THIS ASSIGNMENT HAS 6 PARTS!!!

I.

Discuss the importance of accountability based on responsibility centers. Use at least two examples of the different centers (cost center, profit center, and investment center). Cost-volume-profit (CVP) analysis focuses on five factors that affect profits. Name four (4) of those five factors? Within a relevant range we can assume that total costs, both variable and fixed, behave in a linear manner. Furthermore, suppose that everything produced is sold in its entirety. Based on these assumptions:

1. What would be the basic formula to calculate the operating income of a manufacturing company?

2. What would be the basic formula for the break-even point in terms of units (break-even-point)?

II. (ALL TABLES, CALCULATIONS AND PROCESSES MUST BE SHOWN!)

Luis and Alex, consultants, need a computer network for the use of their employees. They have before them three different proposals whose data is reflected in the following table:

	Proposal A	Proposal B	Proposal C
Initial investment - equipment purchase	90,000	80,000	70,000
Annual increase in cash from operations for year
Year 1	50,000	45,000	15,000
Year 2	30,000	35,000	75,000
Year 3	35,000	20,000	0
Estimated useful life	3 years	3 years	2 years

The assets shown in that table depreciate in a straight line. Use the data from the table to answer the following questions:

1. Calculate the payback period.

2. Calculate the rate of return or accounting yield (accrual accounting rate of return) for each proposal. Use a required rate of return of 14%.

3. Order each proposal in terms of each of the above computations. Which proposal is the most recommended? Explain.

III. (SHOW ALL CALCULATIONS/PROCESSES)

Sharks Inc. produces fishing equipment. A luxury fishing rod, leader in the market, it is sold at a price of $ 135 per unit and has a production cost of $ 1.00 per unit currently. A close competitor is introducing a product similar to a price of $ 130 per unit. Sharks understands that you must offer the same price than this competitor if he wants to maintain his current level of sales of 200,000 units per year.

1. What should be the target cost if the objective is to earn 30% of the sales price and you want to sell the product at $ 130 per unit?

IV. (SHOW ALL CALCULATIONS/PROCESSES)

Gorro Sombrero is considering opening a stand in a shopping center to sell caps. He wants to know how many caps he has to sell to get to the breakeven point. The caps would sell for $ 15, variable costs of $ 10 per cap, and the annual fixed costs are $ 48,000.

1. How many caps does he have to sell annually to break even?

2. What would the total operating costs be to break even?

3. If Gorro estimates that the least the business sells is 925 caps per month, should he establish the business? Explain.

4. What would be the net profit before income tax that Gorro would have if he sells 925 caps per month?

V. (SHOW ALL CALCULATIONS/PROCESSES)

Cool Gafitas Inc. sells sunglasses. Last year the sunglasses were sold at $ 30 each, with variable costs per sunglass of $ 20 and fixed operating costs of $ 24,000. How many sunglasses does Cool Gafitas Inc. have to sell this year to reach the breakeven considering the aforementioned costs, given the following scenarios?

1. All numbers remain the same as last year.

2. Fixed operational costs increase to $ 28,000; the other items remain equal.

3. The sale price is increased to $ 28,000; all costs remain the same for the year last.

4. The variable cost per sunglass increases to $ 22.50; the other items remain the same as last year.

VI. (SHOW ALL CALCULATIONS/PROCESSES)

The sales projection of a certain company for the next year of operations will be 15,000 units. Currently, the company has 15,000 units in inventory. Since it understands that it has a lot of inventory, the company plans to reduce the ending inventory of the next year of operations to 60% of the current quantity. On the other hand, the company wants to project its conversion costs to next year and to plan on how to reduce them. Currently, these costs represent an average of $ 55 per unit to be produced, of which 40% represent direct labor.

1. Calculate the production budget in units.

2. Calculate the direct labor cost budget.