AC 361 - Exam 2

Which method will produce the highest values for WIP and finished good inventories?

absorption costing

Coffee Klatch is an espresso stand in a downtown office building. The average selling price of a cup of coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed expense per month is $1,300. An average of 2,100 cups are sold each month. What is the break-even sales dollars?

$1,715 1300/0.758

Suppose square feet is used as the basis for allocating the common fixed expense of $200,000. How much would be allocated to the bar if the bar occupies 1,000 square feet and the restaurant 9,000 square feet?

$20,000 The bar would be allocated 1/10 of the cost or $20,000.

Coffee Klatch is an espresso stand in a downtown office building. The average selling price of a cup of coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed expense per month is $1,300. Use the formula method to determine the sales dollars that must be generated to attain target profits of $2,500/month.

$5,013 (2500+1300)/[(1.49-0.36)/1.49]

Coffee Klatch is an espresso stand in a downtown office building. The average selling price of a cup of coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed expense per month is $1,300. An average of 2,100 cups are sold each month. What is the CM ratio for Coffee Klatch? `

0.758 (1.49-0.36)/ 1.49

Coffee Klatch is an espresso stand in a downtown office building. The average selling price of a cup of coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed expense per month is $1,300. An average of 2,100 cups are sold each month. What is the break-even sales in units?

1,150 cups 1300/(1.49-0.36)

Coffee Klatch is an espresso stand in a downtown office building. The average selling price of a cup of coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed expense per month is $1,300. An average of 2,100 cups are sold each month. What is the operating leverage?

2.21 2,373/1,073= 2.21

Coffee Klatch is an espresso stand in a downtown office building. The average selling price of a cup of coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed expense per month is $1,300. Use the formula method to determine how many cups of coffee would have to be sold to attain target profits of $2,500 per month.

3,363 (2500+1300)/(1.49-0.36)

At Coffee Klatch the average selling price of a cup of coffee is $1.49, the average variable expense per cup is $0.36, the average fixed expense per month is $1,300, and the average of 2,100 cups are sold each month. If sales increase by 20%, by how much should net operating income increase?

44.2% 20.0%increase*2.21 degree of operating leverage = 44.20%

Coffee Klatch is an espresso stand in a downtown office building. The average selling price of a cup of coffee is $1.49 and the average variable expense per cup is $0.36. The average fixed expense per month is $1,300. An average of 2,100 cups are sold each month. What is the margin of safety expressed in cups?

950 cups 2100-1150= 950

How much of the common fixed expense of $200,000 can be avoided by eliminating the bar?

None of it. Common fixed expenses cannot be eliminated by dropping one of the segments.