Acc346 Managerial Accounting: Week 3 Homework (P4-2, P4-11, P5-2)

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Acc346 Managerial Accounting
Week 3 Homework (P4-2, P4-11, P5-2)

PROBLEM 4-2. Account Analysis
Lancer Audio produces a high-end DVD player that sells for $1,300. Total operating expenses for July were as follows:
Units produced and sold 145
Component costs 68,000
Supplies 2,500
Assembly labor 24,650
Rent 2,300
Supervisor salary 5,600
Electricity 350
Telephone 280
Gas 300
Shipping 2,000
Advertising 2,600
Administrative costs 15,000
Total $123,580

a. Use account analysis to determine fixed cost per month and variable cost per DVD player.
b. Project total cost for August assuming production and sales of 165 units.
c. What is the contribution margin per DVD player?
d. Estimate total profit assuming production and sales of 165 units.
e. Lancer Audio is considering an order for 120 DVD players, to be produced in the next 10 months, from a customer in Canada. The selling price will be $950 per unit (well under the normal selling price). However, the Lancer Audio brand name will not be attached to the product. What will be the impact on company profit associated with this order?

PROBLEM 4-11. Break-Even Analysis, Margin of Safety, Increase in Profit
Edison Entrepreneur Services, Inc., is a legal services firm that files the paperwork to incorporate a business. Edison charges $1,200 for the incorporation application package and plans to file 1,500 applications next year. The company’s projected income statement for the coming year is:
Sales 1,800,000
Less variable expenses 1,110,000
Contribution margin 690,000
Less fixed expenses 300,000
Operating income $390,000

a. Compute the contribution margin per application and calculate the break-even point in number of applications. (Round to the nearest whole unit, since it is not possible to file a partial application.) Calculate the contribution margin ratio (round to 4 decimal places) and the break-even sales revenue (round to the nearest dollar).
b. What is the current margin of safety in terms of the number of units? What is the current margin of safety in terms of sales dollars?
c. If Edison wants to have operating income of $450,000 next year, how many applications must it process? (Round to the nearest whole unit.) What dollar level of sales is required to achieve operating income of $450,000? (Round to the nearest dollar.)
d. The office manager for Edison has proposed that Edison increase advertising (a fixed cost) for the upcoming year by $80,000; she feels that this increase in advertising will lead to an increase in sales of $324,000. Prepare a new projected income statement for this proposal. Should Edison increase its advertising to this new level?

PROBLEM 5-2. Variable and Full Costing: Sales Constant but Production Fluctuates
Hamilton Stage Supplies is a manufacturer of a specialized type of light used in theaters. Information on the first three years of business is as follows:
2011 2012 2013 Total
Units sold 3,000 3,000 3,000 9,000
Units produced 3,000 4,500 1,500 9,000
Fixed production costs 45,000 45,000 45,000
Variable production costs per unit 75 75 75
Selling price per unit 225 225 225
Fixed selling and administrative expenses 4,500 4,500 4,500

a. Calculate profit and the value of ending inventory for each year using full costing.
b. Explain why profit fluctuates from year to year even though the number of units sold, the selling price, and the cost structure remain constant.
c. Calculate profit and the value of ending inventory for each year using variable costing.
d. Explain why, using variable costing, profit does not fluctuate from year to year.
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