ACT 5140 – Accounting For Decision Makers

ACT 5140 – Accounting For Decision MakersWeek #2 – HW AssignmentYou MUST show all work in order to receive credit for the problems.Problem 1Saul Inc.Income StatementFor the Year Ended December 31, 2014Sales RevenueCost of goods soldGross ProfitOperating Expenses:SellingAdministrative$125,000(52,000)73,00030,00025,000Total Operating Expenses(55,000)Income Before Tax18,000Income Taxes (30%)(5,400)Net Income After Tax12,600They sold 12,500 units during 2014. Cost of goods sold is 100% variable. Sellingexpenses are 60% variable and administrative expenses are 20% variable.Required:1. Calculate the break-even point in units.2. Calculate the break-even point in sales.3. Assume they want to earn a profit of $40,000 after tax in 2015. How many unitswould they have to sell to achieve their goal?4. Assume that in 2015 they plan to increase their selling price by 10%. How manyunits would they have to sell to break-even?5. Calculate the current margin of safety in dollars.Problem 2Ontario Outdoors is a manufacturer of outdoor items. The company is considering thepossibility of offering a new sleeping bag that would sell for $150 each. Cost tomanufacture these sleeping bags includes $40 in materials and $35 in direct labor foreach sleeping bag. Variable marketing and selling costs would be $15 each. In order tomanufacture these sleeping bags, the company would need to incur $120,000 in fixedcosts for new equipment.Required:a.b.c.d.Compute the break-even point of the sleeping bag in units sold.What would be the total revenue at the break-even point?How many units would Ontario need to sell to earn a profit of $21,000?If fixed costs in fact are $150,000 rather than $120,000, how many units wouldneed to be sold in order to earn $21,000?Problem 3Kathy’s Radio Company currently produces the speakers for the radios it manufactures.The company uses 15,000 speakers per year. Assume that Kathy’s has determined thatit can purchase the speakers from Bob’s Speaker Company for $2.00 each. Kathy’s costof producing the speakers is as follows:Cost of producing 15,000 speakers:Direct Materials$11,100Direct Labor9,600Variable Overhead3,750Fixed Overhead6,900Total$31,350Assume fixed costs for Kathy’s would be unchanged if they stopped making thespeakers.Required:1. Should Kathy’s Radio Company continue making the speakers rather than buyingthem? Would they be better or worse off and by what amount?2. Using the same facts, assume that they if they purchased the speakers they can rentthe facilities to someone else for $9,000 a year. Should they continue making thespeakers or should they buy them? Would they be better or worse off and by whatamount?Problem 4Gleeson manufactures a single product with the following full unit costs for 6,000 units:Direct materialsDirect laborVariable Manufacturing overheadFixed Manufacturing overheadSelling expensesTotal per unit$2001201449640$600A company recently approached Gleeson with a special order to purchase 1,000 unitsfor $550. Gleeson currently sells the models to dealers for $1,100. Capacity issufficient to produce the extra 1,000 units. No selling expenses would be incurred onthe special order.Required:1. Ignoring the special order, determine Gleeson’s profit on production and sales6,000 units. Ignore taxes in these analyses.2. Should Gleeson accept the special order if its goal is to maximize short-runprofits? Determine the impact on profit of accepting the order.

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