Quiz 2 - management accounting PDF

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Quiz 2 Question 1 Espresso Express operates a number of espresso coffee stands in busy suburban malls. The fixed weekly expense of a coffee stand is $1,100 and the variable cost per cup of coffee served is $0.39. Required: 1. Fill in the following table with your estimates of the company's total cost and average cost per cup of coffee at the indicated levels of activity. 2. Does the average cost per cup of coffee served increase, decrease, or remain the same as the number of cups of coffee served in a week increases?

Question 2 Cherokee Inc. is a merchandiser that provided the following information: Amount Number of units sold 10,000 Selling price per unit $ 16 Variable selling expense per unit $ 2 Variable administrative expense per unit $ 1 Total fixed selling expense $20,000 Total fixed administrative expense $13,000 Beginning merchandise inventory $ 8,000 Ending merchandise inventory $23,000 Merchandise purchases $88,000

Required: 1. Prepare a traditional income statement. 2. Prepare a contribution format income statement.

Question 3 Kubin Company’s relevant range of production is 24,000 to 31,000 units. When it produces and sells 27,500 units, its average costs per unit are as follows:

Direct materials Direct labor Variable manufacturing overhead Fixed manufacturing overhead Fixed selling expense Fixed administrative expense Sales commissions Variable administrative expense

Amount per Unit $ 8.40 $ 5.40 $ 2.90 $ 7.10 $ 4.90 $ 3.90 $ 2.40 $ 1.90

Required: 1. If 24,000 units are produced and sold, what is the variable cost per unit produced and sold? 2. If 31,000 units are produced and sold, what is the variable cost per unit produced and sold? 3. If 24,000 units are produced and sold, what is the total amount of variable cost related to the units produced and sold? 4. If 31,000 units are produced and sold, what is the total amount of variable cost related to the units produced and sold? 5. If 24,000 units are produced, what is the average fixed manufacturing cost per unit produced? 6. If 31,000 units are produced, what is the average fixed manufacturing cost per unit produced? 7. If 24,000 units are produced, what is the total amount of fixed manufacturing overhead incurred to support this level of production? 8. If 31,000 units are produced, what is the total amount of fixed manufacturing overhead incurred to support this level of production?

QUESTION 4 Kubin Company’s relevant range of production is 14,000 to 20,500 units. When it produces and sells 17,250 units, its average costs per unit are as follows: Amount per Unit Direct materials $ 7.50 Direct labor $ 4.50 Variable manufacturing overhead $ 2.00 Fixed manufacturing overhead $ 5.50 Fixed selling expense $ 4.00 Fixed administrative expense $ 3.00 Sales commissions $ 1.50 Variable administrative expense $ 1.00

Required: 1. What is the incremental manufacturing cost incurred if the company increases production from 17,250 to 17,251 units? 2. What is the incremental cost incurred if the company increases production and sales from 17,250 to 17,251 units? 3. Assume that Kubin Company produced 17,250 units and expects to sell 17,000 of them. If a new customer unexpectedly emerges and expresses interest in buying the 250 extra units that have been produced by the company and that would otherwise remain unsold, what is the incremental manufacturing cost per unit incurred to sell these units to the customer? 4. Assume that Kubin Company produced 17,250 units and expects to sell 17,000 of them. If a new customer unexpectedly emerges and expresses interest in buying the 250 extra units that have been produced by the company and that would otherwise remain unsold, what incremental selling and administrative cost per unit is incurred to sell these units to the customer?

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QUESTION 5 Munchak Company’s relevant range of production is 9,000-11,000 units. Last month the company produced 10,000 units. Its total manufacturing cost per unit produced was $70. At this level of activity the company’s variable manufacturing costs are 40% of its total manufacturing costs. Required: Assume that next month Munchak produces 10,050 units and that its cost behavior patterns remain unchanged. Label each of the following statements as true or false with respect to next month.

QUESTION 6 The Alpine House, Inc., is a large retailer of snow skis. The company assembled the information shown below for the quarter ended March 31:

Sales Selling price per pair of skis Variable selling expense per pair of skis Variable administrative expense per pair of skis Total fixed selling expense Total fixed administrative expense Beginning merchandise inventory Ending merchandise inventory Merchandise purchases

Amount $ 1,470,000 $ 420 $ 49 $ 19 $ 160,000 $ 115,000 $ 60,000 $ 110,000 $ 310,000

Required: 1. Prepare a traditional income statement for the quarter ended March 31. 2. Prepare a contribution format income statement for the quarter ended March 31. 3. What was the contribution margin per unit? 1.

2.

3.

QUESTION 7 Warner Corporation purchased a machine 7 years ago for $376,000 when it launched product P50. Unfortunately, this machine has broken down and cannot be repaired. The machine could be replaced by a new model 300 machine costing $368,800 or by a new model 200 machine costing $335,400. Management has decided to buy the model 200 machine. It has less capacity than the model 300 machine, but its capacity is sufficient to continue making product P50. Management also considered, but rejected, the alternative of dropping product P50 and not replacing the old machine. If that were done, the $335,400 invested in the new machine could instead have been invested in a project that would have returned a total of $459,800. Required: 1. What is the total differential cost regarding the decision to buy the model 200 machine rather than the model 300 machine? 2. What is the total sunk cost regarding the decision to buy the model 200 machine rather than the model 300 machine? 3. What is the total opportunity cost regarding the decision to invest in the model 200 machine?

QUESTION 8 Todrick Company is a merchandiser that reported the following information based on 1,000 units sold:

Sales $270,000 Beginning merchandise inventory$ 18,000 Purchases $180,000 Ending merchandise inventory $ 9,000 Fixed selling expense $ ? Fixed administrative expense $ 10,800 Variable selling expense $ 13,500 Variable administrative expense $ ? Contribution margin $ 54,000 Net operating income $ 16,200

6.

Required: 1. Prepare a contribution format income statement. 2. Prepare a traditional format income statement. 3. Calculate the selling price per unit. 4. Calculate the variable cost per unit. 5. Calculate the contribution margin per unit. 6. Which income statement format (traditional format or contribution format) would be more useful to managers in estimating how net operating income will change in responses to changes in unit sales?

QUESTION 9 Milden Company is a merchandiser that plans to sell 23,000 units during the next quarter at a selling price of $51 per unit. The company also gathered the following cost estimates for the next quarter: Cost Cost of good sold Advertising expense Sales commissions Shipping expense Administrative salaries Insurance expense Depreciation expense

Cost Formula $21 per unit sold $171,000 per quarter 6% of sales $42,000 per quarter + $7.00 per unit sold $81,000 per quarter $9,100 per quarter $51,000 per quarter

Required: 1. Prepare a contribution format income statement for the next quarter. 2. Prepare a traditional format income statement for the next quarter.

QUESTION 10 Hoi Chong Transport, Ltd., operates a fleet of delivery trucks in Singapore. The company has determined that if a truck is driven 159,000 kilometers during a year, the average operating cost is 12.7 cents per kilometer. If a truck is driven only 106,000 kilometers during a year, the average operating cost increases to 15.8 cents per kilometer. Required: 1. Using the high-low method, estimate the variable operating cost per kilometer and the annual fixed operating cost associated with the fleet of trucks. 2. Express the variable and fixed costs in the form Y = a + bX. 3. If a truck were driven 132,000 kilometers during a year, what total operating cost would you expect to be incurred?...