Management Accounting IB: Summaries, lecture notes and practice exams - UG
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Airline company 'Fly Hamster Fly' transports both passengers and cargo. Below you find the cost categories and costs for the year 2012
1. depreciation costs | € 6.000.000 |
2. personnel costs | € 12.000.000 |
3. operating costs | See the information below and Question A |
The depreciation and personnel costs are fixed costs. The operating costs consist of fixed costs and variable costs. They concern various costs like costs involved in taking care of the flights, daily airplane maintenance costs, fly over and landing rights, and fuel usage. Fly Hamster Fly has given the following overview (years 2003-2011) of the operating costs. These costs are partly related to the company's turnover (revenues).
year | turnover level | total of operating costs |
2003 | € 18.000.000 | € 10.800.000 |
2004 | € 15.000.000 | € 7.300.000 |
2005 | € 20.000.000 | € 11.000.000 |
2006 | € 25.000.000 | € 12.400.000 |
2007 | € 22.500.000 | € 10.600.000 |
2008 | € 17.000.000 | € 9.300.000 |
2009 | € 35.000.000 | € 14.500.000 |
2010 | € 30.000.000 | € 14.900.000 |
2011 | € 27.500.000 | € 12.900.000 |
At a turnover of € 40.000.000, the maximum loadfactor (100%) of the planes is reached.
The above costs and turnover levels concern the transfer of both passengers and cargo. The total fixed operating costs and variable operating costs can be estimated using the high-low method
Calculate the 'variable operating costs' and 'fixed operating costs', using the high-low method. The variable operating costs have to be expressed as a percentage of the turnover.
State an advantage of using the high-low method. State a disadvantage of using the high-low method.
It is important for Fly Hamster Fly to know at which loadfactor the costs are fully covered. This is the break-even loadfactor, which can be expressed as a percentage:
Loadfactor =(budgeted turnover level / maximum turnoverlevel)*100%
Calculate the break-even turnover and the break-even loadfactor.
For the year 2012, Fly Hamster Fly expects a loadfactor of 80%.
Why do Airline companies generally have a high operating leverage? (Mention 1 reason.) How can Airline companies lower their operating leverage? (Mention 1 example.)
Calculate the budgeted net profit account of 2012. Thereby, provide an income statement according the contribution margin format.
Calculate the operating leverage at a loadfactor of 80%. Thereby, calculate the safety margin at a 80% loadfactor. (the safety margin should be expressed as a percentage)
For the bookyear 2013, the total costs budgeted amount to: | € 33.240.000 | |||
These costs can be categorized as follows: |
|
| ||
| direct | direct | indirect | total |
| passenger | cargo |
|
|
| transport | transport |
|
|
fixed | € 16.333.333 | € 2.333.333 | € 2.333.333 | € 21.000.000 |
| 77,78% | 11,11% | 11,11% |
|
variable | € 9.520.000 | € 1.360.000 | € 1.360.000 | € 12.240.000 |
| 77,78% | 11,11% | 11,11% |
|
| € 25.853.333 | € 3.693.333 | € 3.693.333 | € 33.240.000 |
As this is a different book year, the fixed costs will not be the same as those you calculated earlier.
To calculate a flight's cost price, Fly Hamster Fly currently applies a mark-up method.
This means that the direct costs are increased by an additional amount to cover the indirect costs. This additional amount is 12.5% of the direct costs assigned to a flight.
The indirect costs are exclusively determined by the number of control tasks. These control tasks can be considered as a 'cost driver'. Based on the budget, Fly Hamster Fly expects it will have to execute 24,000 control tasks.
In the book year 2013, Fly Hamster Fly expects to make 2,000 flights. This budgeted amount of flights is categorized as follows:
transport of passengers | 1.600 | flights |
|
transport of cargo | 400 | flights |
|
The budge ted number of control tasks related to the transfer of passengers are: | 12.800 | ||
The budgeted number of control tasks related to the transfer of cargo are: | 11.200 |
Fly Hamster Fly may choose to replace the relatively simple and traditional mark-up method by the more advanced (and expensive) cost price system of Activity Based Costing.
Calculate the cost price of a passenger flight and the cost price of a cargo flight according to the abc-method.
Calculate the cost price of a passenger flight and the costprice of a cargo flight according to the mark-up method.
highest | 35.000.000 |
| 14.500.000 |
lowest | 15.000.000 |
| 7.300.000 |
|
|
|
|
| 20.000.000 |
| 7.200.000 |
| high |
| Low |
Variable |
| 36,00% |
|
Fixed | 1.900.000,00 |
|
|
adv the method is very easy to use
disadv the points you use might be outliers
the points between the highest and lowest
points are not used
total fixed costs 19.900.000
variable costs 0,36*turnover
0,64*turnover = 19,900,000
turnover = 19,900,000/0,64
BE-turnover
€ 31.093.750,00
break-even-loadfactor 77,73%
Why high OPL?
the relative size of the fixed costs is high competitive market
How lower OL?
tranfer fixed costs >> variable costs
lease the airplanes, flexible labor contracts
EXPECTED LOAD FACOR | 80% |
EXPECTED TURNOVER | 32.000.000 |
VARIABLE COSTS | 11.520.000 |
CM | 20.480.000 |
FIXED COSTS | 19.900.000 |
PROFIT | 580.000 |
SM | 2,83% |
OPL | 35,31 |
passenger | direct costs | 25.853.333 |
| abc-allocation | 1.969.778 |
| total | 27.823.111 |
| cost price | 17.389 |
cargo | direct costs | 3.693.333 |
| abc-allocation | 1.723.556 |
| total | 5.416.889 |
| costprice | 13.542 |
total costs |
| 33.240.000 |
passenger | direct costs | 25.853.333 |
| mark up allocation | 3.231.667 |
total | 29.085.000 | |
costprice | 18.178 | |
cargo | direct costs | 3.693.333 |
| mark up allocation | 461.667 |
total | 4.155.000 | |
costprice | 10.388 | |
total costs |
| 33.240.000 |
Pro ABC
When the traditional method is used the real costs of the cargo transport is understated. The difference is cost allocation is € 1.261.888,89 30,37% The costprice of a cargo transport should be € 3.154,72 higher. Based on this result is likely that cargo transport is not profitable. ABC leads to better (strategic) decisions
Contra ABC
The ABC method is an expensive method. The costprice will therefore be higher. Because of the relatively high percentage of direct costs (90%) it is doubtful whether this advanced method ultimately leads to better decisions. The costprice of the passenger flight changes only 4,34% The costs of the introduction of the abc method are not included
Which of the following measures of activity would be the most probable cost driver for Data Processing?
Select the incorrect statement:
CoffeeDrop produces and sells bags of coffee. Its management accountant has determined that if the company produces 700 bags in a month, the average operating cost per unit (including both fixed and variable operating expenses) is C4.93 per bag. If the company produces 1,000 bags in a month, the average operating cost per unit is C4.35 per bag instead. What is the variable cost per bag?
Olivia Grey is the management accountant of Paddle, a company producing tablets. She gathered the following information about the total overhead cost over the past four periods:
Month | Machine-hours | Total overhad costs |
March February April May | 828.00 736.00 920.00 1,013.00 | 340,780.80 319,749.60 361,812.00 383,071.80 |
In addition, Olivia also decomposed the total overhead costs incurred in May between its different subcomponents:
Costs in May | Amount |
Utilities (variable) Rent of the equimpent (fixed) Indirect labor (mixed) | 81,050.13 52,998.62 249,023.05 |
Total overhead cost | 383,071.80 |
What is the amount of fixed indirect labor costs? Hint: use the high-low method
To estimate the parameters of a cost equation with only one cost driver and using the linear regression, what are the minimum requirements in terms of available information?
Yoda Corp. produces and sells light sabers. The company works in “Just-in-Time” (it does not keep inventory) and so far it has sold 440 sabers. You received from Quentin Skywalker, the accountant, the following financial income statement for the current year, 2019, at this volume of activity:
Finanical Income Statement (amounts) | 2019 |
Select the correct statement:
Describe the budgeting process. More specifically, which outputs are prepared during this process, and in which order are they prepared?
The management accountant of Cost-Eau inc. has estimated the following sales volumes for next year:
Sales | August | September | October | November |
Volumes | 2,500.00 | 2,350.00 | 2,050.00 | 2,750.00 |
The company typically sells each unit for a price of C53,500.00. Moreover, 80.00% of the revenues earned any given month are collected during the following month. The other 20.00% are collected in the month of the sale itself. What is the total amount of cash receipts in November?
One of the components used by SafeGuardian to make security vaults is bought from a supplier for a stable price of C1,450.50 per unit. Credit terms allow the company to pay 75.00% of its purchases the month following the purchase (the rest is paid in the month of the purchase).
Andrei, the management accountant, also estimated that the company will start the next period with C1,348,965.00 worth of this component in the inventory and consume 8,742 units during the period. In addition, the ending inventory should contain exactly 1,488 units. How many units of the component should the company purchase?
Sean Eliasoph is the management accountant of CoffeeDrop. He is currently working on the Selling, General, and Administrative (SG&A) budget for next year. Sales volumes are expected to be 5,930 bags of coffee in February 2020 and 6,430 bags in March 2020. The unit price should be C14.00 and advertising expenses should amount to C260.00 each month.
In addition to the unit production costs, each unit sold costs an additional C0.30 paid to a service provider for delivery, and an additional C0.70 of commission for the sales people. The other monthly administrative cost are the following:
Personnel expenses (i.e. wages and commissions) are typically paid the
.....read moreAirline company 'Fly Hamster Fly' transports both passengers and cargo. Below you find the cost categories and costs for the year 2012
1. depreciation costs | € 6.000.000 |
2. personnel costs | € 12.000.000 |
3. operating costs | See the information below and Question A |
The depreciation and personnel costs are fixed costs. The operating costs consist of fixed costs and variable costs. They concern various costs like costs involved in taking care of the flights, daily airplane maintenance costs, fly over and landing rights, and fuel usage. Fly Hamster Fly has given the following overview (years 2003-2011) of the operating costs. These costs are partly related to the company's turnover (revenues).
year | turnover level | total of operating costs |
2003 | € 18.000.000 | € 10.800.000 |
2004 | € 15.000.000 | € 7.300.000 |
2005 | € 20.000.000 | € 11.000.000 |
2006 | € 25.000.000 | € 12.400.000 |
2007 | € 22.500.000 | € 10.600.000 |
2008 | € 17.000.000 | € 9.300.000 |
2009 | € 35.000.000 | € 14.500.000 |
2010 | € 30.000.000 | € 14.900.000 |
2011 | € 27.500.000 | € 12.900.000 |
At a turnover of € 40.000.000, the maximum loadfactor (100%) of the planes is reached.
The above costs and turnover levels concern the transfer of both passengers and cargo. The total fixed operating costs and variable operating costs can be estimated using the high-low method
Calculate the 'variable operating costs' and 'fixed operating costs', using the high-low method. The variable operating costs have to be expressed as a percentage of the turnover.
State an advantage of using the high-low method. State a disadvantage of using the high-low method.
It is important for Fly Hamster Fly to know at which loadfactor the costs are fully covered. This is the break-even loadfactor,.....read more
The Trouser Factory started its operations on January 1, 2012. The company is still small but has high expectations regarding its sales growth. Currently there is one tailor’s workshop. None of the tailors has a permanent employment contract, all work on a “stand-by basis”, in other words their working hours are flexible. The Trouser Factory manufactures design jeans that are sold to upscale shops. After a few weeks of operations the Trouser Factory assesses that the demand for designer jeans is high in the segment of young people (age 10 – 20 years) and not in the segment of young adults (age 20 – 30 years) and middle aged people (age 30 – 40 years) as originally expected.
The recently hired controller of the Trouser Factory has the task to prepare a budget for the first quarter of the calendar year 2012. The general manager has passed the following information on to the controller:
Budget information for the period January – March 2012
Budget first quarter 2012 | January | February | March |
Sales volume (number of jeans ) | 120 | 240 | 240 |
Sales price per unit (in €) | 95 | 95 | 95 |
Average quantity of jeans fabric per unit (in meter) | 1.20 | 1.20 | 1.20 |
Purchase price of jeans fabric (in € per meter) | 15 | 16 | 16 |
Total labor cost of tailors (in €) | 4,104 | 7,344 | 7,128 |
Labor cost tailors per hour (in €) | 18 | 18 | 18 |
Fixed overhead costs (in €) | 2,000 | 2,100 | 2,150 |
During the budget preparation process the controller made several assumptions. All sales will be made on account; thereof 30 percent will be collected in the month in which the product has been sold and the remainder will be collected in the month following the sale.
The Trouser Factory pays all purchases in cash except jeans fabric. Each purchase of jeans.....read more
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