Fundamentals of Cost Accounting 3rd Edition by William N. Lanen, Shannon W. Anderson, Michael Maher

Exercise 31

Cost Data for Managerial Purposes—Finding Unknowns

Quince Products is a small company in southern California that makes jams and preserves. Recently, a sales rep from one of the company’s suppliers suggested that Quince could increase its profitability by 50 percent if it introduced a second line of products, packaged fruit. She offered to do the analysis and show the company her assumptions.

When Quince’s management opened the spreadsheet sent by the sales rep, they noticed that there were several blank cells. In the meantime, the sales rep had taken a job with a competitor and told the managers at Quince that she could no longer advise them. Although they were not sure they should rely on the analysis, they asked you to see if you could reconstruct the sales rep’s analysis. They had been considering this new business already and wanted to see if their analysis was close to that of an outside observer. The incomplete spreadsheet is shown below.

	A	B		C		D	E	F
1		QUINCE PRODUCTS
2		Projected Income Statement
3		For One Month
4		Status Quo: Single Product	% Increase (Decrease)		Alternative: Two Products		Difference
5	Sales	$ (d)	30%		$ 13,000		(e)
6
7	Costs
8	Material	2,000	40%		2,800		800
9	Labor	(k)	20%		(m)		(o)
10	Rent	(l)	0%		(n)		(p)
11	Depreciation	400	25%		500		100
12	Utilities	200	25%		(h)		(i)
13	Other	700	(j)		1,050		350
14	Total costs	$ 7,600			(g)		(f)
15	Operating profit	$ 2,400	(a)		(b)		$ (c)
16

Required

Fill in the blank cells.

Step 1 of 24

Accounting systems

Purpose of creating accounting information system is to provide information for decision making of accounting users. Users can be classified as primary users like investors, government, creditors etc. and secondary users like internal including managers or employees. Accounting systems are also classified as financial and costing accounting system also differentiate between the users like primary and secondary ones.

Cost accounting

This system is designed for inhouse or internal managers and their decision making. Cost accounting information is not needed for comparison with other companies. This information is commonly used in financial accounting also, but it is primarily used by company managers for their decision making. It is important that cost accounting information is relevant for the decision making of the manager.