Task One Show All Calculations In APA Format With References

Task Oneshow All Calculations APA Format With Referencesdetailsyou Ha

Task Oneshow All Calculations APA Format With ReferencesDetailsyou Ha

TASK ONE show all calculations APA format with references Details: You have been approached by a potential customer who could bring considerable business. She says, "I'd like to find an alternative vendor for my future orders of 5,000/yr., but their pricing to me must be competitive." Your CFO has supplied you with the following information. Current product standard costs are as follows: · $1,400/unit direct material · $400/unit direct labor · $200/unit variable overhead · $200/unit fixed overhead (this figure is the result of budgeted fixed overhead of $2,000,000 and budgeted sales volume of 10,000 units) The board of directors requests a quick but thorough presentation to determine whether taking on this potential customer is a good idea. Assume that your factory is fully operational and that you will not have any learning curve impacts. Answer the board's following questions based on data from the CFO: 1. What is meant by budget variance? 2. What is an effective way to incorporate variance analysis into the budget process? 3. What are the differences between labor and material variances? 4. How is a quantity variance different from a rate variance? 5. What are the subcomponents of fixed overhead? 6. What are the subcomponents of variable overhead? 7. What is the lowest possible price you could offer to this potential customer (You know that we have sufficient capacity, without working overtime and without adding any new equipment, to make this order)? Please show the calculations. 8. In terms of capacity, under what conditions would offering this lowest possible price be a bad decision? Why? 9. You have been considering investing in automation to eliminate some factory labor if you get this large order. This technology advancement will cost an added $100,000/yr. to lease (net of taxes), but it will reduce labor cost/unit on the customer's units by 50%. How would this change the lowest possible price you could offer to this potential customer and at least still break even? Please show the calculations. TASK TWO 1 page APA format with references Details: Another client, Ms. Dunham, has asked you to help her understand how her tax is computed. You need to provide Ms. Dunham with the following: · An example of how to calculate the tax liability using the tax rate table and the tax rate formula for a taxpayer with taxable income of $55,000, filing status married filing jointly. · An explanation of the marginal tax rate and average tax rates for this taxpayer. Be clear in our elaborations that Ms. Dunham, a person with no business or tax background, can understand.

Paper For Above instruction

The scenario presented involves analyzing product costing, variance analysis, and pricing strategies to determine the feasibility of accepting a large order from a potential customer. Additionally, it encompasses understanding fundamental tax concepts such as tax calculations, marginal, and average tax rates for a taxpayer with a given income. This comprehensive analysis requires applying managerial accounting principles and tax computations to inform strategic decisions effectively.

Understanding Budget Variance

Budget variance refers to the difference between budgeted (or expected) costs and actual costs incurred during a specific period. It serves as a key performance measure, signaling whether a company is operating within or outside its planned financial parameters. Favorable variances suggest costs or revenues are better than expected, while unfavorable variances indicate higher costs or lower revenues than planned (Kaplan & Cooper, 1998). For example, if the standard cost per unit for direct material is $1,400 but the actual cost is $1,500, the variance of $100 per unit is unfavorable.

Incorporating Variance Analysis into the Budget Process

Effective variance analysis can be integrated into the budgeting process through regular review and comparison of actual performance against budgeted figures. This includes monthly or quarterly variance analysis, identifying causes of deviations, and implementing corrective actions. Using flexible budgets and variance reports helps managers adjust operational strategies promptly, ensuring better control over costs and resources (Drury, 2018). Automation of variance reporting via ERP systems enhances accuracy and timeliness.

Differences Between Labor and Material Variances

Labor variances relate to differences in expected versus actual labor costs, generally split into rate and efficiency variances. Material variances compare actual material costs with standard costs, also divided into price and usage variances. Labor variances are influenced by wage rates and labor efficiency, while material variances depend on purchase prices and consumption rates (Hansen & Mowen, 2014). For instance, higher wages than planned cause a labor rate variance, whereas less efficient use of materials causes a labor efficiency variance.

Quantity Variance vs. Rate Variance

Quantity variance pertains to the difference between the actual quantity of input used and the standard quantity allowed for the output achieved, multiplied by the standard rate. Rate variance measures differences between the actual wage rate paid and the standard wage rate, multiplied by actual hours worked. The key distinction is that quantity variance reflects efficiency of input use, while rate variance reflects wage rate fluctuations (Garrison et al., 2018).

Subcomponents of Fixed and Variable Overhead

Fixed overhead subcomponents include expenses that do not vary with production levels, such as depreciation, rent, and salaries of supervisory personnel. Variable overhead components involve expenses that fluctuate with production volume, such as utilities, supplies, and machine maintenance costs that vary proportionally with output (Blocher et al., 2019).

Calculating the Minimum Price for the Customer Order

Given that the standard cost per unit is as follows: $1,400 materials, $400 labor, $200 variable overhead, and $200 fixed overhead, the total standard cost per unit is $2,200. Since capacity is sufficient and no additional fixed costs are involved, the minimum price must at least cover the variable costs per unit, which sum to $2,000 ($1,400 + $400 + $200). Therefore, the lowest price to breakeven on the order is $2,000 per unit.

Impact of Capacity Constraints and Pricing Decisions

Offering the lowest price could be a poor decision if it leads to covering only variable costs and fixed costs are already sunk or covered elsewhere. If prices are set below the contribution margin, the company risks losing money on each additional unit, particularly if capacity constraints force prioritization or lead to overtime costs. Accepting such an order during capacity shortages might divert resources from more profitable orders, indicating that pricing strategies must consider opportunity costs (Horngren et al., 2013).

Effect of Automation Investment on Pricing

Investing in automation reduces labor costs by 50%, lowering the labor cost per unit from $400 to $200, while incurring an additional annual lease cost of $100,000. The new variable cost per unit becomes $1,400 (materials) + $200 (labor) + $200 (variable overhead) = $1,800. Adding the lease cost allocated per unit depends on total units produced; assuming the order of 5,000 units, the additional lease expense per unit is $100,000 / 5,000 = $20.

Consequently, the new breakeven price per unit is $1,800 + $20 = $1,820. The lowest price to at least break even now is $1,820 per unit.

Conclusion

Strategic decisions regarding pricing, capacity utilization, and investment in automation must be based on detailed cost analysis and understanding of variances. Properly assessing these factors ensures that accepting large orders contributes positively to profitability without jeopardizing financial stability.

References

• Blocher, E., Stout, D., Juras, P., & Cokins, G. (2019). Cost management: A strategic emphasis. McGraw-Hill Education.
• Garrison, R., Noreen, E., & Brewer, P. (2018). Managerial accounting. McGraw-Hill Education.
• Hansen, D. R., & Mowen, M. M. (2014). Cost management: Accounting and control. Cengage Learning.
• Horngren, C. T., Datar, S. M., Rajan, M. V., & Kostka, J. (2013). Cost accounting: A managerial emphasis. Pearson.
• Kaplan, R. S., & Cooper, R. (1998). Cost & effect: Using integrated cost systems to drive profit. Harvard Business School Press.
• Drury, C. (2018). Management and cost accounting. Cengage Learning.