Assignment 1

Problem 1 15
points

Reading –W. L.
Ferrara, Cost/Management Accounting: The
21^st Century Paradigm

Answer the following questions:

1.
Describe the paradigms discussed by
Ferrara.

2.
What are his observations on variable and
fixed costs?

3.
What does Ferrara see as the best combination
of Paradigms for the 21^st Century?
Explain.

4.
What are your observations about Ferrara’s
paper?

Problem 2 15
points

Reading – Robin Cooper, Is your Cost System Obsolete?

Answer the following questions:

1.
Describe the functions of a cost system.

2.
Discuss the symptoms of a dysfunctional cost
system.

3.
What are Cooper’s observations on the need
for a redesign? Explain.

4.
What are your observations about Cooper’s
paper?

Problem 3 15
points

Reading – L. A. Gordon and M. P. Loeb, Distinguishing Between Direct and Indirect
Costs Is Crucial for Internet Companies

Answer the following questions:

1.
Describe how the authors characterize the
traditional view of direct & indirect costs?

2.
What distinctions do the authors make between
direct & indirect costs for internet companies that differ from the
traditional view?

3.
How does tracking/tracing costs in internet
companies differ from other types of businesses?

4.
What are your observations about this paper
by Gordon and Loeb?

Problem 4 40
points

Work the following problems (show your work):

4.1. Boynton Company manufactures and sells a single
product that sells for $480 per unit; variable costs are $300. Annual fixed costs
are $990,000. Current sales volume is $4,200,000. Compute the contribution
margin per unit.

Answer___________________

4.2.Boynton Company manufactures and sells a single product that sells
for $480 per unit; variable costs are $300. Annual fixed costs are $990,000.
Current sales volume is $4,200,000. Compute the contribution margin
ratio.

Answer___________________

4.3.Boynton Company manufactures and sells a single product that sells
for $480 per unit; variable costs are $300. Annual fixed costs are $990,000.
Current sales volume is $4,200,000. Compute the break-even point in
units.

Answer___________________

4.4.Boynton Company manufactures and sells a single product that sells
for $480 per unit; variable costs are $300. Annual fixed costs are $990,000.
Current sales volume is $4,200,000.Boynton company
management targets an annual after-tax income of $843,750. The company is
subject to a 25% income tax rate. Compute the unit sales to earn the target
after-tax net income.

Answer___________________

4.5.Boynton Company manufactures and sells a single product that sells
for $480 per unit; variable costs are $300. Annual fixed costs are $990,000.
Current sales volume is $4,200,000. Compute the margin of safety.

Answer___________________

Problem 5 7
points

5.1. Pinecrest
Sales & Service started operations on January 01, 2014. In its first year, sales were
$5,000,000. Annual
fixed costs are $3,000,000. Variable costs in 2014 were $3,250,000. Compute the
break-even sales volume.

Answer___________________

Write a memo to the owner of the company explaining how
you calculated break-even.

Problem 6 33
points

Shula’s Beefsteak Tomatoes, LLC, farms tomatoes on a
large tract of land in southwest Dade County.
Shula’s has an opportunity to purchase an adjoining farm owned by Bill
Belichick, an unsuccessful tomato farmer who is about to go out of business. VP of Operations, Dan Marino, is trying to
decide if he should operate the new farm with traditional, labor-intensive
growing and harvesting techniques that have high variable costs with low fixed
costs, or invest in new, capital-intensive, advanced-technology equipment,
which would result in very low labor costs but very high fixed costs. Budgeted production costs in the table below.

		Capital Intensive			Labor Intensive
Direct materials per bushel of tomatoes		$ 1.00			$ 1.00
Direct labor per bushel of tomatoes		$ 0.25			$ 6.00
Variable manufacturing overhead per bushel		$ 0.06			$ 1.25
Fixed manufacturing overhead per year		$ 4,500,000			$ 850,000
Selling price per bushel of tomatoes		$25.00			$25.00

Incremental selling costs are budgeted at $650,000 per
year plus $0.25 per bushel sold.

6.1 What is
the break even-even point in bushels for the capital-intensive method?

Answer___________________

6.2 What is
the break even-even point in bushels for the labor-intensive method?

Answer___________________

6.3 Determine
the number of bushels at which point Shula’s Beefsteak Tomatoes would be
indifferent between the two methods.

Answer___________________

6.4 Dan
Marino has hired you as a consultant to advise him and Coach Shula on the
decision at hand. Assume a current sales
volume at the point of indifference, calculate the change (increase or
decrease) in net income resulting from a 10% increase and a 10% decrease in the
number of bushels sold.

Capital
intensive Labor
intensive

10%
increase Answer___________________ Answer___________________

10%
decrease Answer___________________ Answer___________________

6.5 Assuming
a stable, growing economy, which alternative would you recommend? Why?