MANAGERIAL ACCOUNTING F/MGRS.
5th Edition
ISBN: 9781259969485
Author: Noreen
Publisher: RENT MCG
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Chapter 2A, Problem 2A.1E
1.
To determine
Introduction: Cost volume profit analysis (CVP) is used to ascertain the affect on company’s net income and operating income with respect to change in costs and volume of the production of the company. Break-even point is the level of sales which minimum required to overcome fixed and variable cost of the company. It is the condition of no
1.
Expert Solution
Answer to Problem 2A.1E
Variable cost for electricity per month will be1.56 Fixed cost will be 1395
Explanation of Solution
| Occupancy day | Electrical cost | |
| High Activity Level | 2406 | 5148 |
| Low Activity Level | 124 | 1588 |
| Change | 2282 | 3560 |
Variable cost:
Fixed cost:
Thus, Variable cost for electricity per month will be1.56 Fixed cost will be 1395
2.
To determine
Introduction: Cost volume profit analysis (CVP) is used to ascertain the affect on company’s net income and operating income with respect to change in costs and volume of the production of the company. Break-even point is the level of sales which minimum required to overcome fixed and variable cost of the company. It is the condition of no profits and no loss for the company. The factors affecting the variation in electrical costs from month to month in addition to occupancy day.
2.
Expert Solution
Answer to Problem 2A.1E
Season factors like winter, summer, autumn and rainy season
Explanation of Solution
The factors affecting the variation in electrical costs from month to month in addition to occupancy day are:
- Season factors like winter, summer, autumn and rainy season will affect the variation in electrical costs.
- Factors like guests not switching off the light and fan at the time leaving the room.
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Students have asked these similar questions
QNO.1
Raveen Products sells camping equipment. One of the company’s products, a camp lantern, sells for $90 per unit. Variable expenses are $63 per lantern, and fixed expenses associated with the lantern total $135,000 per month.
Required:
Compute the company’s break-even point in number of lanterns and in total sales dollars.
Compute the company’s Margin of Safety in sales dollar and in percentage.
At present, the company is selling 8,000 lanterns per month. The sales manager is convinced that a 10% reduction in the selling price will result in a 25% increase in the number of lanterns sold each month. Prepare two contribution format income statements, one under present operating conditions, and one as operations would appear after the proposed changes. Show both total and per unit data on your statements.
Refer to the data in (3) above. How many lanterns would have to be sold at the new selling price to yield a minimum net operating income of $72,000 per month?
Question1
Your company has been doing well, reaching $1.04 million in earnings, and is considering launching a new product. Designing the new product has already cost $507,000. The company estimates that it will sell 839,000 units per year for $2.95 per unit and variable non-labor costs will be $1.04 per unit. Production will end after year 3. New equipment costing $1.04 million will be required. The equipment will be depreciated to zero using the 7-year MACRS schedule. You plan to sell the equipment for book value at the end of year 3. Your current level of working capital is $303,000. The new product will require the working capital to increase to a level of $385,000 immediately, then to $399,000 in year 1, in year 2 the level will be $341,000, and finally in year 3 the level will return to $303,000. Your tax rate is 21%. The discount rate for this project is 9.8%. Do the capital budgeting analysis for this project and calculate its NPV.
Exercise 3
The Bremer Co. manufactures cordless telephones Bremer is planning to implement a JIT production system, which requires annual tooling costs of $150,000. Bremer estimates that the following annual benefits would arise from JIT production.
a. Average inventory will decline by $700,000 from $900,000 to $200,00
b. Insurance, space, materials handling, and setup costs, which currently total $200,00 would decline by 30%
c. The emphasis on quality inherent in JIT system would reduce rework costs by 20% Bremer currently incurs $350,000 on rework.
d. Better quality would eneble Bremer to raise the prices of its products by $3 per unit. Bremer sells $30,000 unit each year.
Bremer required rate of return on inventory investment is 12% per year
Required:
Claculate the net benefit or cost to the Bremer Corporation From implementing a JIT production system.
What other nonfinancial and qualitative factors should Brmeer Consider before deciding on whether it should implement a JIT…
Chapter 2A Solutions
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