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    Chapter 17

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    This document provides information to answer multiple accounting problems related to managerial and cost accounting. It includes segmented income statements and calculations to determine whether a company should keep or drop a product line, make or buy a component, or process a product further based on its contribution to profitability. The problems analyze the effects on revenues, variable and fixed costs, and income under different scenarios.

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    Chapter 17

    Uploaded by

    rahmiamelianazar
    366 views8 pages
    This document provides information to answer multiple accounting problems related to managerial and cost accounting. It includes segmented income statements and calculations to determine whether a company should keep or drop a product line, make or buy a component, or process a product further based on its contribution to profitability. The problems analyze the effects on revenues, variable and fixed costs, and income under different scenarios.

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    This document provides information to answer multiple accounting problems related to managerial and cost accounting. It includes segmented income statements and calculations to determine whether a company should keep or drop a product line, make or buy a component, or process a product further based on its contribution to profitability. The problems analyze the effects on revenues, variable and fixed costs, and income under different scenarios.

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    366 views8 pages

    Chapter 17

    Uploaded by

    rahmiamelianazar
    This document provides information to answer multiple accounting problems related to managerial and cost accounting. It includes segmented income statements and calculations to determine whether a company should keep or drop a product line, make or buy a component, or process a product further based on its contribution to profitability. The problems analyze the effects on revenues, variable and fixed costs, and income under different scenarios.

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    of 8

    UNIVERSITAS INDONESIA

    AKUNTANSI MANAJEMEN DAN BIAYA


    Nama : Rahmi Amelia
    NPM : 1506774283

    FAKULTAS EKONOMI DAN BISNIS


    MAGISTER AKUNTANSI PROGRAM PROFESI AKUNTANSI
    JAKARTA
    2015/2016

    CHAPTER 17
    Problem 17.24 (KEEP-OR-DROP FOR SERVICE FIRM, COMPLEMENTARY
    EFFECTS, TRADITIONAL ANALYSIS)
    Diketahui :
    Sales
    Less : Variable Expenses
    Contribution Margin
    Less : Direct Fixed Expense
    Segment Margin
    Less : Common Fixed Expenses
    (Allocated)
    Operating Income (Loss)

    Property Insurance

    Automobile Insurance

    $4.200.000

    $12.000.000

    3.830.000

    9.600.000

    $ 370.000

    $ 2.400.000

    400.000

    500.000

    $ (30.000)

    $ 1.900.000

    100.000

    200.000

    $(130.000)

    $1.700.000

    Note : If propety insurance is dropped, sales of automobile insurance will dropped,


    sales of automobile insurance will drop by 12%

    Required :
    1. If Devern Assurance Company drops property insurance, by how much will income
    increase or decrease? Provide supporting computations
    Answer :

    Sales

    Keep

    Drop

    $16.200.000

    $10.560.000

    13.430.000

    8.448.000

    Contribution Margin

    $ 370.000

    $ 2.112.000

    900.000

    500.000

    $ 1.870.000

    $ 1.612.000

    Less : Variable Expenses

    Less : Direct Fixed Expensec


    Segment Margin
    a

    Sales : Keep = Sales Property Insurance + Sales Automobile Insurance


    Drop = 12% of $12.000.000
    b
    Variable Expenses :
    Keep = Var. Exp Property Insurance + Var. Exp Automobile Insurance
    Drop = 12% of $9.600.000
    c
    Direct Fixed Expense : Keep = Direct Fixed Expense Property Insurance + Direct
    Fixed Expense Automobile Insurance
    If Devern Assurance Company drops property insurance, so sales of automobile
    insurance will drop by 12%. Sales, variable expenses and contribution from automobile
    insurance will decrease, but direct fixed expense will unchanged.
    Income will decrease amount $1.870.000 - $1.612.000 = $258.000 if Devern
    Assurance Company drops property insurance. So, Devern Assurance Company must not to
    drop property insurance, but should continue to sell property insurance.
    2.

    Assume that dropping all advertising for the property insurance line and increasing the
    corporate advertising budget by $450.000 will increase sales of property insurance by

    10% and automobile insurance by 8%. Prepare a segmented income statement that
    reflects the effects of increased advertising. Should advertising be increased?
    Answer :

    Sales

    Property Insurance

    Automobile Insurance

    TOTAL

    $4.620.000

    $12.960.000

    $17.580.000

    4.213.000

    10.368.000

    14.581.000

    Contribution Margin
    Less : Direct Fixed
    Expensec
    Segment Margin
    Less : Common Fixed
    Expensesd
    Operating Income

    $ 407.000

    $ 2.592.000

    $ 2.999.000

    500.000

    500.000

    $ 407.000

    $ 2.092.000

    $ 2.499.000

    Less : Variable Expenses

    750.000
    $ 1.749.000

    Because sales of property insurance increase by 10% and automobile insurance


    increase by 8%, so :
    a
    Sales : Property Insurance = 10% of 4.200.000
    Automobile Insurance = 8% of 12.000.000
    b
    Variable Expenses : Property Insurance = 10% of 3.830.000
    Automobile Insurance = 8% of 9.600.000
    c
    Direct Fixed Expense : Property Insurance = 0
    d
    Common Fixed Expenses : Increase advertising budget ($450.000) + Common
    Fixed Cost PropertyInsurance ($100.000) & Common
    Fixed Cost Automobile Insurance ($300.000)
    The advertising must be increase as income would increase :
    = $1.749.000 ($1.700.000 $130.000)
    = $179.000
    Problem 17.25 (SPECIAL ORDER, TRADITIONAL ANALYSI)
    Diketahui :
    Join (Common) Cost : $92.500
    Unit Production : Refined Oil = 30.000 gallons and Top Quality Oil = 15.000 gallons
    Processing cost beyond the split-off point :
    Refined Oil
    = $2,40
    Top Quality Oil = $1,95
    Price : Refined Oil = $4,25 per gallon, Top Quality Oil = $8,30 per gallon
    Order from MangiareBuono Supermarket = 30.000 gallons, $8 per gallon
    If accept the order will save $0,23 of Top Quality Oil
    Additional sales of Refined Oil take price of $3,10 per gallon

    Required :
    1. What is the profit normally earned on one production run of Refined Oil and Top Quality
    Oil?
    Answer :

    Revenues

    Refined Oil

    Top Quality Oil

    TOTAL

    $127.500

    $124.500

    $252.000

    72.000

    29.250

    101.250

    Contribution Margin

    $ 55.000

    $ 95.250

    $ 150.750

    Less : Variable Expenses


    Less : Joint Cost

    92.500

    Operating Income

    $ 58.250

    Revenues : Unit Production x Price per gallon


    Refined Oil = 30.000 x $4,25
    Top Quality Oil = 15.000 x $8,30
    b
    Variable Expenses : Refined Oil = 30.000 x $2,40
    Top Quality Oil = 15.000 x $1,95
    2.

    Should Fiorello accept the special order? Explain


    Answer :

    Revenues

    Refined Oil

    Top Quality Oil

    TOTAL

    $186.000

    $240.000

    $426.000

    144.000

    51.600

    195.600

    Contribution Margin

    $ 42.000

    $188.400

    $230.400

    Less : Variable Expenses


    Less : Joint Cost

    185.000

    Operating Income

    $ 45.400

    If Fiorello accept the spesial order, Fiorello must manufacture two additional
    standar production runs as order :
    Top Quality Oil = 2 x 15.000 = 30.000 gallons (MangiareBuonos order)
    Refined Oil = 2 x 30.000 = 60.000 gallons
    a

    Revenues : Unit Production x Price per gallon


    Refined Oil = 60.000 x $3,10
    Top Quality Oil = 30.000 x $8
    b
    Variable Expenses : Refined Oil = 60.000 x $2,40
    Top Quality Oil = 30.000 x ($1,95 - $0,23)
    So, answer the question that should Fiorello accept the spesial order? The answer
    is yes, the special order will make income result $45.400.

    Problem 17.29 (SELL OR PROCESS FURTHER)


    Diketahui :
    The purchased chemical are blended for two to three hours and heated for 15 minutes
    The results of the process are two seperate ingredients, PR1 and PR2
    For every 4.300 gallons of chemical used, 2.000 gallons of each pain relieve are
    produced
    The selling price : PR1 = $34 per gallon, PR2 = $45 per gallon
    The costs to produce one batch (2.000 gallons of each container) :
    Chemical

    $23.400

    Direct Labor

    9.000

    Catalyst

    3.600

    Overhead

    8.000

    The pain relieve are bottle in 5 gallon plastic containers and shipped
    The cost of each container = $12,10
    The revenue received tablet oer case = $13,50, with 8 cases produced by every gallon
    of PR1
    The cost process into tablet : PR1 = $11,00; Packaging Cost = $5,16 per case and
    shipping cost =$1,68 per case

    Required :
    1. Should Pharmaco sell PR1 at split-off, or should PR1 be processed and sold at tablet?
    Answer :
    For 2000
    gallons
    Revenuesa
    Containers

    Shipping

    Process Further

    Sell at split-off

    $216.000

    $68.000

    Differential Amount to
    Processs Further
    $148.000

    (840)

    840

    (26.880)

    (200)

    (26.680)

    Processing

    (22.000)

    (22.000)

    Packaging

    (82.560)

    (82.560)

    TOTAL

    $ 84.560

    $66.960

    $ 17.600

    Revenues : Process Further = $13,50 x (8 case x 2.000 gallons)


    Sell at split-off = $34 x 2.000 gallons
    b
    Containers : Process Further = 0
    Sell at split-off = $2,10 x (2.000/5)
    c
    Shipping : Process Further = $1,68 x (8 case x 2.000 gallons)
    Sell at split-off = $0,50 x (2.000/5)
    d
    Processing : Process Further = $11,00 x 2.000 gallons
    e
    Packaging : Process Further = $5,16 x (8 x 2.000)
    So, the conclusion is Pharmaco should process the pain reliever further.

    2.

    If Pharmaco normally sells 26.000 gallons of PR1 per year, what will be the difference in
    profits if PR1 is processed further?

    Answer :
    Difference in profits if PR1 is processed further :
    Additional Income per gallon = $17.000 / 2.000
    = $8,80
    Additional Income = $8,80 x 26.000
    = $228.800
    Problem 17.31 (MAKE OR BUY, TRADITIONAL ANALYSIS)
    Diketahui :
    Morrill Company produces two different types of gauge : density and thickness
    Density Gauge

    Thickness Gauge

    $150.000

    $80.000

    $230.000

    80.000

    46.000

    126.000

    $ 70.000

    $34.000

    $104.000

    20.000

    38.000

    58.000

    $ 50.000

    $(4.000)

    $ 46.000

    Sales

    Less : Variable Expenses

    Contribution Margin
    Less : Direct Fixed
    Expenses*
    Segment Margin
    Less : Common Fixed
    Expenses
    Operating Income

    TOTAL

    30.000
    $ 16.000

    * Includes depreciations
    Density Gauge uses a subassembly that is produced from an external supllier : $25 per
    unit. 2.000 subassemblies are purchased each quarter
    Unit-level variable manufacturing costs are as follows :
    Direct Materials

    $2

    Direct Labor

    Variable Overhead

    Two Alternative to supply the productive capacit for the subassembly


    1. Lease the needed space and equipment at a cost $27.000 per quarter for the space
    and $10.000 per quarter for a supervisor
    2. Drop the thickness gauge. The direct fixed expenses, including supervision, would
    be $38.000, $8.000 of which is depreciation on equipment.
    Required :
    1. Should Morril Company make or buy the subassembly? If it makes the subassembly,
    whic alternative shoud be chosen? Explain and provide supporting computations
    Answer :
    Cost Item

    Lease and Make

    Purchase

    $50.000

    14.000

    Lease Expenses

    27.000

    Supervisor Salary

    10.000

    $51.000

    50.000

    Variable Manufacturing Costs

    TOTAL RELEVANT COST

    Buy

    Variable Manufacturing Costs : $7,00 x 2.000 = $14.000


    DROP THICKNESS
    GAUGE AND MAKE
    $

    Purchase Cost
    Variable Manufacturing Costs

    14.000

    Lost Contribution Margin

    34.000

    TOTAL RELEVANT COST

    $48.000

    The direct fixed expenses are the same accross all alternative
    Best alternative : Drop the thickness gauge and the subassembly

    2. Suppose that dropping the thickness gauge will decrease sales if the density gauge by
    10%. What effect does this have on the decision?
    Answer :
    Complementary effect analysis :
    MAKE
    BUY
    Lost sales for density gaugea

    $15.000

    Cost of making componentb

    12.600

    Reduction of other variable costsc

    (3.000)

    Lost contribution margin

    34.000

    50.000

    $58.600

    $50.000

    Purchase Costd
    TOTAL RELEVANT COST

    Lost sales for density gauge : 0,10 x $150.000


    Cost of making component : (0,90 x 2.000) x $7,00
    c
    Reduction of other variable costs : 0,10 x ($80.000 - $50.000), since sales decrease
    by 10% if the component is manufactured, other variable costs will reduce
    proportionally
    d
    If choose the buy alternative, theres no reduction in sales and the same number of
    components will be needed
    b

    The correct decision = to keep the thickness gauge and buy the components

    3. Assume that dropping the thickness gauge decreases sales if the density gauge by 10%
    and that 2.000 subassemblies are required per quarter. As before, assume there are no
    ending inventories of subassemblies and that all units produced are sold. Assume also
    that the per-unit sales price and variable costs are the same as in Requirement 1. Include
    the leasing alternative in your consideration. Now, what is the correct decision?
    Answer :

    Lease and Make


    Variable manufacturing costs

    Buy

    $19.600

    Lease Expenses

    27.000

    Supervisor Salary

    10.000

    70.000

    $56.600

    $70.000

    Purchase Costa
    TOTAL RELEVANT COST
    a

    Purchase Cost = $25 x 2.800

    Lost sales for density gauge

    Drop Thickness
    Gauge and Make
    $15.000

    Variable manufacturing costsa

    17.640

    Reduction of other variable costsb

    (1.000)

    Lost contribution margin

    34.000

    Purchase Cost
    TOTAL RELEVANT COSTS
    a

    0
    $65.640

    Variable manufacturing costs = $0,70 x (0,9 x 2.800)


    Reduction of other variable costs = 0,10 x ($80.000-$70.000)

    So, the answer is the corret decision = to lease and make the component

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