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BUSA Exam 2

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For a manufacturing company, which of the following is an example of a period cost rather than a product cost?

wages of sales persons

Applesoft produces many products. Product X has revenues of $8,000,000, direct material costs of $4,500,000, direct labor costs of $3,000,000, and allocated, unavoidable fixed costs of $2,000,000. Will eliminating product X increase Applesoft's Net Income?

It is necessary to allocate costs because ______.

often common resources are shared by many different products, services, or departments

Daily Kneads, Inc., is considering outsourcing one of its many products rather than making it internally. The supplier will charge $20,000 for 20,000 pounds of the product. The costs per pound to make this product include: Cost per Pound Direct Labor $0.30 Direct Materials $0.60 Allocated Unavoidable Overhead $0.50 If Daily Kneads outsources, what is the savings (or loss) per pound for the company as a whole?

-.1 The relevant costs are those that will change as a result of the decision. In this example, the variable direct labor and materials will be eliminated if the company outsources and thus are relevant. The allocated, unavoidable costs will not change and thus are irrelevant. If the cost to outsource is more than the direct materials and labor then the company should not outsource.

Dolittle and Dalley has $3,000 in purchases for January and $5,000 in purchases for February. It expects to pay 80% of its purchases in the month the purchases are made. The remaining amount will be paid in the following month. How much does Dolittle and Dalley include as Cash Payments in February?

4,600 (Cash Paid in February = 40% of January's Purchases + 60% February's Purchases January = 40% of January's Purchases ($3000*.4= $1200) February = 60% of February's Purchases ($6000*.6= $3600) $1200+3600= $4800)

You plan on starting a lawn mowing business by investing $700 of your own money and purchase $500 of equipment. You plan to work 310 hours per month and charge your customers $22 per hour. Your anticipated costs include: Advertising $28.00 per month Gas $1.30 per hour Depreciation $31.00 per month Assistant's Wages $8.00 per hour Miscellaneous Expenses $30.00 per month Calculate your Equipment net of Accumulated Depreciation at the end of your second month of business. Do not include $ or negative signs in your answer.

438 (Equipment (net) = Equipment - Accumulated Depreciation Accumulated Depreciation = Depreciation/Month x 2 Months )

If Curl Up & Dye, Inc., has an operating leverage of 5.7 and its sales decrease by 8%, calculate the percentage change in operating income rounding to the nearest tenth of a percent. Do not include the % or a negative sign in your answer.

45.6

You plan on starting a lawn mowing business by investing $700 of your own money and purchasing $500 of equipment. You plan to work 80 hours in your first month and 270 hours in your second month of business. You charge your customers $21 per hour. Your anticipated costs include: Advertising $8 per month Gas $1.30 per hour Depreciation $25 per month Assistant's Wages $8.00 per hour Miscellaneous Expenses $30 per month You plan on collecting 90% of your sales in the month you mow the lawn and the remainder in the following month. Calculate the Accounts Receivable balance at the end of your second month of business.

567 Accounts Receivable = Sales in the month x (100% - Percent Collected in the month) = Sales x 10% or Accounts Receivable = Sales - Cash Collected from Sales Sales = Hours Worked x Price Charged per Hour Cash Collected = Total Sales x .9

Quiche & Tell, Inc., is considering outsourcing one of its many products rather than making it internally. The supplier will charge $15,000 for 3,000 quiches. The costs per quiche to make this product include: Cost per Quiche Production Manager's Salary $1 Direct Labor $2 Direct Materials $4 Allocated Unavoidable Corporate Overhead $7 Calculate the relevant incremental cost per quiche of making the product. Do not include a dollar sign ($) in your answer.

6 direct labor + direct materials

Deja Brew, Inc., produces and sells 1,000 pallets of tea. Selling price per pallet $600 Variable cost per pallet $100 Annual fixed costs $20,000 How many units would Deja Brew, Inc., need to sell to make $10,000? Round to the nearest whole pallet.

60 Contribution Margin (CM) = Sales Price - Variable Cost per unit Once beyond breakeven, each additional unit sold will contribute the CM per unit to operating income.

Grass Is Greener, Inc., expects to work 900 hours and charge its customers $10 per hour. It expects variable costs to be $6 per hour and fixed costs to be $2,400. What is Grass Is Greener's break-even point in hours? (Round to the nearest hour)

600 Break-even Hours = Fixed Costs/Contribution Margin per Hour Contribution Margin /Hour = Price Charged/Hour - Variable Cost/Hour

Using the incomplete Master Budget (at 100 hours) below, calculate the total fixed costs on the Flexible Budget (at 120 hours). Master Budget (100 hours) Flexible Budget (120 hours) Sales Revenue $2,000 ? Total Variable Costs $300 ? Total Fixed Costs $600 ? Total Fixed Costs at 120 hours =

600 Fixed costs do not change

You plan on starting a lawn mowing business by investing $700 of your own money and purchasing $500 of equipment. You plan to work 200 hours in your first month and 390 hours in your second month of business. You charge your customers $20 per hour. Your anticipated costs include: Advertising $20 per month Gas $1.60 per hour Depreciation $25 per month Assistant's Wages $8.00 per hour Miscellaneous Expenses $60 per month You plan on collecting 90% of your sales in the month you mow the lawn and the remainder in the following month. Calculate the amount of Cash Collections in your second month of business.

7,420 Amount Collected in Second Month = (First Month's Sales x 10%) + (Second Month's Sales x 90%) Sales= Hours Worked x Price Charged per Hour

Bead It, Inc., produces and sells beads by the pound. Selling price per pound $12 Variable cost per pound $10 Annual fixed costs $200,000 What will the company's breakeven point in units equal if Bead It were to replace some of its hourly employees with a machine? The labor costs will reduce the cost per pound by $2 but the depreciation on the machine will add $100,000 to the manufacturing costs. Round to the nearest whole pound.

75,000 Contribution Margin = Price - Variable Cost per unit Breakeven in units = Fixed Costs/CM

Quiche & Tell, Inc., sells homemade quiche sets. During its first year of operations, it made 5,000 quiche sets, sold 4,000 and incurred $130,000 of product costs. Calculate the following: a. Calculate the Product Cost per Unit: $[a] per unit b. Calculate the total Cost of Goods Sold: $[b]

a. 26 b. 104,000 Total Product Costs = Direct Materials + Direct Labor + Overhead (related to production) Cost per quiche = Total Product Cost/number of quiche made Cost of Goods Sold = Cost per quiche x the number of quiche sold Inventory = Cost per quiche x number of quiche remaining

K-9 Company produces and sells 2,000 units of a single product, a deluxe dog house. Selling price per unit $2,000 Variable cost per unit $1,000 Annual fixed cost $500,000 Assume that selling price per unit is still $2,000. Variable cost per unit increases by $50, while total fixed cost stays the same. The breakeven point will:

increase Contribution Margin (CM) = Price - higher Variable Cost per unit Breakeven in units = Fixed Costs/CM The increase in variable costs will decrease the contribution margin requiring the company to sell more to breakeven.

Daily Kneads, Inc., is thinking about having one of its products made by a supplier. The supplier will charge $6,000 for 1,000 units. Currently, Daily Kneads' costs to make 1,000 units of this product are as follows: Cost per unit Cost of 1,000 units Direct labor $4 $4,000 Direct materials $1 $1,000 Allocated unavoidble overhead $2 $2,000 Total costs $7 $7,000 Should the product be outsourced?

Which of the following costs are irrelevant to business decisions?

sunk costs

Daily Kneads, Inc., is considering outsourcing one of its many products rather than making it internally. The supplier will charge $20,000 for 20,000 pounds of the product. The costs per pound to make this product include: Cost per Pound Direct Labor $0.30 Direct Materials $0.30 Allocated Corporate Overhead $0.60 Calculate the incremental savings (or loss) per pound if the company outsources the product.

-.4 The relevant costs are those that will change as a result of the decision. In this example, the variable direct labor and materials will be eliminated if the company outsources and thus are relevant. The allocated costs will not change and thus are irrelevant. If the cost to outsource is less than the direct materials and labor then the company should outsource.

Wok Around the Clock, Inc., sells specialty woks. In the current year it expects to incur $840,000 in variable costs and $140,000 in fixed costs to make and sell 10,000 woks at $100 each. If Wok Around the Clock accepts a special order from Hard Wok Cafe to purchase 1,000 woks at $75 each plus $1,200 in shipping costs, how much would it make or lose on this special order?

-10,200

Quiche & Tell, Inc., is considering outsourcing one of its many products rather than making it internally. The supplier will charge $15,000 for 3,000 quiches. The costs per quiche to make include: Cost per Quiche Allocated Corporate Overhead $1 Direct Labor $2 Direct Materials $1 Manager's Salary $5 If Quiche & Tell outsources, what is the savings (or loss) per quiche?

-2 (allocated OH+Direct Labor compare to price per quiche if less it's negative)

Which of the following accounts would be a product cost rather than a period cost? (Select all that apply.)

-depreciation on manufacturing machinery -shipping costs on purchases of inventory -production manager's salary -insurance on factory assets

Indiana Bones, Inc., produces and sells 2,000 units of a single product, a deluxe dog house: Selling price per unit $2,000 Variable cost per unit $1,000 Annual fixed cost $500,000 What is the company's breakeven point in sales dollars?

1,000,000 First calculate the contribution margin (CM) ratio = CM/Price x 100% Then, divide the CM ratio into the Fixed Costs. The result is the amount of sales dollars needed to break even.

You collect 80% of each month's sales in the following month and the remainder is collected by the end of the second month. If your sales are budgeted to be: January February March $100,000 $120,000 $140,000 What would be your amount for Cash Collected from Customers in March on the Cash Collections Budget?

116,000 Cash Collected in March = (January Sales x 20%) + (February Sales x 80%) March Sales and the remaining 20% of February Sales will be collected over April and May

Planet of the Crepes, Inc., is preparing its master budget for its first month of business. It expects to sell 6,000 crepes at $2 per crepes per month. It expects to collect 80% of the sales in the month of the sale and 20% in the following month. Calculate the amount of budgeted sales for its first month.

12,000 To determine sales for the period, management must determine the number of crepes it expects it can sell and then multiply the units times the price per crepe.

Sea the World Cruises sells 4,000 tickets on its deluxe yacht: Selling price per customer $5,000 Variable cost per customer $1,000 Annual fixed cost $500,000 What is the company's breakeven point in units, i.e., customers? Round to the nearest whole unit.

125 Contribution Margin (CM) = Price - Variable Cost per unit Breakeven in units = Fixed Costs/CM

The following information is available for Sweet Dairy Air, Inc. The Purchasing Department, which is responsible for purchasing materials for various products, has costs of $61,000. The Janitorial Department has costs of $20,000. Overhead Product 1 Product 2 Product 3 Purchasing 10,000 purchases 25,000 purchases 15,000 purchases Janitorial 1,000 square feet 1,500 square feet 1,500 square feet What is the total amount that should be allocated to Product 1?

17,200 Screenshot 2

Pasta Disasta, Inc., is preparing its master budget for its first quarter of business. It expects to sell 7,000 pizzas per month. It will purchase enough pizzas so that 100 pizzas are in inventory at all times by purchasing 7,100 pizzas in the first month and 7,000 pizzas in the second and third months. The pizza is expected to cost $9 per pizza. It expects to pay 70% in the month of purchase and the remainder in the following month. Calculate the amount of cash paid for purchases for its first quarter.

171,000 By the end of the quarter, the first month's purchases (sales plus the extra pizzas for inventory) and second month's purchases will have been paid. Only 70% of the third month's purchases will have been paid by the end of the quarter. The remaining 30% will be in Accounts Payable on the balance sheet.

Many Happy Returns, Inc., prepares income tax returns. It prepares 50,000 returns per year. Selling price per return $500 Variable cost per return $100 Annual fixed cost $800,000 What is the company's breakeven point in units, i.e., number of returns? Round to the nearest whole return.

2,000 Contribution Margin (CM) = Price - Variable Cost per unit Breakeven in units = Fixed Costs/CM

If Curl Up & Dye, Inc., has an operating leverage of 2.5 and its sales decrease by 8%, calculate the percentage change in operating income rounding to the nearest tenth of a percent. Do not include the % or a negative sign in your answer.

20 First, you would need to calculate the Operating Leverage Multiplier = Total Contribution Margin/Operating Income. In this problem, you already have the Operating Leverage Multiplier. You then multiply the multiplier by the percentage change in sales to get the percentage change in operating income. The greater the fixed costs relative to the contribution margin, the greater the operating leverage and multiplier effect.

You plan on starting a lawn mowing business by investing $700 of your own money and purchasing $500 of equipment. You plan to work 290 hours in your first month and 100 hours in your second month of business. You charge your customers $23 per hour. Your anticipated costs include: Advertising $3 per month Gas $1.30 per hour Depreciation $25 per month Assistant's Wages $10.00 per hour Miscellaneous Expenses $30 per month You plan on collecting 90% of your sales in the month you mow the lawn and the remainder in the following month. Calculate the Accounts Receivable balance at the end of your first month of business.

667 (Accounts Receivable = Total Sales - Cash Collected from Sales Total Sales = Hours Worked x Price Charged per Hour Cash Collected = Total Sales x .9)

During its first month of business in May, On-a-roll, Inc., purchased 100 rolls of wallpaper at $14 per roll and sold 51 rolls for $45 per roll. At the end of May, what is the amount of inventory reported on its balance sheet?

686 Beginning Inventory + Inventory Purchased =Goods available to sell - Ending Inventory (Balance Sheet) =Cost of Goods Sold (Income Statement)

Buy the Pound, Inc., produces and sells specialty dog food. It produces and sells 200,000 pounds per year. Selling price per unit $20 Variable cost per unit $10 Annual fixed cost $100,000 Assume that selling price per unit is still $20. Variable cost per unit increases by $1, while total fixed cost stays the same. The contribution margin per unit will:

decrease Contribution Margin = Price - Variable Cost per unit Breakeven in units = Fixed Costs/CM An increase in Variable Cost, and no other changes, will result in a decrease in Contribution Margin and an increase in the breakeven point.

Total Per unit Sales revenue (30,000 units) $750,000 25 Variable costs 450,000 15 Contribution margin 300,000 ? Fixed costs 150,000 Operating income $150,000 Assume that selling price per unit and variable cost per unit stay the same, and there is no change in total fixed costs. If this company's sales increase from 30,000 units to 40,000 units, this company's breakeven point will ______.

remain the same

K-9 Company produces and sells 2,000 units of a single product, a deluxe dog house. Selling price per unit $2,000 Variable cost per unit $1,000 Annual fixed cost $500,000 Assume that selling price per unit, variable cost per unit, and total fixed cost stay the same. Sales increase by 500 units to 2,500 units. The breakeven point will ______.

stay the same

Which of the following is relevant to Limited's decision to accept a special order at a lower price?

the shipping costs to the customer

Vinyl Resting Place, Inc., makes and sells linoleum for $5 per square foot. Variable cost is $3.50 per square foot. The company's total fixed costs are $52,500. What is the contribution margin per square foot?

$1.50 Contribution Margin (CM) = Price - Variable Cost per unit = $5 - 3.50 = $1.50 per unit

$1.50 Contribution Margin (CM) = Price - Variable Cost per unit = $5 - 3.50 = $1.50 per unit Thus each unit, contributes $1.50 to covering fixed costs and then increasing operating income.

Identify on which financial statement these costs appear.

1. period costs -income statement 2. product costs -balance sheet

Lord of the Fries, Inc., makes industrial sized bags of fries in the same factory. The fries' costs consist of the following: Wages of Factory Workers $700,000 Potatoes 300,000 Factory Rent 90,000 Allocated Ingredients (salt and preservatives) 800 Factory Supervisor Salary 10,000 Sales Commissions 90,000 Calculate the Direct Costs for the industrial sized bags of fries.

1,000,000 wages of factory workers + potatoes

Salt & Buttery, Inc., is a catering business. Direct labor costs are $16 per hour and overhead is allocated to jobs at a rate of $20 per direct labor hour. Catering for the Morris Lest party cost $800 for direct materials and took 10 direct labor hours. Calculate the total cost of the Morris Lest party.

1,160 Total Costs = Direct Labor + Direct Material + Overhead Direct Labor = Wage per hour x Number of hours Overhead = Overhead Rate per hour x Number of direct labor hours

Murphy's Paw produces and sells 1,000 units of a single product per year (with excess capacity of 400 units). The cost of producing and selling a single unit is: Direct material $14 Direct labor 11 Allocated variable overhead 3 Allocated fixed overhead 4 The normal selling price is $50.00 per unit. An order has been received from an overseas company for 100 units at the special price of $40.00 per unit. What would be the additional income (or loss) of taking on this special order?

1,200 Only the contribution margin (special price minus the variable cost) is relevant. The allocated fixed costs are irrelevant because they will not change with the special order.

Buy & Large, Inc., has received a special order for a customer to buy 15,000 units for $7.50 per unit. Buy & Large has enough idle capacity to accept the order without incurring any additional fixed costs. Identify each of the items as relevant or irrelevant for this special order decision. 1. The normal selling price of $9 2. The $7.50 selling price for that special order 3. Direct materials cost of $4 per unit

1. Irrelevant 2. Relevant 3. Relevant 4. Relevant 5. Irrelevant

The Sweet Dairy Air, Inc., makes and sells ice cream cones. Management is trying to decide whether to have its hourly employees produce the ice cream cones or purchase the cones from an outside vendor. For each of the following items, indicate if it is relevant or irrelevant to this decision. 1. wages of employees

1. relevant 2. irrelevant 3. irrelevant

You plan on starting a lawn mowing business by investing $700 and buying $700 of equipment. You plan to charge your customers $15 per hour. Which of your budgeted month costs below is a Variable Cost or a Fixed Cost? 1. Pay $120 cash for newspaper ads and signs 2. You expect to use one gallon of gas per hour for the mower and weed whacker. You estimate gas will cost $1.30 per gallon 3. You pay your sister $5 per hour. You expect her to work the same hours that you work

1. Fixed Cost 2. Variable Cost 3. Variable Cost

Assume you are a retail store that sells jeans. Identify each of your costs as variable, fixed, or mixed: Units sold 20 40 80 1. Depreciation Expense per unit $480 $240 $120 2. Total Rent $5,000 $5,000 $5,000 3. Total Cost of Shopping Bags $4 $8 $16

1. depreciation cost -fixed cost 2. total rent -fixed cost 3. total cost of shopping bags -variable cost

1. Quantitative 2. qualitative 3.Quantitative 4. qualitative 5. Quantitative 6. Quantitative 7. Quantitative 8. qualitative

Impress, Inc., makes books and is trying to decide whether one particular book which sells for $25 should be printed in-house or outsourced. For each of the following items, indicate if it is relevant or irrelevant to the decision. 1. Labor rate for printing 2. Allocated fixed overhead (unavoidable) 3. Quality of pages printed by the outside printing company

1. Relevant 2. Irrelevant 3. Relevant

Sweet Dairy Air, Inc., has received a special order from a customer to buy 100 pounds of premium ice cream for $10 per pound. Sweet Dairy Air has enough idle capacity to accept the order without incurring any additional fixed costs. Identify each of the items as relevant or irrelevant for this special order decision. 1. Production wages of $2 per pound 2. The $10 selling price for that special order 3. Ingredient costs of $4 per pound

1. Relevant 2. Relevant 3. Relevant 4. Irrelevant 5. Irrelevant

Show how each of these costs will behave as the volume of activity increases. 1. Variable cost per unit 2. total variable cost 3. Fixed cost per unit 4. Total fixed cost

1. Remains the same 2. Increases 3. Decreases 4. Remains the same

Brewed Awakenings, Inc., has received a special order from a customer to buy 1,000 pounds for $6 per pound. Brewed Awakenings has enough idle capacity to accept the order without incurring any additional fixed costs. Identify each of the items as relevant or irrelevant for this special order decision. 1. The special $6 selling price per pound 2. the $8 normal selling price per pound 3. coffee beans at a cost of $3 per pound 4. wages of 5. variable overhead 6. allocated fixed overhead costs

1. relevant 2. irrelevant 3. relevant 4. relevant 5. relevant 6. irrelevant

Daffy Duct, Inc., has the capacity to produce 12,000 cases of duct tape per year but only produces and sells 10,000 cases at $50 per case. The direct materials equals $130,000, direct labor equals $110,000, and overhead equals $100,000. Sixty percent of the manufacturing overhead is variable. The forty percent of fixed overhead is allocated equally to all products. Dewey, Cheatum & Howe has offered to purchase 1,000 cases but at a reduced price of $40 per case. What is the additional profit (loss) of accepting this offer?

10,000 The fixed allocated overhead is irrelevant since the costs will not change if the company decides to accept the special order. Thus, the special price should be compared to the relevant incremental costs (only the variable material, labor and overhead) that will increase if the order is accepted, not the total cost.

Pasta Disasta, Inc., is preparing its master budget for its first quarter of business. It expects to sell 4,000 pizzas at $9 per pizza per month. It expects to collect 95% of the sales in the month of the sale and 5% in the following month. Calculate the amount of budgeted sales for its first quarter.

108,000 (To determine sales for the period, management must determine the number of units it expects to sell and then multiply the units times the price per unit.)

116,000 (Cash Collected in March = (January Sales x 20%) + (February Sales x 80%) March Sales and the remaining 20% of February Sales will be collected over April and May)

Buy & Large, Inc.'s, Purchasing Department's estimated annual costs are $400,000 and the number of purchase orders written is 800,000. The Shoe Department has requested 300,000 purchases during the year for a total of $4,000,000 in purchases. How much of the Purchasing Department's cost should be allocated to the Shoe Department?

150,000

You plan on starting a lawn mowing business by investing $700 of your own money and purchasing $500 of equipment. You plan to work 360 hours per month and charge your customers $21 per hour. Your anticipated costs include: Advertising $70.00 per month Gas $1.20 per hour Depreciation $25.00 per month Assistant's Wages $10.00 per hour Miscellaneous Expenses $20.00 per month Calculate your budgeted monthly Operating Income. Do not include $ sign in your answer.

3,413 Operating Income = Sales - Total Costs Sales = Price /Hour x Hours Worked Total Costs = Total Variable Costs + Total Fixed Costs Total Variable Costs = Variable Cost/Hour x Hours Worked Variable Cost/Hour = Gas/Hour + Assistant's Wages/Hour Total Fixed Costs = Advertising + Depreciation + Miscellaneous Expenses

You decide to earn some money during the summer by running a lawn mowing service called Blade for Blade, Inc. You plan to work 195 hours per month.You will charge customers $20 per hour and 10% of your customers will pay you in cash and the rest of your customers will pay you in the following month. How much should your estimated Accounts Receivable balance equal on your balance sheet at the end of the month? DO NOT INCLUDE $ SIGNS IN YOUR ANSWER.

3,510 Accounts Receivable = Sales in the final month x (100% - Percent Collected in the month)

Pasta Disasta, Inc., is preparing its master budget for its first quarter of business. It expects to sell 4,000 pizzas per month. It will purchase enough pizzas so that 100 pizzas are in inventory at all times. The pizza is expected to cost $3 per pizza. It expects to pay 70% in the month of purchase and the remainder in the following month. Calculate the amount of budgeted purchases for its first quarter.

36,300 Purchase = three months' sales + an extra 100 pizzas for inventory

If Rich & Sweet Candy Company produces and sells 5,000 units, its projected revenues and costs would be as follows: Total Sales Revenue $90,000 Total Variable Costs 60,000 Total Fixed Costs 20,000 If the units sold increases by 30%, what would the total contribution margin equal?

39,000 Total Contribution Margin = (Sales - Total Variable Cost) x (100%+percentage increase)

Grass is Greener, Inc., produces and sells golf clubs. Sales $50,000 Variable Costs $30,000 Fixed Costs $50,000 What is the company's contribution margin ratio?

40 Contribution Margin ratio = Total Contribution Margin / Sales For each $1 of sales beyond the breakeven point, operating income will increase by the CM ratio. For example, if sales equals $100,000 and total variable costs equals $70,000 at 20,000 units, then: Contribution Margin (CM) ratio = ($100,000 - 70,000)/$100,000 = 30% Thus, once beyond the breakeven point, each $1 of sales contributes $0.30 to operating income.

The following operating results relate to the operations of Sea the World Cruises, Inc. Gift Shop Spa Services Casino Sales $5,000,000 $7,000,000 $10,000,000 Variable Costs 4,500,000 3,000,000 10,500,000 Fixed Costs (all allocated) 600,000 1,000,000 2,000,000 The total fixed costs will remain the same even if one of the above operations is dropped. Identify which (if any) should be eliminated.

Gift Shop -Keep Spa Services -Keep Casino -Eliminate

Which of the following should NOT be used to evaluate the production manager's performance?

depreciation on factory

Which of the following statements is true concerning the allocation of overhead?

indirect costs are allocated to cost objects to determine a more accurate cost

Indiana Bones Company produces and sells 2,000 units of a single product, a deluxe dog house. Selling price per unit $2,000 Variable cost per unit $1,000 Annual fixed cost $500,000 By how much will operating income increase if 500 additional units are sold?

$500,000 Contribution Margin = $2,000 - 1,000 = $1,000 per unit Additional profit (operating income) = $1,000 per unit x 500 additional units = $500,000

Daily Kneads, Inc., is considering outsourcing one of its many products rather than making it internally. The supplier will charge $20,000 for 20,000 pounds of the product. The costs per pound to make this product include: Cost per Pound Direct Labor $0.50 Direct Materials $0.40 Allocated Unavoidable Corporate Overhead $0.80 Calculate the relevant incremental cost per pound of making the product. Do not include a dollar sign ($) in your answer.

.9 (The relevant costs are those that will change as a result of the decision. In this example, the variable direct labor and materials will be eliminated if the company outsources and thus are relevant. The allocated costs will not change and thus are irrelevant. If the cost to outsource is less than the direct materials and labor then the company should outsource.)

In its first year of business, Soles for Souls, Inc., produced 5,000 shoes and sold 4,000 during the year. Its cost for the year included: Total Direct Materials and Labor $4,000 Factory Rental $4,000 Sales Manager's Salary $46,000 What is Soles for Soul's Inventory at the end of the year? $_________

1,600 Total Product Costs = Direct Materials + Direct Labor + Overhead (factory rental) The sales manager's salary is expensed as a period cost. Cost per shoe = Total Product Costs/number of shoes produced Inventory = Cost per shoe x the number of shoes remaining

Pasta Disasta, Inc., is preparing its master budget for its first quarter of business. It expects to sell 1,000 pizzas per month. It will purchase enough pizzas so that 100 pizzas are in inventory at all times by purchasing 1,100 pizzas in the first month and 1,000 pizzas in the second and third months. The pizza is expected to cost $6 per pizza. It expects to pay 70% in the month of purchase and the remainder in the following month. Calculate the amount of Accounts Payable on its budgeted balance at the end of the quarter.

1,800 By the end of the third month, the purchases from the first month (which includes the extra pizza for inventory) have all been paid. Only 30% of the last month's purchase (Purchases = Cost of Pizza = Quantity Purchased x Cost per Pizza) is in Accounts Payable on the balance sheet. Month 1 Pizzas: 70% paid for in Month 1, 30% paid for in Month 2. Month 1 includes the extra 100 pizzas. Month 2 Pizzas: 70% paid for in Month 2, 30% paid for in Month 3. Month 3 Pizzas: 70% paid for in Month 3, 30% left unpaid (This would be your Accounts Payable at the end of the Quarter).

If Squid Roe, Inc., has an operating leverage of 8.5 and its sales increase by 15%, calculate the percentage change in operating income to the nearest tenth of a percent. Do not include % sign in your answer.

127.5 (First, you would need to calculate the Operating Leverage Multiplier = Total Contribution Margin/Operating Income. In this problem, you already have the Operating Leverage Multiplier. You then multiply the multiplier by the percentage change in sales to get the percentage change in operating income. The greater the fixed costs relative to the contribution margin, the greater the operating leverage and multiplier effect.)

Boris' Car Loft, Inc., began operations on January 1. It manufactures 10,000 automobiles and sold 8,000. It incurred the following costs during the year: Factory worker wages $ 80,000 Chief Financial Officer's salary 800,000 Factory rent 30,000 Factory utilities 40,000 Corporate headquarters' rent 200,000 Calculate the total product cost for the year ended December 31.

150,000 Only the costs that contribute to the manufacturing of the goods are included in the Total Product Cost. Total Product Cost = Direct Material + Direct Labor + Overhead (related to production) Selling, general and administrative costs are not part of the cost of the product and hence are expensed.

Leaning Tower of Pizza, Inc., is preparing its master budget for its first quarter of business. It expects to sell 7,000 pizzas at $8 per pizza per month. It expects to collect 90% of the sales in the month of the sale and 10% in the following month. It will maintain an ending inventory balance of 200 pizzas at a cost of $1 each. Calculate the amount of budgeted sales for its first quarter.

168,000 To determine sales for the period, management must determine the number of pizzas it expects to sell and then multiply the units times the price per pizza. Since this is asking for sales for the quarter, you must multiply the monthly sales by three months.

Toy Story, Inc., has the capacity to produce 100,000 toys per year but only produces 80,000 toys per year. The sale price is $10 each. Direct materials equals $3 per toy, direct labor equals $4 per toy, and allocated overhead equals $80,000 per year. Company B offers to buy an additional 19,000 toys but is only willing to pay $8 per toy. What is the additional profit (loss) of accepting the offer?

19,000 The allocated overhead is irrelevant since the costs will not change if the company decides to accept the special order. Thus, the special price should be compared to the relevant incremental costs (only the costs that will increase if the order is accepted), not the total cost.

Piece of Pizza Company is preparing its master budget for its first year of business. It expects to sell 6,000 pizzas at $8 per pizza per month. It expects to collect 95% of the sales in the month of the sale and 5% in the following month. Calculate its Accounts Receivable balance at the end of its first month.

2,400 Accounts Receivable = Sales in the month x (100% - 95% Collected in the month)

Applesoft produces tablets, laptops and televisions. Applesoft typically sells 1,000 tablets a year. The tablet information is as follows: Selling price per unit $60 Direct material cost per unit $30 Direct labor cost per unit $15 Total allocated overhead (1/4 avoidable if eliminate tablets) $70,000 One fourth of the allocated overhead would be avoidable if the tablets were eliminated. How much would Net Income change by if Applesoft were to eliminate the tablets?

2,500 Should the product be eliminated, the company will lose the contribution margin but will save 1/4 of the avoidable, allocated fixed costs. The product should be eliminated If the contribution margin is less than the savings in avoidable fixed cost since operating income would increase. The contribution margin is $15 (=$60 price - $45 variable costs) per tablet. If the product is eliminated, the company will lose the $15,000 contribution. However, if the total allocated overhead is $80,000 and 1/4 is avoidable, then $20,000 will be saved in overhead. The net would be an increase in operating income of $5,000 (=$20,000 savings - $15,000 loss in contribution margin). Since operating income will increase the product should be eliminated. If the total allocated overhead was $60,000 or less, the product should not be eliminated since the $15,000 loss of contribution margin would be greater than savings of 1/4 of the overhead.

Piece of Pizza Company is preparing its master budget for its first year of business. It expects to sell 5,000 pizzas at $11 per pizza per month. It expects to collect 95% of the sales in the month of the sale and 5% in the following month. Calculate its Accounts Receivable balance at the end of its first month.

2,750 (Accounts Receivable = Sales in the month x (100% - 95% Collected in the month)

Ducts Duck, Inc., produced and sold 2,000 units of its product. Selling price per unit $20 Variable cost per unit $10 Annual fixed cost $10,000 What is the company's breakeven point in sales dollars?

20,000 Total Costs = (Variable Cost per unit x number of units) + Total Fixed Costs Subtract Fixed Costs from Total Cost to get Total Variable Costs. Variable Cost per unit = Total Variable Costs / # of units. First calculate the contribution margin (CM) ratio = CM/Price x 100% Then, divide the CM ratio into the Fixed Costs. The result is the amount of sales dollars needed to break even.

Buy & Large, Inc.'s, Purchasing Department's estimated annual costs are $400,000 and the number of purchase orders written is 800,000. The Shoe Department has requested 400,000 purchases during the year for a total of $4,000,000 in purchases. How much of the Purchasing Department's cost should be allocated to the Shoe Department?

200,000 The overhead rate to allocate the purchasing department costs to the Shoe Department equals the annual costs of purchases by the purchases department divided by the total number of purchase orders by all departments. This overhead rate is then multiplied by the Shoe Department's cost.

Applesoft, Inc. Income Statement For the year ended December 31 Sales Revenue $73,000 Cost of Goods Sold $58,000 Selling Expenses $3,000 Depreciation and Amortization Expense $2,000 Calculate Applesoft's Gross Profit Margin for the year ended December 31. Round to the nearest WHOLE PERCENT and do not include the % sign in your answer.

21 Gross Profit Margin : Gross Profit = Sales - COGS Gross Profit Margin = Gross Profit/Sale

Use the following information to calculate Bead It, Inc.'s, Inventory balance on its December 31 year-end balance sheet. Note: All purchases of inventory are on account. Cost of Goods Sold during the year $34,000 January 1 Inventory 8,000 Sales during the year 65,000 December 31 Accounts Payable 22,000 Purchases of Inventory on Account during the year 47,000 December 31 Inventory = $______

21,000 Beginning Inventory + Purchases = Goods Available to Sell These goods are either still in Inventory or were expensed as Cost of Goods Sold (COGS). Goods Available - COGS = Inventory

The following information is available for Clean Up, Inc. The Purchasing Department, which is responsible for purchasing materials for various products, is estimated to cost $30,000. The Janitorial Department is estimated to cost of $30,000. Overhead Product 1 Product 2 Product 3 Purchasing 10,000 purchases 25,000 purchases 15,000 purchases Janitorial 1,000 square feet 1,500 square feet 1,500 square feet What is the total amount that should be allocated to Product 2?

26,250 Screenshot 1

Applesoft, Inc. Income Statement For the year ended December 31 Sales Revenue $76,000 Cost of Goods Sold $55,000 Selling Expenses $2,000 Depreciation and Amortization Expense $2,000 Calculate Applesoft's Gross Profit Margin for the year ended December 31. Round to the nearest WHOLE PERCENT and do not include the % sign in your answer.

28 Gross Profit Margin : Gross Profit = Sales - COGS Gross Profit Margin = Gross Profit/Sales

Par for the Course produces and sells 2,000 sets of golf clubs. Selling price per unit $5,000 Variable cost per unit $1,000 Annual fixed cost $500,000 What is the company's contribution margin per unit? (Round to the nearest cent.)

4,000 Contribution Margin (CM) = Price - Variable Cost per unit The CM contributes to covering fixed costs and then increasing operating income. For example, if the price is $5 and the variable cost is $3.50 per unit, then: Contribution Margin (CM) = Price - Variable Cost per unit = $5 - 3.50 = $1.50 per unit Thus each unit contributes $1.50 to covering fixed costs and then increasing operating income by $1.50 once beyond the breakeven point.

Quiche & Tell, Inc., is considering outsourcing one of its many products rather than making it internally. The supplier will charge $15,000 for 3,000 quiches. The costs per quiche to make this product include: Cost per Quiche Production Manager's Salary $1 Direct Labor $1 Direct Materials $2 Allocated Unavoidable Corporate Overhead $5 Calculate the relevant incremental cost per quiche of making the product. Do not include a dollar sign ($) in your answer.

3 The relevant costs are those that will change as a result of the decision. In this example, the variable direct labor and materials will be eliminated if the company outsources and thus are relevant. The allocated costs will not change and thus are irrelevant. If the cost to outsource is less than the direct materials and labor then the company should outsource.

Vicious Cycle, Inc., produces and sells 2,000 bikes. Selling price per unit $4,000 Variable cost per unit $800 Annual fixed cost $500,000 What is the company's contribution margin per unit? (Round to the nearest cent.)

3,200 Contribution Margin (CM) = Price - Variable Cost per unit The CM contributes to covering fixed costs and then increasing operating income. For example, if the price is $5 and the variable cost is $3.50 per unit, then: Contribution Margin (CM) = Price - Variable Cost per unit = $5 - 3.50 = $1.50 per unit Thus each unit contributes $1.50 to covering fixed costs and then increasing operating income by $1.50 once beyond the breakeven point.

Planet of the Crepes, Inc., makes and sells crepes. It expects sales to equal $500,000, total variable costs to equal $350,000 and total fixed costs to equal $60,000. What is the contribution margin ratio?

30% Contribution Margin ratio = Total Contribution Margin / Sales= ($500,000 - 350,000)/$500,000 = 30% For each $1 of sales beyond the breakeven point, operating income will increase by $0.30.

Microhard produces tablets, laptops and televisions. Microhard typically sells 1,000 tablets a year. The tablet information is as follows: Selling price per unit $70 Direct material cost per unit $30 Direct labor cost per unit $10 Total unavoidable allocated overhead $43,000 How much would Net Income decrease if Microhard were to eliminate the tablets?

30,000

Microhard produces tablets, laptops and televisions. Microhard typically sells 1,000 tablets a year. The tablet information is as follows: Selling price per unit $70 Direct material cost per unit $30 Direct labor cost per unit $10 Total unavoidable allocated overhead $47,000 How much would Net Income decrease if Microhard were to eliminate the tablets?

30,000 Should the product be eliminated, the company will lose the contribution margin. In this example, the allocated overhead is unavoidable and thus is irrelevant to the decision. If some of the overhead is avoidable, then the loss in contribution margin should be compared to the savings in overhead. If the contribution margin is less than the savings, then the product should be eliminated.

Grass Is Greener, Inc., expects to work 620 hours and charge its customers $14 per hour. It expects variable costs to be $6 per hour and fixed costs to be $2,400. What is Grass Is Greener's break-even point in hours? (Round to the nearest hour)

300 Break-even Hours = Fixed Costs/Contribution Margin per Hour Contribution Margin /Hour = Price Charged/Hour - Variable Cost/Hour

Framer vs. Framer, Inc., makes and sells frames for $5 per unit. Variable cost is $3.50 per unit. The company's total fixed costs are $52,500. How many units must Framer vs. Framer sell to break even?

35,000 Contribution Margin (CM) = Price - Variable Cost per unit Breakeven in units = Fixed Costs/CM

You plan on starting a lawn mowing business by investing $700 of your own money and purchasing $500 of equipment. You plan to work 220 hours per month and charge your customers $15 per hour. Your anticipated costs include: Advertising $50 per month Gas $1.40 per hour Depreciation $25 per month Assistant's Wages $9.00 per hour Miscellaneous Expenses $40 per month Calculate your budgeted Sales for the year. Do not include a $ sign in your answer.

39,600 To determine sales for the period, management must determine the number of units (which can be expressed as number of customers, hours of service, units of product, etc.) and then multiply the units times the price per unit. Annual Sales = Hours Worked per month x Price Charged per Hour x 12 months per year

Leaning Tower of Pizza, Inc., is preparing its master budget for its first quarter of business. It expects to sell 4,000 pizzas at $10 per pizza per month. It expects to collect 90% of the sales in the month of the sale and the remainder in the following month. Calculate its Accounts Receivable balance at the end of its first quarter.

4,000

4,000 Accounts Receivable = Sales in the month x Percent to be collected in the following month

n its first year of business, Soles for Souls, Inc., produced 5,000 shoes and sold 4,000 during the year. Its cost for the year included: Total Direct Materials and Labor $1,000 Factory Rental $4,000 Sales Manager's Salary $51,000 What is Soles for Soul's Cost of Goods Sold for the year? $_________

4,000 Total Product Costs = Direct Materials + Direct Labor + Overhead (related to production) Period Costs are expensed and are not included in the cost to produce the shoes Cost per shoe = Total Product Costs/number of shoes produced Cost of Goods Sold = Cost per shoe x the number of shoes sold

Vicious Cycle, Inc., produces and sells 2,000 bikes. Selling price per unit $5,000 Variable cost per unit $800 Annual fixed cost $500,000 What is the company's contribution margin per unit? (Round to the nearest cent.)

4,200 Contribution Margin (CM) = Price - Variable Cost per unit The CM contributes to covering fixed costs and then increasing operating income. For example, if the price is $5 and the variable cost is $3.50 per unit, then: Contribution Margin (CM) = Price - Variable Cost per unit = $5 - 3.50 = $1.50 per unit Thus each unit contributes $1.50 to covering fixed costs and then increasing operating income by $1.50 once beyond the breakeven point.

Leaning Tower of Pizza, Inc., is preparing its master budget for its first year of business. It expects to sell 4,000 pizzas at $11 per pizza per month. It expects to collect 90% of the sales in the month of the sale and 10% in the following month. Calculate its Accounts Receivable balance at the end of its first year.

4,400 Accounts Receivable = Sales in the final month x (100% - 90% Collected in the month) All of the other months' sales will have been collected as of the end of the period, leaving only 10% of the last month's sales as uncollected.

Dolittle and Dalley has $3,000 in sales for January and $5,000 in sales for February. It expects to collect 80% of its sales in the month the sale is made. The remaining amount is expected to be collected in the following month. How much does Dolittle and Dalley expect to collect in February?

4,600 Cash Collected in February = February Sales times percent collected in February + January's Accounts Receivable January's Accounts Receivable = January Sales x (100% - Percent Collected in January)

f Curl Up & Dye, Inc., has an operating leverage of 7.3 and its sales decrease by 6%, calculate the percentage change in operating income rounding to the nearest tenth of a percent. Do not include the % or a negative sign in your answer.

43.8 First, you would need to calculate the Operating Leverage Multiplier = Total Contribution Margin/Operating Income. In this problem, you already have the Operating Leverage Multiplier. You then multiply the multiplier by the percentage change in sales to get the percentage change in operating income. The greater the fixed costs relative to the contribution margin, the greater the operating leverage and multiplier effec

You plan on starting a lawn mowing business by investing $700 of your own money and purchase $500 of equipment. You plan to work 340 hours per month and charge your customers $20 per hour. Your anticipated costs include: Advertising $99.00 per month Gas $1.50 per hour Depreciation $34.00 per month Assistant's Wages $8.00 per hour Miscellaneous Expenses $50.00 per month Calculate your Equipment net of Accumulated Depreciation at the end of your second month of business. Do not include $ or negative signs in your answer.

432 Equipment (net) = Equipment - Accumulated Depreciation Accumulated Depreciation = Depreciation/Month x 2 Months

You plan on starting a lawn mowing business by investing $700 of your own money and purchase $500 of equipment. You plan to work 310 hours per month and charge your customers $20 per hour. Your anticipated costs include: Advertising $56.00 per month Gas $1.30 per hour Depreciation $31.00 per month Assistant's Wages $8.00 per hour Miscellaneous Expenses $30.00 per month Calculate your Equipment net of Accumulated Depreciation at the end of your second month of business. Do not include $ or negative signs in your answer.

438 Equipment (net) = Equipment - Accumulated Depreciation Accumulated Depreciation = Depreciation/Month x 2 Months

If Squid Roe, Inc., has an operating leverage of 3.7 and its sales increase by 12%, calculate the percentage change in operating income to the nearest tenth of a percent. Do not include % sign in your answer.

44.4 3.7 x .12

You plan on starting a lawn mowing business by investing $700 of your own money and purchase $500 of equipment. You plan to work 300 hours per month and charge your customers $21 per hour. Your anticipated costs include: Advertising $67.00 per month Gas $1.50 per hour Depreciation $30.00 per month Assistant's Wages $10.00 per hour Miscellaneous Expenses $50.00 per month Calculate your Equipment net of Accumulated Depreciation at the end of your second month of business. Do not include $ or negative signs in your answer.

440 Equipment (net) = Equipment - Accumulated Depreciation Accumulated Depreciation = Depreciation/Month x 2 Months

You plan on starting a lawn mowing business by investing $700 of your own money and purchasing $500 of equipment. You plan to work 300 hours in your first month and 100 hours in your second month of business. You charge your customers $15 per hour. Your anticipated costs include: Advertising $2 per month Gas $1.20 per hour Depreciation $25 per month Assistant's Wages $10.00 per hour Miscellaneous Expenses $20 per month You plan on collecting 90% of your sales in the month you mow the lawn and the remainder in the following month. Calculate the Accounts Receivable balance at the end of your first month of business.

450 Accounts Receivable = Total Sales - Cash Collected from Sales Total Sales = Hours Worked x Price Charged per Hour Cash Collected = Total Sales x .9;

You plan on starting a lawn mowing business by investing $700 of your own money and purchase $500 of equipment. You plan to work 230 hours per month and charge your customers $21 per hour. Your anticipated costs include: Advertising $12.00 per month Gas $1.50 per hour Depreciation $23.00 per month Assistant's Wages $8.00 per hour Miscellaneous Expenses $50.00 per month Calculate your Equipment net of Accumulated Depreciation at the end of your second month of business. Do not include $ or negative signs in your answer.

454 Equipment (net) = Equipment - Accumulated Depreciation Accumulated Depreciation = Depreciation/Month x 2 Months

Daily Kneads, Inc., is thinking about having one of its products made by a supplier. The supplier will charge $6,000 for 1,000 units. Currently, Daily Kneads' costs to make 1,000 units of this product are as follows: Cost per unit Cost of 1,000 units Direct labor $4 $4,000 Direct materials $1 $1,000 Allocated Unavoidable Fixed Costs $2 $2,000 Total costs $7 $7,000 Calculate the relevant incremental cost of making each unit: $[a] per unit

5 direct labor + direct materials

Dewey, Cheatum & Howe, LLP, is a legal firm. The lawyers are paid $150 per hour and overhead is allocated at a rate of $100 per direct labor hour. A Salt & Buttery, Inc., is a client that was charged for 18 direct labor hours and $1,000 for materials used. Calculate the total cost of the client.

5,500 (Total Costs = Direct Labor + Direct Material + Overhead Direct Labor = Wage per hour x Number of hours Overhead = Overhead Rate per hour x Number of direct labor hours )

5,500 Total Costs = Direct Labor + Direct Material + Overhead Direct Labor = Wage per hour x Number of hours Overhead = Overhead Rate per hour x Number of direct labor hours

Leaning Tower of Pizza, Inc., is preparing its master budget for its first quarter of business. It expects to sell 8,000 pizzas at $7 per pizza per month. It expects to collect 90% of the sales in the month of the sale and 10% in the following month. Calculate its Accounts Receivable balance at the end of its first quarter.

5,600 Accounts Receivable = Sales in the final month x (100% - 90% Collected in the month) All of the other months' sales will have been collected as of the end of the quarter, leaving only 10% of the last month's sales as uncollected.

You plan on starting a lawn mowing business by investing $700 of your own money and purchasing $500 of equipment. You plan to work 200 hours in your first month and 300 hours in your second month of business. You charge your customers $20 per hour. Your anticipated costs include: Advertising $20 per month Gas $1.40 per hour Depreciation $25 per month Assistant's Wages $8.00 per hour Miscellaneous Expenses $40 per month You plan on collecting 90% of your sales in the month you mow the lawn and the remainder in the following month. Calculate the amount of Cash Collections in your second month of business.

5,800 Amount Collected in Second Month = (First Month's Sales x 10%) + (Second Month's Sales x 90%) Sales= Hours Worked x Price Charged per Hour

Bayless Company produces and sells 50 units of a single product. Selling price per unit $600 Variable cost per unit $200 Annual fixed costs $20,000 What is the company's breakeven point in units? Round to the nearest whole unit

50 (Contribution Margin (CM) = Price - Variable Cost per unit Breakeven in units = Fixed Costs/CM)

Lord of the Fries, Inc., makes industrial sized bags of fries in the same factory. The fries' costs consist of the following: Wages of Factory Workers $400,000 Potatoes 100,000 Factory Rent 60,000 Allocated Ingredients (salt and preservatives) 300 Factory Supervisor Salary 10,000 Sales Commissions 60,000 Calculate the Direct Costs for the industrial sized bags of fries.

500,000 Direct Costs include only those costs that are directly traceable to the product (cost object). Indirect costs are not easily traced to one specific product and thus must be allocated to the costs using an overhead allocation rate. The direct costs are materials, potatoes, and labor, factory wages. The other costs, rent, salary of the supervisor, the indirect allocated ingredients, and sales commissions are indirect costs.

Daffy Duct, Inc., has the capacity to produce 12,000 cases of duct tape per year but only produces and sells 10,000 cases at $50 per case. The direct materials equals $170,000, direct labor equals $110,000, and overhead equals $100,000. Sixty percent of the manufacturing overhead is variable. The forty percent of fixed overhead is allocated equally to all products. Dewey, Cheatum & Howe has offered to purchase 1,000 cases but at a reduced price of $40 per case. What is the additional profit (loss) of accepting this offer?

6,000 The fixed allocated overhead is irrelevant since the costs will not change if the company decides to accept the special order. Thus, the special price should be compared to the relevant incremental costs (only the variable material, labor and overhead) that will increase if the order is accepted, not the total cost.

Grass is Greener, Inc., plans to charge its customers by the hour and to work 720 hours at $10 per hour. It expects its variable costs to be $6 per hour and fixed costs to be $600. Calculate the number of hours needed to earn $1,800 in operating income? (Round to the nearest hour)

600 Hours Needed for Desired Operating Income (OI) = (FC + Desired OI)/CM per Hour CM/Hour = Price /Hour - VC/Hour

You plan on starting a lawn mowing business by investing $700 of your own money and purchasing $500 of equipment. You plan to work 260 hours per month and charge your customers $24 per hour. Your anticipated costs include: Advertising $70 per month Gas $1.50 per hour Depreciation $25 per month Assistant's Wages $10.00 per hour Miscellaneous Expenses $50 per month Calculate your budgeted Sales for the year. Do not include a $ sign in your answer.

74,880 To determine sales for the period, management must determine the number of units (which can be expressed as number of customers, hours of service, units of product, etc.) and then multiply the units times the price per unit. Annual Sales = Hours Worked per month x Price Charged per Hour x 12 months per year

Tequila Mockingbird, Inc., produces and sells 200,000 barrels of a beverage. Selling price per barrel $400 Variable cost per barrel $100 Annual fixed cost $500,000 What is the company's contribution margin ratio?

75 Contribution Margin ratio = Total Contribution Margin / Sales For each $1 of sales beyond the breakeven point, operating income will increase by the CM ratio. For example, if sales equals $100,000 and total variable costs equals $70,000 at 20,000 units, then: Contribution Margin (CM) ratio = ($100,000 - 70,000)/$100,000 = 30% Thus, once beyond the breakeven point, each $1 of sales contributes $0.30 to operating income.

Many Happy Returns, Inc., prepares income tax returns. It prepares 50,000 returns per year. Selling price per return $200 Variable cost per return $100 Annual fixed cost $800,000 What is the company's breakeven point in units, i.e., number of returns? Round to the nearest whole return.

8,000 (Contribution Margin (CM) = Price - Variable Cost per unit Breakeven in units = Fixed Costs/CM)

8,000 Contribution Margin (CM) = Price - Variable Cost per unit Breakeven in units = Fixed Costs/CM

You plan on starting a lawn mowing business by investing $700 of your own money and purchasing $500 of equipment. You plan to work 380 hours per month and charge your customers $20 per hour. Your anticipated costs include: Advertising $38 per month Gas $1.20 per hour Depreciation $25 per month Assistant's Wages $7.00 per hour Miscellaneous Expenses $20 per month Calculate your budgeted Total Fixed Cost. Do not include $ sign in your answer.

83 Total Fixed Cost = Advertising + Depreciation + Miscellaneous Expenses (do not change with changes in volume, hours)

You plan on starting a lawn mowing business by investing $700 of your own money and purchasing $500 of equipment. You plan to work 330 hours per month and charge your customers $18 per hour. Your anticipated costs include: Advertising $33 per month Gas $1.30 per hour Depreciation $25 per month Assistant's Wages $10.00 per hour Miscellaneous Expenses $30 per month Calculate your budgeted Total Fixed Cost. Do not include $ sign in your answer.

88 Total Fixed Cost = Advertising + Depreciation + Miscellaneous Expenses (do not change with changes in volume, hours)

Grass Is Browner mows lawns for 530 hours at $15 per hour. It has variable costs of $6 per hour and fixed costs of $2,400. What is Grass Is Browner's contribution margin per hour?

9 The contribution margin equals the price minus the variable cost per unit.

Pasta Disasta, Inc., is preparing its master budget for its first quarter of business. It expects to sell 1,000 pizzas per month. It will purchase enough pizzas so that 100 pizzas are in inventory at all times. The pizza is expected to cost $3 per pizza. It expects to pay 70% in the month of purchase and the remainder in the following month. Calculate the amount of budgeted purchases for its first quarter.

9,300 Purchase = three months' sales + an extra 100 pizzas for inventory

Total Per unit Sales revenue (30,000 units) $750,000 25 Variable costs 450,000 15 Contribution margin 300,000 ? Fixed costs 150,000 Operating income $150,000 At the break-even point:

contribution margin is equal to total fixed costs

A product should be eliminated if its _____.

contribution margin is negative

If Nim Com Soup, Inc.'s, variable costs per unit decrease, while selling price per unit and total fixed costs remain the same, what will happen to the contribution margin per unit and the breakeven point?

contribution margin per unit -increase breakeven point -decrease Contribution Margin = Price - Variable Cost per unit Breakeven in units = Fixed Costs/CM A decrease in Variable Cost, and no other changes, will result in an increase in Contribution Margin and a decrease in the breakeven point.

Citizen Canine, Inc., sells deluxe dog houses: Selling price per unit $2,000 Variable cost per unit $1,000 Annual fixed cost $500,000 Assume that the selling price per unit increases by $200, while variable cost per unit and total fixed cost stay the same. The breakeven point will:

decrease

BBQ's Tanning Beds, Inc., makes and sells a single product for $50 per unit. Variable cost is $30 per unit. The company's total fixed costs are $52,500. If BBQ's Tanning Beds' variable cost per unit decreases, while its selling price per unit and total fixed costs remain the same, its breakeven point in units will:

decrease Contribution Margin (CM) = Price - lower Variable Cost per unit Breakeven in units = Fixed Costs/CM The decrease in variable costs will increase the contribution margin thus the company will need to sell fewer units to breakeven.

If variable cost per unit increases, while selling price per unit and total fixed costs remain the same, then the breakeven point will:

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