ACC 2354 Ottawa University Managerial Accounting Worksheet

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ACC 2354

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ACC2354 Hand-In Assignment 4 QUESTION 1 Compute the Break-Even Point Mackson Products distributes a single product, a woven basket; its selling price is $8 and its variable cost is $6 per unit. The company's monthly fixed expense is $5,500. Required: 1. Solve for the company's break-even point in unit sales using the equation method. 2. Solve for the company's break-even point in sales dollars using the equation method and CM ratio. 3. Solve for the company's break-even point in unit sales using the contribution margin method. 4. Solve for the company's break-even point in sales dollars using the contribution margin met and the CM ratio. QUESTION 2 Break-Even Analysis and CVP Graphing Horace Society is planning its annual Western Fair Raceway Gala. The Gala committee has assembled the following expected costs for the event: Dinner (per person) Gaming tokens and program (per person) Prize payouts Tickets and advertising Private box suite rental Lottery licences $10 $2 $4,300 $800 $1,700 $200 The committee members would like to charge $40 per person for the evening's activities. Required: 1. Compute the break-even point for the Gala (in terms of the number of persons that must attend.) 2. Assume only 200 persons attended the Gala last year. If the same number attend this year, what price per ticket must be charged to break even? 3. Using the $40 ticket price per person amount, prepare a CVP graph for the Gala from zero tickets up to 600 tickets sold. QUESTION 3 Basic CVP Analysis Klein Company distributes a high-quality bird feeder that sells for $30 per unit. Variable costs are $12 per unit, and fixed costs total $270,000 annually. Required: Answer the following independent questions: 1. What is the product's CM ratio? 2. Use the CM ratio to determine the break-even point in sales dollars. 3. The company estimates that sales will increase by $60,000 during the coming year due to increased demand. By how much should operating income increase? 4. Assume that the operating results for last year were as follows: Sales $600,000 Variable expenses 240,000 Contribution margin 360,000 Fixed expenses 270,000 Operating income $90,000 a. Compute the degree of operating leverage at the current level of sales. b. The president expects sales to increase by 16% next year. By how much should operating income increase? 5. Refer to the original data. Assume that the company sold 23,000 units last year. The sales manager is convinced that a 12% reduction in the selling price, combined with a $40,000 increase in advertising expenditures, would cause annual sales in units to increase 30%. Prepare two contribution-format income statements, one showing the results of last year's operations and one showing what the results of operations would be if these changes were made. Would you recommend that the company do as the sales manager suggests? 6. Refer to the original data. Assume again that the company sold 23,000 units last year. The president feels that it would be unwise to change the selling price. Instead, he wants to increase the sales commission by $4 per unit. He thinks that this move, combined with some increase in advertising, would increase annual unit sales by 50%. By how much could advertising be increased with profits remaining unchanged? Do not prepare an income statement; use the incremental analysis approach. ACC 2354 Brown Assignments Assignment 4 – Target Costing and Value Engineering This is assignment is out of 45 points and is worth 3% of your final grade. For this assignment, you are required to complete the attached problem, exhibiting your understanding of the chapter material, and the ability to calculate all required elements of the assignment. You are required to: 1. Solve for the company's break-even point in unit sales using the equation method. 2. Solve for the company's break-even point in sales dollars using the equation method and CM ratio. 3. Solve for the company's break-even point in unit sales using the contribution margin method. 4. Solve for the company's break-even point in sales dollars using the contribution margin met and the CM ratio. 5. Compute the break-even point for the Gala (in terms of the number of persons that must attend.) 6. Assume only 200 persons attended the Gala last year. If the same number attend this year, what price per ticket must be charged to break even? 7. Using the $40 ticket price per person amount, prepare a CVP graph for the Gala from zero tickets up to 600 tickets sold. 8. What is the product's CM ratio? 9. Use the CM ratio to determine the break-even point in sales dollars. 10. The company estimates that sales will increase by $60,000 during the coming year due to increased demand. By how much should operating income increase? 11. Assume that the operating results for last year were as follows: 1. Sales $600,000 2. Variable expenses 240,000 3. Contribution margin 360,000 4. Fixed expenses 270,000 5. Operating income $90,000 6. Compute the degree of operating leverage at the current level of sales. 7. The president expects sales to increase by 16% next year. By how much should operating income increase? 12. Refer to the original data. Assume that the company sold 23,000 units last year. The sales manager is convinced that a 12% reduction in the selling price, combined with a $40,000 increase in advertising expenditures, would cause annual sales in units to increase 30%. Prepare two contribution-format income statements, one showing the results of last year's operations and one showing what the results of operations would be if these changes were made. Would you recommend that the company do as the sales manager suggests? Refer to the original data. Assume again that the company sold 23,000 units last year. The president feels that it would be unwise to change the selling price. Instead, he wants to increase the sales commission by $4 per unit. He thinks that this move, combined with some increase in advertising, would increase annual unit sales by 50%. By how much could advertising be increased with profits remaining unchanged? Do not prepare an income statement; use the incremental analysis approach. This assignment must be submitted with a cover page, include headings, appendices and adhere to all assignment policies and protocols. SCORING RUBRIC ACC 2354 Brown Assignments Section Scoring Level Requirements Respond to all requirements of the assignment 18-20 excellent 15-17.9 good 10-14.9 satisfactory 0-9.9 poor - clear, concise explanation of key points of the assignment - providing responses relevant to the module Linkages to lesson(s) 18-20 excellent 15-17.9 good 10-14.9 satisfactory 0-9.9 poor - demonstrating understanding of linkages from assignment to lesson(s) when addressing the assignment requirements - referencing specific theories and concepts from module(s) 8-10 excellent 6.1-7.9 good 5-6 satisfactory 0-4.9 poor - word processed - double spaced - 12 point font for all sections - paragraph form, essay style - cover page - section headings - proper grammar, correct spelling (evidence of proofreading) - formatted as per policy - complete bibliography referencing all work of other individuals, including course notes, textbooks, journals, websites, interviews, proprietary documents within APA reference style Overall Structural Quality TOTAL Points /30 /20 /5 /45
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Attached.

Running Head: HAND-IN ASSIGNMENT

1

Target Costing and Value Engineering
Name:
Institution affiliate:

TARGET COSTING AND VALUE ENGINEERING

QUESTION 1
Compute the Break-Even Point
Mackson Products distributes a single product, a woven basket; its selling price is $8 and its
variable cost is $6 per unit. The company's monthly fixed expense is $5,500.
Required:
1. Solve for the company's break-even point in unit sales using the equation method.
The equation method utilizes the cost-volume-profit. Given by;
Price x number of units = variable cost per unit x number unit + total fixed cost + profit
Since the profit is zero at breaking point
Break even number of units =
units

total fixed costs

= $5500 = 2750

Price – variable cost per unit

$(8-6)

2. Solve for the company's break-even point in sales dollars using the equation method and
CM ratio.
Contribution margin ratio = (Sales – Variable expenses) = $8 - $6 = 0.25
Sales
$8
Break even sales dollars = fixed costs/ contribution margin ratio = $5500/0.25 = $22000
3. Solve for the company's break-even point in unit sales using the contribution margin
method.
The contribution margin method;
Contribution margin = revenue – variable costs = $8 - $6 = $2
Break-even point sales units =

Fixed costs
Contribution margin

= $5500/$2 = 2750 units

4. Solve for the company's break-even point in sales dollars using the contribution margin
met and the CM ratio.
Break-even point in dollars = Fixed costs/ contribution margin ratio =$5500/0.25
=$22000
QUESTION 2
Break-Even Analysis and CVP Graphing
Horace Society is planning its annual Western Fair Raceway Gala. The Gala committee has
assembled the following expected costs for the event:

TARGET COSTING AND VALUE ENGINEERING

Dinner (per person)
Gaming tokens and program (per person)
Prize payouts
Tickets ...


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