CHAPTER 5 COVERAGE OF LEARNING OBJECTIVES
CHAPTER 5
Relevant Information for Decision Making with a Focus on Pricing Decisions
5-A1 (40-50 min.)
1. INDEPENDENCE COMPANY
Contribution Income Statement
For the Year Ended December 31, 2009
(in thousands of dollars)
Sales $2,200 Less variable expenses
Direct material $400
Direct labor 330
Variable manufacturing overhead (Schedule 1) 150 Total variable manufacturing cost of
goods sold $880 Variable selling expenses 80
Variable administrative expenses 25
Total variable expenses 985 Contribution margin $ 1,215 Less fixed expenses:
Fixed manufacturing overhead (Schedule 2) $345
Selling expenses 220
Administrative expenses 119 Total fixed expenses 684 Operating income $ 531
INDEPENDENCE COMPANY
Absorption Income Statement
For the Year Ended December 31, 2009
(in thousands of dollars)
Sales $2,200 Less manufacturing cost of goods sold:
Direct material $400
Direct labor 330
Manufacturing overhead (Schedules 1 and 2) 495 Total manufacturing cost of goods sold 1,225 Gross margin $ 975 Less:
Selling expenses $300
Administrative expenses 144 444 Operating income $ 531
INDEPENDENCE COMPANY
Schedules of Manufacturing Overhead
For the Year Ended December 31, 2009
(in thousands of dollars)
Schedule 1: Variable Costs
Supplies $ 20
Utilities, variable portion 40
Indirect labor, variable portion 90 $150 Schedule 2: Fixed Costs
Utilities, fixed portion $ 15
Indirect labor, fixed portion 50
Depreciation 200
Property taxes 20
Supervisory salaries 60 345 Total manufacturing overhead $495 2. Change in revenue $200,000
Change in total contribution margin:
Contribution margin ratio in part 1
is $1,215 ÷ $2,200 = .552
Ratio times decrease in revenue is .552 × $200,000 $ 110,400 Operating income before change 531,000 New operating income $420,600 This analysis is readily done by using data from the contribution income statement.
In contrast, the data in the absorption income statement must be analyzed and split into variable and fixed categories before the effect on operating income can be
estimated.
5-A2 (25-30 min.)
1. A contribution format, which is similar to Exhibit 5-6, clarifies the analysis.
Without With
Special Effect of Special
Order Special Order Order Units 2,000,000 150,000 2,150,000
Total Per Unit
Sales $11,000,000 $660,000 $4.40 1$11,660,000 Less variable expenses:
Manufacturing $ 3,500,000 $322,500 $2.15 2$ 3,822,500 Selling & administrative 800,000 35,250 .2353 835,250 Total variable expenses $ 4,300,000 $357,750 $2.385 $ 4,647,250 Contribution margin $ 6,700,000 $302,250 $2.015 $ 7,002,250 Less fixed expenses:
Manufacturing $ 3,000,000 0 0.00 $ 3,000,000 Selling & administrative 2,200,000 0 0.00 2,200,000 Total fixed expenses $ 5,200,000 0 0.00 $ 5,200,000 Operating income $ 1,500,000 $302,250 $2.015 $ 1,802,250 1$660,000 ÷ 150,000 = $4.40
2Regular unit cost = $3,500,000 ÷ 2,000,000 = $1.75 Logo .40
Variable manufacturing costs $2.15
3Regular unit cost = $800,000 ÷ 2,000,000 = $ .40 Less sales commissions not paid (3% of $5.50) (.165)
Regular unit cost, excluding sales commission $ .235
2. Operating income from selling 7.5% more units would increase by $302,250 ÷
$1,500,000 = 20.15%. Note also that the average selling price on regular
business was $5.50. The full cost, including selling and administrative expenses, was $4.75. The $4.75, plus the 40¢ per logo, less savings in commissions
of .165¢ came to $4.985. The president apparently wanted $4.985 + .08($4.985)
= $4.985 + .3988 = $5.3838 per pen.
Most students will probably criticize the president for being too stubborn. The
cost to the company was the forgoing of $302,250 of income in order to protect
the company's image and general market position. Whether $302,250 was a wise investment in the future is a judgment that managers are paid for rendering.
5-A3 (15-20 min.)
The purpose of this problem is to underscore the idea that any of a number of general formulas might be used that, properly employed, would achieve the same target selling prices. Desired sales = $7,500,000 + $1,500,000 = $9,000,000.
The target markup percentage would be:
1. 100% of direct materials and direct labor costs of $4,500,000.
Computation is: ($9,000,000 - $4,500,000) ÷ $4,500,000 = 100%
2. 50% of the full cost of jobs of $6,000,000.
Computation is: ($9,000,000 - $6,000,000) ÷ $6,000,000 = 50%
3. [$9,000,000 – ($3,500,000 + $1,000,000 + $700,000)] ÷ $5,200,000 = 73.08%
4. ($9,000,000 - $7,500,000) ÷ $7,500,000 = 20%
5. [$9,000,000 – ($3,500,000 + $1,000,000 + $700,000 + $500,000)] ÷ $5,700,000
= $3,300,000 ÷ $5,700,000 = 57.9%
If the contractor is unable to maintain these profit percentages consistently, the desired operating income of $1,500,000 cannot be obtained.
1. Revenue ($360 × 70,000) $25,200,000
Total cost over product life 16,000,000 Estimated contribution to profit $ 9,200,000 Desired (target) contribution to profit
40% × $25,200,000 10,080,000 Deficiency in profit $ 880,000
The product should not be released to production.
2. Previous total estimated cost $16,000,000
Cost savings from suppliers
.20 × .70 × $8,000,000 1,120,000 Revised total estimated cost $14,880,000 Revised total contribution to profit:
$25,200,000 - $14,880,000 $10,320,000 Desired (target) contribution to profit 10,080,000 Excess contribution to profit $ 240,000
The product should be released to production.
3. Previous revised total estimated cost from
requirement 2. $14,880,000 Process improvement savings:
.25 × .30 × $8,000,000 $600,000
Less cost of new technology 220,000 380,000 Revised total estimated cost 14,500,000 Revised total contribution to profit:
$25,200,000 - $14,500,000 $10,700,000 Desired (target) contribution to profit 10,080,000 Excess contribution to profit $ 620,000 The product should be released to production.
1. KINGLAND MANUFACTURING
Contribution Income Statement
For the Year Ended December 31, 2009
(In thousands of dollars)
Sales $13,000 Less variable expenses:
Direct material $4,000
Direct labor 2,000
Variable indirect manufacturing
costs (Schedule 1) 960
Total variable manufacturing cost of goods sold $6,960
Variable selling expenses:
Sales commissions $500
Shipping expenses 300 800
Variable clerical salaries 400
Total variable expenses 8,160 Contribution margin $ 4,840 Less fixed expenses:
Manufacturing (Schedule 2) $ 702
Selling (advertising) 400 Administrative-executive salaries 100
Total fixed expenses 1,202 Operating income $ 3,638
KINGLAND MANUFACTURING
Absorption Income Statement
For the Year Ended December 31, 2009
(In thousands of dollars)
Sales $13,000 Less manufacturing cost of goods sold:
Direct material $4,000
Direct labor 2,000
Indirect manufacturing costs
(Schedules 1 and 2) 1,662
Gross profit 5,338 Selling expenses:
Sales commissions $500
Advertising 400
Shipping expenses 300 $1,200 Administrative expenses:
Executive salaries $100
Clerical salaries 400 500 1,700 Operating income $ 3,638
KINGLAND MANUFACTURING
Schedules 1 and 2
Indirect Manufacturing Costs
For the Year Ended December 31, 2009
(In thousands of dollars)
Schedule 1: Variable Costs
Cutting bits $ 60
Abrasives for machining 100
Indirect labor 800 $ 960
Schedule 2: Fixed Costs
Factory supervisors' salaries $100
Factory methods research 40
Long-term rent, factory 100
Fire insurance on equipment 2
Property taxes on equipment 30
Depreciation on equipment 400
Factory superintendent's salary 30 702
Total indirect manufacturing costs $1,662
2. Operating income would decrease from $3,638,000 to $3,268,000:
Decrease in revenue $1,000,000
Decrease in total contribution margin*:
Ratio times revenue is .37 × $1,000,000 $ 370,000
Decrease in fixed expenses 0
Operating income before increase 3,638,000
New operating income $3,268,000
*Contribution margin ratio in contribution income statement is $4,840 ÷
$13,000 = .37 (rounded).
The above analysis is readily calculated by using data from the contribution income statement. In contrast, the data in the absorption income statement must be analyzed and divided into variable and fixed categories before the effect on operating income can be estimated.
5-B2 (30-40 min.)
1. DANUBE COMPANY
Income Statement
For the Year Ended December 31, 20X0
Total Per Unit Sales $40,000,000 $20.00
Less variable expenses:
Manufacturing $18,000,000
Selling & administrative 9,000,000 27,000,000 13.50
Contribution margin $13,000,000 $ 6.50
Less fixed expenses:
Manufacturing $ 4,000,000
Selling & administrative 6,000,000 10,000,000 5.00
Operating income $ 3,000,000 $ 1.50 2. Additional details are either in the statement of the problem or in the solution to
requirement 1:
Total Per Unit Full manufacturing cost $22,000,000 $11.00 Variable cost:
Manufacturing $18,000,000 $ 9.00 Selling and administrative 9,000,000 4.50 Total variable cost $27,000,000 $13.50 Full cost = fully allocated cost*
Full manufacturing cost $22,000,000 $11.00 Selling and administrative expenses 15,000,000 7.50 Full cost $37,000,000 $18.50 Gross margin ($40,000,000 - $22,000,000) $18,000,000 $ 9.00 Contrib. margin ($40,000,000 - $27,000,000) $13,000,000 $ 6.50 * Students should be alerted to the loose use of these words. Their meaning may
not be exactly the same from company to company. Thus, "fully allocated
cost" in some companies may be used to refer to manufacturing costs only.
3. Ricardo’s analysis is incorrect. He was on the right track, but he did not
distinguish sufficiently between variable and fixed costs. For example, when
multiplying the additional quantity ordered by the $11 full manufacturing cost, he
failed to recognize that $2.00 of the $11 full manufacturing cost was a "unitized"
fixed cost allocation. The first fallacy is in regarding the total fixed cost as
though it fluctuated like a variable cost. A unit fixed cost can be misleading if it
is used as a basis for predicting how total costs will behave.
A second false assumption is that no selling and administrative expenses will be
affected except commissions. Shipping expenses and advertising allowances will
be affected also -- unless arrangements with Costco on these items differ from
the regular arrangements.
The following summary, which is similar to Exhibit 5-6 in the textbook, is a
correct analysis. The middle columns are all that are really necessary.
Without With
Special Effect of Special
Order Special Order Order Units 2,000,000 100,000 2,100,000
Total Per Unit
Sales $40,000,000 $1,600,000 $16.00 $41,600,000 Less variable expenses:
Manufacturing $18,000,000 $ 900,000 $ 9.00 $18,900,000 Selling and administrative 9,000,000 330,000 3.30* 9,330,000 Total variable expenses $27,000,000 $1,230,000 $12.30 $28,230,000 Contribution margin $13,000,000 $ 370,000 $ 3.70 $13,370,000 Less fixed expenses:
Manufacturing $ 4,000,000 0 0.00 $ 4,000,000 Selling and administrative 6,000,000 20,000 0.20** 6,020,000 Total fixed expenses $10,000,000 20,000 0.20 $10,020,000 Operating income $ 3,000,000 $ 350,000 $ 3.50 $ 3,350,000 * Regular variable selling and administrative expenses,
$9,000,000 ÷ 2,000,000 = $ 4.50 Less: Average sales commission at 6% of $20 = (1.20) Regular variable sell. and admin. expenses, less commission $ 3.30
**Fixed selling and administrative expenses, special
commission, $20,000 ÷ 100,000 .20
Some students may wish to enter the $20,000 as an extra variable cost, making
the unit variable selling and administrative cost $3.50 and thus adding no fixed
cost. The final result would be the same; in any event, the cost is relevant
because it would not exist without the special order.
Some instructors may wish to point out that a 5% increase in volume would
cause an 11.7% increase in operating income, which seems like a high
investment by Danube to maintain a rigid pricing policy.
4. Ricardo is incorrect. Operating income would have declined from $3,000,000 to
$2,850,000, a decline of $150,000. Ricardo’s faulty analysis follows:
Old fixed manufacturing cost per unit,
$4,000,000 ÷ 2,000,000 = $2.00 New fixed manufacturing cost per unit,
$4,000,000 ÷ 2,500,000 = 1.60 "Savings" $ .40
Loss on variable manufacturing costs per unit,
$8.70 - $9.00 (.30) Net savings per unit in manufacturing costs $ .10
The analytical pitfalls of unit-cost analysis can be avoided by using the
contribution approach and concentrating on the totals:
Without Effect of With
Special Special Special
Order Order Order Sales $40,000,000 $4,350,000a$44,350,000
Variable manufacturing
costs $18,000,000 $4,500,000b$22,500,000 Other variable costs 9,000,000 0 9,000,000 Total variable costs $27,000,000 $4,500,000 $31,500,000 Contribution margin $13,000,000 $ (150,000)c$12,850,000 a
500,000 × $8.70 selling price of special order
b
500,000 × $9.00 variable manufacturing cost per unit of special order
c
500,000 × $.30 negative contribution margin per unit of special order
No matter how fixed manufacturing costs are unitized, or spread over the units
produced, their total of $4,000,000 remains unchanged by the special order.
5-B3 (10-15 min.)
1. Cost-plus pricing is adding a specified markup to cost to cover those components of the value chain not included in the cost plus a desired profit. In this case the markup is 30% of production cost.
Price charged for piston pin = 1.30 × $50.00 = $65.00. If the estimated selling price is only $46 and this price cannot be influenced by Caterpillar, a manager would be unlikely to favor releasing this product for production.
2. Target costing assumes the market price cannot be influenced by companies except by changing the value of the product to consumers. The price charged would then be the $46 estimated by market research.
The highest acceptable manufactured cost or target cost, T, is
Dollars
Target Price $ 46.00
Target Cost T
Target Gross Margin $ .30T
46 – T = .30T
1.30T = 46
T = 46 ÷ 1.30 = $35.38
3. The required cost reduction over the product’s life is
Existing manufacturing cost $50.00
Target manufacturing cost 35.38
Required cost reduction $14.62
Steps that Caterpillar managers can take to meet the required cost reduction include value engineering during the design phase, Kaizen costing during the production phase, and activity-based management throughout the product’s life.
5-1 Precision is a measure of the accuracy of certain data. It is a quantifiable term. Relevance is an indication of the pertinence of certain facts for the problem at hand. Ideally, data should be both precise and relevant, but relevance generally takes priority.
5-2 Decisions may have both quantitative and qualitative aspects corresponding to the nature of the facts being considered before deciding. Quantitative implications of alternative choices can be expressed in monetary or numerical terms, such as variable costs, initial investment, etc. Other relevant features may not be quantifiable, such as the quality of life in a choice between locating in San Francisco or New York. The advantage of quantitative information is that it is more objective and often easier to compare alternatives than with qualitative judgments.
5-3 The accountant's role in decision-making is primarily that of a technical expert on relevant information analysis, especially relevant costs. The accountant is usually an information provider, not the decision maker, although the accountant may be part of a management team charged with making decisions.
5-4 No. Only future costs that are different under different alternatives are relevant to a decision.
5-5 Past data are unchangeable regardless of present or future action and thus would not differ under different alternatives.
5-6 Past costs may be bases for formulating predictions. However, past costs are not inputs to the decision model itself because past costs cannot be changed by the decision.
5-7 The contribution approach has several advantages over the absorption approach, including a better analysis of cost-volume-profit relationships, clearer presentation of all variable costs, and more relevant arrangement of data for such decisions as make-or-buy or product expansion.
5-8 The terms that describe an income statement that emphasizes the differences between variable or fixed costs are contribution approach, variable costing, or direct costing.
5-9 The commonalty of approach is the focus on the differences between future costs and revenues of different available alternatives.
5-10 No, fixed costs are not always irrelevant. Often they are not relevant. However, they can be relevant if they are affected by the decision being considered.
5-11 Customers are one of the factors influencing pricing decisions because they can buy or do without the product, they can make the product themselves, or they can usually purchase a similar product from another supplier.
5-12 Target cost per unit is the average total unit cost over the product’s life cycle that will yield the desired profit margin.
5-13 Value engineering is a cost-reduction technique, used primarily during the design function in the value chain, that uses information about all value chain functions to satisfy customer needs while reducing costs.
5-14 Kaizen costing is the Japanese term for continuous improvement during manufacturing.
5-15 In target costing, managers start with a market price. Then they try to design a product with costs low enough to be profitable at that price. Thus, prices essentially determine costs.
5-16 Customer demands and requirements are important in the product development process. Many companies seek customer input on the design of product features. They seek to reduce non-value-added costs without affecting product features that are valuable to customers. Suppliers are also important. Companies purchase many of the materials used in products. They have to work with suppliers to get the lowest cost for these materials.
5-17 Not necessarily. There are other important factors that management must consider before discontinuing a product. The product may be necessary to round out a product line. The product may be the company’s attempt to break into a new market area or new product class.
5-18 The variable costs of a job can be misused as a guide to pricing. However, the adjusted markup percentages based on variable costs can have the same price result as those based on total costs, plus they have the advantage of indicating the minimum price at which any sale may be considered profitable even in the short run.
5-19 Three examples of pricing decisions are (1) pricing new products, (2) pricing products sold under private labels, and (3) responding to new prices of a competitor's products.
5-20 Three popular markup formulas are (1) as a percentage of variable manufacturing costs, (2) as a percentage of total variable costs, and (3) as a percentage of full costs.
5-21 Two long-run effects that inhibit price cutting are (a) the effects on longer-run price structures and (b) the effects on longer-run relations with customers.
5-22 Full costs are more popular than variable costs for pricing because price stability is encouraged and in the long run all costs must be recovered to stay in business.
5-23 No. There is a confusion between total fixed costs and unit fixed costs. Increasing sales volume will decrease unit fixed costs, but not total fixed costs. This assumes that the volume increase results in operating levels that are still within the relevant range.
5-24 Managers generally find contribution margin income statements more useful, especially if they are concerned with short-term results. The contribution margin statement provides information on the immediate profit impact of increases or decreases in sales.
5-25 Marginal cost is the additional cost resulting from producing and selling one additional unit. It changes as production volume changes. With a given fixed capacity, marginal cost generally decreases up to a point and then increases. Variable cost is the accountant's approximation to marginal cost. It remains constant over the relevant range of volume. Because the difference between these two costs often is not material (within the relevant range), in such cases we can use the variable-cost estimate of marginal cost for decision-making purposes.
5-26 Pricing decisions must be made within legal constraints. These laws help protect companies from predatory and discriminatory pricing. Predatory pricing involves setting prices so low that they drive competitors out of the market. Discriminatory pricing is charging different prices to different customers for the same product or service.
5-27 Managers are directly involved in the research and development and the design functions. During the initial product research phase, managers often are involved in surveys, focus groups (with major airlines), and other market research activities to explore the potential for a new airplane. During process and product design, managers help with such tasks as negotiations with suppliers and cost analyses. Production managers provide input regarding cost reduction ideas. Marketing managers provide input regarding customer needs (a super large plane with more than 500 seats versus more medium-sized planes that can serve more markets). Distribution managers provide input regarding the costs of various channels of distribution. Finally, managers involved with customer relations provide input regarding the likely cost-to-serve profile for expected customers for a new product.
5-28 (5 min.)
All the data given are historical costs. Most students will identify the $5 and $7 prices as relevant. They will also declare that the $3 price of popcorn is irrelevant. Press them to see that the relevant admission prices are expected future costs that will differ between the alternatives. The past prices are being used as a basis for predicting the future prices.
Similarly, the past prices of popcorn were not different. Hence, they are regarded as irrelevant under the assumption that the future prices will not differ.
5-29 (20 min.) Some students may forget to apply the 10% wage rate increase to both alternatives.
(1) Historical direct materials were $5.00
per unit; direct labor was $6.00 per unit. (2) (2) Direct material costs are expected to
fall by 10%, or 50¢ per unit. Direct
labor costs are affected by a 10% rate
increase and a 5% increase in labor
time if the new material is used.
(3) (3) Cost comparisons per unit:
Old New
Material Material
Direct material $ 5.00 $ 4.50
Direct labor
$6.00 × 110% 6.60
$6.00×110%×105% 6.93
Expected future
cost $11.60 $11.43
(4) The chosen action is implemented,
and the evaluation of performance be-
comes a principal source of feedback.
This historical information aids the
decision process (prediction, decision,
and implementation) of future decisions.
5-30 (10 min.)
Relevant costs are the future costs that differ between alternatives. Among the irrelevant costs are the cost of tickets to the symphony, automobile costs, and baby-sitting cost for the first four hours. The relevant costs are:
Symphony Game Difference Tickets, 2 @ $20 each $0 $40 $40
Parking 0 6 6
Baby-sitting, 1 extra
hour @ $7 0 7 7
Total $0 $53 $53 The baseball game is $53 more costly to the Petrocelis than is the symphony.
5-31 (10 min.) This is a basic exercise. Answers are in thousands of dollars.
1. 200 + 200 + 170 = 570
2. 800 - 570 = 230
3. 230 - 150 = 80
4. 570 – 200 = 370; or 200 + 170 = 370
5-32 (10-15 min.) This is a basic exercise.
Sales ¥950
Variable expenses:
Direct materials ¥290
Direct labor 160
Variable factory overhead 60
(a) Variable manufacturing cost of
goods sold ¥510
Variable selling and admin. expenses 100
Total variable expenses 610
(b) Contribution margin ¥340
Fixed expenses:
Fixed factory overhead ¥120
Fixed selling and administrative
expenses 45 165
(c) Operating income ¥ 175
5-33 (15-20 min.)
This is a straightforward exercise in basic terms and relationships. To fill all the
blanks, both absorption and contribution income statements must be prepared. Data are
in millions of dollars. Required answers are in italics.
Absorption Contribution
Approach Approach Sales $920 $920 Direct materials used $350 $350
Direct labor 210 210
Variable indirect
manufacturing costs 100 100
f. Variable manufacturing cost of
goods sold 660 Variable selling and administrative
expenses 90 Total variable expenses 750 k. Contribution margin 170 Fixed factory overhead 50 50
g. Manufacturing cost of goods sold 710
j. Gross profit 210
Fixed selling and administrative
expenses 80 80 130 Variable selling and administrative
expenses 90 170
Operating income $ 40 $ 40
5-34 (10-20 min.) Answers are in thousands of rands (ZAR).
Prime costs = Direct material + Direct labor
600 = 370 + DL
DL = 230
The body of a model income statement follows. The computations are explained
for each item that was originally blank. Numbers given in the problem are in bold.
Sales, 780 + 120 ZAR900
Direct materials ZAR370
Direct labor, 600 - 370 230
Factory overhead, 780 - (370 + 230) 180
Manufacturing cost of goods sold 780
Gross margin ZAR120
Selling and administrative expenses* 100
Operating income ZAR 20
*120 - 20
5-35 (15-20 min.) The data are placed in the format of the income statement, and the unknowns are computed as shown:
Sales $890 Variable expenses
Direct materials $150
Direct labor 170
Variable indirect manufacturing 110
Variable manufacturing cost of goods sold 430 1 Variable selling and administrative expenses 260 2
Total variable expenses (890 - 200) 690
Contribution margin 200 Fixed expenses
Fixed indirect manufacturing $ 90 3
Fixed selling and administrative expenses 100 190 Operating income $ 10 1150 + 170 + 110 = 430
2890 - 200 = 690; 690 - 430 = 260
3Total fixed expenses = 200 - 10 = 190
Fixed indirect manufacturing = 190 - 100 = 90
5-36 (10-15 min.)
1. Operating income would increase by $300 if the order is accepted.
Without Effect of With
Special Special Special
Order Order Order Units 2,000 100 2,100 Sales $36,000 $1,500 $37,500 Purchase cost 20,000 1,000 21,000 Variable printing cost 4,000 200 4,200 Total variable cost 24,000 1,200 25,200 Contribution margin 12,000 300 12,300 Fixed cost 8,000 0 8,000 Operating income $ 4,000 $ 300 $ 4,300 2. If maximizing operating income in the short run were the only goal, the order
should be accepted. However, if qualitative considerations favoring rejection are worth more than the $300 increase in operating income, the manager would
reject the offer. For example, accepting the offer from F. C. Kitsap may generate similar offers from other clubs who now willingly pay the $18 normal price.
Lost profits on such business might more than offset the $300 gain on this sale.
On the other hand, this might be a way of gaining F. C. Kitsap as a regular
customer who will then buy other items that generate a profit well in excess of
the $300.
CHAPTER 7 COVERAGE OF LEARNING OBJECTIVES
Introduction to Budgets and Preparing the Master Budget 7-A1 (60-90 min.) 1. Exhibit I RAPIDBUY ELECTRONICS, INC. Mall of America Store Budgeted Income Statement For the Three Months Ending August 31, 20X8 Sales $300,000 Cost of goods sold (.62 × $300,000) 186,000 Gross profit $114,000 Operating expenses: Salaries, wages, commissions $60,000 Other expenses 12,000 Depreciation 1,500 Rent, taxes and other fixed expenses 33,000 106,500 Income from operations. $ 7,500 Interest expense* 1,338 Net income $ 6,162 * See schedule g for calculation of interest.
RAPIDBUY ELECTRONICS, INC. Mall of America Store Cash Budget For the Three Months Ending August 31, 20X8 June July August Beginning cash balance $ 5,800 $ 5,600 $ 5,079 Minimum cash balance desired 5,000 5,000 5,000 (a) Available cash balance $ 800 $ 600 $ 79 Cash receipts & disbursements: Collections from customers (schedule b) $ 75,200 $121,400 $ 90,800 Payments for merchandise (schedule d) (86,800) (49,600) (49,600) Fixtures (purchased in May) (11,000) - - Payments for operating expenses (schedule f) (44,600) (30,200) (30,200) (b) Net cash receipts & disbursements $(67,200) $ 41,600 $ 11,000 Excess (deficiency) of cash before financing (a + b) (66,400) 42,200 11,079 Financing: Borrowing, at beginning of period $ 67,000$ - $ - Repayment, at end of period - (41,000) (10,000) Interest, 10% per annum - (1,121)* (217)* (c) Total cash increase (decrease) from financing $ 67,000 $(42,121) $(10,217) (d) Ending cash balance (beginning balance + b + c) $ 5,600 $ 5,079 $ 5,862 * See schedule g
CHAPTER 4 COVERAGE OF LEARNING OBJECTIVES
CHAPTER 4 Cost Management Systems and Activity-Based Costing 4-A1 (20-30 min.) See Table 4-A1 on the following page. 4-A2 (25-30 min.) 1. Merchandise Inventories, 1,000 devices @ $97 $97,000 2. Direct materials inventory $ 40,000 Work-in-process inventory 0 Finished goods inventory 97,000 Total inventories $137,000 3. NILE ELECTRONICS PRODUCTS Statement of Operating Income For the Year Ended December 31, 20X9 Sales (9,000 units at $170) $1,530,000 Cost of goods sold: Beginning inventory $ 0 Purchases 970,000 Cost of goods available for sale $ 970,000 Less ending inventory 97,000 Cost of goods sold (an expense) 873,000
Gross margin or gross profit $ 657,000 Less other expenses: selling & administrative costs 185,000 Operating income (also income before taxes in this example) $ 472,000
CHAPTER 5 COVERAGE OF LEARNING OBJECTIVES
CHAPTER 5 Relevant Information for Decision Making with a Focus on Pricing Decisions 5-A1 (40-50 min.) 1. INDEPENDENCE COMPANY Contribution Income Statement For the Year Ended December 31, 2009 (in thousands of dollars) Sales $2,200 Less variable expenses Direct material $400 Direct labor 330 Variable manufacturing overhead (Schedule 1) 150 Total variable manufacturing cost of goods sold $880 Variable selling expenses 80 Variable administrative expenses 25 Total variable expenses 985 Contribution margin $ 1,215 Less fixed expenses: Fixed manufacturing overhead (Schedule 2) $345 Selling expenses 220 Administrative expenses 119 Total fixed expenses 684 Operating income $ 531
亨格瑞管理会计英文第15版练习答案07 CHAPTER 7 COVERAGE OF LEARNING OBJECTIVES CRITICAL CASES, FUNDA- THINKING EXCEL, MENTAL EXERCISES COLLAB. & ASSIGNMENT AND INTERNET LEARNING OBJECTIVE MATERIAL EXERCISES PROBLEMS EXERCISES LO1: Explain how budgets A1,B1 facilitate planning and coordination. LO2: Anticipate possible 25 40 human relations problems caused by budgets. LO3: Explain potentially 22 39, 40 dysfunctional incentives in the budget process. LO4: Explain the difficulties 23 42 49 of sales forecasting. LO5: Explain the major A1,B1 24,26 39 features and advantages of a master budget. LO6: Follow the principal A1,B1 29 40 43,45 steps in preparing a master budget. LO7: Prepare the operating A1,B1 28,29,30,31 40 43,45,46,48 budget and the supporting schedules.
CHAPTER 11 Capital Budgeting 11-A1 (15-25 min.) Answers are printed in the text at the end of the assignment material. 11-29 (10-15 min.) 1. The present value is $480,000 and the annual payments are an annuity, requiring use of Table 2: (a)$480,000 = annual payment × 11.2578 annual payment = $480,000 ÷ 11.2578 = $42,637 (b)$480,000 = annual payment × 9.4269 annual payment = $480,000 ÷ 9.4269 = $50,918 (c)$480,000 = annual payment × 8.0552 annual payment = $480,000 ÷ 8.0552 =$59,589 2. (a)$480,000 = annual payment × 8.5595 annual payment = $480,000 ÷ 8.5595 = $56,078 (b)$480,000 = annual payment × 7.6061 annual payment = $480,000 ÷ 7.6061 = $63,107 (c)$480,000 = annual payment × 6.8109 annual payment = $480,000 ÷ 6.8109 =$70,475 3. (a) Total payments= 30 × $50,918 = $1,527,540 Total interest paid= $1,527,540- $480,000 = $1,047,540 (b) Total payments= 15 × $63,107= $946,605 Total interest paid = $946,605 - $480,000 = $466,605 11-36 (10 min.) Buy. The net present value is positive. Initial outlay * $(21,000) Present value of cash operating savings, from 12-year, 12% column of Table 2, 6.1944 × $5,000 30,972 Net present value $ 9,972 * The trade-in allowance really consists of a $5,000 adjustment of the selling price and a bona fide $10,000 cash allowance for the old equipment. The relevant amount is the incremental cash outlay, $21,000. The book value is irrelevant. 11-39 (10-15 min.) Copyright ?2011 Pearson Education 1
CHAPTER 6 COVERAGE OF LEARNING OBJECTIVES
LO6: Decide A4,B5 40 57,59 whether to keep or replace equipment. 26,39,41 52,58,64 71 LO7: Identify irrelevant and misspecified costs. B6 43 60 LO8: Discuss how performance measures can affect decision making. CHAPTER 6 Relevant Information and Decision Making With a Focus on Operational Decisions 6-A1 (20 min) 1. The key to this question is what will happen to the fixed overhead costs if production of the boxes is discontinued. Assume that all $60,000 of fixed costs will continue. Then, Sunshine State will lose $20,000 by purchasing the boxes from Weyerhaeuser: Payment to Weyerhaeuser, 80,000 × $2.10$168,000 Costs saved, variable costs 148,000 Additional costs $ 20,000 2. Some subjective factors are: Might Weyerhaeuser raise prices if Sunshine State closed down its box-making facility? Will sub-contracting the box production affect the quality of the boxes? Is a timely supply of boxes assured, even if the number needed changes? Does Sunshine State sacrifice proprietary information when disclosing the box specifications to Weyerhaeuser? 3. In this case the fixed costs are relevant. However, it is not the depreciation on the old equipment that is relevant. It is
CHAPTER 7 COVERAGE OF LEARNING OBJECTIVES CHAPTER 7 Introduction to Budgets and Preparing the Master Budget 7-A1 (60-90 min.)
1. Exhibit I RAPIDBUY ELECTRONICS, INC. Mall of America Store Budgeted Income Statement For the Three Months Ending August 31, 20X8 Sales $300,000 Cost of goods sold (.62 × $300,000) 186,000 Gross profit $114,000 Operating expenses: Salaries, wages, commissions $60,000 Other expenses 12,000 Depreciation 1,500 Rent, taxes and other fixed expenses 33,000 106,500 Income from operations. $ 7,500 Interest expense* 1,338 Net income $ 6,162 * See schedule g for calculation of interest. Exhibit II RAPIDBUY ELECTRONICS, INC. Mall of America Store Cash Budget For the Three Months Ending August 31, 20X8 JuneJulyAugust Beginning cash balance $ 5,800 $ 5,600 $ 5,079 Minimum cash balance desired 5,000 5,000 5,000 (a) Available cash balance $ 800$ 600$ 79 Cash receipts & disbursements: Collections from customers (schedule b) $ 75,200 $121,400 $ 90,800 Payments for merchandise (schedule d) (86,800) (49,600) (49,600) Fixtures (purchased in May) (11,000) - - Payments for operating expenses (schedule f) (44,600) (30,200) (30,200) (b) Net cash receipts & disbursements $(67,200) $ 41,600 $ 11,000 Excess (deficiency) of cash before financing (a + b) (66,400) 42,200 11,079 Financing: Borrowing, at beginning of period $ 67,000 $ - $ - Repayment, at end of period - (41,000) (10,000) Interest, 10% per annum - (1,121)* (217)*
管理会计key terms Chapter1 1、activity-based management 作业管理 2、certified internal auditor(CIA)注册内部审计师 3、Certified management accountant(CMA)注册管理会计师 4、certified public accountant(CPA)注册会计师 5、continuous improvement 持续改进 6、controller 管理员 7、controlling 控制 8、customer value 客户价值 9、decision making决策 10、electronic business(e-business)电子商务 11、electronic commerce(e-commerce)电子商务 12、employee empowerment 员工激励 13、ethical behavior 道德行为 14、external linkages 外部联系 15、feedback反馈 16、financial accounting information system 财务会计信息系统 17、industrial value chain 产业价值链 18、internal linkages外部联系 19、internal value chain内部价值链 20、line position 直接职能 21、management accounting information system管理会计信息系统 22、performance reports 业绩报告 23、planning计划 24、postpurchase costs 售后服务成本 25、staff positon间接职能 26、strategic cost management 战略成本管理 27、strategic decision making 战略决策 28、supply chain management 供应链管理 29、total product 总产量 30、total quality management 全面质量管理 31、treasurer 财务主管 Chapter2 1、absorption-costing(full-costing)income完全成本法收益 2、activity 作业 3、activity-based costing(ABC)作业成本法 4、activity-based management(ABM)作业成本管理 5、activity-based management(ABM)accounting systerms作业成本管理会计系统
CHAPTER 3 COVERAGE OF LEARNING OBJECTIVES
CHAPTER 3 Measurement of Cost Behavior 3-A1 (20-25 min.) Some of these answers are controversial, and reasonable cases can be built for alternative classifications. Class discussion of these answers should lead to worthwhile disagreements about anticipated cost behavior with regard to alternative cost drivers. 1. (b) Discretionary fixed cost. 2. (e) Step cost. 3. (a) Purely variable cost with respect to revenue. 4. (a) Purely variable cost with respect to miles flown. 5. (d) Mixed cost with respect to miles driven. 6. (c) Committed fixed cost. 7. (b) Discretionary fixed cost. 8. (c) Committed fixed cost. 9. (a) Purely variable cost with respect to cases of 7-Up. 10. (b) Discretionary fixed cost. 11. (b) Discretionary fixed cost. 3-A2 (25-30 min.) 1. Support costs based on 60% of the cost of materials: Sign A Sign B Direct materials cost $400 $200 Support cost (60% of materials cost) $240 $120 Support costs based on $50 per power tool operation: Sign A Sign B Power tool operations 3 6 Support cost $150 $300 2. If the activity analysis is reliable, by using the current method, Evergreen Signs is predicting too much cost for signs that use few power tool operations and is predicting too little cost for signs that use many power tool operations. As a result the company could be losing jobs that require few power tool operations because its bids are too high -- it could afford to bid less on these jobs. Conversely, the company could be getting too many jobs that require many power tool operations, because its bids are too low -- given what the "true" costs will be, the company cannot afford these jobs at those prices. Either way, the sign business could be more profitable if the owner better understood and used activity analysis. Evergreen Signs would be advised to adopt the activity- analysis recommendation, but also to closely monitor costs to see if the activity- analysis predictions of support costs are accurate.
CHAPTER 3 COVERAGE OF LEARNING OBJECTIVES
CHAPTER 3 Measurement of Cost Behavior 3-A1 (20-25 min.) Some of these answers are controversial, and reasonable cases can be built for alternative classifications. Class discussion of these answers should lead to worthwhile disagreements about anticipated cost behavior with regard to alternative cost drivers. 1. (b) Discretionary fixed cost. 2. (e) Step cost. 3. (a) Purely variable cost with respect to revenue. 4. (a) Purely variable cost with respect to miles flown. 5. (d) Mixed cost with respect to miles driven. 6. (c) Committed fixed cost. 7. (b) Discretionary fixed cost. 8. (c) Committed fixed cost. 9. (a) Purely variable cost with respect to cases of 7-Up. 10. (b) Discretionary fixed cost. 11. (b) Discretionary fixed cost. 3-A2 (25-30 min.) 1. Support costs based on 60% of the cost of materials: Sign A Sign B Direct materials cost $400 $200 Support cost (60% of materials cost) $240 $120 Support costs based on $50 per power tool operation: Sign A Sign B