Acc349 Managerial and Cost Accounting: Week 4 Assignments (E5-1, E5-9, E6-7, E6-10, BYP6-2)

Acc349
Managerial and Cost Accounting
Week 4 Assignments

E5-1 Hall Company manufactures a single product. Annual production costs incurred in the manufacturing process are shown below for two levels of production. Costs Incurred Production in Units 5,000 10,000 Production Costs Total Cost Cost/Unit Total Cost Cost/Unit Direct materials 8,250 1.65 16,500 1.65 Direct labor 9,500 1.90 19,000 1.90 Utilities 1,500 0.30 2,500 0.25 Rent 4,000 0.80 4,000 0.40 Maintenance 800 0.16 1,100 0.11 Supervisory salaries 1,000 0.20 1,000 0.10

Instructions
a. Define the terms variable costs, fixed costs, and mixed costs.
b. Classify each cost above as either variable, fixed, or mixed.

E5-9 The Lake Shore Inn is trying to determine its break-even point. The inn has 50 rooms that it rents at $60 a night. Operating costs are as follows. Salaries $7,200 per month Utilities $1,500 per month Depreciation $1,200 per month Maintenance $300 per month Maid service $8 per room Other costs $28 per room

Instructions
Determine the inn’s break-even point in (1) number of rented rooms per month and (2) dollars.

E6-7 Rapid Auto has over 200 auto-maintenance service outlets nationwide. It provides primarily two lines of service: oil changes and brake repair. Oil change–related services represent 65% of its sales and provide a contribution margin ratio of 20%. Brake repair represents 35% of its sales and provides a 60% contribution margin ratio. The company’s fixed costs are $16,000,000 (that is, $80,000 per service outlet). Instructions
(a) Calculate the dollar amount of each type of service that the company must provide in order to break even.
(b) The company has a desired net income of $60,000 per service outlet. What is the dollar amount of each type of service that must be provided by each service outlet to meet its target net income per outlet

E6-10 Mega Electronix sells television sets and DVD players. The business is divided into two divisions along product lines. CVP income statements for a recent quarter’s activity are presented below. TV Division DVD Division Total Sales 600,000 400,000 1,000,000 Variable costs 450,000 240,000 690,000 Contribution margin 150,000 160,000 310,000 Fixed costs 124,000 Net income 186,000
Instructions
(a) Determine sales mix percentage and contribution margin ratio for each division.
(b) Calculate the company’s weighted-average contribution margin ratio.
(c) Calculate the company’s break-even point in dollars. (d) Determine the sales level in dollars for each division at the break-even point.

BYP6-2 For nearly 20 years Custom Coatings has provided painting and galvanizing services for manufacturers in its region. Manufacturers of various metal products have relied on the quality and quick turnaround time provided by Custom Coatings and its 20 skilled employees. During the last year, as a result of a sharp upturn in the economy, the company's sales have increased by 30% relative to the previous year. The company has not been able to increase its capacity fast enough, so Custom Coatings has had to turn work away because it cannot keep up with customer requests. Top management is considering the purchase of a sophisticated robotic painting booth. The booth would represent a considerable move in the direction of automation versus manual labor. If Custom Coatings purchases the booth, it would most likely lay off 15 of its skilled painters. To analyze the decision, the company compiled production information from the most recent year and then prepared a parallel compilation assuming that the company would purchase the new equipment and lay off the workers. Those data are shown below. As you can see, the company projects that during the last year it would have been far more profitable if it had used the automated approach. Current Approach Automated Approach Sales 2,000,000 2,000,000 Variable costs 1,200,000 400,000 Contribution margin 800,000 1,600,000 Fixed costs 200,000 600,000 Net income 600,000 1,000,000

Instructions
a. Compute and interpret the contribution margin ratio under each approach.
b. Compute the break-even point in sales dollars under each approach. Discuss the implications of your findings.
c. Using the current level of sales, compute the margin of safety ratio under each approach and interpret your findings.
d. Determine the degree of operating leverage for each approach at current sales levels. How much would the company's net income decline under each approach with a 10% decline in sales?
e. At what level of sales would the company's net income be the same under either approach? f. Discuss the issues that the company must consider in making this decision.
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