ACCT 505 week 3 Discussions Questions - Variable Costing and CVP Concepts (graded)

ACCT 505 week 3 Discussions Questions

 

Variable Costing and CVP Concepts (graded)

 

What is CVP Analysis? How is CVP analysis used in managerial accounting decision-making.

 

Research and Application (graded)

Below is the link that will take you directly to the 2004 financial statements of the Benetton Group, followed by the discussion questions.

 

http://www.benettongroup.com/sites/all/temp/doc/2004_annual_report_en.pdf 

 

Let's answer these questions in the order that they appear.

 

 

1. How do the formats of the income statements shown on pages  33  and 50 of Benetton’s annual report differ from one another (disregard everything beneath the line titled “income from operations”)? Which expenses shown on page 50 appear to have been reclassified as variable selling costs on page 33?

 

 

2. Why do you think cost of sales is included in the computation of contribution margin on page 33?

 

 

3. Perform two separate computations of Benetton’s break-even point in euros. For the first computation, use data from 2003. For the second computation, use data from 2004. Why do the numbers that you computed differ from one another?

 

 

4. What sales volume would have been necessary in 2004 for Benetton to attain a target income from operations of €300 million?

 

 

5. Compute Benetton’s margin of safety using data from 2003 and 2004. Why do your answers for the two years differ from one another?

 

 

6. What is Benetton’s degree of operating leverage in 2004? If Benetton’s sales in 2004 had been 6% higher than what is shown in the annual report, what income from operations would the company have earned? What percentage increase in income from operations does this represent?

 

 

7. What income from operations would Benetton have earned in 2004 if it had invested an additional €10 million in advertising and promotions and realized a 3% increase in sales? As an alternative, what income from operations would Benetton have earned if it not only invested an additional Є10 million in advertising and promotions but also raised its sales commission rate to 6% of sales, thereby generating a 5% increase in sales? Which of these two scenarios would have been preferable for Benetton?

 

 

8. Assume that total sales in 2004 remained unchanged at, €1,686 million (as shown on pages 33 and 50); however, the Casual sector sales were, €1,554 million, the Sportswear and Equipment sector sales were €45 million, and the Manufacturing and Other sector sales were €87 million. What income from operations would Benetton have earned with this sales mix? (Hint: look at pages 36 and 37 of the annual report.) Why is the income from operations under this scenario different from what is shown in the annual report? 

 

 

TUTORIAL PREVIEW

Calculation of Income from operations under the revised mix:

(in millions)	Casual	Sportswear & Equipment	Manufacturing & Other	Total
Sales	€1,554	€45	€87	€1,686.0
CM ratio	0.418	0.208	0.089	*0.395

File name: ACCT505 Week3 DQs.doc File type: doc PRICE: $25

 

ACC 291 week8 E13-8 and E14-3

ACC 291 week8   E13-8 and E14-3

XACC291 wk8 individual exercises Ch. 13 & 14

 Individual Exercises – Week Eight Resources: Ch. 13 & 14 of Financial Accounting Complete Exercises E13-8 & E14-3. Submit as a Microsoft® Excel or Word® document.

 

E13-8 Here are comparative balance sheets for Taguchi Company.

                                              TAGUCHI COMPANY

                                          Comparative Balance Sheets

31-Dec

Assets                                                                         2011                2010

Cash                                                                            $73,000            $22,000

Accounts receivable                                                    85,000             76,000

Inventories 170,000 189,000                                       170,000           189,000

Land 75,000 100,000                                                  75,000             100,000

Equipment 260,000 200,000                                       260,000           200,000

Accumulated depreciation                                           (66000)           (32000)

Total                                                                            $597,000         $555,000

Liabilities and Stockholders’ Equity               

Accounts payable                                                        $39,000           $47,000

Bonds payable                                                             150,000           200,000

Common stock ($1 par)                                               216,000          174,000

Retained earnings                                                        192,000          134,000

Total                                                                            $597,000         $555,000

 Additional information:

1. Net income for 2011 was $103,000.

2. Cash dividends of $45,000 were declared and paid.

3. Bonds payable amounting to $50,000 were redeemed for cash $50,000.

4. Common stock was issued for $42,000 cash.

5. No equipment was sold during 2011, but land was sold at cost.

Instructions

Prepare a statement of cash flows for 2011 using the indirect method.

 

E14-3 The comparative condensed balance sheets of Conard Corporation are presented below.

 

                                                    CONARD CORPORATION

                                            Comparative Condensed Balance Sheets

                                                                                                            31-Dec

                                                                                                 2012                2011

Assets

Current assets                                                                            74,000           $80,000

Property, plant, and equipment (net)                                        99,000            90,000

Intangibles                                                                               27,000             40,000

Total assets                                                                              $200,000         $210,000

Liabilities and stockholders’ equity    

Current liabilities                                                                     $42,000           $48,000

Long-term liabilities                                                                 143,000          150,000

Stockholders’ equity                                                                15,000             12,000

Total liabilities and stockholders’ equity                                  $200,000       $210,000

Instructions

(a) Prepare a horizontal analysis of the balance sheet data for Conard Corporation using 2011 as a base.

(b) Prepare a vertical analysis of the balance sheet data for Conard Corporation in columnar form for 2012.

 TUTORIAL PREVIEW

(a) 

                                                            CONARD CORPORATION

                                                              Condensed Balance Sheets

                                                                              31-Dec

	2012	2011	Increase	Percentage Change
			(Decrease)	from 2011
Assets
Current assets	74,000	80000	-6,000	-7.50%
Property, plant & equipment (net)	99,000	90,000	9,000	10.00%

 

File name: XACC291 wk8 E13-8 E14-3.xls File type: doc PRICE: $10

Case Study 1 Week 3 - Springfield Express is a luxury passenger carrier in Texas. All seats are first class, and the following data are available

Case Study 1 Week 3

 

Springfield Express is a luxury passenger carrier in Texas. All seats are first class, and the following data are available:

Number of seats per passenger train car                                            90

Average load factor (percentage of seats filled)                               70%

Average full passenger fare                                                               $ 160

Average variable cost per passenger                                               $   70

Fixed operating cost per month                                                  $3,150,000

 

a. What is the break-even point in passengers and revenues per month?

b. What is the break-even point in number of passenger train cars per month?

c. If Springfield Express raises its average passenger fare to $ 190, it is estimated that the average load factor will decrease to 60 percent. What will be the monthly break-even point in number of passenger cars?

Number of seats per passenger train car                                            90

Average load factor (percentage of seats filled)                               60%

Average full passenger fare                                                               $ 190

Average variable cost per passenger                                               $   70

Fixed operating cost per month                                                  $3,150,000

 

d. (Refer to original data.) Fuel cost is a significant variable cost to any railway. If crude oil increases by $ 20 per barrel, it is estimated that variable cost per passenger will rise to $ 90. What will be the new break-even point in passengers and in number of passenger train cars?

Number of seats per passenger train car                                            90

Average load factor (percentage of seats filled)                               70%

Average full passenger fare                                                               $ 160

Average variable cost per passenger                                               $   90

Fixed operating cost per month                                                  $3,150,000

 

e. Springfield Express has experienced an increase in variable cost per passenger to $ 85 and an increase in total fixed cost to $ 3,600,000. The company has decided to raise the average fare to $ 205. If the tax rate is 30 percent, how many passengers per month are needed to generate an after-tax profit of $ 750,000?

Number of seats per passenger train car                                            90

Average load factor (percentage of seats filled)                               70%

Average full passenger fare                                                               $ 205

Average variable cost per passenger                                               $   85

Fixed operating cost per month                                                  $3,600,000

Tax rate                                                                                   30%

 

f. (Use original data). Springfield Express is considering offering a discounted fare of $ 120, which the company believes would increase the load factor to 80 percent. Only the additional seats would be sold at the discounted fare. Additional monthly advertising cost would be $ 180,000. How much pre-tax income would the discounted fare provide Springfield Express if the company has 50 passenger train cars per day, 30 days per month?

 

g. Springfield Express has an opportunity to obtain a new route that would be traveled 20 times per month. The company believes it can sell seats at $ 175 on the route, but the load factor would be only 60 percent. Fixed cost would increase by $ 250,000 per month for additional personnel, additional passenger train cars, maintenance, and so on. Variable cost per passenger would remain at $ 70.

 

1. Should the company obtain the route?

2. How many passenger train cars must Springfield Express operate to earn pre-tax income of $ 120,000 per month on this route?

3. If the load factor could be increased to 75 percent, how many passenger train cars must be operated to earn pre-tax income of $ 120,000 per month on this route?

 

4. What qualitative factors should be considered by Springfield Express in making its decision about acquiring this route?

 

TUTORIAL PREVIEW

a. What is the break-even point in passengers and revenues per month?

Contribution margin per passenger = Average full passenger fare – Average variable cost per passenger

                                    = $160 - $70

                                    = $90

Contribution margin ratio = Contribution margin/ Selling price

                                    = $90/ $160

                                    = 0.5625 or 56.25%

 

 

File name: Case Study 1 Week 3 .doc File type: doc PRICE: $20

 

ACC 561 Final MCQs

ACC 561 Final  MCQs

1. Which of the following is an advantage of corporations relative to partnerships and sole proprietorships?

Harder to transfer ownership.
Lower taxes.
Most common form of organization.
Reduced legal liability for investors.

2. The group of users of accounting information charged with achieving the goals of the business is its

creditors.
auditors.
investors.
Managers

3. Which of the following financial statements is concerned with the company at a point in time?

Balance sheet.
Retained Earnings statement.
Income statement.
Statement of cash flows.
4. An income statement

presents the revenues and expenses for a specific period of time.

reports the assets, liabilities, and stockholders’ equity at a specific date.
summarizes the changes in retained earnings for a specific period of time.
reports the changes in assets, liabilities, and stockholders’ equity over a period of time.

5. The most important information needed to determine if companies can pay their current obligations is the

relationship between current assets and current liabilities.
projected net income for next year.
relationship between short-term and long-term liabilities.
net income for this year.

6. A liquidity ratio measures the

percentage of total financing provided by creditors.
income or operating success of a company over a period of time.
short-term ability of a company to pay its maturing obligations and to meet unexpected needs for cash.
ability of a company to survive over a long period of time.

7. The convention of consistency refers to consistent use of accounting principles

among firms.
throughout the accounting periods.
among accounting periods.
within industries.

8. Horizontal analysis is also known as

linear analysis.
common size analysis
vertical analysis.
trend analysis.

9. Horizontal analysis is a technique for evaluating a series of financial statement data over a period of time

to determine which items are in error.
to determine the amount and/or percentage increase or decrease that has taken place.
that has been arranged from the highest number to the lowest number.
that has been arranged from the lowest number to the highest number.

10. Vertical analysis is a technique that expresses each item in a financial statement

as a percent of the item in the previous year.
in dollars and cents.
starting with the highest value down to the lowest value.
as a percent of a base amount

11. Process costing is used when

dissimilar products are involved.
costs are to be assigned to specific jobs.
the production process is continuous.
production is aimed at filling a specific customer order

12. An important feature of a job order cost system is that each job
must be completed before a new job is accepted
must be similar to previous jobs completed
consists of one unit of output.
has its own distinguishing characteristics

13. In a process cost system, product costs are summarized:

when the products are sold.
after each unit is produced
on production cost reports
on job cost sheets

13. An activity that has a direct cause-effect relationship with the resources consumed is a(n)
cost pool.
product activity.
cost driver.
overhead rate

15. Activity-based costing

allocates overhead directly to products and services based on activity levels
allocates overhead to multiple activity cost pools, and it then assigns the activity cost pools to products and services by means of cost drivers.
assigns activity cost pools to products and services, then allocates overhead back to the activity cost pools.
accumulates overhead in one cost pool, then assigns the overhead to products and services by means of a cost driver.

16. A cost which remains constant per unit at various levels of activity is a

mixed cost.
manufacturing cost
variable cost
fixed cost

17. The break-even point is where
total sales equal total fixed costs.
total sales equal total variable costs.
contribution margin equals total fixed costs
total variable costs equal total fixed costs

18. Fixed costs are $600,000 and the contribution margin per unit is $150. What is the break-even point?

4,000 units
$1,500,000
$4,000,000
1,500 units
Break-even point = 600,000/ 150

19. When a company assigns the costs of direct materials, direct labor, and both variable and fixed manufacturing overhead to products, that company is using

absorption costing
product costing
variable costing
operations costing

20. If a division manager's compensation is based upon the division's net income, the manager may decide to meet the net income targets by increasing production when using

absorption costing, in order to increase net income
variable costing, in order to decrease net income
absorption costing, in order to decrease net income
variable costing, in order to increase net income

21. An unrealistic budget is more likely to result when it

has been developed by all levels of management.
is developed with performance appraisal usages in mind
has been developed in a bottom up fashion
has been developed in a top down fashion

22. A major element in budgetary control is

approval of the budget by the stockholders
the comparison of actual results with planned objectives
the valuation of inventories
the preparation of long-term plans

23. The purpose of the sales budget report is to

control selling expenses.
control sales commissions
determine whether sales goals are being met
determine whether income objectives are being met

24. The accumulation of accounting data on the basis of the individual manager who has the authority to make day-to-day decisions about activities in an area is called

static reporting.
master budgeting.
responsibility accounting
flexible accounting

25. Variance reports are
(a) external financial reports.
(b) SEC financial reports
(c) internal reports for management.
(d) all of these.

26. Internal reports that review the actual impact of decisions are prepared by

factory workers
the controller.
management accountants
department heads

27. The process of evaluating financial data that change under alternative courses of action is called

double entry analysis
cost-benefit analysis
incremental analysis
contribution margin analysis

28. Seasons Manufacturing manufactures a product with a unit variable cost of $100 and a unit sales price of $176. Fixed manufacturing costs were $480,000 when 10,000 units were produced and sold. The company has a one-time opportunity to sell an additional 1,000 units at $140 each in a foreign market which would not affect its present sales. If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect net income as follows:

Income would increase by $140,000
Income would decrease by $8,000
Income would increase by $8,000
Income would increase by $40,000

29. Carter, Inc. can make 100 units of a necessary component part with the following costs:

Direct Materials           $120,000
Direct Labor                20,000
Variable Overhead       60,000
Fixed Overhead           40,000

If Carter can purchase the component externally for $220,000 and only $10,000 of the fixed costs can be avoided, what is the correct make-or-buy decision?

Make and save $10,000
Buy and save $10,000
Buy and save $30,000
Make and save $30,000

30. A company has a process that results in 15,000 pounds of Product A that can be sold for $16 per pound. An alternative would be to process Product A further at a cost of $200,000 and then sell it for $28 per pound. Should management sell Product A now or should Product A be processed further and then sold? What is the effect of the action?

Sell now, the company will be better off by $200,000.
Process further, the company will be better off by $180,000
Process further, the company will be better off by $20,000
Sell now, the company will be better off by $20,000

File name: 1-30 questions.doc File type: doc PRICE: $25