Accounting Application

timer Asked: Mar 23rd, 2015

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Accounting Applications.docx 

Brief Exercises: BE5-1, BE5-2, BE5-4 BE5-1 Monthly production costs in Pesavento Company for two levels of production are as follows. Cost Indirect labor Supervisory salaries Maintenance 2,000 Units $10,000 5,000 4,000 4,000 Units $20,000 5,000 7,000 Indicate which costs are variable, fixed, and mixed, and give the reason for each answer. BE5-2 For Hunt Company, the relevant range of production is 40-80% of capacity. At 40% of capacity, a variable cost is $4,000 and a fixed cost is $6,000. Diagram the behavior of each cost within the relevant range assuming the behavior is linear. BE5-4 Bruno Company accumulates the following data concerning a mixed cost, using miles as the activity level. January February Miles Driven 8,000 7,500 Total Cost $14,150 13,500 March April Miles Driven 8,500 8,200 Total Cost $15,000 14,490 Compute the variable and fixed-cost elements using the high-low method. Exercises: E6-3, E6-5, E6-7 E6-3 Norton Company reports the following operating results for the month of August: sales $31,000 (units 5,000); variable costs $210,000; and fixed costs $75,000. Management is considering the following independent courses of action to increase net income. 1. Increase selling price by 10% with no change in total variable costs or sales volume. 2. Reduce variable costs to 58% of sales. 3. Reduce fixed costs by $20,000. Instructions: Compute the net income to be earned under each alternative. Which course of action will produce the highest net income? E6-5 Hall Company had sales in 2014 of $1,560,000 on 60,000 units. Variable costs totaled $720,000 and fixed costs totaled $50,000. A new raw material is available that will decrease the variable costs per unit by 25% (or #3.00) however, to process the new raw material, fixed operating costs will increase by $150,000. Management feels that one-half of the declines in the variable costs per unit should be passed on to customers in the form of a sales price reduction. The marketing department expects that this sales price reduction will result in a 5% increase in the number of units sold. Instructions: Prepare a projected CVP income statement for 2014 (a) assuming the changes have not been made, and (b) assuming that changes are made as described. E6-7 Qwik Repairs has over 200 auto-maintenance service outlets nationwide. It provides primarily two lines of service: oil changes and brake repair. Oil change-related services represent 70% of its sales and provide a contribution margin ration of 20%. Brake repair represents 30% of its sales and provides a 60% contribution margin ratio. The company’s fixed costs are $16,000,000 (that is, $80,000 per service outlet). Instructions: (a) Calculate the dollar amount of each type of service that the company must provide in order to break even. (b) The company has a desired net income of $60,000 per service outlet. What is the dollar amount of each type of service that must be provided by each service outlet to meet its target net income per outlet?

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