ACCT208 Lecture Notes - Lecture 5: Pricing Strategies, Variable Cost, European Cooperation In Science And Technology

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olivedolphin719

1 Apr 2016

School

University of Delaware

Department

Accounting

Course

ACCT208

Professor

Dragone Debra

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Document Summary

Overview: models showing the effect on noi based on changes to. Answers questions: what products to make/sell, pricing strategy, do we need to change production facilities fc. Contribution margin income statement: short for anaylysis, highlights cost behavior. Contribution margin cm covers fc & provides profits. Breakeven point bep : sales level where profit =0$ *noi will increase by the unit cm for each additional unit sold. This shows the impact on noi when you know the increase in sales. Cost volume profit affects net income through changes in: Mountain bike sp , vc total fc ,000. Change in fc and sv: fc 80,000 to 100,000, sv from 500 bikes to 1,000 bikes, compute new total cm: 1000bikes(500-300, compute old total cm: 500bikes(500-300, increase in cm, increase in fc, increase in noi. Cushion or excess of budgeted or actual sales over break even sales.

Related Questions

Folgers manufactures coffee:

Item	Total Cost
Salaries for Administrative Staff	$264,000
Salary for Factory Manager	14,800
Rent on Factory and Equipment	184,600
Utilities for Factory	40,200
Advertising (fixed)	20,400
Rubber and plastic	448,200
Wages for Assembly Staff	358,000
Total	$1,330,200

a. Identify all costs above as either a product cost(specifically DM, DL or OH) or a period cost (PC).

b. If Folgers had produced 12,000 units, but only sold Â¾ of itsinventory what amount would it report for inventory?

c. Identify all of their costs as either a variable cost (VC) ora fixed cost (FC) then calculate the variable cost per unit(rounded to the nearest penny) assuming 12,000 units were producedand the total fixed costs. Prepare a CM model assuming all unitswere sold at $125each.

Use the contribution margin model toanswer each situation below, which is independent of the others andunless specified otherwise, uses the VC and FC data above.

d. Management expects a 20% increase in unit sales. If so, whatis the Folgersâ projected net income under this scenario?

e. Folgers is considering using recycled rubber and plastic fortheir product. If so, its most recent costs for materials wouldincrease by $10 per unit; as a result, Folgers would increase theprice by $5 per unit to help offset that cost increase. Inaddition, management would increase advertising by 50 percent. Ifthose changes are made,Folgers anticipates that unit sales wouldincrease by 15 percent. What is the projected net income under thisscenario?

f.Folgers is considering whether it should make upgrades to thefactory and equipment; if so, the rent on factory and equipmentwould increase by 15 percent. Management projects that itsproduction (and sales) volume would increase by 20 percent if theprice were lowered by $5 per unit for all units. What is theprojected net income under this scenario?

byzantiumotter741

Overview: Classifying a companyâs costs allows for an in-depthanalysis of the impact that changes in output have on revenues,costs, and net income or net loss. A cost-volume-profit (CVP)analysis will be completed in order to determine the breakevenpoint. Relevant costs will be used to prepare a flexible budget.Additionally, an appropriate costing system should be selected andthe choice should be substantiated with reasonable rationale.Finally, a memo should be prepared for management that summarizesthe results of the quantitative analysis and makes recommendationsfor an optimal costing system to be ethically used by key decisionmakers. For Milestone One, you will use the MDE ManufacturingBudget (Table I) to analyze costs, contribution margin, andbreakeven point for the bird feeder division of the company. In Tab1 of your Student Workbook, classify costs as either product orperiod costs. Briefly explain the difference between the types ofcosts. Then, analyze the actual costs and, using Tab 2 of yourStudent Workbook, complete a cost-volume-profit analysis todetermine how many bird feeders must be sold at the current costand sales price level to earn a 10% profit and how much the salesprice would have to increase to earn a 10% profit at the same costand sales volume level. Submit the Student Workbook with Tabs 1 and2 completed with your cost calculations and a 1â2 page Worddocument that explains the implications of your findings andaddresses all of the critical elements in Section I.

I. Salesand Manufacturing Expenses: Budget and Actual (2014)

You will use this table to complete Milestones One and Two.

	Budget ($)	Actual ($)

Sales	1,050,000	991,700

Expenses
Materials â Cedar	225,000	248,160
Materials â Plastic	37,500	37,741
Factory Worker Labor	300,000	332,760
Materials â Indirect	3,000	2,585
Factory Depreciation	78,000	78,000
Factory Utilities	12,000	12,000
Factory Maintenance and Repairs	5,000	4,500
Shipping ($2.25/each)	112,500	105,750
Sales Commissions ($2.00/unitsold)	100,000	94,000
Office Rent	12,000	12,000
Advertising	20,000	20,000
Liability insurance	5,000	5,000
Office Depreciation	1,000	1,000
Office Salaries	48,000	48,000

Total Expenses	959,000	1,001,496

II. Contribution Margin: Static Budget and Actual Results (2014)

You will use this table to complete Milestone Two.

	Actual Results	Static Budget Amount

Units Sold	47,000	50,000
Revenues ($)	991,700	1,050,000
Manufacturing Costs ($)
Variable	621,246	565,500
Fixed	94,500	95,000
Gross Margin	275,954	389,500

Milestone One,Part I




	Product Costs









	Period Costs





		Totals	Totals
		Budget	Actual
Sales Price per Unit

Variable Costs
	Materials - Cedar
	Materials - Plastic
	Factory Worker Labor
	Materials - Indirect
	Shipping ($2.25/ea)
	Sales Commissions ($2/unit sold)

Variable Cost per Unit

Contribution Margin


Fixed Costs
	Factory Depreciation
	Factory Utilities
	Factory Maintenance and Repairs
	Office Rent
	Advertising
	Liability Insurance
	Office Depreciation
	Office Salaries
Total Fixed Costs


Using Budgeted Amounts
Breakeven Point -				Breakeven Point -


Using Actual Amounts				Units at Current Sales Price
+ 10,000 profit

Using actual amounts				New Contribution Margin
+ 10,000 profit				Current Variable Costs
				New Sales Price

ceruleanwombat580

	#1	Which of the following correctly describes fixed and variable cost behavior as total volume increases?
	A.	Unit fixed costs stay the same and unit variable costs increase.
	B.	Total fixed costs stay the same and total variable costs increase.
	C.	Unit fixed costs decrease and total variable costs decrease.
	D.	Unit fixed costs decrease and unit variable costs decrease.

	#2	The incremental profit generated by the sale of one additional unit is equal to the
	A.	contribution margin per unit.
	B.	selling price.
	C.	margin of safety.
	D.	incremental cost.

	#3	Clipper Office Furniture uses cost-plus pricing with a 40% mark-up on total cost at capacity. The company is currently selling 40,000 units at $19.60 per unit. Each unit has a variable cost of $9. In addition, the company incurs $200,000 in fixed costs annually. If demand falls to 32,000 units and the company wants to continue to earn a 40% return, what price should the company charge?
	A.	$15.25
	B.	$21.35
	C.	$19.60
	D.	$27.44

	#4	ABC company has $6.50 per unit in variable costs and $2.20 per unit in fixed costs at a volume of 40,000 units. If the company uses cost-plus 20% for pricing, which of the following should the company use to determine the price?
	A.	The company should use a unit cost of $8.70 per unit only at a volume of 40,000 units.
	B.	The company should use a unit cost of $8.70 at any volume level.
	C.	The company should use a unit price of $10.44 at any volume level.
	D.	The company should ignore fixed costs for cost-plus pricing.

	#5	Which of the following is a grouping of overhead costs whose total is allocated using one allocation base?
	A.	Cost objective
	B.	Cost pool
	C.	Direct cost
	D.	Cost driver

	#6	Which one of the following is the preferred alternative when deciding between two options?
	A.	Incremental profit is greater than under the other alternatives.
	B.	Revenues are greater than under the other alternatives.
	C.	Expenses are less than under the other alternatives.
	D.	No opportunity or sunk costs exist.

#7	The required rate of return used to calculate an investmentâs net present value is related to the firmâs
A.	contribution margin.
B.	cost of capital.
C.	total assets.
D.	Price/Earnings ratio.

#8	A company is trying to decide whether to keep or drop the organic foods department in its grocery store. If organic foods are dropped, the manager will be laid off. What is the manager's salary in relation to the decision to keep or drop the department?
A.	A variable cost and therefore relevant
B.	Avoidable and therefore incremental
C.	Sunk and therefore not relevant
D.	A fixed cost and therefore not relevant

#9	The following information relates to Ajax Widgets during the year. There was no beginning inventory.
	Units produced	11,000
	Units sold	10,000
	Units in ending inventory	1,000
	Fixed manufacturing overhead	$220,000
	How much fixed manufacturing overhead will be expensed during the year (included in Cost of Goods Sold) using full costing?
A.	$220,000
B.	$200,000
C.	$20,000
D.	$10,000

#10	If the required rate of return is greater than the internal rate of return of a potential investment, the company should judge the investment as acceptable.
A.	This is a True statement
B.	This is a False statement
C.	Not enough information provided.

#11	The basic concept involved in time value of money calculations is that
A.	it is better to receive a dollar in the future than to receive a dollar today
B.	incremental revenues must exceed incremental costs.
C.	it is better to receive a dollar today than to receive a dollar in the future.
D.	it can only be applied to positive cash flows

#12	Hanson Sports has three product lines: footballs, basketballs, and bats. Common costs are allocated based on relative sales. A product line income statement for the year ended December 31, 2016 follows:
		Footballs	Basketballs	Bats	Total
	Sales	$600,000	$800,000	$400,000	$1,800,000
	Cost of goods sold	260,000	400,000	230,000	890,000
	Gross margin	340,000	400,000	170,000	910,000
	Less other variable costs	85,000	120,000	80,000	285,000
	Contribution margin	255,000	280,000	90,000	625,000
	Less direct salaries	50,000	60,000	45,000	155,000
	Less common fixed costs	85,000	100,000	55,000	240,000
	Net income	$120,000	$120,000	-$10,000	$230,000

	Since the profit for bats is a net loss, the company is considering dropping this product line. What is the incremental $ effect on total net income of dropping the Bats line?


#13	Right Air Supply sells a specialized air filter that has a variable cost of $10 each.
	Fixed costs are estimated to be $700,000 across all levels of sales shown below.
	Units Sold	Unit Price	CM per unit x Qty	Fixed Costs	Profit
	90,000	$33		700,000
	100,000	$31		700,000
	110,000	$30		700,000
	120,000	$28		700,000
	Which price should Right Air Supply charge to maximize profits?


#14	Randolph Corporation sells a single product at a price of $275 per unit. Variable cost per unit is $135 and fixed costs total $356,860. If sales are expected to be $825,000, what is the companyâs margin of safety?


#15	Roger Excavating Company experienced the following costs in 2016:
	Direct materials	$1.75 per unit
	Direct labor	$2.00 per unit
	Variable manufacturing overhead	$2.50 per unit
	Variable selling	$0.75 per unit
	Fixed manufacturing overhead	$50,000
	Fixed selling	$15,000
	Fixed administrative	$5,000
	During 2016, the company manufactured 100,000 units and sold 80,000 units. If the average selling price per unit was $22.65, what is the amount of the companyâs contribution margin per unit?

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ACCT208 Lecture Notes - Lecture 5: Pricing Strategies, Variable Cost, European Cooperation In Science And Technology

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