# Peaceful Pastures

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How much of the accounting department costs will be allocated to the production and sales departments? | | | Student Answer:| | Production: \$150,000 Sales: \$50,000 | | | | Production: \$180,000 Sales: \$60,000 | | | | Production: \$1,800,000 Sales: \$600,000 | | | | Production: \$22,222 Sales: \$66,667 | | Instructor Explanation:| Chapter 6, Pages 213-214 Production = [\$200,000 / (36 + 12)] x 36 = \$150,000Sales = [\$200,000 / (36 + 12)] x 12 = \$50,000| | | | Points Received:| 4 of 4 | | Comments:| | | | 10. | Question ๐ (TCO 7) A company is trying to decide whether to keep or drop the sporting goods department in its department store.

If the segment is dropped, the manager will be fired. The manager’s salary, in relation to the decision to keep or drop the sporting goods department, is| | | Student Answer:| | avoidable and therefore relevant. | | | | not avoidable and therefore relevant. | | | | sunk and therefore not relevant. | | | | the same for all alternatives and therefore not relevant. | | Instructor Explanation:| Chapter 7, Pages 256-257| | | | Points Received:| 0 of 4 | | Comments:| | | | 11. | Question ๐ (TCO 7) BigByte Company has 12 obsolete computers that are carried in inventory at a cost of \$13,200.

If these computers are upgraded at a cost of \$7,500, they could be sold for \$15,300. Alternatively, the computers could be sold “as is” for \$9,000. What is the net advantage or disadvantage of reworking the computers? | | | Student Answer:| | \$6,300 advantage | | | | \$1,200 disadvantage | | | | \$5,400 disadvantage | | | | \$3,000 advantage | | Instructor Explanation:| Chapter 7, Pages 251-252 (\$15,300 – \$9,000) – (\$7,500 – \$0) = (\$1,200)| | | | Points Received:| 4 of 4 | | Comments:| | | | 12. | Question ๐ (TCO 7) Olde Store has 12,000 cans of crab meat just a week past the expiration date. Each can cost \$0. 31.

The cans could be sold as is for \$0. 20 each, or relabeled and sold as gourmet cat food. The cost of relabeling the cans would be \$0. 04 per can and the cans would then sell for \$0. 29 per can. What should be done with the cans and why? | | | Student Answer:| | The cans should be thrown away since there will be a loss with the other alternatives. | | | | The cans should be relabeled into cat food since the sales price increases \$0. 09 per can and the cost is only \$0. 04 per can. | | | | The cans should be put on clearance since there is no reason to put more money into something that is already selling below cost. | | | It doesnโt matter what you do since all alternatives result in a loss. | | Instructor Explanation:| Chapter 7, Pages 251-252| | | | Points Received:| 4 of 4 | | Comments:| | | | Page: | 1 2 3 | 1. | Question ๐ (TCO 3) Why is it necessary to use equivalent units in a process costing system? | | | Student Answer:| | Process costing, as we have seen, is essentially a system of averaging. Equivalent Units In calculating the average unit cost, it is necessary to convert the number of partially completed units in Work in Process to an equivalent number of whole units.

Otherwise, the denominator in the average unit cost calculation will be misstated. When partially completed units are converted to a comparable number of completed units, they are referred to as equivalent units. Jiambalvo. Managerial Accounting, 4th Edition. John Wiley & Sons. . | | Instructor Explanation:| In a company that uses process costing, there may be incomplete units in ending Work in Process inventory. These units are converted to a comparable number of completed units in order to calculate the cost per equivalent unit. | | | | Points Received:| 20 of 20 | | Comments:| | | | 2. Question ๐ (TCO 7) Computer Boutique sells computer equipment and home office furniture. Currently, the furniture product line takes up approximately 50% of the company’s retail floor space. The president of Computer Boutique is trying to decide whether the company should continue offering furniture or just concentrate on computer equipment. If furniture is dropped, salaries and other direct fixed costs can be avoided. In addition, sales of computer equipment can increase by 13%. Allocated fixed costs are assigned based on relative sales. | Computer| Home Office| | | Equipment| Furniture| Total| Sales| \$1,200,000| \$800,000| \$2,000,000|

Less cost of goods sold| 700,000| 500,000| 1,200,000| Contribution margin| 500,000| 300,000| 800,000| Less direct fixed costs:| | | | Salaries| 175,000| 175,000| 350,000| Other| 60,000| 60,000| 120,000| Less allocated fixed costs:| | | | Rent| 14,118| 9,882| 24,000| Insurance| 3,529| 2,471| 6,000| Cleaning| 4,117| 2,883| 7,000| President’s salary| 76,470| 53,350| 130,000| Other| 7,058| 4,942| 12,000| Total costs| 340,292| 380,708| 649,000| Net Income| \$159,708| (\$ 8,708)| \$151,000| | | | | | Prepare an incremental analysis to determine the incremental effect on profit of discontinuing the furniture line. | | Student Answer:| | | | Instructor Explanation:| Incremental drop in revenue| (\$800,000)| Incremental cost savings:| | Cost of sales| 500,000| Salaries| 175,000| Other| 60,000| Incremental increase in computer equipment| | (13% x \$1,200,000)| 156,000| Incremental increase in computer equipment| | variable costs (13% x \$700,000)| (91,000)| Incremental increase in profit| \$ 0| | | | | Points Received:| 10 of 25 | | Comments:| | | | 3. | Question ๐ (TCO 4) Beach Rentals has estimated that fixed costs per month are \$79,200 and variable cost per dollar of sales is \$0. 2. (a) What is the break-even point per month in sales? (b) What level of sales is needed for a monthly profit of \$24,000? (c) For the month of July, the company anticipates sales of \$240,000. What is the expected level of profit? | | | Student Answer:| | a. ) \$165,000 sales b. ) \$215,000 c. ) | | Instructor Explanation:| (a) Contribution margin ratio = 1. 00 โ 0. 52 = 0. 48 \$79,200 ? 0. 48 = \$165,000 (b) (\$79,200 + \$24,000) ? 0. 48 = \$215,000 (c) (\$240,000 ? 0. 48) โ \$79,200 = \$36,000| | | | Points Received:| 20 of 25 | | Comments:| | | |