COMM-305-Tutorials-Matthew-CASA-Review-Summer-2023 (1)
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COMM 305 Tutorials - Matthew
COMM 305 Tutorials – Matthew
CASA Final Review – Summer 2023
COMM 305 Tutorials – Matthew: CASA Final Review
(Summer 2023)
Question 1 – Part 1:
The company that you work for as a managerial accountant (Twitter) uses independent agents to sell its products. These agents are currently being paid a commission of 15% of the sales price but are asking for an increase to
25% of sales made during the coming year. You had already prepared the following income statement for the company based on the 15% commission: Income Statement For Year Ending December 31, 2022
Sales $ 2,000,000.00 Cost of goods sold (60% variable costs 40% fixed costs) $ 1,500,000.00 Gross profit $ 500,000.00 Selling and administrative expenses Commissions only $ 300,000.00 Fixed costs $ 75,000.00 $ 375,000.00 Income before taxes $ 125,000.00 Income tax expense (20%) $ 25,000.00 Operating income $ 100,000 Management wants to examine the possibility of employing the company's own salespeople. The company would need a sales manager at an annual salary of $75,000 and three sales people at an annual salary of $25,000 each, plus a commission of 5% of sales. All other fixed costs, as well as the variable cost percentages would remain the same as in the above pro forma income statement. The new CEO Elon Musk informs you that if you don’t perform the calculations correctly that you, the sales agents, and your mother will be fired, even if she doesn’t work at Twitter. Required:
A.
Based on the provided information calculate the break-even point in sales
dollars for the company for the year ending December 31, 2022. B.
Calculate the break-even point in sales dollars for the year ending December 31, 2022, if the company uses its own salespeople. C.
Calculate the volume of sales dollars required for the year ending December 31, 2022, to have the same operating income as projected in the pro forma income statement if the company continues to use the independent sales agents and agrees to their demand for a 25% sales commission. © 2023 COMM 305 Tutorials - Matthew
COMM 305 Tutorials - Matthew
COMM 305 Tutorials – Matthew
CASA Final Review – Summer 2023
D.
Calculate the estimated sales volume in sales dollars that would generate an identical operating income for the year ending December 31, 2022, regardless of whether the company employs its own salespeople or continues to use the independent sales agents and pays them a 25% commission. Question 1 – Part 2:
Bob Company is contemplating a major change in its cost structure. Currently, all its drafting work is performed by skilled draftspersons. The owner, Bob, is considering replacing the draftspersons with a computerized drafting system. However, before making the change, Bob would like to know its consequences, since the volume of business varies significantly from year to year. Shown below are CVP income statements for each alternative: Manual System
Computerized System
Sales
$ 5,000,000.00 $ 5,000,000.00 Variable costs
$ 2,600,000.00 $ 1,800,000.00 Contribution margin
$ 2,400,000.00 $ 3,200,000.00 Fixed costs
$ 1,200,000.00 $ 2,000,000.00 Operating income
$ 1,200,000.00 $ 1,200,000.00 Required:
A. Determine the degree of operating leverage for each alternative. B. Which alternative would produce the higher operating income if sales increased by $500,000, calculate by how much operating income will increase and what is the operating income.
C. Using the margin of safety ratio determines which alternative could sustain the greater decline in sales before operating at a loss. © 2023 COMM 305 Tutorials - Matthew
COMM 305 Tutorials - Matthew
COMM 305 Tutorials – Matthew
CASA Final Review – Summer 2023
Question 2 – Part 1:
Bob manufactures three products, A, B & C. Bob prefers to not formally name his products as to create hype. The income statement for the three products and the whole company is shown below:
Product A
Product B
Product C
Total
Sales
$50,000
$60,000
$65,000
$175,000
Variable Costs
25,000
40,000
60,000
125,000
Fixed Costs
16,000
12,000
8,000
36,000
Total Costs
41,000
52,000
68,000
161,000
Operating Income
$9,000
$8,000
-$3,000
$14,000
Bob lives a very carefree lifestyle out of his parent’s basement, with no strategic direction in his business he mindlessly produces 1,000 units of each product. To operate his business, Bob acquired a decent machine off Facebook marketplace which has a capacity is 9,000 machine hours. The machine hours required for each product are four hours for Product A, three hours for Product B, and two hours for Product C. Fixed costs are allocated based on machine hours. Required:
A.
If the current production levels are maintained, should the company eliminate Product C? Explain your reasoning. B.
If the company can sell unlimited quantities of any of the three products, which product should be produced? C.
Suppose the company can sell unlimited quantities of any of the three products. If a customer wanted to purchase 500 units of Product C, what would the minimum sale price per unit be for this order? D.
The company has a contract that requires it to supply 500 units of each product to a customer. The total market demand for a single product is limited to 1,500 units. How many units of each product should the company manufacture to maximize its total contribution margin including the contract and the total profits.
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CASA Final Review – Summer 2023
Question 2 – Part 2:
Next Level (NL) is a division of Global Electronics, Inc. NL produces video game systems.
These systems are sold to retailers. NL recently approached the manager of the personal
computer (PC) division regarding a request to buy a special circuit board for a new advanced
video game system. NL has requested that the PC division produces 400,000 units of this special
circuit board. The following facts are available regarding the PC division: Selling price of standard circuit board
$108
Variable cost of standard circuit board
60
Additional variable costs of special circuit board
40
Required:
For each of the following independent situations, calculate the minimum transfer price and
discuss whether PC should accept the offered price.
A.
Next Level has offered to pay the PC division $124 per circuit board. The PC division has no
available capacity. The PC division would have to forgo sales of 400,000 circuit boards to
existing customers in order to meet the request of Next Level.
B.
Next level has offered to pay the PC division $180 per circuit board. The PC division has no
available capacity. The PC division would have to forgo sales of 500,000 circuit boards to
existing customers in order to meet the request of Next Level.
C. Next Level has offered to pay the PC division $124 per circuit board. The PC division has available capacity.
© 2023 COMM 305 Tutorials - Matthew
COMM 305 Tutorials - Matthew
COMM 305 Tutorials – Matthew
CASA Final Review – Summer 2023
Question 3: Quebec Corp. is a manufacturer of specialty in-line skates. The operating results for 2022 are as follows: Units produced
60,000
pairs
Units sold
54,000
pairs
Selling price
$600
per pair
Production information:
Direct materials
$3,000,000
Direct labour
2,250,000
Variable manufacturing overhead
1,350,000
Fixed manufacturing overhead
2,400,000
Variable marketing costs
540,000
Fixed marketing costs
600,000
There was no beginning finished goods inventory.
Required:
A. Assuming the company uses Throughput costing method:
1.
Prepare the Throughput costing income statement for 2022.
2.
Reconcile the difference in net income between the Variable costing and Throughput-costing methods. 3.
Reconcile the difference in net income between the Absorption costing and Variable-costing methods.
B. Assuming the company uses the budgeted volume of 75,000 pairs to allocate the fixed overhead rate rather than the actual production volume of 60,000 pairs. The company expenses production volume variance to cost of goods sold in the accounting period in which it occurs. Do
the following:
1. Prepare the income statement for 2022 under Normal Absorption costing.
2. Reconcile the difference in net income between the Normal Absorption costing and Absorption-costing methods.
© 2023 COMM 305 Tutorials - Matthew
COMM 305 Tutorials - Matthew
COMM 305 Tutorials – Matthew
CASA Final Review – Summer 2023
Question 4:
Montreal Corporation has recently acquired a small manufacturing operation in British Columbia
that produces one of its more popular items. This plant will provide these units for resale in retail
hardware stores in British Columbia and Alberta. Because the budget prepared by the plant was
incomplete, Jordan Leigh, Montreal' CFO, was sent to B.C. to oversee the plant's budgeting
process for the second quarter of 2023.
Jordan asked various managers to collect the following information for preparing the second-
quarter budget. Sales in Units
Unit sales for March 2023
102,000
Expected unit sales for April 2023
110,000
Expected unit sales for May 2023
115,000
Expected unit sales for June 2023
120,000
Expected unit sales for July 2023
135,000
Expected unit sales for August 2023
160,000
Average unit selling price
$15
Based on the experience from the home plant, Jordan has suggested that the B.C. plant keeps
10% of the next month's unit sales in ending inventory. The plant has contracts with some of the
major home hardware giants, so all sales are on account; 50% of the accounts receivable is
collected in the month of sale, and the balance is collected in the month after the sale. This was
the same collection pattern from the previous year. The new plant has no bad debts.
Direct Materials
: The combined quantity of direct materials (consisting of metal, plastic, and
rubber) used in each unit is 1.1 kg. Metal, plastic, and rubber together amount to $1.50 per kg.
Inventory of combined direct materials on March 31 consisted of 12,155 kg. This plant likes to
keep 10% of the materials needed for the next month in its ending inventory. Fifty percent of the
payables are paid in the month of purchase, and 50% is paid in the month after purchase.
Accounts Payable on March 31 will total $120,600.
Direct Labour
: Labour requires 15 minutes per unit for completion and is paid at an average
rate of $18 per hour. Required:
For the second quarter of 2023 prepare the monthly and total of the following budgets: 1.
Sales budget.
2.
Schedule for expected cash collections from customers.
3.
Production budget.
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CASA Final Review – Summer 2023
4.
Direct materials budget.
5.
Schedule for expected payments for materials purchases.
Question 5:
Montreal Corporation manufactures a single product. The standard cost per unit of product is as
follows: Direct materials—2 kg of plastic at $5 per kilogram
$10.00
Direct labour—2 hours at $12 per hour
24.00
Variable manufacturing overhead
8.00
Fixed manufacturing overhead
6.00
Total standard cost per unit
$48.00
The master manufacturing overhead budget for the month based on the normal productive
capacity of 20,000 direct labour hours (10,000 units) shows total variable costs of $80,000 ($4
per labour hour) and total fixed costs of $60,000 ($3 per labour hour). Actual costs for producing
9,500 units in November were as follows: Direct materials (21,000
kg)
$102,900
Direct labour (18,500
hours)
231,250
Variable overhead
77,500
Fixed overhead
65,000
Total
manufacturing
costs
$476,650
The purchasing department normally buys the quantities of raw materials that are expected to be
used in production each month. Raw materials inventories, therefore, can be ignored.
Required:
A.
Calculate all materials, labour, variable manufacturing overhead and fixed
manufacturing overhead variances and indicate whether they are favorable or unfavorable. B.
Calculate the overhead budget variance. C.
Determine if overhead is overapplied or underapplied, and if so, by how much?
© 2023 COMM 305 Tutorials - Matthew
COMM 305 Tutorials - Matthew
COMM 305 Tutorials – Matthew
CASA Final Review – Summer 2023
THANK YOU ALL FOR GREAT SEMESTER, BEST OF LUCK ON ALL YOUR
FINALS AND HAVE A GREAT SUMMER BREAK
© 2023 COMM 305 Tutorials - Matthew