Managerial Account
SOLUTIONS TO BRIEF EXERCISES
BRIEF EXERCISE 7-1 The correct order is: 1. 2. 3. 4. Identify the problem and assign responsibility. Determine and evaluate possible courses of action. Make a decision. Review results of the decision.
BRIEF EXERCISE 7-2 Net Income Increase (Decrease) ($ 35,000) (25,000) $ 10,000
Alternative A Revenues Costs Net income $150,000 100,000 $ 50,000
Alternative B $185,000 125,000 $ 60,000
Alternative B is better than Alternative A.
BRIEF EXERCISE 7-3 Net Income Increase (Decrease) ($ 72,000) ( (60,000) ( (6,000) ($ 6,000)
Revenues Costs—Variable manufacturing Shipping Net income
Reject Order $0 0 0 $0
Accept Order $72,000 * 60,000 ** 6,000 *** $ 6,000
The special order should be accepted. *3,000 X $24 **3,000 X $20 ***3,000 X $ 2
BRIEF EXERCISE 7-4 Net Income Increase (Decrease) $ 45,000 0 (50,000) ($ (5,000)
Make Variable manufacturing costs Fixed manufacturing costs Purchase price Total annual cost $45,000 30,000 –0– $75,000
Buy $ –0– 30,000 50,000 $80,000
The decision should be to make the part.
BRIEF EXERCISE 7-5 Sell Sales price per unit Cost per unit Variable Fixed Total Net income per unit $60.00 35.00 10.00 45.00 $15.00 Process Further $70.00 43.00 10.00 53.00 $17.00 Net Income Increase (Decrease) $10.00 ( (8.00) 0 ( (8.00) $ 2.00
The bookcases should be processed further because the incremental revenues exceed incremental costs by $2.00 per unit.
BRIEF EXERCISE 7-6 The allocated joint costs are irrelevant to the sell or process further decisions. If AB1 is processed further, the company will earn incremental revenue of $60,000 ($150,000 – $90,000) and only incur incremental costs of $50,000. Therefore, the company should process AB1 further and sell AB2. If XY1 is processed further, the company will earn incremental revenue of $40,000 ($130,000 – $90,000) but will incur incremental costs of $50,000. Therefore, the company should sell XY1 rather than process it further.
BRIEF
BRIEF EXERCISE 7-1 The correct order is: 1. 2. 3. 4. Identify the problem and assign responsibility. Determine and evaluate possible courses of action. Make a decision. Review results of the decision.
BRIEF EXERCISE 7-2 Net Income Increase (Decrease) ($ 35,000) (25,000) $ 10,000
Alternative A Revenues Costs Net income $150,000 100,000 $ 50,000
Alternative B $185,000 125,000 $ 60,000
Alternative B is better than Alternative A.
BRIEF EXERCISE 7-3 Net Income Increase (Decrease) ($ 72,000) ( (60,000) ( (6,000) ($ 6,000)
Revenues Costs—Variable manufacturing Shipping Net income
Reject Order $0 0 0 $0
Accept Order $72,000 * 60,000 ** 6,000 *** $ 6,000
The special order should be accepted. *3,000 X $24 **3,000 X $20 ***3,000 X $ 2
BRIEF EXERCISE 7-4 Net Income Increase (Decrease) $ 45,000 0 (50,000) ($ (5,000)
Make Variable manufacturing costs Fixed manufacturing costs Purchase price Total annual cost $45,000 30,000 –0– $75,000
Buy $ –0– 30,000 50,000 $80,000
The decision should be to make the part.
BRIEF EXERCISE 7-5 Sell Sales price per unit Cost per unit Variable Fixed Total Net income per unit $60.00 35.00 10.00 45.00 $15.00 Process Further $70.00 43.00 10.00 53.00 $17.00 Net Income Increase (Decrease) $10.00 ( (8.00) 0 ( (8.00) $ 2.00
The bookcases should be processed further because the incremental revenues exceed incremental costs by $2.00 per unit.
BRIEF EXERCISE 7-6 The allocated joint costs are irrelevant to the sell or process further decisions. If AB1 is processed further, the company will earn incremental revenue of $60,000 ($150,000 – $90,000) and only incur incremental costs of $50,000. Therefore, the company should process AB1 further and sell AB2. If XY1 is processed further, the company will earn incremental revenue of $40,000 ($130,000 – $90,000) but will incur incremental costs of $50,000. Therefore, the company should sell XY1 rather than process it further.
BRIEF