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Comm 1102 Assignment #2 Due Date…..June 29, 2018 Question#1 Fan’s managerial accountant, Yi-Fan, is classifying the company’s costs according to their behaviour to prepare next year’s budget. Therefore, the cost object is the entire company. Fan produces and sells aluminum beverage cans, such as those used for soft drinks. You may find the following facts about Fan’s operation useful in responding to this problem: • • • • • • • • • • Production machines must be cleaned monthly, regardless of the amount of use. The more cans produced, the more lubrication is needed. Chen’s monthly production and sales volume is usually at least 1,000 cans, but can be as much as 5,000 cans depending on demand. Material handling costs include depreciation on equipment and fuel for loaders. Cans are packaged into 100-unit groups prior to sale. Research and development costs vary between $10,000 and $10,500 per month The factory maintenance costs vary between $6,000 and $6,500 monthly. Chen’s staff level is constant at 25 people, who are all paid salaries. Raw materials are purchased based on expected production levels. Sales commissions (based on a per-case amount) are included in marketing department costs. Yi-Fan has classified the costs into three categories: fixed, variable, and mixed. Required: Place an X in the appropriate column of the table below to indicate the most likely behaviour of each cost: Fixed Oil to lubricate the machines Salary of the plant manager Annual subscription to a trade journal Vacation pay for salaried production employees Packaging materials Research and development Raw materials Material handling costs Marketing department costs Factory maintenance Variable Mixed Question#2 Burgess Company is developing a cost function for its maintenance costs using the High-Low Method. The following data have been collected for the past year: Direct Labour Maintenance Quarter Hours Costs Incurred 1 5,000 $ 745 2 6,500 820 3 7,000 850 4 8,000 1,000 Required: Calculate the following amounts: a. The Variable Cost per direct labour hour b. The Fixed cost c. The estimated total cost for 9,000 direct labour hours d. The estimated total cost for 6,000 direct labour hours. Question#3 Liam, the manager of the Ice Cream Igloo, has been told that to earn a reasonable profit she should price her products at 200% of the cost of ingredients. Liam has gathered the following data on the cost of ingredients used to make a banana split: • • • • • • The distributor charges $12 for a dozen bananas; each banana split uses one banana. Ice cream costs $3.20 per litre; each banana split uses two scoops of ice cream. One litre of ice cream equals eight scoops of ice cream. Stacy makes her own fruit toppings at a cost of $0.25 per tablespoon; each banana split uses six tablespoons of fruit toppings. Each banana split uses three tablespoons of premium chocolate sauce, which costs $0.25 per tablespoon. The cost of other miscellaneous ingredients, such as whipped cream and nuts, totals $0.05 per banana split. Required: a) Calculate the cost of a banana split. b) List two factors that could cause these estimated costs to be inaccurate. Question#4 Hilary’s Jewels sells cubic zirconium (fake diamond) rings for $80 each. The projected income statement for 2016 follows: Sales $4,000,000 Variable costs (2,200,000) Contribution Margin 1,800,000 Fixed costs (1,600,000) Pre-tax profit $ 200,000 Required: a. Compute the contribution margin per ring and the number of rings that must be sold to break even. b. Compute the contribution margin ratio and the breakeven point in total revenue. c. Suppose the total revenues were $200,000 greater than expected. What is the total pre-tax profit? d. What is the margin of safety in number of rings? e. Assume a tax rate of 25%. How many rings must be sold to earn an after-tax profit of $300,000? Question#5 Zhai Corporation sells its product for $10 per unit. Its variable cost is $3 per unit and total fixed costs are $700. Calculate the following: Required: a. Breakeven sales in units b. Margin of safety in units if RSE sells 150 units c. Margin of safety in revenues if RSE sells 200 units d. Estimated income or loss if RSE sells 75 units Question#6 This year, Yang County made a $400,000 lump-sum Donation to a not-forprofit agency that counsels substance abusers. The county requires the entire amount to be spent by the end of the fiscal year. The variable costs for pharmaceuticals and supplies used by clients average $400 per patient per year. Fixed costs are $150,000. The accountant at the agency is developing a CVP analysis for the agency director. She has asked you to do the following: Required: a. Compute the number of clients that could be served per year. b. Suppose the total budget for the following year is reduced by 10%. Fixed costs will remain the same. The same quality of client service will be maintained. Compute the number of clients that could be served in a year. c. Continue to assume a budget reduction of 10%. Fixed costs are to remain the same. The drug counsellors determine the amount of pharmaceuticals and supplies that each client needs. The agency director does not want to reduce the number of clients served from the original amount in part (a). Compute the amount by which pharmaceuticals and supplies need to be reduced to maintain current volumes of services. d. List reasons why the actual cost of pharmaceuticals and supplies cannot be estimated with complete accuracy. THE END
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Comm 1102
Assignment #2
Due Date…..June 29, 2018
Question#1
Fan’s managerial accountant, Yi-Fan, is classifying the company’s costs according to their
behaviour to prepare next year’s budget. Therefore, the cost object is the entire company. Fan
produces and sells aluminum beverage cans, such as those used for soft drinks. You may find
the following facts about Fan’s operation useful in responding to this problem:











Production machines must be cleaned monthly, regardless of the amount of use.
The more cans produced, the more lubrication is needed.
Chen’s monthly production and sales volume is usually at least 1,000 cans, but
can be as much as 5,000 cans depending on demand.
Material handling costs include depreciation on equipment and fuel for loaders.
Cans are packaged into 100-unit groups prior to sale.
Research and development costs vary between $10,000 and $10,500 per month
The factory maintenance costs vary between $6,000 and $6,500 monthly.
Chen’s staff level is constant at 25 people, who are all paid salaries.
Raw materials are purchased based on expected production levels.
Sales commissions (based on a per-case amount) are included in marketing
department costs.

Yi-Fan has classified the costs into three categories: fixed, variable, and mixed.

Required:
Place an X in the appropriate column of the table below to indicate the most likely
behaviour of each cost:
Fixed
Oil to lubricate the machines
Salary of the plant manager
Annual subscription to a trade journal
Vacation pay for salaried production
employees
Packaging ma...


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