Santiago's salsa
production costs
April 2008
20,000
Production Jars of Salsa

Ingredient cost (variable) 16,000
Labor Cost )variable) 9,000
Rent (fixed) 4,000
Depreciation (fixed) 6,000
Other (fixed) 1,000
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Total 36,000

PROBLEM 1-2. Incremental Analysis Consider the production cost information for Santiago's Salsa in problem 1. The company is currently producing and selling 250,000 jars of salsa annually. The jars sell for $4.00 each. The company is considering lowering the price to $3.70. Suppose this action will increase sales to 300,000 jars. Required a. What is the incremental cost associated with producing an extra 50,000 jars of salsa? b. What is the incremental revenue associated with the price reduction of $0.30 per jar? c. Should Santiago's lower the price of its salsa?

PROBLEM 1-3. Budgets in Managerial Accounting Matthew Gabon, the sales manager of Office Furniture Solutions, prepared the following budget for 2008: Sales Department Budgeted Costs, 2008 (Assuming Sales of $12,000,000) Salaries (fixed) $500,000 Commissions (variable) 180,000 Advertising (fixed) 100,000 Charge for office space (fixed) 2,000 Office supplies & forms (variable) 2,400 Total $784,400 After he submitted his budget, the president of Office Furniture Solutions reviewed it and recommended that advertising be increased to $120,000. Further, she wanted Matthew to assume a sales level of $13,000,000. This level of sales is to be achieved without adding to the sales force. Matthew's sales group occupies approximately 250 square feet of office space out of total administrative office space of 20,000 square feet. The $2,000 space charge in Matthew's budget is his share (allocated based on relative square feet) of the company's total cost of rent, utilities, and janitorial costs for the administrative office building. Required Prepare a revised budget consistent with the president's recommendation.

PROBLEM 1-4. Performance Reports Below is a performance report that compares budgeted and actual profit in the sporting goods department of Maxwell's Department Store for the month of December. Maxwell's Department Store Sporting Goods Performance Report December 2008 Budget Actual Difference Sales $600,000 $675,000 $75,000 Less: Cost of merchandise 300,000 375,000 75,000 Salaries of sales staff 60,000 68,000 8,000 Controllable profit $240,000 $232,000 ($8,000) Required a. Evaluate the department in terms of its increases in sales and expenses. Do you believe it would be useful to investigate either or both of the increases in expenses? b. Consider storewide electricity cost. Would this cost be a controllable or a noncontrollable cost for the manager of sporting goods? Would it be useful to include a share of storewide electricity cost on the performance report for sporting goods?

PROBLEM 1-5. Performance Reports At the end of 2008, Cyril Fedako, CFO for Fedako Products, received a report comparing budgeted and actual production costs for the company's plant in Forest Lake, Minnesota: Manufacturing Costs Forest Lake Plant Budget versus Actual 2008 Budget Actual Difference (Actual minus Budget) Materials $3,000,000 $3,300,000 $300,000 Direct labor 2,100,000 2,300,000 200,000 Supervisory salaries 375,000 400,000 25,000 Utilities 75,000 85,000 10,000 Machine maintenance 250,000 280,000 30,000 Depreciation of building 50,000 50,000 -0- Depreciation of equipment 200,000 205,000 5,000 Janitorial 120,000 135,000 15,000 Total $6,170,000 $6,755,000 $585,000 His first thought was that costs must be out of control since actual costs exceed the budget by $585,000. However, he quickly recalled that the budget was set assuming a production level of 50,000 units. The Forest Lake plant actually produced 55,000 units in 2008. Required a. Given that production was greater than planned, should Cyril expect that all actual costs will be greater than budgeted? Which costs would you expect to increase, and which costs would you expect to remain relatively constant? b. Cyril is extremely busyâ?"the company has six other plants. Therefore, he cannot spend time investigating every departure from the budget. With this in mind, which cost(s) should Cyril concentrate on in his investigation of budget differences?