Managerial Accounting

When answering the questions, the work that you submit for grading must be your work. Any plagiarism will result in a grade of zero for the exam. If you have questions, please consult with the instructor. The evaluation of the work,especially the qualitative questions depends on the organization of the material and the depth of the answers. The quantitative questions should show the computations/process not just an answer.

  1. In the context of this course, you will be asked to address the issues/questions below for 3M Company (MMM). When addressing the issues/questions, be sure to do so in the context of this course and 3M.  Your primary sources of information will come from the 3M website, in particular “Investor Relations” and the “2016 Annual Report.” Also, look at the web pages for 3M on Yahoo! Finance and/or Morningstar.com. Be sure to discuss fully with definitions and examples.

 

(8 pts)           a)          Discuss the critical success factors and whether or not you believe that

3M shows evidence of success for these factors.

(2 pts)            b)          Discuss 3M in the context of the Theory of Constraints.

(10 pts)           c)          From the material reviewed, explain whether 3M shows

evidence in its operations/results of the perspectives of the balanced scorecard.

(6 pts)            d)          Discuss which of the activities of the value chain are most important to

3M.

(2 pts)            e)          Discuss the concept of customer delivered value in the context of

3M.

(4 pts)            f)          Discuss the cost of controlling quality and the cost of failing to control

quality in the context of 3M.

 

(7 pts.)   2.      Go to YouTube and view two video clips: 1) Robotic Process Automation driving    cost simplification and reducing time (2 minutes and 52 seconds) and 2) Robotic Process Automatopn (RPA). The next productivity revolution (1 minute and 24 seconds).

After watching these videos, discuss what you believe are the most important points, in terms of the critical success factors, balanced scorecard, and the value chain, as we discussed in class.

(6 pts) 3.          For any one brand of Darden Restaurants, identify one example of each of the following:

  • Variable cost
  • Fixed cost
  • Product cost
  • Period cost
  • Direct cost
  • Indirect cost

 

 

(9 pts) 4.          Mormont Industries makes an electronic component in two departments, Machining and Assembly.  The capacity per month is 40,000 units in the Machining Department and 30,000 units in the Assembly Department.  The only variable cost of the product is direct material of $200 per unit.  All direct material cost is incurred in the Machining Department.  All other costs of operating the two departments are fixed costs.  Mormont can sell as many units of this electronic component as it produces at a selling price of $500 per unit.

The president of the company has asked you to evaluate three proposals.  After your evaluation, the president would like a recommendation as to which proposal should be accepted.

Proposal “A” – Spend $400,000 in additional fixed costs for the Assembly Department. This would increase the capacity in the Assembly Department by 5,000 units

Proposal “B – Spend $1,000,000 in additional fixed costs for the Machining Department that will reduce the direct material cost per unit from $200 to $190.

Proposal “C” – Spend $800,000 per month on additional personnel in the Machining Department to increase the capacity in that department by 10,000 units.

(9 pts) 5.          McGuiness Company produces two beers, Light and Stout, with the following characteristics:

LightStout

Selling price per case                     $50               $75

Variable cost per case         $40$50

Expected sales (cases)                 20,000           5,000

 

Total fixed costs for the company are $250,000.

 

Required:

  1. What is the anticipated level of operating income for the expected sales volume?
  2. Assuming the product mix would be the same at the break-even point, compute the break-even point in revenues for each of the products.
  3. Discuss the accuracy of these calculations with regard to planning. What types of occurrences could affect the accuracy of the calculations? What assumptions must be made to use the calculations in planning and decision-making?

 

(10 pts) 6.        In planning its operations for next year, Zia Corporation has forecast sales of $3,000,000 on a unit volume of 30,000.  Zia Corporation prepared the following estimated costs and expenses:

 

Variable                       Fixed

 

Direct materials                       $ 800,000

Direct labor                                700,000

Factory overhead                       300,000                    $450,000

Selling expense                          120,000                      180,000

General admin expense                30,000                        70,000

$1,950,000      $ 700,000

Zia has a tax rate of 35 percent.

Required:

  1. Compute the projected net income based on the above information.
  2. What would be the amount of sales dollars at the break-even point?
  3. How many units would need to be sold to achieve a net income $500,000?
  4. If Zia believes that it can only sell at most the 30,000 units, what should Zia consider in order to achieve the net income of $500,000?

 

(12 pts) 7. The following data appeared in DepotCompany’s records on December 31, 2016:

 

 

Direct materials inventory, December 31………… $  50,000

Direct materials purchased during the year…………..   250,000

Finished goods inventory, December 31………….      60,000

Indirect labor………………………………………     15,000

Direct labor………………………………………..    300,000

Plant heat, light and power………………………..      20,000

Plant and equipment………………………………    400,000

Building depreciation (3/4 is for manufacturing)…      60,000

Administrative salaries…………………………..        50,000

Miscellaneous factory cost………………………        16,000

Accounts payable………………………………..       100,000

Marketing cost…………………………………..         30,000

Maintenance on factory machines…………………7,000

Insurance (4/5 is for manufacturing)……………    15,000

Distribution costs………………………………..           3,000

Retained earnings………………………………..       300,000

Taxes on manufacturing property……………….           8,000

Legal fees on customer complaint………………       6,000

Direct materialsinventory, January 1……………          40,000

Work in process inventory, December 31………15,000

 

On January 1, at the beginning of 2016, the Finished Goods Inventory account had a balance of $40,000, and the Work in Process Inventory account had a balance of $17,000. Sales revenue during the year was $1,200,000.

 

Required:

  1. Determine the cost of goods manufactured, the gross profit, and operating income.
  2. Explain the difference between total manufacturing costs and cost of goods manufactured.

 

 

 

(15 pts) 8.        Surfs Up manufactures surfboards.  The company produces two different models of boards, the small kahuna and the big kahuna.  Data regarding the two products follow:

 

PRODUCT    DIRECT LABOR                 ANNUAL                  TOTAL DIRECT

                                    HOURS PER UNIT             PRODUCTION        LABOR HOURS

Big                  1.875                                       8,000 Boards               15,000

Small                 .875                                     40,000 Boards               35,000

 

Additional information about Surfs Up:

 

The big board requires $75 in direct materials per unit while the small board requires $40.  The direct labor rate for the company is $18 per hour.  The company has always used direct labor hours as the activity base for applying overhead to product.  Manufacturing overhead is estimated to be $675,000 per year.  The big board is more complex to manufacture than the small board because it requires more machine time.

 

Because of the big board’s requirement for the additional machine work, the company controller, Tim Guglielmo, is considering the use of activity-based costing to apply overhead to product.  Tim has identified three separate activity centers in the manufacture of the boards.

 

ACTIVITY                COST             TRACEABLE            ANNUAL    TRANSACTIONS

CENTER                   DRIVER        COSTS           TOTAL          BIG     SMALL

Machine                      Number of

setups                          setups              $100,000                          225             100         125

 

Special design             Design             $225,000                       1,000             900         100

Hours

 

Machining                   Machine          $350,000                     11,000          10,000      1,000

hours

 

Production                  Direct

labor hours      $900,000                     50,000          15,000    35,000

 

Required:

  1. Determine the unit cost for the big board and the small board using a traditional costing system.
  2. Determine the unit cost for the big board and the small board using activity-based costing.
  3. Determine what the unit-selling price of the big board and the small board would have to be if Surf Up desired a gross profit of 50% and they used a traditional costing system.
  4. Determine what the unit-selling price of the big board and the small board would have to be if Surfs Up desired a gross profit of 50% and they used activity-based costing.
  5. Explain which selling price you believe to be more appropriate; those from the traditional costing system or those from activity based costing.

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