UGBA 102B | Midterm #1

Honest Handhelds Inc. has provided the following information: Cost per Unit Cost per Period Direct materials $ 6.60 Direct labor $ 3.85 Variable manufacturing overhead $ 1.50 Fixed manufacturing overhead $ 81,000 Sales commissions $ 0.50 Variable administrative expense $ 0.50 Fixed selling and administrative expense $ 44,550 For financial reporting purposes, the total amount of product costs incurred to make 9,000 units is closest to: $107,550

$107,550 Correct! $188,550 $81,000 $197,550

Principled Products, a retail company, reported the following results for July: Number of units sold 1,200 units Selling price per unit $ 221 per unit Unit cost of goods sold $ 97 per unit Variable selling expense per unit $12 per unit Total fixed selling expense $7,300 Variable administrative expense per unit $ 8 per unit Total fixed administrative expense $15,300 Cost of goods sold is a variable cost in this company. The gross margin for July is:

$124,800 $102,200 Correct! $148,800 $242,600

Conscientious Corporation, a product company, reported sales of $1,555,500 and cost of goods sold of $1,025,100 for December. The company's total variable selling expense was $96,900; its total fixed selling expense was $34,300; its total variable administrative expense was $71,400; and its total fixed administrative expense was $100,100. The cost of goods sold in this company is a variable cost. The contribution margin for December is:

$227,700 Correct! $362,100 $1,252,800 $530,400

Management of Fair Fixtures is considering whether to purchase a new model 370 machine costing $360,000 or a new model 220 machine costing $340,000 to replace a machine that was purchased 7 years ago for $348,000. The old machine was used to make product IJK until it broke down last week. Unfortunately, the old machine cannot be repaired. Management has decided to buy the new model 220 machine. It has less capacity than the new model 370 machine, but its capacity is sufficient to continue making product IJK. Management also considered, but rejected, the alternative of simply dropping product IJK. If that were done, instead of investing $340,000 in the new machine, the money could be invested in a project that would return a total of $411,000. In making the decision to invest in the model 220 machine, the opportunity cost was:

$340,000 $348,000 $360,000 Correct! $411,000

Management of Respectable Resources is considering whether to purchase a new model 450 machine costing $537,000 or a new model 180 machine costing $388,000 to replace a machine that was purchased 9 years ago for $473,000. The old machine was used to make product LMN until it broke down last week. Unfortunately, the old machine cannot be repaired. Management has decided to buy the new model 180 machine. It has less capacity than the new model 450 machine, but its capacity is sufficient to continue making product LMN. Management also considered, but rejected, the alternative of simply dropping product LMN. If that were done, instead of investing $388,000 in the new machine, the money could be invested in a project that would return a total of $495,000. In making the decision to buy the model 180 machine rather than the model 450 machine, the sunk cost was:

$495,000 $388,000 Correct! $473,000 $537,000

Unshakable Inc. uses the following data in its Cost-Volume-Profit analyses: Sales$ 480,000 Variable expenses 358,000 Contribution margin 122,000 Fixed expenses 116,000 Net operating income $6,000 What is total contribution margin if sales volume increases by 25%?

152,500 (with margin: 10)

At a sales volume of 40,000 units, Decent Devices' total fixed costs are $40,000 and total variable costs are $60,000. The relevant range is 30,000 to 50,000 units. If Decent were to sell 50,000 units, the total expected cost per unit would be: (Round intermediate calculations to 2 decimal places.)

Correct! $2.30 $2.50 $2.00 $2.20

In his book Capitalism and Freedom, economist Milton Friedman wrote: "There is one and only one social responsibility of business—to use its resources and engage in activities designed to increase its profits so long as it ... engages in open and free competition, without deception or fraud." In a sentence or two, explain why you agree or disagree with this quote.

When a corporation is solely focused on profits, there is no guarantee that in such a pursuit they will do no harm to the environment and community. Such stakeholder considerations are very important to the long-term success of companies because these are their consumers and the communities that they operate in and are directly affected. Thusly, because they operate at the semi-will of their consumers, they should take some responsibility for the world around them beyond profits.

If the contribution margin is not sufficient to cover fixed expenses: a. contribution margin is negative. b. total profit equals total expenses. c. a loss occurs. d. variable expenses equal contribution margin.

loss occurs

Equitable Entertainment, an amusement park, is open from 8:00 am till midnight every day of the year. Equitable charges its patrons a daily entrance fee of $30 per person which gives them unlimited access to all of the park's 35 rides. Equitable gives out a free T-shirt to every 100th customer entering the park. The cost of this T-shirt would best be described as a:

true variable cost mixed cost Correct! step-variable cost fixed cost