Solution of Managerial Accounting

Chapter 5: Require Behavior: Separation and Use As we shall see in later conditions, the force to forebode how requires corcorrespond to fluctuates in earnestness is momentous for making conclusions, potent operations, and evaluating deed. Three important classifications of requires were discussed in this condition—variable, agricultural, and partial. Partial requires continue of fickle and agricultural parts and can be explicit in equation mould as Y = a + bX, where X is the earnestness, Y is the require, a is the agricultural require part, and b is the fickle require per item of earnestness. Several rules can be used to value the agricultural and fickle require congressonents of a partial require using departed chronicles of require and earnestness. If the referring-to among require and earnestness appears to be undeviating demonstrateed on a strew graph devise, then the fickle and agricultural congressonents of the partial require can be valued using the quick-and-dirty rule, the lofty-low rule, or the least-squares return rule. The quick-and-dirty rule is demonstrateed on sketch a undeviating continuity and then using the emerge and the stop of the undeviating continuity to value the fickle and agricultural require congressonents of the partial require. The lofty-low rule implicitly draws a undeviating continuity through the points of smallest earnestness and foremost earnestness. In most situations, the least-squares return rule is preferred to twain the quick-and-dirty and lofty-low rules. Computer software is amplely conducive for using the least-squares return rule. These software applications produce a medley of adapted statistics along delay values of the stop (agricultural require) and emerge (fickle require per item). Nevertheless, unishape when least-squares return is used, the grounds should be deviseted to prove that the referring-toship is truly a undeviating continuity. Managers use requires unembarrassed by bearing to succor produce multifarious conclusions. The assistance mouldat pay assertion can aid conclusion making owing it classifies requires by require bearing (i. e. , fickle versus agricultural) rather than by the operations of result, government, and sales. In this condition, the forthcoming epistles objectives accomplish be covered: In this condition, the forthcoming epistles objectives accomplish be covered: | |Understand how agricultural and fickle requires beaccept and how to use them to forebode requires. | |[pic] | |[pic] | |[pic] | | | |Use a strewgraph devise to diagnose require bearing. |[pic] | |[pic] | |[pic] | | | |Analyze a partial require using the lofty-low rule. |[pic] | |[pic] | |[pic] | | | |Prepare an pay assertion using the assistance mouldat. |[pic] | |[pic] | |[pic] | | | |(Appendix 5A) Analyze a partial require using the least-squares return rule. | Key provisions: Recital separation   |A rule for analyzing require bearing in which an recital is classified as either fickle or agricultural demonstrateed on | | |the analyst's earlier inferiorstanding of how the require in the recital behaves. | |[pic] | |[pic] | |[pic] | |Activity infamous   |A mete of whatever causes the incurrence of a fickle require. For pattern, the entirety require of X-ray film in a| | |hospital accomplish acception as the congressute of X-rays captured acceptions. Therefore, the congressute of X-rays is the | | |earnestness infamous that explains the entirety require of X-ray film. |[pic] | |[pic] | |[pic] | |Committed agricultural requires   |Investments in facilities, equipment, and basic shapeal erection that can't be significantly declining | | |unishape for weak periods of span delayout making primary fluctuates. |[pic] | |[pic] | |[pic] | |Contribution approach   |An pay assertion mouldat that organizes requires by their bearing. Costs are divided into fickle and agricultural| | |categories rather than being divided according to shapeal operations. | |[pic] | |[pic] | |[pic] | |Contribution boundary   |The congressletionity retaining from sales revenues behind all fickle expenses accept been deducted. |[pic] | |[pic] | |[pic] | |Cost erection   |The referring-to corratio of agricultural, fickle, and partial requires in an shape. |[pic] | |[pic] | |[pic] | |Dependent fickle   |A fickle that corresponds to some causal ingredient; entirety require is the subject fickle, as represented by the | | |epistle Y, in the equation Y = a + bX. |[pic] | |[pic] | |[pic] | |Discretionary agricultural requires   |Those agricultural requires that arise from annual conclusions by government to exhaust on incontrovertible agricultural require items, such as| | |advertising and scrutiny. |[pic] | |[pic] | |[pic] | |Engineering approach   |A detailed separation of require bearing demonstrateed on an industrial engineer's evaluation of the inputs that are | | |required to raise out a point earnestness and of the values of those inputs. |[pic] | |[pic] | |[pic] | |High-low rule   |A rule of separating a partial require into its agricultural and fickle parts by analyzing the fluctuate in require | | |among the lofty and low earnestness razes. |[pic] | |[pic] | |[pic] | |Insubject fickle   |A fickle that acts as a causal ingredient; earnestness is the insubject fickle, as represented by the epistle X,| | |in the equation Y = a + bX. |[pic] | |[pic] | |[pic] | |Least-squares return |A rule of separating a partial require into its agricultural and fickle parts by fitting a return continuity that | |method   |minimizes the sum of the squared errors. |[pic] | |[pic] | |[pic] | |Linear require bearing   |Cost bearing is said to be undeviating whenever a undeviating continuity is a serious arrival for the referring-to | | |among require and earnestness. |[pic] | |[pic] | |[pic] | |Mixed require   |A require that contains twain fickle and agricultural require parts. |[pic] | |[pic] | |[pic] | |Multiple return   |An analytical rule required when alterations in a subject fickle are caused by more than one ingredient. |[pic] | |[pic] | |[pic] | |R 2   |A mete of amiableness of fit in least-squares return separation. It is the percentage of the alteration in | | |the subject fickle that is explained by alteration in the insubject fickle. |[pic] | |[pic] | |[pic] | |Relevant file   |The file of earnestness delayin which assumptions encircling fickle and agricultural require bearing are reasonably weighty. |[pic] | |[pic] | |[pic] | |Step-fickle require   |The require of a material that is obtainable barely in ample chunks and that acceptions and decreases barely in | | |reply to fairly ample fluctuates in earnestness. | Review Example 1: Require bearing Neptune Rentals offers a boat rental utility. Consider the forthcoming requires of the assemblage balance the bearing file of 5,000 to 8,000 hours of bounteous span for the boats: |Hours of bounteous span | | |5,000 |6,000 |7,000 |8,000 | |Total requires: | | | | | |Variable requires |$20,000 |$ ? $ ? |$ ? | |Fixed requires |$1,68,000 |$ ? |$ ? |$ ? | |Total requires |$1,88,000 |$ ? |$ ? |$ ? | |Cost per hour: | | | | | |Variable require |$ ? |$ ? |$ ? |$ ? | |Fixed require |$ ? |$ ? |$ ? $ ? | |Total require per hour |$ ? |$ ? |$ ? |$ ? | Required: Compute the dropping congressletionity hopeful that require bearing patterns endure corresponding delayin the bearing file of 5,000 to 8,000 hours. Solution to Review Example 1: Per Item Fickle Require = 20,000/5,000= 4. 00 per Unit. |Hours of bounteous span | | |5,000hr 6,000hr |7,000hr |8,000hr | |Total Costs Fickle requires |$20,000 |$24,000 |$28,000 |$32,000 | |Fixed requires |1,68,000 |1,68,000 |1,68,000 |1,68,000 | |Total requires |$1,88,000 |$1,92,000 |$1,96,000 |$2,00,000 | |Cost per hour: |$4. 0 |$4. 00 |$4. 00 |$4. 00 | |Variable require | | | | | |Fixed require |33. 60 |28. 00 |24. 00 |21. 00 | |Total require per hour |$37. 60 |$32. 00 |$28. 00 |$25. 0 | Review example 2: Lofty Low Rule The operational of azalea hills hospitals would approve a require mouldula connection the requires implicated in admitting patients to the congressute of patients admitted during a month. The admitting department’s requires and congressute of patients admitted during the presently precedent eight month are dedicated in the forthcoming table: |Month |compute of patients |admitted dep. Costs | |May |1,800 |14,700 | |June |1,900 |15,200 | |July |1,700 |13,700 | |August |1,600 |14,000 | |September |1,500 |14,300 | |October |1,300 |13,100 | |Nov |1,100 |12,800 | |Dec |1,500 |14,600 | Required: 1. Use the lofty low rule to demonstobjurgate the agricultural and fickle congressonents of admitting requires. 2. Express the agricultural and fickle congressonents of admitting requires as a mouldula in the undeviating equation mould: Y= a+bx. Solution to Review Example 2 1. |Number of Patients Admitted |Admitting Department require | |High earnestness raze (June) |$1,900 |15,200 | |Low earnestness raze (November) |1,100 |12,800 | |Change |$800 |$2,400 | Fickle require per item of earnestness: Fickle Require = 2,400 / 800 = 3 Agricultural require = Entirety require – fickle require = 15,200 – (3*1,900) = 9,500 2. The require mouldula explicit in the undeviating equation mould is:Y= $9,500+$3X Example 5-12 House of Organs, Inc alienations organs from a well-known creator and vends them at the vend raze. The organs vend, on the mediocre, for $2500 each. The mediocre require of an organ from the creator is $1500. House of Organs, Inc has steadyly kept regardful chronicles of its requires. The requires that the assemblage incurs in a usual month are presented inferiorneath in the mould of a spreadsheet Costs |Cost Formula | |Selling: | |Advertising |$950 per month | |Delivery of organs |$60 per organ sold | |Sales salaries and commissions |$4,600 per month plus 4% curiosity-behalf | |Utilities |$650 per month | |Depreciation of sales facilities |$5,000 per month | |Administrative: | |Executive salaries |$13,500 per month | |Depreciation of equipment |$900 per month | |Clinical |$2,500 per month plus $40 per organ sold | |Insurance |$700 per month | During November, the assemblage sold and delivered 60 organs. Required: 1. Prepare an pay assertion for November using the transmitted mouldat delay requires unembarrassed by operation. 2. Redo (1) balance, this span using the assistance mouldat delay requires unembarrassed by bearing. Pretext requires and revenues on twain a entirety and per item cause down through assistance boundary. 3. Refer to the pay assertion unhesitating in (2) balance. Why energy it be misleading to pretext the agricultural requires on a per item cause? Solution 5-12 1. House of Organs, Inc. Pay Assertion For the Month Ended November 30 |Sales (60 organs ? $2,500 per organ) | |$1,50,000 | |Cost of movables sold (60 organs ? 1,500 per organ) | |90,000 | |Gross boundary | |60,000 | |Selling and operational expenses: | | | |Selling expenses: | | | |Advertising |$    950 | | |Delivery of organs (60 organs ? $60 per organ) |3,600 | | |Sales salaries and commissions [$4,800 + (4% ? 150,000)] |10,800 | | |Utilities |650 | | |Depreciation of sales facilities |5,000 | | |Total vextent expenses |21,000 | | |Administrative expenses: | | | |Executive salaries |13,500 | | |Depreciation of administration equipment |900 | | |Clerical [$2,500 + (60 organs ? 40 per organ)] |4,900 | | |Insurance |700 | | |Total operational expenses |20,000 | | |Total vextent and operational expenses | |41,000 | |Net bounteous pay | |$? 19,000 | 2. House of Organs, Inc. Pay Assertion For the Month Ended November 30 | |Total |Per Item | |Sales (60 organs $2,500 per organ) |$1,50,000 |$2,500 | |Variable expenses: | | | |Cost of movables sold (60 organs ? $1,500 per organ) |90,000 |1,500 | |Delivery of organs (60 organs ? $60 per organ) |3,600 |60 | |Sales commissions (4% ? $150,000) |6,000 |100 | |Clerical (60 organs ? 40 per organ) |2,400 |40 | |Total fickle expenses |1,02,000 |1,700 | |Contribution boundary |48,000 |$  800 | |Fixed expenses: | | | |Advertising |950 | | |Sales salaries |4,800 | | |Utilities |650 | | |Depreciation of sales facilities |5,000 | | |Executive salaries |13,500 | | |Depreciation of administration equipment |900 | | |Clerical |2,500 | | |Insurance |700 | | |Total agricultural expenses |29,000 | | |Net bounteous pay |$ 19,000 | | 3. Agricultural requires endure steady in entirety but dissimilate on a per item cause delay fluctuates in the earnestness raze. Example 5-15: High-Low Method, Predicting Require Golden Company’s entirety balanceruler requires at diversified razes of earnestness are presented inferiorneath: Month |Machine-Hours |Total Aloft Costs | |March |50,000 |$1,94,000 | |April |40,000 |1,70,200 | |May |60,000 |2,17,800 | |June |70,000 |2,41,600 | Affect that the balanceruler requires balance continue of utilities, supervisory salaries, and defence. The severdown of these requires at the 40000 machine-hour raze of earnestness is as follows: |Utilities (variable)............................. |$52,000 | |Supervisory salaries (fixed)................ |60,000 | |Maintenance (mixed).......................... |58,200 | |Total balanceruler requires............................ $1,70,200 | The assemblage wants to sever down the defence require into its basic fickle and agricultural require parts. Required: 1. As pretextn balance balanceruler requires in June congressletionityed to $241600. Value how fur of this continueed of defence require. (Hint to do this, it may be succorful to primary designate how fur of the $241600 continueed of utilities and supervisory salaries. 2. Using the lofty-low rule, value a require mouldula for defence. 3. Express the assemblage’s entirety balanceruler requires in the undeviating equation mould Y=a+bx. 4. What entirety balanceruler requires would look-for to be incurred at an bounteous earnestness raze of 45000 machine-hours. Solution 5-15 . Defence require at the 70,000 machine-hour raze of earnestness can be pure as follows: | |Level of Earnestness | | |40,000 MH |70,000 MH | |Total ingredienty balanceruler require |$1,70,200 |$2,41,600 | |Deduct: | | | |Utilities require @ $1. 0 per MH* |52,000 |91,000 | |Supervisory salaries |60,000 |60,000 | |Total defence require at the low earnestness raze |$ 58,200 |$ 90,600 | |$58,200 | | | | | | | *$52,000 ? 40,000 = $1. 30 per MH 2. High-low separation of defence require: | |Maintenance Require |Machine-Hours | |High earnestness raze |$90,600 |70,000 | |Low earnestness raze |58,200 |40,000 | |Change |$32,400 |30,000 | Fickle require per item of earnestness: [pic] Entirety agricultural require: Therefore, the require mouldula is $15,000 per month plus $1. 8 per machine-hour or Y = $15,000 + $1. 08X, where X represents machine-hours. 3. | |Variable Objurgate per Machine-Hour |Fixed Require | |Maintenance require |$1. 08 |$15,000 | |Utilities require |1. 30 | | |Supervisory salaries require | |60,000 | |Totals |$2. 8 |$75,000 | Therefore, the require mouldula would be $75,000 plus $2. 38 per machine-hour, or Y = $75,000 + $2. 38X. 4. |Fixed requires |$? 75,000 | |Variable requires: $2. 38 per MH ? 45,000 MHs |1,07,100 | |Total balanceruler requires |$1,82,100 | Example 5-17: High-Low Rule require of Movables Manufactured. NuWay. Inc, moldings a individual result. Selected grounds from the assemblage’s require chronicles for two new-fangled months are dedicated inferiorneath. |Level of Earnestness | | |July-Low | | |October-High | | | | |Number of items simulated |9,000 | | |12,000 | |Cost of movables simulated | | | |$2,85,000 | |Work in system register, inception |3,90,000 | | | | |Work in system register, extent |14,000 | | |22,000 | |Direct materials require per item | | | |25,000 | |Direct operation require per item |15,000 | | | | |Manufacturing balanceruler require, entirety |15 | |15 | | | | | |6 | | |6 | | | | | |? | |? | | | | The assemblage’s manufacturing balanceruler require continues of twain fickle and agricultural require parts. In adjust to accept grounds conducive for planning, government wants to designate how fur of the balanceruler require is fickle delay items simulated and how fur of it is agricultural per year. Required: 1. For twain July and October, value the congressletionity of manufacturing balanceruler require affectd to result. The assemblage had no inferior-or balance applied balanceruler in either month. Hint: A adapted way to profits energy be to invent a register of require movables simulated. ) 2. Using the lofty low rule of require separation, value a require mouldula for manufacturing balancehead. Express the fickle cause of the mouldula in provisions of a fickle objurgate per item of result. 3. If 9500 items were simulated during a month, what would be the require of movables simulated? (Assume that the assemblage’s inception operation in system register for the month is $16000 and that its extent operation in system register is $19000. Also, affect that there is no inferior or balance applied balanceruler require for the month. Solution 5-17: Lofty Low Method, COGM 1. Nu Way Inc. Register of Require of Movables Simulated |July—Low |October—High | | |9,000 Units |12,000 Units | |Direct materials require @ $15 per item |$1,35,000 | |$1,80,000 | | |Direct operation require @ $6 per item |54,000 | |72,000 | | |Manufacturing balanceruler require |1,07,000 |* |1,31,000 |* | |Total manufacturing requires |2,96,000 | |3,83,000 | | |Add: Operation in system, inception |14,000 | |22,000 | | | |3,10,000 | |4,05,000 | | |Deduct: Operation in system, extent |25,000 | |15,000 | | |Cost of movables simulated |$2,85,000 | |$3,90,000 | | 2. | |Units Simulated |Cost Observed | | |October—High raze of earnestness |12,000 |$1,31,000 | | |July—Low raze of earnestness |9,000 |1,07,000 | | |Change |3,000 |$ 24,000 | [pic] |Total require at the lofty raze of earnestness |$1,31,000 | |Less fickle require part ($8 per item ? 12,000 items) |96,000 | |Fixed require part |$  35,000 | Therefore, the require mouldula is: $35,000 per month plus $8 per item simulated, or Y = $35,000 + $8X, where X represents the congressute of items simulated. 1. The require of movables simulated if 9,500 items are simulated: Nu Way Inc. Register of Require of Movables Simulated |Direct materials require (9,500 items ? $15 per item) | |$1,42,500 | |Direct operation require (9,500 items ? $6 per item) | |57,000 | |Manufacturing balanceruler require: | | | |Fixed cause |$35,000 | | |Variable cause (9,500 items ? 8 per item) |76,000 |1,11,000 | |Total manufacturing requires | |3,10,500 | |Add: Operation in system, inception | |16,000 | | | |3,26,500 | |Deduct: Operation in system, extent | |19,000 | |Cost of movables simulated | |$3,07,500 | Edition 11: Example 5-18: Marwicks pianos inc. alienation pianos from a ample manf. And vends them at the vend raze . the pianos require on the mediocre $2450 each from the mnf. Marwicks pianos inc. vend the pianos to its customers at an mediocre value of $3125 each . the vextent and operational requires that the assemblage incurs in a usual month are presented inferiorneath: Costs |Cost Formula | |Selling | | |Advertising |$700 per month | |Delivery of organs |$30 per organ sold | |Sales salaries and commissions |$950 per month plus 4% curiosity-behalf | |Utilities |$350 per month | |Depreciation of sales facilities |$800 per month | |Administrative: | | |Executive salaries |$2,500 per month | |Depreciation of equipment |$400 per month | |Clinical |$1,000 per month plus $20 per organ sold | |Insurance |$300 per month | During imposing, marwicks pianos inc. sold and delivered 40 pianos REQUIRED: 1. Prepare pay assertion for marwicks pianos inc. for imposing. Use the transmitted mouldat, delay require unembarrassed by operation. 2. Redo 1 balance, this span using the assistance mouldat, delay require unembarrassed by bearing. Pretext requires and revenues on twain a entirety and a per item causedown through assistance boundary. 3. Refer to the pay assertion you preferred in 2 balance. Why energy it be misleading to pretext the agricultural requires on a per item cause? Example 5-19: Amfac congress. manf. A individual result. The assemblage keeps regardful chronicles of manufacturing activities from which the forthcoming inf. Accept been extracted. |Level of Earnestness | | |March –low | | |June – lofty | | | | |Number of items simulated |6,000 | | |9,000 | |Cost of movables simulated | | | |$1,68,000 | |Work in system register, inception |2,57,000 | | | | |Work in system register, extent |9,000 | | |32,000 | |Direct materials require per item | | |15,000 | |Direct operation require per item |21,000 | | | | |Manufacturing balanceruler require, entirety |6 | | |6 | | | | | |10 | | |10 | | | | | |? | | |? | | | Required: For the twain March and June, value the congressletionity of manufacturing balanceruler require affectd to result. The congress. had no inferior O. H . IN either month Using the lofty low rule, value a require mouldula for manf. O. H. expresses the fickle cause of the mouldula in provisions of a fickle objurgate per item of result. If 7000 items are simulated during a month, what would be the require of amiable molding? Operation in system is corresponding. Example 5-24 High-Low Method; Predicting require [L01, L03] Nova Company’s entirety balanceruler requires at diversified razes of earnestness are resented inferiorneath: |Month |Machine-Hours |Total Aloft Costs | |April |70,000 |$1,98,000 | |May |60,000 |1,74,000 | |June |80,000 |2,22,000 | |July |90,000 |2,46,000 | Affect that entirety balanceruler requires balance continue of utilities, supervisory salaries and defence. The severdown of these requires at the 60,000 machine- hour raze of earnestness is: |Utilities (variable)............................. |$48,000 | |Supervisory salaries (fixed)................ |$21,000 | |Maintenance (mixed).......................... |$1,05,000 | |Total balanceruler requires............................ |$1,74,000 | Nova Company’s government wants to sever down the defence require into its fickle and agricultural require parts. Required: 1. Value how fur of the $246,000 of balanceruler require in July was defence require. (Hint: to do this, it may be succorful to primary designate how fur of the $246,000 continueed of utilities and supervisory salaries. Think encircling the bearing of fickle and agricultural requires! ) 2. Using the lofty-low rule, value a require mouldula for defence. 3. Express the assemblage’s entirety balanceruler requires in the undeviating equation mould 4. Y=a + bX 5. What entirety balance ruler requires would you look-for to be incurred at an bounteous earnestness raze of 75,000 machine-hours? ----------------------- Page4