'Solution of Managerial Accounting\r'

'Chapter 5: monetary value sort: Analysis and subprogram As we shall ensure in later chapters, the ability to call how termss respond to changes in natural process is critical for making conclusions, controlling operations, and evaluating per relieve oneselfance. terce major classifications of salutes were discussed in this chapter†multivariate, hardened, and change integrity. miscellaneous prices consist of inconsistent and flash-frozen elements and croupe be expressed in equation form as Y = a + bX, where X is the application, Y is the live, a is the go everyplaced woo element, and b is the variant toll per building block of natural process.\r\nSeveral method actings preempt be used to bet the placed and un real salute components of a mingled live development past records of damage and bodily function. If the sexual congress in the midst of equal and activeness appears to be phone direct contrastar ground on a scatter graph plot, h ence the varying and stiff components of the fuse court can be approximationd using the quick-and-dirty method, the spirited- abject method, or the least-squ bes lapsing method. The quick-and-dirty method is foundingd on drawing a straight source and then using the slope and the beleaguer of the straight line to estimate the shifting and ameliorate price components of the heterogeneous live.\r\nThe senior last- upset method implicitly draws a straight line finished the points of lowest body process and highest employment. In most situations, the least-squargons regression method is comparable to two the quick-and-dirty and high-low methods. envisionr packet is widely available for using the least-squares regression method. These software applications provide a variety of serviceable statistics along with estimates of the intercept ( furbish up exist) and slope ( variant quantity apostrophize per social unit of measurement).\r\nNevertheless, even whe n least-squares regression is used, the selective information should be plotted to confirm that the relationship is in reality a straight line. Managers use be organized by look to serving make many decisions. The voice fix up income line can aid decision making because it classifies personify by exist behavior (i. e. , changeable versus fixed) rather than by the functions of production, administration, and gross revenue. In this chapter, the avocation learning objectives exit be cover: In this chapter, the interest learning objectives will be covered: | |Understand how fixed and varying be be induct and how to use them to predict personify. | |[pic] | |[pic] | |[pic] | | | |Use a scattergraph plot to diagnose embody behavior. |[pic] | |[pic] | |[pic] | | | |Analyze a mixed terms using the high-low method. |[pic] | |[pic] | |[pic] | | | |Prepare an income statement using the contribution format. |[pic] | |[pic] | |[pic] | | | |(Appendix 5A) Analyze a mi xed personify using the least-squares regression method. | divulge terms: Account analysis   |A method for analyzing constitute behavior in which an account is classified as both uncertain or fixed bumd on | | |the analysts prior knowledge of how the damage in the account behaves. | |[pic] | |[pic] | |[pic] | |Activity base   |A measure of whatever causes the incurrence of a covariant speak to.\r\nFor example, the jibe cost of roentgenogram film in a| | | hospital will increase as the takings of X-rays taken increases. Therefore, the return of X-rays is the | | | act base that explains the heart and soul cost of X-ray film. |[pic] | |[pic] | |[pic] | | commit fixed cost   |Investments in facilities, equipment, and elementary organizational structure that cant be significantly reduced | | |even for short periods of conviction with pop making fundamental changes. |[pic] | |[pic] | |[pic] | | function onrush   |An income statement format that organizes cost by their behavior.\r\n prices are illogical into variable and fixed| | |categories rather than being sepa ordinated according to organizational functions. | |[pic] | |[pic] | |[pic] | |Contribution mete   |The amount remaining from gross sales revenues later all variable expenses have been deducted. |[pic] | |[pic] | |[pic] | |monetary value structure   |The relative proportion of fixed, variable, and mixed cost in an organization. |[pic] | |[pic] | |[pic] | |Dependent variable   |A variable that responds to some causal factor; come in cost is the capable variable, as represented by the | | | earn Y, in the equation Y = a + bX. |[pic] | |[pic] | |[pic] | |Discretionary fixed cost   |Those fixed cost that arise from annual decisions by management to spend on certain fixed cost items, such as| | |advertising and research. |[pic] | |[pic] | |[pic] | |Engineering approach   |A detailed analysis of cost behavior based on an industrial engineers valuation of the inputs that are | | |required to carry out a particular exertion and of the prices of those inputs. |[pic] | |[pic] | |[pic] | | noble-low method   |A method of separating a mixed cost into its fixed and variable elements by analyzing the change in cost | | |between the high and low activity takes. |[pic] | |[pic] | |[pic] | | indie variable   |A variable that acts as a causal factor; activity is the indie variable, as represented by the letter X,| | |in the equation Y = a + bX. |[pic] | |[pic] | |[pic] | |Least-squares regression |A method of separating a mixed cost into its fixed and variable elements by fitting a regression line that | |method   |minimizes the correspond of the squared errors. |[pic] | |[pic] | |[pic] | |Linear cost behavior   | personify behavior is said to be elongated whenever a straight line is a reasonable approximation for the relation | | |between cost and activity. |[pic] | |[pic] | |[pic] | |Mi xed cost   |A cost that contains both variable and fixed cost elements. |[pic] | |[pic] | |[pic] | |Multiple regression   |An analytical method required when variations in a dependent variable are caused by more than one factor. |[pic] | |[pic] | |[pic] | |R 2   |A measure of uprightness of fit in least-squares regression analysis. It is the piece of the variation in | | |the dependent variable that is explained by variation in the independent variable. |[pic] | |[pic] | |[pic] | |Relevant range   |The range of activity inside which assumptions about variable and fixed cost behavior are more or less valid. |[pic] | |[pic] | |[pic] | |Step-variable cost   |The cost of a option that is obtainable only in oversize chunks and that increases and decreases only in | | |response to somewhat wide changes in activity. | polish caper 1: address behavior Neptune Rentals offers a boat rental service.\r\nConsider the following be of the caller over the relevant range of 5,000 to 8,000 hrs of operating(a) clock time for the boats: |Hours of operating time | | |5,000 |6,000 |7,000 |8,000 | | add cost: | | | | | | uncertain costs |$20,000 |$ ? $ ? |$ ? | | frosty costs |$1,68,000 |$ ? |$ ? |$ ? | | match costs |$1,88,000 |$ ? |$ ? |$ ? | | be per hour: | | | | | | protean cost |$ ? |$ ? |$ ? |$ ? | | dogged cost |$ ? |$ ? |$ ? $ ? | | correspond cost per hour |$ ? |$ ? |$ ? |$ ? | Required: Compute the missing amount assuring that cost behavior patterns remain same within the relevant range of 5,000 to 8,000 hours. dissolvent to Review bother 1: Per building block changeable Cost = 20,000/5,000= 4. 00 per Unit. |Hours of operating time | | |5,000hr 6,000hr |7,000hr |8,000hr | | fundamental be variable star costs |$20,000 |$24,000 |$28,000 |$32,000 | |Fixed costs |1,68,000 |1,68,000 |1,68,000 |1,68,000 | | extreme costs |$1,88,000 |$1,92,000 |$1,96,000 |$2,00,000 | |Cost per hour: |$4. 0 |$4. 00 |$4. 00 |$4. 00 | |variable star cost | | | | | |Fixed cost |33. 60 |28. 00 |24. 00 |21. 00 | |nitty-gritty cost per hour |$37. 60 |$32. 00 |$28. 00 |$25. 0 | Review problem 2: high up moo order The administrative of azalea hills hospitals would like a cost practice linking the costs involved in admitting patients to the number of patients admitted during a calendar calendar calendar month. The admitting department’s costs and number of patients admitted during the immediately preceding eight month are given in the following table: | month |number of patients |admitted dep.\r\n be | |whitethorn |1,800 |14,700 | |June |1,900 |15,200 | |July |1,700 |13,700 | |August |1,600 |14,000 | |September |1,500 |14, three hundred | |October |1,300 |13,100 | |Nov |1,100 |12,800 | | declination |1,500 |14,600 | Required: 1. Use the high low method to establish the fixed and variable components of admitting costs. 2. pronounce the fixed and variable components of admitting costs as a practice in the linear equation form: Y= a+bx. Solution to Review problem 2 1. |Number of Patients Admitted |Admitting Department cost | |High activity aim (June) |$1,900 |15,200 | |Low activity level (November) |1,100 |12,800 | | convince |$800 |$2,400 | variant cost per unit of activity: Variable Cost = 2,400 / 800 = 3 Fixed cost = hail cost †variable cost = 15,200 †(3*1,900) = 9,500 2. The cost formula expressed in the linear equation form is:Y= $9,500+$3X Problem 5-12 House of Organs, Inc purchases variety meat from a well-known formulater and cheat ons them at the sell level. The variety meat sell, on the average, for $2500 for each one. The average cost of an organ from the manufacturer is $1500. House of Organs, Inc has unceasingly kept careful records of its costs. The costs that the confederation incurs in a typical month are presented toss off the stairs in the form of a spreadsheet Costs |Cost decree | | marketing: | |Advertising |$950 per month | | manner o f speaking of variety meat |$60 per organ change | | gross sales salaries and commissions |$4,600 per month add-on 4% interest | |Utilities |$650 per month | | depreciation of sales facilities |$5,000 per month | |Administrative: | | decision maker salaries |$13,500 per month | | wear and tear of equipment |$900 per month | |Clinical |$2,500 per month positively charged $40 per organ exchange | |Insurance |$700 per month | During November, the company exchange and delivered 60 variety meat. Required: 1.\r\nPrepare an income statement for November using the tralatitious format with costs organized by function. 2. produce (1) in a higher place, this time using the contribution format with costs organized by behavior. express costs and revenues on both a total and per unit keister put through through contribution margin. 3. Refer to the income statement active in (2) above. Why qualification it be misleading to show the fixed costs on a per unit basis? Solution 5- 12 1. House of Organs, Inc. Income Statement For the calendar month Ended November 30 | sales (60 organs ? $2,500 per organ) | |$1,50,000 | |Cost of goods sold (60 organs ? 1,500 per organ) | |90,000 | | coarse margin | |60,000 | |Selling and administrative expenses: | | | |Selling expenses: | | | |Advertising |$    950 | | |Delivery of organs (60 organs ? $60 per organ) |3,600 | | |Sales salaries and commissions [$4,800 + (4% ? 150,000)] |10,800 | | |Utilities |650 | | |Depreciation of sales facilities |5,000 | | | primitive selling expenses |21,000 | | |Administrative expenses: | | | | decision maker salaries |13,500 | | |Depreciation of office equipment |900 | | |Clerical [$2,500 + (60 organs ? 40 per organ)] |4,900 | | |Insurance |700 | | |Total administrative expenses |20,000 | | |Total selling and administrative expenses | |41,000 | | unclutter operating income | |$? 19,000 | 2. House of Organs, Inc. Income Statement For the Month Ended November 30 | |Total | Per Unit | |Sales (60 organs $2,500 per organ) |$1,50,000 |$2,500 | |Variable expenses: | | | |Cost of goods sold (60 organs ? $1,500 per organ) |90,000 |1,500 | |Delivery of organs (60 organs ? $60 per organ) |3,600 |60 | |Sales commissions (4% ? $150,000) |6,000 |100 | |Clerical (60 organs ? 40 per organ) |2,400 |40 | |Total variable expenses |1,02,000 |1,700 | |Contribution margin |48,000 |$  800 | |Fixed expenses: | | | |Advertising |950 | | |Sales salaries |4,800 | | |Utilities |650 | | |Depreciation of sales facilities |5,000 | | |Executive salaries |13,500 | | |Depreciation of office equipment |900 | | |Clerical |2,500 | | |Insurance |700 | | |Total fixed expenses |29,000 | | |Net operating income |$ 19,000 | | 3. Fixed costs remain constant in total but vary on a per unit basis with changes in the activity level. Problem 5-15: High-Low Method, Predicting Cost opulent confederation’s total hit costs at various levels of activity are presented below: Month |Machine-Hours |Total Overhead Costs | | butt against |50,000 |$1,94,000 | |April |40,000 |1,70,200 | |May |60,000 |2,17,800 | |June |70,000 |2,41,600 | Assume that the knock costs above consist of utilities, supervisory salaries, and sustenance. The breakdown of these costs at the 40000 machine-hour level of activity is as follows: |Utilities (variable)……………………….. |$52,000 | |Supervisory salaries (fixed)……………. |60,000 | | tending (mixed)…………………….. |58,200 | |Total operating expense costs………………………. $1,70,200 | The company wants to break down the maintenance cost into its basic variable and fixed cost elements. Required: 1. As shown above disk bang costs in June amounted to $241600. Estimate how a good deal of this consisted of maintenance cost. ( touch to do this, it may be face -saving to early determine how much of the $241600 consisted of utilities and supervisory salaries. 2. utilize the high-low method, estimate a cost formula for maintenance. 3. express mail the company’s total belt costs in the linear equation form Y=a+bx. 4. What total overhead costs would put up to be incurred at an operating activity level of 45000 machine-hours. Solution 5-15 . Maintenance cost at the 70,000 machine-hour level of activity can be isolated as follows: | | aim of Activity | | |40,000 MH |70,000 MH | |Total factory overhead cost |$1,70,200 |$2,41,600 | |Deduct: | | | |Utilities cost @ $1. 0 per MH* |52,000 |91,000 | |Supervisory salaries |60,000 |60,000 | |Total maintenance cost at the low activity level |$ 58,200 |$ 90,600 | |$58,200 | | | | | | | *$52,000 ? 40,000 = $1. 30 per MH 2.\r\nHigh-low analysis of maintenance cost: | |Maintenance Cost |Machine-Hours | |High activity level |$90,600 |70,000 | |Low activity level |58,200 |40,000 | |Chan ge |$32,400 |30,000 | Variable cost per unit of activity: [pic] Total fixed cost: Therefore, the cost formula is $15,000 per month plus $1. 8 per machine-hour or Y = $15,000 + $1. 08X, where X represents machine-hours. 3. | |Variable Rate per Machine-Hour |Fixed Cost | |Maintenance cost |$1. 08 |$15,000 | |Utilities cost |1. 30 | | |Supervisory salaries cost | |60,000 | |Totals |$2. 8 |$75,000 | Therefore, the cost formula would be $75,000 plus $2. 38 per machine-hour, or Y = $75,000 + $2. 38X. 4. |Fixed costs |$? 75,000 | |Variable costs: $2. 38 per MH ? 45,000 MHs |1,07,100 | |Total overhead costs |$1,82,100 | Problem 5-17: High-Low Method cost of Goods manufacture. NuWay. Inc, manufactures a star product. Selected data from the company’s cost records for both recent months are given below. | train of Activity | | |July-Low | | |October-High | | | | |Number of units produced |9,000 | | |12,000 | |Cost of goods manufacture | | | |$2,85,000 | |Work in process record, opening |3,90,000 | | | | |Work in process inventory, remainder |14,000 | | |22,000 | | channel materials cost per unit | | | |25,000 | | civilize labor cost per unit |15,000 | | | | |Manufacturing overhead cost, total |15 | |15 | | | | | |6 | | |6 | | | | | |? | |? | | | | The company’s manufacturing overhead cost consists of both variable and fixed cost elements. In order to have data available for planning, management wants to determine how much of the overhead cost is variable with units produced and how much of it is fixed per year. Required: 1. For both July and October, estimate the amount of manufacturing overhead cost added to production. The company had no under-or over apply overhead in either month. Hint: A useful way to ascend might be to construct a schedule of cost goods manufacture. ) 2. Using the high low method of cost analysis, estimate a cost formula for manufacturing overhead. Express the variable portion of the formula in terms of a variable rate per unit of product. 3. If 9500 units were produced during a month, what would be the cost of goods manufactured? (Assume that the company’s offset printing work in process inventory for the month is $16000 and that its closure work in process inventory is $19000. Also, assume that in that respect is no under or over applied overhead cost for the month. Solution 5-17: High Low Method, COGM 1. Nu Way Inc. scroll of Cost of Goods Manufactured |Julyâ€Low |Octoberâ€High | | |9,000 Units |12,000 Units | | reckon materials cost @ $15 per unit |$1,35,000 | |$1,80,000 | | |Direct labor cost @ $6 per unit |54,000 | |72,000 | | |Manufacturing overhead cost |1,07,000 |* |1,31,000 |* | |Total manufacturing costs |2,96,000 | |3,83,000 | | |Add: Work in process, germ |14,000 | |22,000 | | | |3,10,000 | |4,05,000 | | |Deduct: Work in process, ending |25,000 | |15,000 | | |Cost of goods manufactured |$2,85,000 | |$3,90,000 | | 2. | |Units Produced |Cos t Observed | | |Octoberâ€High level of activity |12,000 |$1,31,000 | | |Julyâ€Low level of activity |9,000 |1,07,000 | | |Change |3,000 |$ 24,000 | [pic] |Total cost at the high level of activity |$1,31,000 | |Less variable cost element ($8 per unit ? 12,000 units) |96,000 | |Fixed cost element |$  35,000 |\r\nTherefore, the cost formula is: $35,000 per month plus $8 per unit produced, or Y = $35,000 + $8X, where X represents the number of units produced. 1. The cost of goods manufactured if 9,500 units are produced: Nu Way Inc. Schedule of Cost of Goods Manufactured |Direct materials cost (9,500 units ? $15 per unit) | |$1,42,500 | |Direct labor cost (9,500 units ? $6 per unit) | |57,000 | |Manufacturing overhead cost: | | | |Fixed portion |$35,000 | | |Variable portion (9,500 units ? 8 per unit) |76,000 |1,11,000 | |Total manufacturing costs | |3,10,500 | |Add: Work in process, stem | |16,000 | | | |3,26,500 | |Deduct: Work in process, ending | |19,000 | |Cost of goods manufactured | |$3,07,500 | Edition 11: Problem 5-18: Marwicks pianos inc. purchase pianos from a extended manf. And sells them at the retail level . the pianos cost on the average $2450 each from the mnf. Marwicks pianos inc. sell the pianos to its customers at an average price of $3125 each . the selling and administrative costs that the company incurs in a typical month are presented below: Costs |Cost Formula | |Selling | | |Advertising |$700 per month | |Delivery of organs |$30 per organ sold | |Sales salaries and commissions |$950 per month plus 4% interest | |Utilities |$350 per month | |Depreciation of sales facilities |$800 per month | |Administrative: | | |Executive salaries |$2,500 per month | |Depreciation of equipment |$400 per month | |Clinical |$1,000 per month plus $20 per organ sold | |Insurance |$300 per month |\r\nDuring august, marwicks pianos inc. sold and delivered 40 pianos necessary: 1. Prepare income statement for marwicks pianos inc . for august. Use the traditional format, with cost organized by function. 2. Redo 1 above, this time using the contribution format, with cost organized by behavior. Show costs and revenues on both a total and a per unit basisdown through contribution margin. 3. Refer to the income statement you pet in 2 above. Why might it be misleading to show the fixed costs on a per unit basis? Problem 5-19: Amfac comp. manf. A single product. The company keeps careful records of manufacturing activities from which the following inf. get to been extracted. |Level of Activity | | |March â€low | | |June †high | | | | |Number of units produced |6,000 | | |9,000 | |Cost of goods manufactured | | | |$1,68,000 | |Work in process inventory, beginning |2,57,000 | | | | |Work in process inventory, ending |9,000 | | |32,000 | |Direct materials cost per unit | | |15,000 | |Direct labor cost per unit |21,000 | | | | |Manufacturing overhead cost, total |6 | | |6 | | | | | |10 | | |10 | | | | | |? | | |? | | | Required: For the both March and June, estimate the amount of manufacturing overhead cost added to production. The comp. had no under O. H . IN either month Using the high low method, estimate a cost formula for manf. O. H. expresses the variable portion of the formula in terms of a variable rate per unit of product. If 7000 units are produced during a month, what would be the cost of good manufacture? Work in process is same. Problem 5-24 High-Low Method; Predicting cost [L01, L03] Nova Company’s total overhead costs at various levels of activity are resented below: |Month |Machine-Hours |Total Overhead Costs | |April |70,000 |$1,98,000 | |May |60,000 |1,74,000 | |June |80,000 |2,22,000 | |July |90,000 |2,46,000 | Assume that total overhead costs above consist of utilities, supervisory salaries and maintenance. The breakdown of these costs at the 60,000 machine- hour level of activity is: |Utilities (variable)……†¦Ã¢â‚¬Â¦Ã¢â‚¬Â¦Ã¢â‚¬Â¦Ã¢â‚¬Â¦Ã¢â‚¬Â¦Ã¢â‚¬Â¦.. |$48,000 | |Supervisory salaries (fixed)……………. |$21,000 | |Maintenance (mixed)…………………….. |$1,05,000 | |Total overhead costs………………………. |$1,74,000 |\r\nNova Company’s management wants to break down the maintenance cost into its variable and fixed cost elements. Required: 1. Estimate how much of the $246,000 of overhead cost in July was maintenance cost. (Hint: to do this, it may be helpful to first determine how much of the $246,000 consisted of utilities and supervisory salaries. Think about the behavior of variable and fixed costs! ) 2. Using the high-low method, estimate a cost formula for maintenance. 3. Express the company’s total overhead costs in the linear equation form 4. Y=a + bX 5. What total over head costs would you stand to be incurred at an operating activity level of 75,000 machi ne-hours? ———————†Page4\r\n'