Accounting Assignment

Accounting Assignment

2 - A 1 Fixed Variable Cost Behavior

The cost driver for Boeing is the number of times the plant is cleaned, whereas the labor is a fixed cost and on the other hand cleaning supplies is a variable cost. The following are different costs involved in running the operations of Boeing:

Number of times plant is cleaned

Square Feet Cleaned

Labor cost

Cleaning Supplies Cost

Total cost

Cost per square

4

100,000

24000

5000

29000

0.290

5

125,000

24000

6250

30250

0.242

6

150,000

24000

7500

31500

0.210

7

175,000

24000

8750

32750

0.187

Square Feet = 25000 × 4 = 100000

Cleaning Supplies Cost Per Square Feet = 5000 / 100000 = 0.05 × 125000

= 6250

The total cost of cleaning the plant during the next quarter is = 30250 + 31500 + 32750

= $ 94,500

In case Boeing hires an outside cleaning company, the variable costs of the organization will $ 5900 on per cleaning basis. The cost driver for Boeing will be the number of times cleaned on per square feet. The total predicted cost of cleaning is 5 + 6 + 8 = 19 times which will be multiplied by 5900. Thus the predicted cleaning cost will be 19 × 5900 = 112, 100. Therefore Boeing will not be able to save its cost by hiring cleaning company from outside. The forecasted schedule for the next quarter is as following:

Square Feet Cleaned

Boeing

Times Cleaned

Outside

100,000

29000

4

23,600

125,000

30250

5

29,500

150,000

31500

6

35,400

175,000

32750

7

41,300

The above are the two alternatives available for Boeing in order to take the decision of either to hire a cleaning company or conduct it within the organization. The results show that Boeing will not be able to save cost if they hire a cleaning company. If Boeing expects an average time to be cleaned than it will need to increase the average above 6, in order to save cost while using the employees of the organization.

2- A2 Cost Volume Profit and Vending Machines

The following is the calculation of breakeven point in units and in sales dollars.

Sales = Fixed Cost + Variable cost + Net Income

N = 6000 + 0.80 + 0

0.20 N = 6000

N = 30,000 units

Breakeven point in sales dollar:

S = 6000 + 0.80 + 0

0.2 S = 6000

S = $ 30000

Therefore 30,000 units will be able to achieve 30,000 dollars in order to reach the breakeven point of the organization.

The following is the statement that shows effect of costs on the income of the organization:

Comparative Income Statement

 

Breakeven point

Increment

Total

Volume in units

25000

11000

36000

Sales

25000

11000

36000

Less: Expenses

 

 

 

Variable Expenses

20,000

8800

28,800

Fixed Expenses

5000

-

5000

Effect on Net Income

0

2200

2200

The monthly breakeven point if the space rental cost increases by double amount. Then the breakeven point in units and dollars will be as following:

Fixed Costs = 6000 + 1152 = 7152

Breakeven point in Units = 7152 / 0.20 = 35760

Breakeven point in sales dollar = 7152 / 0.20

= $ 35760

Therefore the breakeven point will increase as there is an increase in the fixed cost of the organization.

The Breakeven point in units and sales dollar after an addition of a fixed space rent which is $ 0.02 per unit sold. Thus the new contribution margin will be = 0.20 - ...