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3/20/2017 SLP ACC403 Principles of Accounting (FEB2017FT1) Table of Contents Module 4: Managerial Accounting - Budgeting SLP SLP Listen Module 4 SLP MANAGERIAL ACCOUNTING BUDGETING Differential analysis involves knowing which costs are relevant, i.e. future costs that vary among alternatives. It is important to know what information to use and not just how to execute the analysis. Lewis Company (accounting information provided in the prior module) receives an offer to make a new product, called C, for a new customer. The customer wants to buy 1,100 units. Product C has the same cost structure as product B with three exceptions. The new customer is only willing to pay $260 per unit, direct materials costs will decrease by $10 per unit and Lewis does not have to incur any variable selling and administrative expenses. Make a list of the expenses and amounts that are relevant for this decision. How much with the sale of this product contribute to the profitability of Lewis? What if the company only pays $210 per unit? How does this change the contribution towards profitability? If you were the manager, would you accept this order? What considerations, other than financial would enter into your decision? SLP Assignment Expectations It is important to answer the questions as posed. The document should be two to four pages and written in a clear and concise manner or present tables as required. Support your discussion or tables with references in APA format. You are encouraged to use Excel or other compatible spreadsheet when computations are involved. You can turn in the spreadsheet instead. The https://tlc.trident.edu/d2l/le/content/84065/viewContent/2046243/View 1/2 3/20/2017 SLP ACC403 Principles of Accounting (FEB2017FT1) Reflect in ePortfolio Download Print Open with docReader Activity Details You have viewed this topic Last Visited Mar 20, 2017 5:41 PM https://tlc.trident.edu/d2l/le/content/84065/viewContent/2046243/View 2/2 Running head: MODULE 3 SLP ASSIGNMENT Running head: MODULE 3 SLP ASSIGNMENT Below we have a new company to break down their income statements, the Lewis Company. This time I composed a behavioral and variable income statement for the information provided. The difference between the two statements occur because of fixed manufacturing overheads. Variable income statements fixed manufacturing overheads don't form the part of the costs of goods sold account, but the behavioral manufacturing overheads does form the part of the costs of goods sold account (Walther, 2011). This results in the behavioral income statement including manufacturing overheads included in ending inventory but not included in a variable income statement. LEWIS COMPANY BEHAVIORAL INCOME STATEMENT FOR THE PERIOD ENIDING Dec. 31, 2015 Product Information Units Sold Selling price per Unit Total sales (A) Less Variable Cost Beginning Inventory Variable Manufacturing Cost Allocated fixed Manufacturing Cost Cost of Goods Available for sale Less Ending Inventory Cost of Goods Sold (B) Gross Margin (A - B) = (C) Product B 9,00 0 3 00 2,700,00 0 2,200,00 0 250,00 0 2,450,00 0 (245,00 0) 2,205,00 0 495,00 0 Running head: MODULE 3 SLP ASSIGNMENT 90,00 0 100,00 0 190,00 0 305,00 0 Less Variable Selling & administrative cost Fixed Selling & administrative cost Total Selling & administrative cost Net Income (C - D) LEWIS COMPANY VARIABLE INCOME STATEMENT FOR THE PERIOD ENIDING Dec. 31, 2015 Product Information Units Sold Selling price per Unit Total sales (A Less Variable Cost Beginning Inventory Variable Manufacturing Cost Cost of Goods Available for sale Less Ending Inventory Variable Cost of Goods Sold Add Variable Selling & Administrative Cost Total Variable Cost (B) Contribution Margin (A -B) = (C) Less Fixed Cost Fixed Manufacturing Cost Fixed Selling & Administrative Cost Product B 9,00 0 3 00 2,700,00 0 2,200,00 0 2,200,00 0 (220,00 0) 1,980,00 0 90,00 0 2,070,00 0 630,00 0 250,00 0 100,00 0 Running head: MODULE 3 SLP ASSIGNMENT 350,00 0 280,00 0 Total Fixed Cost (D) Net Income (C - D) SECOND INCOME STATEMENT WITH SELLING PRICE AT $320 PER UNIT LEWIS COMPANY BEHAVIORAL INCOME STATEMENT FOR THE PERIOD ENIDING Dec. 31, 2015 Product Information Units Sold Selling price per Unit Total sales (A) Less Variable Cost Beginning Inventory Variable Manufacturing Cost Allocated fixed Manufacturing Cost Cost of Goods Available for sale Less Ending Inventory Cost of Goods Sold (B) Gross Margin (A - B) = (C) Less Variable Selling & Administrative Cost Fixed Selling & Administrative Cost Total Selling & Administrative Cost Net Income (C - D) Product B 9,00 0 3 20 2,880,00 0 2,200,00 0 250,00 0 2,450,00 0 (245,00 0) 2,205,00 0 675,00 0 90,00 0 100,00 0 190,00 0 485,00 Running head: MODULE 3 SLP ASSIGNMENT 0 LEWIS COMPANY VARIABLE INCOME STATEMENT FOR THE PERIOD ENIDING Dec. 31, 2015 Product Information Units Sold Selling price per Unit Total sales (A) Less Variable Cost Beginning Inventory Variable Manufacturing Cost Cost of Goods Available for sale Less Ending Inventory Variable Cost of Goods Sold Add Variable Selling & Administrative Cost Total Variable Cost(B) Contribution Margin (A -B) = (C) Less Fixed Cost Fixed Manufacturing Cost Fixed Selling & Administrative Cost Total Fixed Cost (D) Net Income (C - D) Product B 9,00 0 3 20 2,880,00 0 2,200,00 0 2,200,00 0 (220,00 0) 1,980,00 0 90,00 0 2,070,00 0 810,00 0 250,00 0 100,00 0 350,00 0 460,00 0 Running head: MODULE 3 SLP ASSIGNMENT BREAK EVEN FOR LEWIS COMPANY 31 DEC 15 Product Information Details $ Sales Variable Cost Direct Material 120 Direct Labor 60 Variable Overhead 40 Variable Selling and Administrative expenses 10 Amount 300 Total Variable Expenses 230 Contribution Margin Per Unit Breakeven Point = 70 Fixed expenses Contribution Margin Per Unit 350,000 70 Company must sell 5,000 units to Breakeven. 5,000 Units DIRECT MATERIALS INCREASED TO $150 FOR LEWIS COMPANY 31 DEC 15 Product Information Sales Variable Cost Details $ Amount 300 Running head: MODULE 3 SLP ASSIGNMENT Direct Material Direct Labor Variable Overhead Variable Selling and administrative expenses Total Variable Expenses Contribution Margin Per Unit Breakeven Point = 150 60 40 10 260 40 Fixed expenses Contribution Margin Per Unit 350,000 40 8,750 Units When the direct material cost increases to 150 then breakeven point also increased from 5,000 units to 8,750 units. REFERENCES WALTHER, L. M. (2011). Chapter 18: Cost-Volume-Profit and Business Scalability. Retrieved March 16, 2017, from http://www.principlesofaccounting.com/chapter-18/ ---End--- 3/16/2017 SLP ACC403 Principles of Accounting (FEB2017FT1) Table of Contents Module 3: Managerial Accounting - Variable Costing SLP SLP Listen Module 3 SLP MANAGERIAL ACCOUNTING VARIABLE COSTING We're using a different fictitious company for the last two modules, the managerial accounting portion of this course. Below find production and sales information for Lewis Company. Product information Beginning inventory Units produced Units sold Selling price per unit Variable costs per unit Direct material Prod B 0 10,000 9,000 $300 120 Direct labor 60 Variable overhead 40 Variable selling and administrative 10 Fixed costs Fixed manufacturing overhead 250,000 Fixed selling and administrative 100,000 https://tlc.trident.edu/d2l/le/content/84065/viewContent/2046235/View 1/3 3/16/2017 SLP ACC403 Principles of Accounting (FEB2017FT1) Fixed selling and administrative 100,000 Lewis Company Absorption Income Statement For the period ending Dec. 31, 2015 Sales $2,700,000 Cost of goods sold 2,205,000 Gross profit (margin) $495,000 Selling and administrative expenses 190,000 Net income $305,000 Prepare a contribution margin (behavioral, variable) income statement for Lewis Company, compare net operating profit from a contribution margin income statement with net income from an absorption income statement, and explain why this difference happens. Prepare a second version assuming the selling price per unit increases to $320 per unit. Further, answer break even questions below. Use the original information to: Determine the number of units the company must sell to break even for the year? Compute break even assuming direct materials cost increase from $120 to $150, but all information remains the same. SLP Assignment Expectations It is important to answer the questions as posed. The document should be two to four pages and written in a clear and concise manner or present tables as required. Support your discussion or tables with references in APA format. You are encouraged to use Excel or other compatible spreadsheet when computations are involved. You can turn in the spreadsheet instead. The Reflect in ePortfolio Download Print Open with docReader Activity Details You have viewed this topic https://tlc.trident.edu/d2l/le/content/84065/viewContent/2046235/View 2/3 3/16/2017 SLP ACC403 Principles of Accounting (FEB2017FT1) Last Visited Mar 16, 2017 4:03 PM https://tlc.trident.edu/d2l/le/content/84065/viewContent/2046235/View 3/3