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ACC202 WEEK 1 ASSIGNMENT 2
Problem 10-20 Effect of product versus period costs on financial statements
Hoen Manufacturing Company experienced the following accounting events during its first year of operation. With the exception of the adjusting entries for depreciation, all transactions are cash transactions.
1. Acquired $50,000 cash by issuing common stock.
Explain how these events would affect the balance sheet, income statement, and statement of cash flows by recording them in a horizontal financial statements model as indicated here. The first event is recorded as an example. In the Cash Flow column, indicate whether the amounts represent financing activities (FA), investing activities (IA), or operating activities (OA).
*Record accumulated depreciation as negative amounts in these columns.
Identify the following costs as fixed or variable. Costs related to plane trips between Seattle, Washington, and Orlando, Florida, follow. Pilots are paid on a per trip basis.
Problem 11-25 Effects of operating leverage on profitability
Webster Training Services (WTS) provides instruction on the use of computer software for the employees of its corporate clients. It offers courses in the clients’ offices on the clients’ equipment. The only major expense WTS incurs is instructor salaries; it pays instructors $5,000 per course taught. WTS recently agreed to offer a course of instruction to the employees of Chambers Incorporated at a price of $400 per student. Chambers estimated that 20 students would attend the course.
Base your answer on the preceding information.
Part 1: Required
a. Relative to the number of students in a single course, is the cost of instruction a fixed or a variable cost?
b. Determine the profit, assuming that 20 students attend the course.
c. Determine the profit, assuming a 10 percent increase in enrollment (i.e., enrollment increases to 22 students). What is the percentage change in profitability?
d. Determine the profit, assuming a 10 percent decrease in enrollment (i.e., enrollment decreases to 18 students). What is the percentage change in profitability?
e. Explain why a 10 percent shift in enrollment produces more than a 10 percent shift in profitability. Use the term that identifies this phenomenon.
Problem 11-28 Determining the break-even point and preparing a contribution margin income statement
Inman Manufacturing Company makes a product that it sells for $60 per unit. The company incurs variable manufacturing costs of $24 per unit. Variable selling expenses are $12 per unit, annual fixed manufacturing costs are $189,000, and fixed selling and administrative costs are $141,000 per year.
Determine the break-even point in units and dollars using the following approaches.
a. Equation method.
b. Contribution margin per unit.
c. Contribution margin ratio.
d. Confirm your results by preparing a contribution margin income statement for the break even sales volumes