Managerial Accounting Week 1

Chapter 1: Exercise 1-14 Opportunity Costs

Given:

Incremental revenue per day $2,500

Less incremental costs:

Labor $700

Parts 500

Transportation 100

Office Staff 200 $1,500

Net $1,000

Opportunity Cost is $1,000 per day.

$52,000 for 52 days

Rent and depreciation are not included in the calculation of the opportunity cost. This is because these costs are not incremental. Rent and depreciation will be incurred whether or not Ken decides to stay open on Saturday.

Problem 1-2 Incremental Analysis

a.) The variable costs are as follows:

Production 25,000 Jars of Salsa

Ingredient cost $20,000

Labor cost 12,000

Total $32,000

So, if total variable cost is 32,000 divide it by 25,000 jars of salsa to get $1.28 per jar of salsa. Thus, the incremental cost of producing an extra 50,000 jars of salsa is $64,000 that is $1.28 multiplied by 50,000.

b.) The incremental revenue associated with a price reduction of $0.40 is $100,000 as follows:

Original Revenue (325,000 x $5) $1,625,000

Revenue with price change (375,000 x $4.60) 1,725,000

Incremental Revenue associated with price change $ 100,000

c.) The price should be lowered because the incremental cost of this action is less than the incremental revenue.

Problem 1-4 Performance Reports

a.) $75,000 / $700,000 = 0.107 or 10.7%

$80,000 / $350,000 = 0.228 or 22.8%

$ 8,000 / $ 70,000 = 0.114 or 11.4%

Sales exceeded the budget by 10.7%. The cost of merchandise increased by 22.8% and salaries increased by only 11.4%. Therefore, the investigation should focus on cost of merchandise since a 22.8% increase is incommensurate with the increase in sales.

b.) Electricity is not a controllable cost for the managers of sporting goods. Including it on a performance report for sporting goods would not be useful.

Chapter 2: Exercise 2-9 Recording Labor Cost in Job-Order Costing

a.) Job 201

110 hrs. x...