Problem 1-2.

1. Incremental Analysis - Consider the production cost information for Santiago's salsa. The company is currently producing and selling 250,000 jars of salsa annually. The jars sell for $4.00 each. The company is considering the price to $3.70. Support this action will increase sales to 300,000 jars.

Santiago's Salsa

Production Costs

April 2008

Production 20,000 Jars of Salsa

Ingredient cost (variable) $16,000

Labor Cost (Variable) 9,000

Rent (fixed) 4,000

Depreciation (fixed) 6,000

Other (fixed) 1,000

Total $36,000

Required:

1. What is the incremental cost associated with producing an extra 50,000 jars of salsa?
2. What is the incremental revenue associated with the price reduction of $.30 per jar?
3. Should Santiago's lower the price of its salsa?

Problem 1-3

Office Furniture Solutions Budget for 2008: Prepare a revised budget

Budgets in Managerial Accounting: Matthew Gabon, the sales manager of Office Furniture Solutions, prepared the following budget for 2008:

Salaries (fixed) $500,000

Commissions (variable) 180,000

Advertising (fixed) 100,000

Charge for office space 2,000

Office supplies & forms (variable) 2,400

Total $784,400

After he submitted his budget, the president of office furniture solutions reviewed it and recommended that advertising be increased to $120,000. Further, she wanted Matthew to assume a sales level of $13,000,000. This level of sales is to be achieved without adding to the sales force. Assume cost of goods sold is 60% of Sales.

Matthew's sales group occupies approximately 250 square feet of office space out of total administrative office space of 20,000 square feet. The $2,000 space charge in Matthew's budget is his share (based on relative square feet)of the company's total cost of rent, utilities, and janitorial costs for the administrative office building.

Required

Prepare a revised budget consistent with the president's recommendation

Problem 1-4

Performance Reports: below is a performance report that compares budgeted and actual profit in the sporting goods department of Maxwell's department store for the month of December.

Maxwell's department store

Sporting Goods

Performance Report

December 2008

Budget Actual Difference

Sales $600, 000 $675,000 $75,000

Less:

Cost of merchandise $300,000 $375,000 $75,000

Salaries of sales staff $60,000 $68,000 $8,000

Controllable profit $240,000 $232,000 $8,000

Required:

1. Evaluate the department in terms of its increases in sales and expenses. Do you believe it would be useful to investigate either or both of the increase in expenses?
2. Consider storewide electricity cost. Would this cost be a controllable or noncontrollable cost for the manager sporting goods? Would it be useful to include a share of storewide electricity cost on the performance report for sporting goods?

Problem 1-5 .

Performance report: At the end of 2008. Cyril Fedako, CFO for Fedako products, received a report comparing budgeted and actual production costs for the company's plant in forest lake, Minnesota:

Manufacturing costs

Forest lake plant

Budget versus actual 2008

Budget Actual Difference

Materials $3,000,000 $3,300,000 $300,000

Direct labor 2,100,000 2,300,000 200,000

Supervisory salaries 375,000 400,000 25,000

Utilities 75,000 85,000 25,000

Machine maintenance 250,000 280,000 10,000

Depreciation of building 50,000 50,000 -0-

Depreciation of equipment 200,000 205,000 5,000

Janitorial 120,000 135,000 15,000

Total $6,170,000 6,755,000 585,000

His first thought was that costs must be out of control since actual costs exceed the budget by $585,000. However, he quickly recalled that the budget was set assuming a production level of $50,000 units. The forest lake plant actually produced $55,000 units in 2008.

Required:

1. Given that production was greater than planned, should Cyril expect that all actual costs will be greater than budgeted? Which costs would you expect to increase, and which costs would you expect to remain relatively constant?
2. Cyril is extremely busy-the company has six other plants. Therefore, he cannot spend time investigation every department from the budget. With this in mind, which costs should Cyril concentrate on his investigation of budget differences?

Price: $19.23

Solution: The downloadable solution consists of 8 pages, 1123 words.
Deliverable: Word Document