8 | Factory overhead | $254,000.00 |
9 | Selling and administrative expenses | 147,000.00 |
1. Determine the amount of desired profit from the production and sale of flat panel displays.
2. Assuming that the product cost concept is used, determine (a) the cost amount per unit, (b) the markup percentage (rounded to two decimal places), and (c) the selling price of flat panel displays.
Cost amount per unit | |
Markup percentage | % |
Selling price |
3. (Appendix) Assuming that the total cost concept is used,determine (a) the cost amount per unit, (b) the markup percentage (rounded to two decimal places), and (c) the selling price of flat panel displays.
Cost amount per unit | |
Markup percentage | % |
Selling price |
4. (Appendix) Assuming that the variable cost concept is used, determine (a) the cost amount per unit, (b) the markup percentage (rounded to two decimal places), and (c) the selling price of flat panel displays.
Cost amount per unit | |
Markup percentage | % |
Selling price |
5. Comment on any additional considerations that could influence establishing the selling price for flat panel displays.
The cost-plus approach price of $360_should/should not____ be viewed as a general guideline for establishing long-run normal prices. Other considerations, such as the price of competing products and general economic conditions of the marketplace, __(could/will)______ lead management to establish a short-run price more or less than $360.
A decentralized organization is one in which:
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A local chain department store grants each of its store managersthe authority to make buying decisions for their stores. Grantingmanagers this kind of authority is found in which type oforganization?
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A local chain electronics store does not allow its store ordistrict managers to make important decisions about their stores.The main role of store managers is to supervise employees and makesure day-to-day transactions run smoothly while district managerssupervise store managers and report profitability data back totop-level management. Not allowing store or district managersdecision-making authority is most likely to be found in which typeof organization?
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When a few individuals at the top of an organization retaindecision-making authority, the organization is referred to asa(n):
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Which of the following statements regarding the structure oforganizations is false?
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Which of the following is an advantage of decentralization?
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Which of the following is not an advantage ofdecentralization?
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Which of the following is often not a disadvantage ofdecentralization?
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Which of the following is a disadvantage ofdecentralization?
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"Responsibility accounting" is the concept that says:
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A budget for a single unit of a product or service is called asa:
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Which of the following statements is true regarding the budgetedcost for direct materials?
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Variance analysis compares:
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Which of the following statements is false regarding taskanalysis?
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Task analysis:
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A(n) ____ is attainable only when near-perfect conditionsexist.
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In most companies, machines break down occasionally andemployees are often less than perfect. Which type of standardacknowledges these characteristics when determining the standardcost of a product?
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Hathaway Inc. produces and sells golf umbrellas to localresorts. Hathaway anticipates April to be a busy month with thesale of 2,000 umbrellas. The company has prepared the followingstatic budget for April:
Sales revenue (2,000 units) | $60,000 |
Variable costs: | |
Direct materials | 6,000 |
Direct labor | 8,000 |
Overhead | 2,500 |
Fixed costs | 6,000 |
Net operating income | $37,500 |
During April, Hathaway actually produced and sold 2,300 umbrellas.What should be Hathaway's net operating income in April based on aflexible budget?
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Hoppe Inc. manufactures widgets. Management has determined thateach widget has a standard materials cost of $3.50 when 2.5 ouncesof raw material at a cost of $1.40 per ounce are used. The staticbudget for the month of December showed an estimated production of4,000 widgets in December. During December, 4,300 widgets wereactually produced. The actual cost for each widget was $3.60 when2.25 ounces of raw material at a cost of $1.60 per ounce werepurchased and used. What should be the total direct materials costaccording to Hoppe's flexible budget for December?
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Violetta Inc. manufactures plastic storage boxes. Management hasdetermined that each medium-sized box has a standard materials costof $1.20 when 4 pounds of raw material at a cost of $.30 per poundare used. The static budget for the month of March showed anestimated production of 15,000 boxes in March. During March, 17,000boxes were actually produced. The actual cost for each box was$1.56 when 3.9 pounds of raw material at a cost of $.40 per poundwere purchased and used. What should be the total direct materialscost according to Violetta's flexible budget for March?
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5- 2 Colombo Soft-Serve Frozen Yogurt
In 1994, General Mills Incorporated, a $6 billion consumer goods company, acquired Colombo Frozen Yogurt. General Mills Inc. (GMI) believed they could add Colombo frozen yogurt to their existing product lineup to increase net sales with little addition in marketing cost.
Frozen yogurt is sold through two distinct segments â independent shops and impulse locations such as cafeterias, colleges, and buffets. Frozen yogurt is the main business for the shops whereas yogurt is incremental to the impulse locationsâ main business. GMIâs large sales force already served the impulse market.
The financial results in the first couple of years were mixed. Earnings increased slightly and then dropped each year even though sales volume was relatively flat. In total, merchandising costs dropped, while pricing promotion rates escalated. The GMI sales force focused on the impulse segments and pricing promotions were believed to be driving volume increases. However, volume in the shop segment declined at alarming rates and there was widespread dissatisfaction in the sales organization. While GMI knew sales by segment, they didnât track costs by segment. Instead costs were allocated based on sales dollars. The situation was ripe for a clearer look using ABC methods.
TODAYâS FROZEN YOGURT MARKET STRUCTURE:
When Colombo Yogurt Company began marketing soft-serve frozen yogurt in the early 1980âs, their main distribution was through independent yogurt shops. In the early 90âs, they faced competition from franchise operations such as TCBY and Freshens that replaced many of the independent yogurt shops. And the market changed as Foodservice operators such as cafeterias, colleges, and buffets started to add soft-serve yogurt to their business. By the late 90âs, these Impulse locations accounted for 2/3 of the soft-serve market.
In the late 90âs, Shop sales began to increase with the addition of distinctive new products such as smoothies, boosters, and granitas. The Shops make their living from the soft-serve business and must innovate or go out of business (as thousands have done in the last decade). On the other hand, the Impulse locations make their living from other items and the soft-serve trade is only performance topspin. These firms are unwilling to take any risk (new equipment or extra labor) to serve highly differentiated products like smoothies or granitas.
THE GMI-COLOMBO MARKETING PLAN:
The GMI Foodservice Division markets brands such as Cheerios, Yoplait, Betty Crocker, Gold Medal Flour, Hamburger Helper, Pop-Secret, and Chex Snack to Food Management Firms, Hospitals, and schools. Colombo yogurt was added to this product lineup and the Foodservice sales force covered both Shop and Impulse locations.
Salesforce: Colomboâs salesforce was merged into the Foodservice salesforce. Customers were reassigned to salespeople who already serviced that geographical area. The salespeople varied in their reaction to the product. Some found shops easy to sell to while others avoided the shops despite the possible lost commission. Many spent a lot of time helping their impulse customers understand how to use the machinery.
Merchandising Promotions: Colombo traditionally charged the Shops for merchandising that was large scale and eye popping (neon signs). The Shops used these signs to draw customers inside. GMI chose not to charge for merchandising and to provide the same large scale merchandising to both Shops and Impulse locations. Shops were very interested in the kits while many Impulse locations didnât even hang them up.
Pricing Promotions: Pricing promotions are a mainstay of GMIâs impulse location approach. GMIâs salesforce generally used these promotion events as an opportunity to visit their accounts and take advantage of the occasion to meet service needs and sell other products that may not be featured.
GMI made price promotions available to both segments of the market. While the deals were typically around $5 per case, they averaged $3 per case against all the volume shipped during the year. GMI marketing knew price was not a major decision factor for Shops and they did not target pricing promotions to them. However, Shops were aware of the promotions and took advantage of them.
THE BUSINESS STATUS â PRE-ABC:
PROFIT AND LOSS BY SEGMENT â PRE-ABC | Impulse Segment | Yogurt Shops | Total |
Sales in cases | 1,200,000 | 300,000 | 1,500,000 |
Sales revenue | $23,880,000 | $5,970,000 | $29,850,000 |
Less: Price Promotions | - $ 3,600,000 | - $ 900,000 | - $ 4,500,000 |
Net Sales | $20,280,000 | $5,070,000 | $25,350,000 |
Less: Cost of Goods Sold | - $13,800,000 | - $3,450,000 | - $17,250,000 |
Gross Margin | $ 6,480,000 | $1,620,000 | $ 8,100,000 |
Less: Merchandising | - $ 1,380,000 | - $ 345,000 | - $ 1,725,000 |
Less: SG&A | - $ 948,000 | - $ 237,000 | - $ 1,185,000 |
Net income | $ 4,152,000 | $1,038,000 | $ 5,190,000 |
ABC ANALYSIS OF COST OF GOODS SOLD:
Cost of Goods Sold is made up of $14,250,000 for ingredients, packaging, and storage and $3,000,000 for pick/pack and shipping. Since the product is the same across segments, the cost to produce should be the same. However, pick/pack and shipping costs were found to vary with whether or not the order was for a full pallet. Full pallets cost $75 to pick and ship whereas individual orders cost $2.25 per case. There are 75 cases in a pallet and the segments differ in their utilization of full pallets as shown below.
Impulse Segment | Yogurt Shops | Total | |
Cases in full Pallets | 60,000 | 240,000 | 300,000 |
Individual cases | 1,140,000 | 60,000 | 1,200,000 |
Total cases | 1,200,000 | 300,000 | 1,500,000 |
ABC ANALYSIS OF MERCHANDISING:
Merchandising costs consist mainly of kits costing $500 each. A review of where the kits were sent indicated that 3,450 kits were sent out and 90 of them were sent to shops.
ABC ANALYSIS OF SELLING, GENERAL AND ADMINISTRATIVE:
Since sales representatives service several products, their costs are allocated to the various products based on gross sales dollars. GMI gave diaries to 10% of the sales force in randomly selected markets of the country and asked them to track their time in activity classifications for 60 days. The diaries indicated that sales reps spent almost 3 times as much time on the yogurt than GMI had estimated. The total allocation to Yogurt jumped from $1,185,000 to $3,900,000. Of their time spent on Yogurt, only 1% of the time was spent on the shops.
REQUIRED:
1. Briefly summarize Colomboâs competitive environment and General Millsâ strategy in response to that environment.
2. Using the ABC analysis, determine new segment profitability statements.
3. Based on your analysis in Questions 1 and 2, what changes would you suggest to General Mills? Give specific examples and explain.