Managerial Accounting problems Solution of those pproblems. My classs is Managerial Accountin Giga Manufacturing Co. manufactures 1 GB flash drives (jump d
Managerial Accounting problems Solution of those pproblems. My classs is Managerial Accountin Giga Manufacturing Co. manufactures 1 GB flash drives (jump drives). Price
and cost data for a relevant range extending to 500,000 units per month are as
follows:
Sales price per unit:
(Current monthly sales volume is 400,000 units)
$20.00
Variable costs per unit:
Direct materials
4.00
Direct labor
6.00
Variable manufacturing overhead
2.00
Variable selling and administrative expenses
2.00
Monthly fixed expenses:
Fixed manufacturing overhead
$1,600,000
Fixed selling and administrative expenses
$1,200,000
Required:
a) What would the company’s monthly operating income be if it sold 400,000
units?
b) Management is currently in contract negotiations with the labor union. If the
negotiations fail, direct labor costs will increase by 15% and fixed costs will
increase by $400,000 per month. If these costs increase, how many units will
the company have to sell each month to break even?
c) Suppose Giga adds a second line of flash drives (2 GB rather than 1 GB). A
package of the 2 GB flash drives will sell for $30 and have variable cost per
unit of $20 per unit. The expected sales mix is five of the smaller flash drives
(1 GB) for every two larger flash drive (2 GB). Given this sales mix, how
many of each type of flash drive will Bytes need to sell to reach its target pre-
tax monthly profit of $400,000? Fixed costs will remain the same. Giga’s tax
rate is 25%.
Bam Corporation sells camping equipment. One of the company’s products, a
lantern, sells for $100 per unit. Variable expenses are $70 per lantern, and fixed
expenses associated with the lantern total $180,000 per month.
Required:
a) Compute the company’s break-even point in the number of lanterns.
b) Compute the number of lanterns to be sold to yield a net income of $72,000
per month. The tax rate for Bam is 30 percent.
c) At present, the company is selling 10,000 lanterns per month. The sales
manager is convinced that a 10% reduction in the selling price will result in a
25% increase in the number of lanterns sold each month. Should the change
in selling price be made? Show computations.
University Hospital has an outpatient surgery center that treats
patients in three activity centers: (1) Surgery, which does
surgery
on the patients, (2) Phase I recovery, where patients
recover from
surgery while still asleep, and (3) Phase II
surgery, where the
patients continue recovering after they
awake. At the end of Phase
II surgery, patients go home. Daily
capacities and production
levels are as follows:
Surgery
40 surgeries
Phase I Recovery
30 surgeries
Phase II Recovery
60 surgeries
Daily capacity
The hospital receives an average of $1,200 per surgery. (The
surgeon’s fee and anesthesiologist fee is billed separately.)
The
variable cost per surgery is $400. There is sufficient
demand for
surgeries that the hospital could perform 60 per
day. Surgeries not
performed by the outpatient surgery
center are sent to the
hospital’s regular surgery
rooms in the hospital. The variable cost
per surgery for the
regular surgery rooms is $800, while the
hospital still
receives $1,200 per surgery.
Here are some alternatives that management is considering.
a) Continue performing 30 surgeries per day in the outpatient surgery center
and send 30 patients to the hospital’s regular surgery rooms for the other
30 patients.
b) Rebuild the recovery rooms so that some of the Phase II space could be
used for Phase I recovery. This would cost $2,000 per day and would
enable the outpatient surgery center to perform 40 surgeries per day and
send 20 patients to the hospital’s regular operating rooms.
Required:
Prepare an income statement for each of the two alternatives and indicate
which alternative is the better one.
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