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Week 7 Accounting Homework
22-23 Polynesia Company
Doro Fill Company Kapital Inc
Answer
Week 7 Accounting Homework 22-23 Polynesia Company Doro Fill Company Kapital
Inc Answer
Week 7 Accounting Homework 22-23 Polynesia Company Doro Fill Company Kapital Inc.
has prepared the operating budget Answer
Week 7 Homework 22-23
Multiple choice (5 pts each) (highlight or clearly mark your answer)
1) Which of the following is an example of the planning function of a budget?
a. A budget demands integrated input from different business units and functions.
b. Employees are motivated to achieve the goals set by the budget.
c. Budget figures are used to evaluate the performance of managers.
d. The budget outlines a specific course of action for the coming period.
2) Opportunity cost(s):
a. of a resource with excess capacity is zero
b. should be maximized by organizations
c. are recorded as an expense in the accounting records
d. are most important to financial accountants
3) Gnome Company is trying to decide whether to continue to manufacture a particular
component or to buy the component from a supplier. Which of the following is relevant to
this decision?
a. the potential uses of the facilities that are currently used to manufacture the component

b. the insurance on the manufacturing facility which will continue regardless of the
decision
c. allocated corporate fixed costs which would have to be allocated to other products if the
component is no longer manufactured
d. the cost of the equipment that is currently being used to manufacture the component
4) Which of following statements is true of short-term decision making?
a. Fixed costs and variable costs must be analyzed separately.
b. All costs behave in the same way.
c. Unit manufacturing costs are variable costs.
d. All costs involved in a decision are considered relevant.
5) A company is analyzing its month-end results by comparing it to both static and flexible
budgets. During the previous month, the actual selling price was higher than the expected
price as per the static budget. This difference results in a(n):
a. favorable flexible budget variance for sales revenues.
b. favorable sales volume variance for sales revenues.
c. unfavorable flexible budget variance for sales revenues.
d. unfavorable sales volume variance for sales revenues.
6) When replacing an old asset with a new one, the original purchase price of the old asset
represents:
a. relevant cost.
b. differential costs.
c. opportunity cost.
d. sunk cost.
Problems (10 pts each) (please show your work for partial credit)
1) Polynesia Company manufactures sonars for fishing boats. Model 70 sells for $300.
Polynesia produces and sells 5,500 of them per year. Cost data are as follows:
Variable manufacturing $100 per unit
Variable marketing $15 per unit
Fixed manufacturing $280,000 per year
Fixed marketing & admin $150,000 per year
The sales manager says he has an opportunity to pitch a special sale to a new Canadian
fishing company that is outfitting new boats. He proposes a sale of 40 units at a special
price of $150 per unit. He says it will not cannibalize the companys regular sales and is a
one-time transaction. It will require the normal amount of variable costs, both marketing
and manufacturing, but will not impact fixed costs in any way. The president of the
company has some reservations, but finally agrees to make the deal if and only if it adds a
minimum of $1,500 to operating income. Based on the presidents criteria, what will
Polynesia decide to do? (show the calculation to support this decision)
2) Doro Fill Company fabricates inexpensive automobiles for sale to 3rd world countries.
Each auto includes one wiring harness, which is currently made in-house. Details of the
harness fabrication are as follows:

Volume 800 units per month


Variable cost per unit $7 per unit
Fixed costs $15,000 per month
A factory in Indonesia has offered to supply Dora Fill with ready-made units for a price of
$10 each. Assume that Doro Fills fixed costs are unavoidable, but the company could use
the vacated production facilities to earn an additional $5,000 of profit per month.
Calculate the total relevant costs for both the in-house and outsourcing options.
3) In your words, describe a Flexible Operating Budget and a Static Budget and the major
differences between them.
4) Kapital Inc. has prepared the operating budget for the first quarter of 2015. They
forecast sales of $50,000 in January, $60,000 in February, and $70,000 in March. Variable
and fixed expenses are as follows:
Variable: Power cost (40% of Sales)
Miscellaneous expenses: (5% of Sales)
Fixed: Salary expense: $8,000 per month
Rent expense: $5,000 per month
Depreciation expense: $1,200 per month
Power cost/fixed portion: $800 per month
Miscellaneous expenses/fixed portion: $1,000 per month
Calculate total selling and administrative expenses for the month of January & February.
5) McPherson Company is facing a $6 increase in the variable cost of producing one of its
products for the upcoming year. Because of this situation, the sales manager has made a
proposal to increase the selling price of the product while increasing the advertising
budget at the same time. The price increase will lower sales volume, but the other changes
may help the company maintain its profit margins. McPherson has provided the following
information regarding the current year results and the proposal made by the sales
manager:
Current Year Proposal
Unit sales 27,000 18,000
Sales price per unit $48 $58
Variable cost per unit $30 $36
Fixed cost $76,000 $96,000
Relative to the current year, the sales managers proposal will do what to Operating
Income? (show calculations to support this)
6) Evans Company has estimated the following amounts for its next fiscal year:

Total fixed expenses $832,500


Sale price per unit 40
Variable expenses per unit 25
If the company spends an additional $30,000 on advertising, sales volume would increase
by 2,500 units. What effect will this decision have on the operating income of Evans?
(show calculations)
7) Moylan Company has provided the following information:
Sales $777,000
Variable expenses 504,000
Fixed expenses 212,000
What will be the change in variable expenses if the sales volume increases by 10%?

Week 7 Accounting Homework


22-23 Polynesia Company
Doro Fill Company Kapital Inc
Answer