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Homework 4

You are not required to submit your working. However, complete working showing formulas
and calculations may be considered for partial credit for incorrect answers.

Identify the letter of the choice that best
completes the statement or answers the question.

1.

Claire
Whitney, a college student is contemplating the following options for her 3-month
summer break:
(1)
Take a summer course which will cost $700 and work half-time making $1,000
per month.
(2) Work full time at the local dinner
making $2,000 per month.
(3) Take the summer class at a cost of $700
and not work during the summer.

Claires incremental profit or loss if
she chooses option 1 over option 2 would be:

A)

($4,100)

B)

($2,500)

C)

($5,300)

D)

($3,700)

2.

Lamanex,
Inc., a manufacturing company produces 80,000 units of product A at a total
cost of $2.4 million. Total fixed
costs are $1.4 million. If the company
increases production by 25% and uses a 19% markup, the price per unit will
be:

A)

$31.54

B)

$37.10

C)

$30.80

D)

$51.80

Use the following
to answer questions 3-4:

FTE Company’s
market for the Model 55 has changed significantly, and FTE has had to drop the
price per unit from $265 to $125. There
are some units in the work in process inventory that have costs of $150 per
unit associated with them. FTE could
sell these units in their current state for $100 each. It will cost FTE $10 per unit to complete
these units so that they can be sold for $125 each.

3.

A new
employee looks at the analysis and exclaims, We’ll lose money with either of
these alternatives! Let’s just throw these units in the trash! Suppose the
alternative to trashing is choosing the more profitable of the two
alternatives (that the new employee looked at and did not like). What effect
will the trashing option (that the new employee
wants)
have on net income?

A)

Net
income will increase by $35 per unit for each unit discarded.

B)

Net
income will decrease by $115 per unit for each unit discarded.

C)

It
will have no effect on net income.

D)

Net
income will decrease by $100 per unit for each unit discarded.

4.

When
the incremental revenues and expenses are analyzed, the company is better off
by

A)

$15
per unit if they complete the units.

B)

$25
per unit if they sell the units in their current state.

C)

$10
per unit if they sell the units in their current state.

D)

$125
per unit if they complete the units.

5.

A
company using activity based pricing marks up the direct cost of goods by 40%
plus charges customers for indirect costs based on the activities utilized by
the customer. Indirect costs are
charged as follows: $6.00 per order
placed; $3.00 per separate item ordered; $28.00 per return. A customer places 10 orders with a total
direct cost of $2,000, orders 300 separate items, and makes 5 returns. What will the customer be charged?

A)

$3,000

B)

$3,900

C)

$5,330

D)

$5,750

6.

Manufacturing
overhead is allocated to products based on the number of machine hours
required. In a year when 20,000
machine hours were anticipated, costs were budgeted at $125,000. If a product requires 8,000 machine hours,
how much manufacturing overhead will be allocated to this product?

A)

$41,667

B)

$31,120

C)

$43,750

D)

$50,000

Use the following
information to answer questions 7-8:
The Sunrise
Hotel has 200 rooms. Each room rents at $110 per night and variable costs total
$27 per room per night of occupancy. Fixed costs total $76,000 per month.

7.

If the
hotel spends an additional $20,000 in the month of February on advertising
they feel that they can expect occupancy rate to increase by 10%. What would
be the financial impact of spending this additional money on advertising for
the month of February (28 days)?

A)

Total
fixed costs will increase by $10,500.

B)

Net
income will increase by $16,320.

C)

Net
income will increase by $26,480.

D)

Total
fixed costs will remain the same.

8.

If 75%
of the rooms are occupied each night in the month of February (28 days) what
will total costs be for the month?

A)

$189,400

B)

$173,600.

C)

$197,400

D)

$155,680.

9.

Johnson
Company manufactures widgets. Old Ham
Company has approached Jones with a proposal to sell the company one of the
components used to make widgets at a price of $100,000 for 50,000 units. Jones is currently making these components
in its own factory. The following
costs are associated with this part of the process when 50,000 units are
produced:

Direct
material

$44,000

Direct
labor

20,000

Manufacturing overhead

60,000

Total

$124,000

The
manufacturing overhead consists of $32,000 of costs that will be eliminated
if the components are no longer produced by Jones. The remaining manufacturing overhead will
continue whether or not Jones makes the components.
What
is the amount of avoidable costs if Jones buys rather than makes the
components?

A)

$60,000

B)

$96,000

C)

$124,000

D)

$100,000

10. Below is a performance report that
compares budgeted and actual profit of Boyles Beer
for the month of April:

Budget

Actual

Difference

Sales

$200,000

$202,000

$2,000

Less:

Cost of ingredients

$162,000

$166,000

$4,000

Salaries

$31,000

$31,200

$200

Controllable Profit

$47,000

$44,800

-$2,200

In evaluating the department in
terms of its increase in sales and expenses, what will be
most important to investigate?

A)
Sales
B)
Cost of ingredients
C)
Salaries
D)
All three components have equal
importance.

11.

Latimers
Diner has a contribution margin ratio of 17%.
If fixed costs are $176,800, how many dollars of revenue must
K-Henry’s generate in order to reach the break-even point?

A)

$282,880

B)

$1,040,000

C)

$1,060,800

D)

$1,105,000

12.

New
Insights, Inc. is looking to achieve a net income of 15 percent of
sales. Heres the firms profile: Unit
sales price is $10; variable cost per unit is $6; total fixed costs are
$40,000. What is the level of sales in
units required to achieve a net income of 15 percent of sales?

A)

12,000
units

B)

21,000
units

C)

16,000
units

D)

20,000
units

13.

At Zekes
Apparel, the break-even point is 2,400 units.
If fixed costs total $300,000 and variable costs are $25 per unit,
what is the selling price per unit?

A)

$210

B)

$180

C)

$5

D)

$150

14.
Which of the following situations will most likely violate
cost-volume-profit

assumptions about fixed costs?

A)

When production volume increases beyond the
capacity of the plant, a second shift will be added instead of building a new
plant.

B)

The companys raw material supplier typically
allows volume discounts when larger amounts of the raw material are
purchased.

C)

Fixed costs per unit decrease as volume
increases.

D)

As volume increases, per unit fixed
manufacturing overhead remain constant.

15. One Small Grill Company is a start up with
the following profile:
Unit selling price = $200; Variable cost per
unit = $100; Fixed Costs = $36,000;
Tax
rate = 25%. How many units should Small
Grill sell to achieve an after-tax target

income of $6,000?

A)

200

B)

460

C)

440

D)

300

16.

Western
Apparel Company owns two stores and management is considering eliminating the
East store due to declining sales.
Segmented contribution income statements are as follows and common
fixed costs are allocated on the basis of sales.

West

East

Total

Sales

$525,000

90,000

$615,000

Variable
costs

262,500

45,000

307,500

Direct
fixed costs

62,500

25,000

87,500

Segment
margin

200,000

20,000

220,000

Allocated
fixed costs

137,500

35,000

172,500

Net
Income

$62,500

($15,000)

$47,500

Western
feels that if they eliminate the East store that sales in the West store will
decline by 25%. If they close the East
store, overall company net income will:

A)

decline
by $90,000.

B)

decline
by $85,625.

C)

decline
by $62,000.

D)

decline
by $20,000.

17.

ForestField,
a best-selling toy has a selling price of $15. If the contribution margin ratio is 40% and
if the fixed costs are $60,000, how many ForestFields must the company sell
to realize a profit of $450,000?

A)

30,000

B)

34,000

C)

85,000

D)

100,000

Information for Questions 18

Anderson
Manufacturing makes a single product.
Budget information regarding the current period is given below:

Revenue
(100,000 units at $8.00)

$800,000

Direct
materials

150,000

Direct
labor

125,000

Variable
manufacturing overhead

235,000

Fixed
manufacturing overhead

110,000

Net
income

$180,000

Dye Company
approaches Anderson with a special order for 15,000 units at a price of $7.50
per unit. Variable costs will be the same as the current production and
accepting the special order will not have any impact on the rest of the
company’s orders. However, Anderson is
operating at capacity and will incur an additional $50,000 in fixed
manufacturing overhead if the order is accepted.

18.

What
is the incremental income (loss) associated with accepting the special order?

A)

($14,000)

B)

$36,000

C)

($23,500)

D)

$27,000

19.

Target
believes it can sell 3,500,000 of a new vehicle charger for $8 each. There will be $3,000,000 in fixed costs
associated with the charger. If the
company desires to make a profit of $2,000,000 on the charger, what is the
target variable cost per charger?

A)

$7.25

B)

$9.00

C)

$6.57

D)

$9.40

20.

On
July 26, 2012, radio Shack announced disappointing 2nd quarter
earnings that caused the stock to fall 29% to all time lows. Although sales were up 1.2% to $953.2
million gross profit fell 16.6% to $360.3 million. Assuming Radio Shacks store count and
fixed costs were the same in the 2nd quarter of 2011 and 2012,
which of the following statements is the best explanation for the decrease in
the firms profitability?

A)

Opportunity
costs decreased.

B)

Margin
of safety decreased.

C)

Contribution
margin decreased.

D)

Selling
price decreased.

21

Paul’s
Pizza produced and sold 2,000 pizzas last month and had fixed costs of
$6,000. If production and sales are
expected to increase by 10% next month, which of the following statements is
true?

A)

Total
fixed costs will decrease.

B)

Fixed
cost per unit will decrease.

C)

Total
fixed costs will increase.

D)

Fixed
cost per unit will increase.

22.

The Dynamics
Company uses cost-plus pricing with a 50% mark-up. The company is currently selling 100,000
units at $12 per unit. Each unit has a
variable cost of $6. In addition, the
company incurs $200,000 in fixed costs annually. If demand falls to 80,000 units and the
company wants to continue to earn a 50% return, what price should the company
charge?

A)

$13.50

B)

$14.55

C)

$12.75

D)

$10.95

Use the following
to answer question 23:
Taylor’s
Treasures has collected the following information over the last six months.

Month

Units produced

Total costs

March

10,000

$25,600

April

12,000

26,200

May

18,000

27,600

June

13,000

26,450

July

12,000

26,000

August

15,000

26,500

23.

Using
the high-low method, what is the variable cost per unit?

A)

$0.25

B)

$2.56

C)

$0.22

D)

$2.00

24.

During
2014, Reko Inc. reported revenues of $925,400 and profits of $88,500. Fixed costs were $456,250 and 37,016 units
were sold. If costs and prices are
expected to stay the same in 2015, and Reko expects to sell 40,000 units,
what will be the companys budgeted profit?

A)

$95,457

B)

$132,414

C)

$525,000

D)

$667,957

25.

Visit
finance.yahoo.com and determine which of the following statements is
incorrect:

A)

The current
market cap of Google is greater than the market cap of Microsoft.

B)

The
current ratio for the most recent quarter for Microsoft is greater than the
current ratio for Google.

C)

The current
price per share of Google is more than ten times that of Microsoft.

D)

Return
on equity for the most recent quarter for Microsoft is higher than return on
equity for Google.

Homework 4You are not required to submit your working. However, complete working showing formulas
and calculations may be considered for partial credit for incorrect answers.Identify the letter of the choice that best
completes the statement or answers the question.1.Claire
Whitney, a college student is contemplating the following options for her 3-month
summer break:(1)
Take a summer course which will cost $700 and work half-time making $1,000
per month.(2) Work full time at the local dinner
making $2,000 per month.(3) Take the summer class at a cost of $700
and not work during the summer.Claires incremental profit or loss if
she chooses option 1 over option 2 would be:A)($4,100)B)($2,500)C)($5,300)D)($3,700) 2.Lamanex,
Inc., a manufacturing company produces 80,000 units of product A at a total
cost of $2.4 million. Total fixed
costs are $1.4 million. If the company
increases production by 25% and uses a 19% markup, the price per unit will
be:A)$31.54B)$37.10C)$30.80D)$51.80Use the following
to answer questions 3-4:FTE Company’s
market for the Model 55 has changed significantly, and FTE has had to drop the
price per unit from $265 to $125. There
are some units in the work in process inventory that have costs of $150 per
unit associated with them. FTE could
sell these units in their current state for $100 each. It will cost FTE $10 per unit to complete
these units so that they can be sold for $125 each.3.A new
employee looks at the analysis and exclaims, We’ll lose money with either of
these alternatives! Let’s just throw these units in the trash! Suppose the
alternative to trashing is choosing the more profitable of the two
alternatives (that the new employee looked at and did not like). What effect
will the trashing option (that the new employeewants)
have on net income?A)Net
income will increase by $35 per unit for each unit discarded.B)Net
income will decrease by $115 per unit for each unit discarded.C)It
will have no effect on net income.D)Net
income will decrease by $100 per unit for each unit discarded.4.When
the incremental revenues and expenses are analyzed, the company is better off
byA)$15
per unit if they complete the units.B)$25
per unit if they sell the units in their current state.C)$10
per unit if they sell the units in their current state.D)$125
per unit if they complete the units.5.A
company using activity based pricing marks up the direct cost of goods by 40%
plus charges customers for indirect costs based on the activities utilized by
the customer. Indirect costs are
charged as follows: $6.00 per order
placed; $3.00 per separate item ordered; $28.00 per return. A customer places 10 orders with a total
direct cost of $2,000, orders 300 separate items, and makes 5 returns. What will the customer be charged?A)$3,000B)$3,900C)$5,330D)$5,7506.Manufacturing
overhead is allocated to products based on the number of machine hours
required. In a year when 20,000
machine hours were anticipated, costs were budgeted at $125,000. If a product requires 8,000 machine hours,
how much manufacturing overhead will be allocated to this product?A)$41,667B)$31,120C)$43,750D)$50,000Use the following
information to answer questions 7-8:The Sunrise
Hotel has 200 rooms. Each room rents at $110 per night and variable costs total
$27 per room per night of occupancy. Fixed costs total $76,000 per month.7.If the
hotel spends an additional $20,000 in the month of February on advertising
they feel that they can expect occupancy rate to increase by 10%. What would
be the financial impact of spending this additional money on advertising for
the month of February (28 days)?A)Total
fixed costs will increase by $10,500.B)Net
income will increase by $16,320.C)Net
income will increase by $26,480.D)Total
fixed costs will remain the same.8.If 75%
of the rooms are occupied each night in the month of February (28 days) what
will total costs be for the month?A)$189,400B)$173,600.C)$197,400D)$155,680.
9.Johnson
Company manufactures widgets. Old Ham
Company has approached Jones with a proposal to sell the company one of the
components used to make widgets at a price of $100,000 for 50,000 units. Jones is currently making these components
in its own factory. The following
costs are associated with this part of the process when 50,000 units are
produced:Direct
material$44,000Direct
labor20,000Manufacturing overhead
60,000Total$124,000The
manufacturing overhead consists of $32,000 of costs that will be eliminated
if the components are no longer produced by Jones. The remaining manufacturing overhead will
continue whether or not Jones makes the components. What
is the amount of avoidable costs if Jones buys rather than makes the
components?A)$60,000B)$96,000C)$124,000D)$100,000
10. Below is a performance report that
compares budgeted and actual profit of Boyles Beer for the month of April:BudgetActualDifferenceSales$200,000$202,000$2,000Less:
Cost of ingredients$162,000$166,000$4,000
Salaries$31,000$31,200$200Controllable Profit$47,000$44,800-$2,200In evaluating the department in
terms of its increase in sales and expenses, what will be most important to investigate?A)
SalesB)
Cost of ingredientsC)
SalariesD)
All three components have equal
importance.11.Latimers
Diner has a contribution margin ratio of 17%.
If fixed costs are $176,800, how many dollars of revenue must
K-Henry’s generate in order to reach the break-even point?A)$282,880B)$1,040,000C)$1,060,800D)$1,105,00012.New
Insights, Inc. is looking to achieve a net income of 15 percent of
sales. Heres the firms profile: Unit
sales price is $10; variable cost per unit is $6; total fixed costs are
$40,000. What is the level of sales in
units required to achieve a net income of 15 percent of sales?A)12,000
unitsB)21,000
unitsC)16,000
unitsD)20,000
units13.At Zekes
Apparel, the break-even point is 2,400 units.
If fixed costs total $300,000 and variable costs are $25 per unit,
what is the selling price per unit?A)$210B)$180C)$5D)$150 14.
Which of the following situations will most likely violate
cost-volume-profit
assumptions about fixed costs? A)When production volume increases beyond the
capacity of the plant, a second shift will be added instead of building a new
plant.B)The companys raw material supplier typically
allows volume discounts when larger amounts of the raw material are
purchased.C)Fixed costs per unit decrease as volume
increases.D)As volume increases, per unit fixed
manufacturing overhead remain constant. 15. One Small Grill Company is a start up with
the following profile: Unit selling price = $200; Variable cost per
unit = $100; Fixed Costs = $36,000; Tax
rate = 25%. How many units should Small
Grill sell to achieve an after-tax target
income of $6,000?A)200B)460C)440D)30016.Western
Apparel Company owns two stores and management is considering eliminating the
East store due to declining sales.
Segmented contribution income statements are as follows and common
fixed costs are allocated on the basis of sales.WestEastTotalSales$525,00090,000$615,000Variable
costs262,50045,000307,500Direct
fixed costs62,50025,00087,500Segment
margin200,00020,000220,000Allocated
fixed costs137,50035,000172,500Net
Income$62,500($15,000)$47,500 Western
feels that if they eliminate the East store that sales in the West store will
decline by 25%. If they close the East
store, overall company net income will:A)decline
by $90,000.B)decline
by $85,625.C)decline
by $62,000.D)decline
by $20,000.17.ForestField,
a best-selling toy has a selling price of $15. If the contribution margin ratio is 40% and
if the fixed costs are $60,000, how many ForestFields must the company sell
to realize a profit of $450,000?A) 30,000B) 34,000C) 85,000D)100,000Information for Questions 18Anderson
Manufacturing makes a single product.
Budget information regarding the current period is given below: Revenue
(100,000 units at $8.00)$800,000 Direct
materials 150,000 Direct
labor 125,000 Variable
manufacturing overhead 235,000 Fixed
manufacturing overhead 110,000 Net
income$180,000 Dye Company
approaches Anderson with a special order for 15,000 units at a price of $7.50
per unit. Variable costs will be the same as the current production and
accepting the special order will not have any impact on the rest of the
company’s orders. However, Anderson is
operating at capacity and will incur an additional $50,000 in fixed
manufacturing overhead if the order is accepted.18.What
is the incremental income (loss) associated with accepting the special order?A)($14,000)B)$36,000C)($23,500)D)$27,00019.Target
believes it can sell 3,500,000 of a new vehicle charger for $8 each. There will be $3,000,000 in fixed costs
associated with the charger. If the
company desires to make a profit of $2,000,000 on the charger, what is the
target variable cost per charger?A)$7.25B)$9.00C)$6.57D)$9.4020.On
July 26, 2012, radio Shack announced disappointing 2nd quarter
earnings that caused the stock to fall 29% to all time lows. Although sales were up 1.2% to $953.2
million gross profit fell 16.6% to $360.3 million. Assuming Radio Shacks store count and
fixed costs were the same in the 2nd quarter of 2011 and 2012,
which of the following statements is the best explanation for the decrease in
the firms profitability?A)Opportunity
costs decreased.B)Margin
of safety decreased.C)Contribution
margin decreased.D)Selling
price decreased.21Paul’s
Pizza produced and sold 2,000 pizzas last month and had fixed costs of
$6,000. If production and sales are
expected to increase by 10% next month, which of the following statements is
true?A)Total
fixed costs will decrease.B)Fixed
cost per unit will decrease.C)Total
fixed costs will increase.D)Fixed
cost per unit will increase.22.The Dynamics
Company uses cost-plus pricing with a 50% mark-up. The company is currently selling 100,000
units at $12 per unit. Each unit has a
variable cost of $6. In addition, the
company incurs $200,000 in fixed costs annually. If demand falls to 80,000 units and the
company wants to continue to earn a 50% return, what price should the company
charge?A)$13.50B)$14.55C)$12.75D)$10.95Use the following
to answer question 23:Taylor’s
Treasures has collected the following information over the last six months.MonthUnits producedTotal costsMarch10,000$25,600April12,00026,200May18,00027,600June13,00026,450July12,00026,000August15,00026,50023.Using
the high-low method, what is the variable cost per unit?A)$0.25B)$2.56C)$0.22D)$2.0024.During
2014, Reko Inc. reported revenues of $925,400 and profits of $88,500. Fixed costs were $456,250 and 37,016 units
were sold. If costs and prices are
expected to stay the same in 2015, and Reko expects to sell 40,000 units,
what will be the companys budgeted profit?
A)$95,457B)$132,414C)$525,000D)$667,95725.Visit
finance.yahoo.com and determine which of the following statements is
incorrect:A)The current
market cap of Google is greater than the market cap of Microsoft.B)The
current ratio for the most recent quarter for Microsoft is greater than the
current ratio for Google.C)The current
price per share of Google is more than ten times that of Microsoft.D)Return
on equity for the most recent quarter for Microsoft is higher than return on
equity for Google.”