ACCT 3347 COST ACCOUNTING HOMEWORK 01

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ACCT 3347 COST ACCOUNTING HOMEWORK 01

1)

Campus Package Delivery (CPD) provides transportation services in and around Paradise. Its profits have been declining, and management is planning to add a package express service that is expected to increase revenue by $305,000 per year. The total cost to lease the necessary package delivery vehicles from the local dealer is $25,000 per year. The present manager will continue to supervise all services at no increase in salary. Due to expansion, however, the labor costs and utilities would increase by 50 percent. Rent and other costs will increase by 20 percent.

 

CAMPUS PACKAGE DELIVERY
Annual Income Statement before Expansion
  Sales revenue $ 762,000
  Costs
       Vehicle leases 302,000
       Labor 239,000
       Utilities 30,000
       Rent 65,000
       Other costs 35,000
       Manager’s salary 117,000
  Total costs $ 788,000
  Operating profit (loss) $ (26,000 )

 

Required:
a. Prepare a report of the differential costs and revenues if the express service is added.

 

b. Should management start the express service?
 

2)

Tom’s Tax Services is a small accounting firm that offers tax services to small businesses and individuals. A local store owner has approached Tom about doing his taxes but is concerned about the fees Tom normally charges. The costs and revenues at Tom’s Tax Services are presented below:

 

TOM’S TAX SERVICES
Annual Income Statement
  Sales revenue $ 740,000
  Costs
     Labor 471,000
     Equipment lease 49,200
     Rent 41,700
     Supplies 32,000
     Tom’s salary 74,000
     Other costs 22,500
  Total costs $ 690,400
  Operating profit (loss) $ 49,600

 

If Tom gets the store’s business, he will incur an additional $59,500 in labor costs. Tom also estimates that he will have to increase equipment leases by about 5 percent, supplies by 10 percent, and other costs by 5 percent.

 

Required:
a. What are the differential costs that would be incurred as a result of adding this new client?

 

 

b. Tom would normally charge about $75,000 in fees for the services the store would require. How much can he reduce his standard fee and still not lose money on this client?
 

 

3)

 

Betty’s Fashions operates retail stores in both downtown and suburban locations. The company has two responsibility centers: the City Division, which contains stores in downtown locations, and the Mall Division, which contains stores in suburban locations. Betty’s CEO is concerned about the profitability of the City Division, which has been operating at a loss for the last several years. The most recent City Division income statement follows. The CEO has asked for your advice on shutting down the City Division’s operations. If the City Division is eliminated, corporate administration is not expected to change, nor are any other changes expected in the operations or costs of the Mall Division.

 

BETTY’S FASHIONS, CITY DIVISION
Divisional Income Statement
For the Year Ending January 31
  Sales revenue $ 5,000,000
  Costs
    Advertising—City Division 182,000
    Cost of goods sold 2,850,000
    Divisional administrative salaries 297,000
    Selling costs (sales commissions) 587,000
    Rent 742,000
    Share of corporate administration 482,000
  Total costs $ 5,140,000
  Net loss before income tax benefit $ -140,000
  Tax benefit at 40% rate 56,000
  Net loss $ -84,000

 

Required:
What revenues and costs are probably differential for the decision to discontinue City division’s operations?

 

What will be the effect on Betty’s profi ts if the division is eliminated?

 

4)

State University Business School (SUBS) offers several degrees, including Bachelor of Business Administration (BBA). The new dean believes in using cost accounting information to make decisions and is reviewing a staff-developed income statement broken down by the degree offered. The dean is considering closing down the BBA program because the analysis, which follows, shows a loss. Tuition increases are not possible. The dean has asked for your advice. If the BBA degree program is dropped, school administration costs are not expected to change, but direct costs of the program, such as operating costs, building maintenance, and classroom costs, would be saved. There will be no other changes in the operations or costs of other programs.

 

STATE UNIVERSITY BUSINESS SCHOOL, BBA DEGREE
Degree Income Statement
For the Academic Year Ending June 30
  Revenue $ 425,000
  Costs
    Advertising—BBA program 20,000
    Faculty salaries 210,000
    Degree operating costs (part-time staff) 24,000
    Building maintenance 34,000
    Classroom costs (building depreciation) 90,000
    Allocated school administration costs 55,000
  Total costs $ 433,000
  Net loss $ (8,000)

 

Required:
What revenues and costs are probably differential for the decision to drop the BBA program?

 

5)

During May, Budget Baking is preparing its June budget.  In preparing the budget the company starts with the actual results for April (the most recent month for which complete data are available). Then, they consider what the differences in costs will be between April and June.
     Management expects the number of cookies sold to be 10 percent greater in June than in April, and it expects all food costs (e.g., flour, eggs) to be 10 percent higher in June than in April. Management expects “other” labor costs to be 15 percent higher in June than in April, partly because more labor will be required in June and partly because employees will get a pay raise. The manager will get a pay raise that will increase the salary from $3,100 in April to $3,600 in June. Rent and utilities are not expected to change.

 

Required:
Prepare a budget for Carmen’s Cookies for June. (Omit the “$” sign in your response.)

 

6)

State University Business School (SUBS) offers several degrees, including Bachelor of Business Administration (BBA).

 

STATE UNIVERSITY BUSINESS SCHOOL, BBA DEGREE
Degree Income Statement
For the Academic Year Ending June 30
  Revenue $ 2,150,000
  Costs
    Advertising—BBA program 90,000
    Faculty salaries 1,095,000
    Degree operating costs (part-time staff) 205,000
    Building maintenance 200,000
    Classroom costs (building depreciation) 440,000
    Allocated school administration costs 230,000
  Total costs $ 2,260,000
  Net loss $ -110,000

 

The dean of the Business School is considering expanding the BBA program by offering an evening program in a nearby city. The program would be the same size (in terms of students). The school’s CFO estimates that the combined BBA revenue (on-campus plus the evening program) will be twice the current revenue, as shown in the above table. Because the evening program will be new, advertising expenses for the evening session will be three times their current level. Faculty salaries will double. Degree operating costs will increase by 50 percent. Building maintenance and classroom costs will remain unchanged, but classroom space will be rented at a cost of $175,000 per academic year. School administration costs will increase by $25,000 , and allocated school administration costs (for both programs) will be $335,000 per academic year.

 

Required:
a. What will be the contribution of the combined BBA program be given these estimates?

 

 

 

 
Are there other factors the dean should consider before making her decision?

 

 

7)

 

Al’s Brake Shop had sales revenues and operating costs in 2014 of $650,000 and $525,000, respectively. In 2015, Al’s plans to expand the services it provides to customers to include lubrication services. Revenues are expected to increase by $85,000 and operating costs by $50,000 as a result of this expansion. Assuming that there are no changes to the existing brake business, operating profits would be expected to increase during 2015 by

 

8)

 

Each of the following is a key financial manager in an organization except for the

[removed] Treasurer
[removed] External auditor
[removed] Controller
[removed] Chief financial officer
[removed] Cost accountant
9)
he delivery of products or services to customers is an example of which element in the value chain?
[removed] Design
[removed] Distribution
[removed] Production
[removed] Marketing

 

10)

Which of the following could be considered part of the value chain in a service firm?

[removed] Raw materials
[removed] Distribution
[removed] Advertising
[removed] Inspection of product

11)

Which of the following statements concerning the value chain is false?
[removed]
Successful firms are ones that operate within the entire value chain, thereby overseeing every aspect of the value chain for the customer.
[removed]
The goal of a value chain is to find areas where a company can either add value or reduce cost.
[removed]
The value chain focuses on the entire production process, as well as the sale of the product and service after the sale.
[removed]
If a company cannot compete in a specific area of the value chain, it might outsource that portion of the value chain to another entity which can perform it better
 

12)

Managers first create a formal plan that includes goals for the company.  They then translate those goals into quantitative formats.  The process they use to do all of this is referred to as

[removed] benchmarking.
[removed] value-added analysis.
[removed] cost-benefit analysis.
[removed] activity-based costing.
[removed] budgeting

 
13)
A firm’s replies to customers’ questions via email would be an example of which element of the value chain?
[removed] Design
[removed] Customer Service
[removed] Supply
[removed] Marketing

 

14)

 

Which of the following does not represent a main focus of cost management information?

[removed] Preparation of financial statements
[removed] Internal auditing and control
[removed] Planning and decision making
[removed] Performance measurement

 

15)

The individual who would most likely use only financial accounting information in making decisions is a
[removed] vice president of marketing.
[removed] factory supervisor.
[removed] company stockholder.
[removed] department manager.

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