# Case Study in Managerial Accounting

Understanding Cost Concepts Understanding Cost Concepts For the two copying machines the following will bethe volume level for each of them
For the small volume laser copy 1024S
Expenses
Rental cost = \$8,000
Direct labor and materials (0.02 of cost) = \$160
Variable Overhead costs (0.12 of cost) = \$960
Total Expenses = \$9,120
Assuming a copy is \$1, the annual capacity copies will be (100,000 of 1\$) = \$100,000
The benefit of using small-volume laser copy is
Profit = capacity volume – expense
=\$100,000-\$9,120
=\$90,880
For the medium volume laser copy 1024M
Expenses
Rental cost = \$11,000
Direct labor and materials (0.02 of cost) = \$220
Variable Overhead costs (0.07 of cost) = \$ 770
Total Expenses = \$11,990
Assuming a copy is \$1, the annual capacity copies will be (350,000 of 1\$) = \$350,000
The benefit of using medium-volume laser copy is:
Profit = capacity volume – expense
=\$350,000 – \$11,990
= \$338,010
The indifference in using smaller-laser copier and the medium laser copier therefore is
=\$338,010-\$90,880
=\$247130
b) The volume at which the company will be indifference between small and medium copiers is
=\$338,010-\$90,880
=\$247130
For the larger-volume laser copy 1024S
Expenses
Rental cost = \$20,000
Direct labor and materials (0.02 of cost) = \$400
Variable Overhead costs (0.03 of cost) = \$600
Total Expenses = \$21,000
Assuming a copy is \$1, the annual capacity copies will be (800,000 of 1\$) = \$800,000
Benefits of using large-volume laser copy is:
Profit = annual capacity volume – expense
=\$800,000-\$21,000
=n\$779,000
The indifference between the medium and the large copier is as follows
Profit of using large less profit of using the medium
=\$779,000-\$338,010
=\$440,990
Conclusion
In the view of the above calculations it is conclusive to say that FastQ Company would benefit in selecting large copier 1024G compared to either small or medium copier machines by the fact that using large machine gives highest profit.
QUESTION TWO
There are various cost terminologies used according to the market situations. In the above case, price of endor, the initial \$5.00, represented a fixed cost that according to Alderon, was not going to change as far as they were concerned. At \$4.75 when the endor was paid for, this cost is therefore referred to as the product cost as it is recorded in the inventory once the product has been bought. The cost endor being placed at \$5.50 is referred to as the variable cost since it is believed to be the market cost though it tends to vary depending on the market situations. The \$5.75 is referred to as the period cost since used for accounting purposes to record the actual expense to be incurred when the product is purchased
The real cost of endor if the special order is produced is
=\$5.75 × 800 = \$4600
QUESTION 2B
The \$14,000 that Alderon received from Solo Industries is referred to as fixed price that Solo Industries fixed for the tatooine. The \$20,000 that Alderon paid is referred to as the product cost since Aalderon actually incurred the cost and it was used for accounting purposes.10If the tatooine was purchased today by Alderon, then it would cost \$11.00 which is therefore referred to as the market price. The \$1,000 is referred to as indirect labor cost as the price cannot be directly traced back to the product.
Real cost of tatooine is \$11×1500 = \$16500
QUESTION 3
The \$10,000 that would have been a donation of each of the 10 percent viewers of the wildlife show is an opportunity cost as the best forgone alternative. The \$5000 is referred to as the outlay cost as it would be the future cash flow. The \$25,000 is the revenue cost likely to be collected once the wildlife show is sold to another television show.
Conclusion
The wildlife show has a smaller viewing percentage but have high income of \$10000×10=\$100,000 as compared to the manufacturing show with a big viewing percentage but low income of \$5000×15=\$75000. It is therefore of significance to show wildlife as opposed to manufacturing show.