Managerial Accounting Problems

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MANAGERIAL ACCOUNTING

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Solve these problems please with true accounting style according managerial accounting class

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University Hospital has an outpatient surgery center that treats patients in three activity centers: (1) Surgery, which does surgery on the patients, (2) Phase I recovery, where patients recover from surgery while still asleep, and (3) Phase II surgery, where the patients continue recovering after they awake. At the end of Phase II surgery, patients go home. Daily capacities and production levels are as follows: Surgery 40 surgeries Phase I Recovery 30 surgeries Phase II Recovery 60 surgeries Daily capacity The hospital receives an average of $1,200 per surgery. (The surgeon's fee and anesthesiologist fee is billed separately.) The variable cost per surgery is $400. There is sufficient demand for surgeries that the hospital could perform 60 per day. Surgeries not performed by the outpatient surgery center are sent to the hospital's regular surgery rooms in the hospital. The variable cost per surgery for the regular surgery rooms is $800, while the hospital still receives $1,200 per surgery. Here are some alternatives that management is considering. a) Continue performing 30 surgeries per day in the outpatient surgery center and send 30 patients to the hospital's regular surgery rooms for the other 30 patients. b) Rebuild the recovery rooms so that some of the Phase II space could be used for Phase I recovery. This would cost $2,000 per day and would enable the outpatient surgery center to perform 40 surgeries per day and send 20 patients to the hospital's regular operating rooms. Required: Prepare an income statement for each of the two alternatives and indicate which alternative is the better one. Giga Manufacturing Co. manufactures 1 GB flash drives (jump drives). Price and cost data for a relevant range extending to 500,000 units per month are as follows: Sales price per unit: (Current monthly sales volume is 400,000 units) $20.00 Variable costs per unit: Direct materials 4.00 Direct labor 6.00 Variable manufacturing overhead 2.00 Variable selling and administrative expenses 2.00 Monthly fixed expenses: Fixed manufacturing overhead $1,600,000 Fixed selling and administrative expenses $1,200,000 Required: a) What would the company's monthly operating income be if it sold 400,000 units? b) Management is currently in contract negotiations with the labor union. If the negotiations fail, direct labor costs will increase by 15% and fixed costs will increase by $400,000 per month. If these costs increase, how many units will the company have to sell each month to break even? c) Suppose Giga adds a second line of flash drives (2 GB rather than 1 GB). A package of the 2 GB flash drives will sell for $30 and have variable cost per unit of $20 per unit. The expected sales mix is five of the smaller flash drives (1 GB) for every two larger flash drive (2 GB). Given this sales mix, how many of each type of flash drive will Bytes need to sell to reach its target pre- tax monthly profit of $400,000? Fixed costs will remain the same. Giga's tax rate is 25%. Bam Corporation sells camping equipment. One of the company's products, a lantern, sells for $100 per unit. Variable expenses are $70 per lantern, and fixed expenses associated with the lantern total $180,000 per month. Required: a) Compute the company's break-even point in the number of lanterns. b) Compute the number of lanterns to be sold to yield a net income of $72,000 per month. The tax rate for Bam is 30 percent. c) At present, the company is selling 10,000 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. Should the change in selling price be made? Show computations. For many years, Waiters Company manufactured a single product called a mono-relay. Then three years ago, the company automated a portion of its plant and at the same time introduced a second product, called a bi-relay, which has become increasingly popular. The bi-relay is a more complex product, requiring one hour of direct labor time per unit to manufacture and extensive machining in the automated portion of the plant. The mono-relay requires only 0.75 hour of direct labor time per unit and only a small amount of machining. Manufacturing overhead costs are currently assigned to products based on direct labor-hours. Despite the growing popularity of the company's new bi-relay, profits have been declining steadily. Management is beginning to believe that there may be a problem with the company's costing system. Material and labor costs per unit are as follows: Mono-Relay Bi-Relay Direct materials $35 $48 Direct labor (0.75 hour and 1.0 hour @ $12 per hour) $9 $12 Management estimates that the company will incur $1,000,000 in manufacturing overhead costs during the current year and 40,000 units of the mono-relay and 10,000 units of the bi-relay will be produced and sold. Management is considering using activity-based costing to apply manufacturing overhead cost to products for external financial reports. The activity-based costing system would have the following four activity cost pools. Estimated Mono- Bi- Activity Cost (and Activity Measure) Cost Total Relay Relay Maintaining parts inventory (number of part types) 75 150 $ 180,000 225 90,000 1,000 800 200 Processing purchase orders (number of orders) Quality control (number of tests) 230,000 5,750 2,500 3,250 Machine-related (machine-hours) 10,000 4,000 6,000 500,000 Total overhead cost $1,000,000 Required: a) Determine the unit product cost for each product using the current system. b) Determine the unit product cost for each product using the activity-based costing system. c) In view of the outcomes for the two costing systems, explain which costing system would be more appropriate.
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