1. The Winston Company specializes in the sales of crab legs. The crab legs sell for $15/pound, have variable costs of $10/pound, and total fixed costs of $5,000,000. How many pounds of crab legs must they sell to have $1,000,000 of operating income?
A. 1,180,000 pounds
B. 1,200,000 pounds
C. 1,220,000 pounds
D. 1,280,000 pounds

2. Mariota Inc. sells Hawaiian Shirts. Lately demand for his product has declined. The current selling price is $20/shirt and variable costs are $15/shirt. At the breakeven point fixed costs are $250,000. What must the sales in dollars be for Mariota to earn $120,000 of operating income?
A. $1,400,000
B. $1,440,000
C. $1,480,000
D. $1,500,000

3. Manziel Industries needs to sell 110,000 units this year to breakeven. Each unit sells for $50 and variable costs per unit are $30. Fixed costs are $2,200,000. Based on your analysis they should sell 150,000 units this year. The margin of safety in dollars is
A. $800,000
B. $1,000,000
C. $1,200,000
D. $1,400,000
Use the following to answer questions 4 - 7.

Davis Inc. expects to sell 20,000 pool cues for $12.00 each. Direct materials costs are $2.00, direct manufacturing labor is $4.00, and manufacturing overhead is $0.80 per pool cue. The following inventory levels apply to 2016:

Beginning inventory Ending inventory
Direct materials 24,000 units 24,000 units
Work-in-process inventory 0 units 0 units
Finished goods inventory 2,000 units 2,500 units

4. On the 2016 budgeted income statement, what amount will be reported for sales?
A. $240,000
B. $246,000
C. $312,000
D. $318,000

5. How many pool cues need to be produced in 2016?
A. 22,500 cues
B. 22,000 cues
C. 20,500 cues
D. 19,500 cues

6. On the 2016 budgeted income statement, what amount will be reported for cost of goods sold?
A. $139,800
B. $136,000
C. $132,600
D. $153,000

7. What are the 2016 budgeted costs for direct materials, direct manufacturing labor, and manufacturing overhead, respectively?
A. $48,000; $96,000; $19,200
B. $44,000; $88,000; $17,600
C. $41,000; $82,000; $16,400
D. $40,000; $80,000; $16,000

8. Under an activity-based costing (ABC) system, the only activity which typically does relate to the volume of units produced is
A. product-level activities
B. batch-level activities
C. customer-level activities
D. unit-level activities

9. Which following statement is most true regarding segment profitability analysis reporting?
A. upstream and downstream costs in the value chain are omitted from the analysis
B. all fixed costs are traced directly to each segment
C. segment reporting should only be used in multinational corporations
D. segments should be defined by product lines only

10. When comparing the operating incomes between absorption costing and variable costing, with all costs and selling price remaining the same in each period, and ending finished inventory exceeds beginning finished inventory, it may be assumed that
A. sales decreased during the period
B. the variable costs per unit is more than fixed costs per unit
C. absorption costing operating income exceeds variable costing operating income
D. variable costing operating income exceeds absorption costing operating income

Problem II -

The Brown's Draft Bust Company sells ten different styles of relatively inexpensive football jerseys with identical costs and selling prices. Brown is trying to determine the desirability of opening another store, which would have the following expense and revenue relationships (variable data on a per unit basis, fixed expenses in total):
Variable data: Selling Price $40.00; Cost of Shirt $18.00; Sales Commissions $7.00
Annual fixed expenses: Rent $80,000; Salaries $150,000; Other fixed expenses $70,000

Required (ignore income taxes for all parts):

1. What is the annual breakeven point in dollar sales and units?

2. If 21,000 jerseys are sold, what would be the stores operating income (loss)?
continued

3. Refer to the original data. If Brown decided to do away with sales commissions and increase salespersons salaries by $140,000 per year, what would be the point of indifference, in units, between the two alternatives? That is, at what point would the two operating incomes (current and proposed) be the same?

4. Brown has been approached by the Bear Advertising Agency to do their advertising. If Brown signs a contract for $150,000 for Bear to handle their account, how many additional units will have to be sold to cover the cost of the advertising?

Problem III -

Part A - 5 Points

Salinger Inc., budgeted sales of 30,000 units of its product in January, 2016. Budgeted inventory balances are:

January 1 January 31
Finished Goods (units) 6,500 5,600

Required:

What is the expected production in units for January, 2016?

Part B -

Pynchon Enterprises expects to make the following sales revenue in the first quarter of the calendar year 2016 as follows:
January February March
Sales $180,000 $135,000 $162,000
25% of the sales are on account (accounts receivable), while the other 75% are for cash. The collection pattern for Pynchon's accounts receivable follows:
Collections for:
Current month's credit sales........... 50%
First month after credit sales.......... 30%
Second month after credit sales..... 18%
Uncollectible Accounts Receivable..2%

Required:

How much will the expected cash receipts amount to for only the month of March, 2016?

Problem IV -

Winesburg Decorative Home Goods produces and sells a decorative pillow for $97.50 per unit. In the first month of operation, 2,000 units were produced and 1,750 units were sold. Actual fixed costs are the same as the amount budgeted for the month. Other information for the month includes:

Variable manufacturing costs $22.10 per unit
Variable marketing costs $3.90 per unit sold
Fixed manufacturing costs $13.00 per unit produced
Administrative expenses, all fixed $39,000 total

Ending inventories:

Direct materials -0-
WIP -0-
Finished goods 250 units

Required:

1. What is the product cost per unit using variable costing? Using absorption costing?
Variable Costing Product Cost
Absorption Costing Product Cost

2. What is the total contribution margin using variable costing?
continued

3. What is the operating income using variable costing?

4. What is the operating income using absorption costing?

5. Reconcile the difference between the operating income using absorption costing and the operating income using variable costing. (HINT: All you need to do is multiply two numbers together; the product should be equal to the difference in the net incomes.)