Managerial Accounting

ACC 601 Managerial Accounting Group Case 2 (100 points)

Instructions:

1. As a group, complete the following activities in good form. Use excel or word only. Provide all supporting calculations to show how you arrived at your numbers

2. Add only the names of group members who participated in the completion of this assignment.

3. Submit only one copy of your completed work via Moodle. Do not send it to me by email.

4. Due: No later than the last day of Module 4. Please note that your professor has the right to change the due date of this assignment.

Part A: Fixed and Variable Cost

Stuart Manufacturing produces metal picture frames. The company’s income statements for the last two years are given below:

Last year This year Units sold …………………………………………… 50,000 70,000 Sales ………………………………………………….. $800,000 $1,120,000 Cost of goods sold ………………………………. 550,000 710,000 Gross margin ……………………………………… 250,000 410,000 Selling and administrative expense ……….. 150,000 190,000 Net operating income ………………………….. $100,000 $ 220,000

The company has no beginning or ending inventories.

Required:

a. Estimate the company’s total variable cost per unit and its total fixed costs per year. (Remember that this is a manufacturing firm.)

b. Compute the company’s contribution margin for this year.

Part B: Cost-Volume-Profit Analysis

Belli-Pitt, Inc, produces a single product. The results of the company’s operations for a typical month are

summarized in contribution format as follows:

Sales …………………………….. $540,000 Variable expenses ………….. 360,000 Contribution margin ………. 180,000 Fixed expenses ……………… 120,000 Net operating income …….. $ 60,000

The company produced and sold 120,000 kilograms of product during the month. There were no beginning or ending inventories.

Required:

a. Given the present situation, compute 1. The break-even sales in kilograms. 2. The break-even sales in dollars. 3. The sales in kilograms that would be required to produce net operating income of

$90,000. 4. The margin of safety in dollars.

b. An important part of processing is performed by a machine that is currently being leased for $20,000 per month. Belli-Pitt has been offered an arrangement whereby it would pay $0.10 royalty per kilogram processed by the machine rather than the monthly lease. 1. Should the company choose the lease or the royalty plan? 2. Under the royalty plan compute break-even point in kilograms. 3. Under the royalty plan compute break-even point in dollars. 4. Under the royalty plan determine the sales in kilograms that would be required to

produce net operating income of $90,000.