Week 3 Questions Essays - Business Economics, Management Accounting

Week 3 Questions Essays - Business Economics, Management Accounting Week 3 Questions Christina McBee ACC 400 December 18, 2017 Arlene Murphy Week 3 Questions 20.1 a. The level of sales at which revenue exactly equals costs and expenses Break Even Point b. Costs that remain unchanged despite changes in sales volume Fixed Costs c. The span over which output is likely to vary and assumptions about cost behavior generally remain valid Relevant Range d. Sales revenue less variable costs and expenses Contribution Margin e. Unit sales price minus variable cost per unit Unit Contribution Margin f. The reduction in unit cost achieved from a higher level of output Economies of Scale g. Costs that respond to changes in sales volume by less than a proportionate amount. Semi-variable Costs h. Operating income less variable costs None 20.7a. Contribution margin ratio. (30-6)/30 =.8 is a 20% contribution margin b. Sales volume required to break even. 360000/20%= $ 1,800,000 need to be sold to break even c. Sales volume required to earn an annual operating income of $440,000. 360,000+440,000=800,000/20%= $4,000,000 needs to be sold to earn an operating income of $440,000 d. The margin of safety if annual sales total 60,000 units. 1,800,000/20%= 9,000,000 Sales for 60,000= 1,800,000 Margin of safety is 1,800,000-= 1,800,000 e. Operating income if annual sales total 60,000 units. 1,800,000x20%= $360,000 21.2 Home Depot closing its doors in the China Market caused a $10 million opportunity costs. With the closing of the store, merchandise had to be marked down and the $10 million is the amount of the markdowns, which would have actually been sold if the store had remained open. The sunk costs and the incremental costs would be the remaining $135 million, which would be from things that can not be avoided. 21.6 Fixed Costs 60,000 60,000 Variable Costs 75,000 0 $6 (Per Unit) 90,000 Total 135,000 150,000 The company should continue to produce the product, as they save $15,000 in costs if they do not outsource the product. 22.9 There are 3 characteristics that should be apparent at an accounting level for a company. The first is a budget. There must be a budget in place for every aspect of the business, from the toilet paper for employees, to the amount of labor spent. The second characteristic is timely performance reports. Every company should have some sort of system in place to gather reports on the successes and failures of the business. These reports can include but are not limited to cash flow statements, profit and loss statements, and balance sheets. The third characteristic is the measuring of performance. Each business, or store in this case, should be held accountable for certain performance measures. The responsibility accounting system at Cold Moo could be improved by implementing more of a accountability ratio for each store, as they are not incurring all of the costs that the corporate office is incurring, as far as distribution costs and such. By holding those stores more accountable, th e corporate office should see improvements in the bottom line. 22.1 A. Entire Company Solid Division % of Solid Division Sales Powdered Division % of Powdered Division Sales Sales $1,720,000 $850,000 100% $870,000 100% Contribution Margin $861,000 $382,500 45% $478,500 55% Product Line Fixed Costs $425,000 $175,000 20% $250,000 28% Common Fixed Costs $250,000 $125,000 15% $125,000 14% The responsibility margin for the solid division is at 80% (45+15+20) whereas the responsibility margin for the powdered division is at 97% (55+28+14). B. In looking at both divisions, it would seem that the more profitable of the two would be the solid division. After costs, the solid division leaves a 20% profit, with the powdered division only leaving a 3% profit. C. Entire Company Solid Division % of Solid Division Sales Powdered Division % of Powdered Division Sales Sales $1,820,000 $900,000 100% $920,000 100% Contribution Margin $911,000 $405,000 45% $506,000 55% Fixed Costs Product Lines $425,000 $175,000 20% $250,000 27% Fixed Costs Common $250,000 $125,000 14% $125,000 14% Advertising $15,000 $15,000 2% $15,000 2% After factoring in an advertising cost, the solid line will have a responsibility margin of 81% and the powdered will have a responsibility margin of 98%. Adding the advertising costs to each division only raised the margin by 1% on either side. I would suggest that the company advertise the solid line as the cost margin