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Cost Accounting

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Cost Accounting

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PROBLEM #1 SPECIAL ORDER

Parker and Spitzer Manufacturing is approached by a European customer to fulfill a one-time-only special order for a product similar to one offered to domestic customers. The following per unit data apply for sales to regular customers:

 

Direct materials                            $66

Direct labor                                     30

Variable manufacturing support     48

Fixed manufacturing support        104

Total manufacturing costs      248

Markup (50%)                              124

Targeted selling price                 $372

 

Parker and Spitzer Manufacturing has excess capacity.

 

Required:

  1. What is the full cost of the product per unit?
  2. What is the contribution margin per unit?
  3. Which costs are relevant for making the decision regarding this one-time-only special order? Why?
  4. For Parker and Spitzer Manufacturing, what is the minimum acceptable price of this one-time-only special order?
  5. For this one-time-only special order, should Parker and Spitzer Manufacturing consider a price of $200 per unit? Why or why not?

 

PROBLEM #2  SCARCE RESOURCES

25) Ralph’s Mufflers manufactures three different product lines, Model X, Model Y, and Model Z. Considerable market demand exists for all models. The following per unit data apply:

Model X   Model Y   Model Z

Selling price                                                  $160          $180          $200

Direct materials                                                60              60              60

Direct labor ($20 per hour)                               30              30              40

Variable support costs ($10 per machine-hour) 10             20              20

Fixed support costs                                           40              40              40

 

  1. For each model, compute the contribution margin per unit.
  2. For each model, compute the contribution margin per machine-hour.
  3. If there is excess capacity, which model is the most profitable to produce? Why?
  4. If there is a machine breakdown, which model is the most profitable to produce? Why?
  5. How can Ralph encourage her sales people to promote the more profitable model?

 

 

PROBLEM #3  MAKE-BUY

Kirkland Company manufactures a part for use in its production of hats. When 10,000 items are produced, the costs per unit are:

 

Direct materials                               $0.60

Direct manufacturing labor                3.00

Variable manufacturing overhead     1.20

Fixed manufacturing overhead          1.60

Total                                           $6.40

 

Mike Company has offered to sell to Kirkland Company 10,000 units of the part for $6.00 per unit. The plant facilities could be used to manufacture another item at a savings of $9,000 if Kirkland accepts the offer. In addition, $1.00 per unit of fixed manufacturing overhead on the original item would be eliminated.

 

Required:

  1. What is the relevant per unit cost for the original part?
  2. Which alternative is best for Kirkland Company? By how much?

 

PROBLEM #4  COST-PLUS PRICING

Backwoods Incorporated manufactures rustic furniture. The cost accounting system estimates manufacturing costs to be $80 per table, consisting of 70% variable costs and 30% fixed costs. The company has surplus capacity available. It is Backwoods’ policy to add a 50% markup to full costs.

 

  1. Backwoods Incorporated is invited to bid on an order to supply 100 rustic tables. What is the lowest price Backwoods should bid on this one-time-only special order?

 

  1. A large hotel chain is currently expanding and has decided to decorate all new hotels using the rustic style. Backwoods Incorporated is invited to submit a bid to the hotel chain. What is the lowest price per unit Backwoods should bid on this long-term order?

 

 

 

 

 

 

 

 

 

Cost Accounting

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Cost Accounting

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Hints for completing Assignment #1: The Show Must Go On.

 

  1. Read the entire case
  2. Prepare the Assumptions section of the Budget Template to familiarize yourself with SETU’s cost structure.
  3. Complete the rest of the budget template (that responds to Case Question #1)
  4. Use the template on the Solution 2a-b tab. Complete the cells in accordance with the color codes.  Be sure and leave any revenue from donations OUT of the breakeven calculation (ticket revenue only).
  5. Copy your completed schedules on the Solution 2-a-b tab to the Solution 2c tab and then
    1. Change the number of shows to 3 instead of 4
    2. Confirm that all of your previous formulas are linked to the proper cells so you can reply on the results
  6. Copy your completed schedules on the Solution 2a-b tab to the Solution 2d tab
    1. Now include the revenue from donations in the breakeven calculation
    2. Confirm that all of your previous formulas are linked to the proper cells so you can reply on the results
  7. Copy your completed schedules on the Solution 2c tab to the Solution 2e tab
    1. Now include the revenue from donations in the breakeven calculation
    2. Confirm that all of your previous formulas are linked to the proper cells so you can reply on the results
  8. Enter your explanation to question 2f on the Solution 2f tab.
  9. Use the template on the Solution 3a-c tab. Complete the cells in accordance with the color codes.
  10. You are done. You do not need to complete any other questions.

Cost Accounting

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Cost Accounting

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700-1000 WORDS

In your monthly Chamber of Commerce meeting you heard that some of your peers running other businesses changed from a traditional income statement approach to a contribution margin approach. Your peers said this helps show the importance of volume levels to the businesses profitability.

You know that by using the contribution format income statement you can change what projected profits look like by changing your classification of fixed vs. variable type costs.

 

Prepare a memo to your CFO which does the following:

  1. Summarize what a contribution format income statement depicts, as compared to the traditional format.
  2. Using the following company data, show how the two income statement formats would look side by side.
  3. Explain why the contribution approach is more useful to project profits. As an example, show your calculations when using a projected sales increase of 20%.

Using the following data, show how expected profits would be different if there was a sales increase of 10% and she used variable COGS of 50% vs. 60%. As an offset, this implies an increase in fixed COGS of $1,000,000.

 

Company Data to use for Parts 2 & 4

Last year’s sales $10,000,000
Variable cost as a % of sales 60%
Fixed costs of manufacturing $2,000,000
Variable selling and administrative costs as % of sales 10%
Fixed selling and administrative costs $1,000,000
Reported profit $0

Please submit your assignment.

The following rubric will be used for grading:

 

Grading Rubric
10% Explain what a contribution-format income statement depicts as compared with the traditional format.
30% Using the company data, show how the 2 income statement formats would look side by side.
15% Explain exactly why the contribution approach is more useful to project profits.
15% As an example, show your calculations when using a projected sales increase of 20%.
15% Identify and explain the ethical issues involved when you can change what projected profits look like by changing your classification of fixed versus variable costs.
15% Using the data, show how expected profits would be different if there were a sales increase of 10% and the CFO used variable COGS of 50% vs. 60%.