Questions -
Q1. Testor Paints sells varnish with a variable cost of $6.50 per gallon. The company is unsure which price to charge in order to maximize profits. The price charged will also affect the demand. If fixed costs are $80,000 and the table below represents the demand at various prices, what price should be charged in order to maximize profits? (Complete the table below, add column titles, to show the analysis)
|
Unit Price Per Gallon
|
Gallons Demanded
|
|
$11
|
20,000
|
|
$10
|
30,000
|
|
$9
|
40,000
|
|
$8
|
50,000
|
Q2. Jackson, Inc. uses a job-order costing system. It reported the following amounts for March:
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Raw materials, March 1
|
12,300
|
|
Raw materials, March 31
|
12,000
|
|
Work in process, March 1
|
38,000
|
|
Work in process, March 31
|
35,000
|
|
Cost of goods manufactured
|
169,000
|
|
Direct labor used
|
64,000
|
|
Direct materials used
|
63,000
|
|
Finished goods, March 1
|
14,000
|
|
Finished goods, March 31
|
17,500
|
How much of the above amounts will the company report on its balance sheet at the end of March?
Q3. The building maintenance department for Advantage Toys budgets annual costs of $4,200,000 based on the expected operating level for the coming year. The costs are allocated to two production departments (A & B). The following data relate to the allocation bases:
|
Base
|
Dept. A
|
Dept. B
|
Total
|
|
|
Square footage
|
15,000
|
45,000
|
60,000
|
Sq Ft.
|
|
Direct labor hours
|
25,000
|
50,000
|
75,000
|
Hours
|
a. If Advantage assigns the costs to departments based just on square footage, how much annual maintenance cost will be allocated to A and B?
b. If Advantage assigns the costs to departments based on just Diect labor hours, how much annual maintenance cost will be allocated to A and B? And what is the difference from above?
Q4. Bright Sports has three product lines: football, basketball, and soccer. Common costs are allocated based on relative sales. A product line income statement for the year ended December 31, 2016 follows:
|
Football
|
Basketball
|
Soccer
|
Total
|
|
Sales
|
$600,000
|
$800,000
|
$400,000
|
$1,800,000
|
|
Cost of goods sold
|
260,000
|
400,000
|
230,000
|
890,000
|
|
Gross margin
|
340,000
|
400,000
|
170,000
|
910,000
|
|
Less other variable costs
|
85,000
|
120,000
|
80,000
|
285,000
|
|
Contribution margin
|
255,000
|
280,000
|
90,000
|
625,000
|
|
Less direct salaries
|
50,000
|
60,000
|
45,000
|
155,000
|
|
Less common fixed costs
|
85,000
|
100,000
|
55,000
|
240,000
|
|
Net income
|
$120,000
|
$120,000
|
-$10,000
|
$230,000
|
Since the profit for soccer is relatively low, the company is considering dropping this product line. What is the incremental effect on net income of dropping soccer?
Q5. For ABC company, variable cost per unit is budgeted to be $8.00 and fixed cost per unit is budgeted to be $5.00 in a period when 4,000 units are to be produced. If production is actually 5,100 units, what is the expected total cost of the units produced? Complete the following table:
|
Number of Units:
|
4,000
|
5,100
|
|
Total Variable Costs
|
|
|
|
Total Fixed Costs
|
|
|
|
Total Costs
|
|
|
Q6. Boston Rx and Health, Inc. are two companies in the pharmaceutical industry. Boston Rx does little research and development. Instead, the company pays for the right to produce and market drugs that have been developed by other companies. The amount paid is a percent of sales. Information for the current year follows:
|
Boston Rx
|
Health, Inc.
|
|
Sales
|
$180,000
|
$116,000
|
|
Less variable costs
|
74,000
|
62,000
|
|
Contribution margin
|
106,000
|
54,000
|
|
Less fixed costs
|
40,000
|
36,000
|
|
Profit total
|
$66,000
|
$18,000
|
a. Calculate the expected percentage change in profit for a 25 percent decrease in sales for each company.
b. Which company has the higher operating leverage?
Q7. The 2016 income statement for the West Division of Big Company is as follows:
|
Sales
|
$1,800,000
|
|
Operating expenses
|
1,380,000
|
|
Net operating income
|
420,000
|
|
Interest expense
|
120,000
|
|
Earnings before taxes
|
300,000
|
|
Income tax expense (40%)
|
120,000
|
|
Net income
|
$180,000
|
This division's invested capital is $4,000,000. (based on its Assets - NIBCL)
How much is the West Division's NOPAT for 2016?
Q8. How much is the West Division's return on investment (ROI) for 2016?
Q9. Sports & More is considering the development of an e-commerce business. The company knows that development will require an initial outlay of $360,000. The estimated annual cash flows (additional expenses and revenue) for years 1-4 are shown below. Assuming the company limits its analysis to four years due to economic uncertainties, determine the net present value of the business plan assuming a 6% required rate.
|
Cash flow
|
PV Factor
|
PV Amount
|
|
Year 0
|
|
|
|
|
Year 1
|
-$60,000
|
|
|
|
Year 2
|
$140,000
|
|
|
|
Year 3
|
$210,000
|
|
|
|
Year 4
|
$130,000
|
|
|
Total NPV
And is this a good investment (yes or no)?
Attachment:- Assignment File.rar