TEST 2 -ACC209 Managerial Accounting(Summer 2020)

Name/Student Number:___________________________________

(MUST SHOW ALL WORK TO GET PART MARKS)

1) ASAP is a marketing research company that uses Activity Based Costing. The following budgeted data for each of the activity cost pools is provided for the year 2019:

EstimatedExpected Use of

Activity Cost PoolsOverheadCost Drivers per Activity

Market Research$31,500900 research hours

Client Meetings$1,200,0006,000 professional hours

Preparing Research Papers$500,00040,000

During 2019 ASAP experienced 5,000 research hours, prepared 15,000 document pages, and 12,000 professional hours.

Instructions

A) Compute the total overhead applied during 2019.

B) How would you know if the overhead was under applied or over applied?

2) Data Inc. developed the following information for its calculator sales:

Sales price$15 per unit

Variable cost of goods sold$4 per unit

Fixed cost of goods sold$50,000

Variable selling expense10% of sales price

Variable administrative expense$1 per unit

Fixed selling expense$7,000

Fixed administrative expense$5,000

For the year ended December 31, 2019, Data Inc. produced and sold 25,000 calculators.

Instructions

a. CVP income statement using the contribution margin format for Data Inc. for 2019.

b.If the company produced and sold 30,000 calculators, what amount would fixed costs increase by?

3) ABC Company has the following sales and cost data for their coffee maker product:

Per Coffee Maker

Sales price$120

Variable cost $55

Total fixed costs$520,000

Instructions

Answer the following independent questions and show computations to support your answers.

a.How many units must be sold to break even?

b.What are the total sales in dollars that must be generated for the company to earn a profit of $130,000?

c.ABC Company plans to spend an additional $135,200 on an advertising program, how many additional units must the company sell to earn the same net income it is now making?

d. How do you know if the advertising program justifies the cost?

4) The Oreo Company manufactures and sells blenders. They produced and sold 8,000 blenders and are operating at 80% of plant capacity. The unit cost information for the product is as follows:

Sales Price$45

Variable manufacturing cost$25

Fixed manufacturing cost ($40,000 8,000) 5 30

Profit per unit$15

The company received a proposal from a foreign company to buy 1000 units of blenders for $28 per unit. This is a one-time only order and acceptance of this proposal will not affect the company's regular sales. The owner is unsure to accept the proposal because she is concerned that the company will lose money on the special order.

Instructions

A)Prepare schedule reflecting an incremental analysis of this proposal. Indicate the effect the acceptance of this order might have on the company's income.

B)Solely on a financial basis, should the company accept the offer and list a non financial impact if the special offer was accepted,

5) Speed Motors LTD. manufactured 1,000 components that are used in their product and with the following costs:

$100,000 for direct materials, $38,000 for direct labour, $60,000 for variable manufacturing overhead, and $40,000 for fixed manufacturing overhead.

A supplier has offered to sell the components to Speed Motors for $400 each. The fixed manufacturing overhead includes depreciation on the equipment used to manufacture the part and would not be reduced if the components were purchased from the outside firm. If the components are purchased from the supplier, Speed Motors has the opportunity to use the factory equipment to produce another product that is estimated to have a contribution margin of $10,000.

Instructions

A) Should Speed Motors purchase the component from the outside supplier, what would be the impact on net income?

B) What would be a potential risk/possible negative outcome if Speed Motors purchased from the outside supplier.

6) Smart Clothing has three product lines: pants, shirts, and socks. The allocated fixed costs are the only fixed costs that are all unavoidable (will remain). Results of the fourth quarter are presented below:

PantsShirtsSocksTotal

Units sold1,0001,2001,5003,700

Revenue$27,000$15,000$10,000$52,000

Variable departmental costs 15,0008,0005,00028,000

Direct fixed costs5,0003,0004,50012,500

Allocated fixed costs 5,000 3,000 2,500 10,500

Net income (loss)$ 2,000$1,000($2,000)$1,000

Instructions

Demand of individual products is not affected by changes in other product lines. Prepare incremental analysis of the effect of dropping the sock product line.