Managerial Accounting Chapter 1 Solutions

307 Words2 Pages
Solutions to Week 1 HW Chapter 1 E14. [LO 5]. Incremental revenue per day $2,500 Less incremental costs: Labor $700 Parts 500 Transportation 100 Office staff 200 1,500 Incremental Profit per Day $1,000 Opportunity cost = $1,000 per day 52 days = $52,000 Rent and depreciation do not enter into the calculation of the opportunity cost since these costs are not incremental (they will be incurred whether or not Ken decides to stay open on Saturday). P2. [LO 5 and 6]. a. The variable costs are $1.28 per jar of salsa as follows: 25,000 Production Jars of Salsa Ingredient cost $20,000 Labor cost 12,000 Total $32,000 $32,000 ÷ 25,000 jars of salsa = $1.28 per jar of salsa. Thus, the incremental cost of producing an extra 50,000 jars of salsa is $64,000 (i.e., $1.28 × 50,000). b. The incremental revenue associated with a price reduction of $0.40 is $100,000 as follows: Original Revenue (325,000 × $5.00) | $1,625,000 | Revenue with price change (375,000 × $4.60) | 1,725,000 | Incremental revenue associated with price change | $ 100,000 | c. Yes, the price should be lowered since the incremental cost of this action ($64,000 in part a) is less than the incremental revenue ($100,000 in part b). P4. [LO 3]. a. Sales exceeded the budget by 10.7% ($75,000 ÷ $700,000), while cost of merchandise increased by 22.9% and salaries increased by only 11.4%. Thus, the investigation should focus on cost of merchandise since a 22.9% increase is disproportionate to the increase in sales. b. Electricity would not be a controllable cost for the manager of sporting goods, and it is doubtful that including it on a performance report for sporting goods would be

More about Managerial Accounting Chapter 1 Solutions

Open Document