Question : ESSAY. Write your answer in the space provided or a separate : 1196221

ESSAY.

Write your answer in the space provided or on a separate sheet of paper. 87) Better Battery has been in the battery renewal business for four years. It rents a building but owns all of its equipment. All employees are paid a fixed salary except for the busy season (April – June), when temporary help is hired by the hour. Utilities and other operating charges remain fairly constant during each month except those in the busy season.

Selling prices per battery average $100 except during the busy season. Because a large number of customers buy batteries prior to winter, discounts run above average during the busy season. A 15 percent discount is given when two batteries are purchased at one time. During the busy months selling prices per battery average $90.

The president of Better Battery is somewhat displeased with the company’s management accounting system because the cost behaviour pattern displayed by the monthly breakeven charts are inconsistent; the busy months’ charts are different from the other months of the year. The president is never sure if the company has a satisfactory margin of safety or if it is just above the breakeven point.

Required:

a.What is wrong with the accountant’s computations?

b.How can the information be presented in a better format for the president?

88) Bonnie and Clyde started the BC Restaurant a few years ago. They rented a building, bought equipment, and hired two employees to work full time at a fixed monthly salary. Utilities and other operating charges remain fairly constant during each month.

During the past two years the business has grown with average sales increasing one percent a month. This situation pleases both Bonnie and Clyde, but they do not understand how sales can grow by one percent a month while profits are increasing at an even faster pace. They are afraid that one day they will wake up to increasing sales but decreasing profits.

Required:

Explain why the profits have increased at a faster rate than sales.

89) Suppose a company decided to automate a production line.

Explain what effects this would have on a

company’s cost structure using CVP terminology.

Could these changes have any possible negative effect

on the firm?

90) Pennsylvania Valve Company makes three types of valves: Speedy Flow, Sure Flow, and Fine Flow.

Each

of the three products has a different contribution margin, and the proportions of the three products sold

have remained steady over the years. How could Pennsylvania valve compute a breakeven point given

this situation?

91) Snowmobile, Inc. manufactures two colours of snowmobiles: White and Black. Marketing believes that it can sell between 12,000 and 18,000 of either product during the upcoming year. Because of the overall economic slowdown, the company is preparing to produce only one model for next year because both snowmobiles will be near their breakeven points for this range of operations. The following information has been provided by the accounting department:

WhiteBlack

Selling price$2,250$2,550

Variable costs1,3501,350

For next year, fixed costs will total $9,450,000 if White is produced and $11,640,000 if Black is produced. Plant capacity allows up to 107,800 direct manufacturing hours. White takes 9.8 hours to produce and Black requires 11 hours. The company is subject to a 30 percent income tax rate.

Required:

What action should Snowmobile, Inc. take assuming the marketing manager believes annual sales of either model will be at least 11,000 snowmobiles? Why?