# Acc102 Principles of Managerial Accounting: Final Project (Version 1) - 5 Problems

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Acc102 Principles of Managerial Accounting

Final Project (Version 1)

1. Cost-volume-profit relationships (15 points)

The following data are available for a product manufactured and sold by Logan Company:

Maximum capacity with present facilities 40,000

Total fixed cost (per period) $468,000

Variable cost per unit $128

Sales price per unit $212

Compute the following:

(a) Contribution margin per unit:

(b) Number of units that must be sold to break-even:

(c) Dollar sales volume to produce income of $864,000 before taxes:

2. Incremental analysis (20 points)

Information regarding current operations of the Farrell Corporation is given below:

Sales $950,000

Variable costs $450,000

Fixed costs $310,000

A proposed addition to Farrell’s factory is estimated by the sales manager to increase sales by a maximum of $750,000. The company’s accountants have determined that the proposed addition will add $320,000 to fixed costs each year.

(a) Explain why the existing $310,000 of fixed costs is a sunk cost while the $320,000 of fixed costs associated with the proposed addition is an out-of-pocket cost.

(b) Calculate by how much the proposed addition will either increase or reduce operating income.

3. Responsibility income statement-preparation (20 points)

Gameland Village is segmented into two sales departments: software and video games. During April, these two departments reported the following operating results:

Software Video Games

Sales $400,000 $200,000

Variable cost (as a percentage of sales) 65% 56%

Traceable fixed costs $20,000 $16,000

In addition, fixed costs common to both departments amounted to $42,000.

Complete the following segmented income statement for Gameland Village. Follow the contribution margin approach, and show percentages as well as dollar amounts. Conclude your income statement with the company’s income from operations.

4. Standard cost system labor variance (25 points)

The following computations of March labor variances for Sam's Supply Company are incomplete. The missing items are labeled (a) through (d).

Labor rate variance = 4,800 hours [(a) - $8.50] = $350 favorable

Labor efficiency variance = (b) [(c) - 5,000 hours] = $(d)

On the appropriately labeled line, identify each missing item by name (a through c) and show the missing value (a through d). Show supporting computations in the space provided.

(a) _________________________ $_______________

(b) _________________________ $_______________

(c) _________________________ ____________________ hours

(d) $______________ F or U [Choose the correct term.]

(e) During March, the supervisor left for vacation without arranging for a replacement. Which variances would have been most affected by this situation? _________________________

5. Capital budgeting (20 points)

Flynn Corporation is debating whether to purchase a new computerized production system. The system will cost $450,000, and have an estimated 10-year life with a salvage value of $70,000. The estimated operating results from the new production system are as follows:

Incremental revenue 180,000

Incremental expenses:

Expenses other than depreciation 85,000

Depreciation (straight-line basis) 38,000 (123,000)

Incremental net income $57,000

All revenue and expenses other than depreciation will be received and paid in cash. Compute the following for this proposal:

(a) Annual net cash flow:

(b) Payback period (years):

(c) Return on average investment:

(d) Net present value, discounted at an annual rate of 6% (present value of $1 due in 10 years, discounted at 6%, is 0.558; present value of $1 received annually for 10 years, discounted at 6%, is 7.360): $__________

Acc102 Principles of Managerial Accounting

Final Project (Version 1)

1. Cost-volume-profit relationships (15 points)

The following data are available for a product manufactured and sold by Logan Company:

Maximum capacity with present facilities 40,000

Total fixed cost (per period) $468,000

Variable cost per unit $128

Sales price per unit $212

Compute the following:

(a) Contribution margin per unit:

(b) Number of units that must be sold to break-even:

(c) Dollar sales volume to produce income of $864,000 before taxes:

2. Incremental analysis (20 points)

Information regarding current operations of the Farrell Corporation is given below:

Sales $950,000

Variable costs $450,000

Fixed costs $310,000

A proposed addition to Farrell’s factory is estimated by the sales manager to increase sales by a maximum of $750,000. The company’s accountants have determined that the proposed addition will add $320,000 to fixed costs each year.

(a) Explain why the existing $310,000 of fixed costs is a sunk cost while the $320,000 of fixed costs associated with the proposed addition is an out-of-pocket cost.

(b) Calculate by how much the proposed addition will either increase or reduce operating income.

3. Responsibility income statement-preparation (20 points)

Gameland Village is segmented into two sales departments: software and video games. During April, these two departments reported the following operating results:

Software Video Games

Sales $400,000 $200,000

Variable cost (as a percentage of sales) 65% 56%

Traceable fixed costs $20,000 $16,000

In addition, fixed costs common to both departments amounted to $42,000.

Complete the following segmented income statement for Gameland Village. Follow the contribution margin approach, and show percentages as well as dollar amounts. Conclude your income statement with the company’s income from operations.

4. Standard cost system labor variance (25 points)

The following computations of March labor variances for Sam's Supply Company are incomplete. The missing items are labeled (a) through (d).

Labor rate variance = 4,800 hours [(a) - $8.50] = $350 favorable

Labor efficiency variance = (b) [(c) - 5,000 hours] = $(d)

On the appropriately labeled line, identify each missing item by name (a through c) and show the missing value (a through d). Show supporting computations in the space provided.

(a) _________________________ $_______________

(b) _________________________ $_______________

(c) _________________________ ____________________ hours

(d) $______________ F or U [Choose the correct term.]

(e) During March, the supervisor left for vacation without arranging for a replacement. Which variances would have been most affected by this situation? _________________________

5. Capital budgeting (20 points)

Flynn Corporation is debating whether to purchase a new computerized production system. The system will cost $450,000, and have an estimated 10-year life with a salvage value of $70,000. The estimated operating results from the new production system are as follows:

Incremental revenue 180,000

Incremental expenses:

Expenses other than depreciation 85,000

Depreciation (straight-line basis) 38,000 (123,000)

Incremental net income $57,000

All revenue and expenses other than depreciation will be received and paid in cash. Compute the following for this proposal:

(a) Annual net cash flow:

(b) Payback period (years):

(c) Return on average investment:

(d) Net present value, discounted at an annual rate of 6% (present value of $1 due in 10 years, discounted at 6%, is 0.558; present value of $1 received annually for 10 years, discounted at 6%, is 7.360): $__________

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