MKTG 3700 UNT - Fall 2020

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NT Inc. makes each unit incurring variable costs of $7 for materials and $3 for labor. Another $2 is estimated to be the fixed cost burden on each unit. They then add a profit of 40% on unit selling price. Assume that material and labor are the variable costs. Based on these details... (must choose best answer)

[Each dollar of sales of the product generates contribution of 50 cents] and [Each unit of the product generates $C of $10] are both correct.

For 2021, Dow Chemical would like to reach a certain profit goal, while comparing the alternatives of increasing the commission % paid to its field reps versus increasing their salaries. You point out that such issues can be easily investigated through...

comparison of # and/or $ RLS to reach 2021 profit goal

Panda Toys Inc. plans to sell one line of its panda toys for $ 20. The material cost per unit is $ 4 and unit labor cost is $ 6. The annual overhead fixed costs are $ 500,000 and the promotion and advertising cost is $100,000. If the unit labor cost is dropped to $5, what is the $BEP for the company?

$1,090,920 *Explanation:* new $C=usp of $20 - uvc of ($4+$5)=$11. new #BEP=TFC of $600,000/$11=54546, rounded up. New $BEP=54,546*$20=$1,090,920.

$1,200,000

Panda Toys Inc. plans to sell one line of its panda toys for $ 20. The material cost per unit is $ 4 and unit labor cost is $ 6. The annual overhead fixed costs are $ 500,000 and the promotion and advertising cost is $100,000. If the advertising costs are increased by $ 50,000, what is the #BEP for the company?

$1,300,000

ABC manufacturing co has estimated breakeven volume of 50,000 units for its new widget. If $unit variable cost is $23.00 and unit selling price is $25.00, what is the total fixed cost?

$100,00 *Explanation:* #BEP=TFC/$C. Here, $C=$25-$23=$2.00. 50,000=TFC/$2.00. Therefore, TFC=$100,000.

Mini Blenders Inc. has set a unit selling price of $20.00. Their Fixed costs are $25,000 for the year, during which 10,000 units are expected to be sold. A 20% markup on sales is included in the selling price. What is MBI's unit variable cost?

$13.5 per unit *Explanation:* Unit Total Cost, using F1=20*(1-20%)=$16.00. UFC=$25,000/10,000=$2.50. Therefore, UVC=$16-$2.50=$13.50

Adibas desires to establish retail selling price for its new skateboard on the basis of Perceived Value. The average market price for this item is $12.50. Consumers, when asked to allocate 100 points among Adibas and four other competitors, gave Adibas an average of 24 points. Your recommended PV-based Adibas retail price?

$15.00

Rainbow Inc. had total sales of $480,000 in 2019 and the credits and allowances totaled $10,000. The company sold 150,000 units with per unit cost of goods sold of $2. The administrative and sales costs were $100,000. What is the gross margin of the company's in 2019?

$150,000 *Explanation:* Net Sales = $480-$30=$450; COGS=150*$2=$300; GP=$450-$300=$150,000

In 2019, Star! Inc. had current assets of $1,500,000 and its fixed assets were evaluated at $800,000. The company had long-term debts totaled $900,000 and its accountspayable was $1,000,000. The owner's equity was worthy of $1,000,000. What total dollar amount would you expect to see on the liabilities side of their balance sheet?

$2,900,000 *Explanation:* Exclude all assets. Therefore, $900+$1,000+$1,000=$2,900,000. Note that Owner's Equity is part of the liabilities side of a Balance Sheet.

ABC mfg co has estimated breakeven volume of 50,000 units for its new widget. If fixed costs are $100,000, unit selling price is $25.00 and ABC sales force commission is 8% of selling price, what is their $contribution per unit?

$2.00 #BEP=TFC/$C. Therefore, $C=TFC/#BEP. Here, $C=$100,000/50,000=$2.00. The rest of the information is superfluous.

Adibas desires to establish retail selling price for its new skateboard on the basis of Perceived Value. The average market price for this item is $14.00. Consumers, when asked to allocate 100 points among Adibas and four other competitors, gave Adibas an average of 30 points. Your recommended PV-based Adibas retail price?

$21.00

$21.00 *Explanation:* $C=TFC/#BEP=$100,000/50,000=$2.00.UVC=USP-$C=25-$2=$23.Commission=8%*25=$2.00.Therefore, non-commission UVC=$23-$2 commission=$21.00

Cool Fan Company sells 10,000 units to wholesalers each year at $60 per unit. The materials cost $10 per fan and unit labor cost is $15. The total promotion and marketing costs are $100,000. The facility expenses are $80,000 per year and other overheads cost $20,000. What are the total fixed costs of 10,000 fans?

$25

*Question:* In 2019, ABC Company had net sales of $500,000 and a gross margin of $300,000. The total overhead costs were $100,000 and the promotion costs were $80,000. The company sold 100,000 units. What was $BEP of the company in 2019?

$300,000 *Explanation:* $C=$300,000/100,000=$3. TFC=100+80=$180,000. #BEP=$180,000/$3=60,000. USP=$5, so $BEP=60,000*$5=$300,000

Sunny Wonderland sells its books to the retailers at $6 each, which sells it to the consumers at $8. What is the markup of retailer? (MUST chose BEST answer!)

$C=$2.00, %muc=33.33% and %musp=25% are all correct

Mini Blenders Inc. estimates manufacturing unit variable cost as $10. Fixed costs are $30,000 for the year, during which 5,000 units are expected to be sold. A 60% markup on unit selling price is desired. What should be MBI's selling price per unit?

$40.00 per unit

In explaining NPV analysis to I.M. Boss, you point out that the IRR is the...

% CC at which Cumulative Discounted NCF reaches $0 over the projects life

Sunshine company manufactures 100,000 table fans every year with a unit selling price of $20. The direct material cost for a table fan is $5, and direct labor cost is $4. The factory overhead is $150,000 and the administrative costs are $ 200,000. The company also expends $150,000 on advertising every year. What is the total fixed costs of the company?

$500,000 *Explanation:* 150+200+150=$500,000

Snowflake Inc. sells its ice skates to the wholesalers at $200 a box. Each box has 5 pairs of ice skates. The wholesalers add $10 to each pair of ice skates and sell them to the retailers. The retailers sell each pair at 10%muc. What is the selling price of the retailer per pair of ice skates?

$55 *Explanation:* ($200+10*5)*(1+10%)=$275. This is for 5 pairs, so $55 per pair.

Mini Blenders Inc. has come up with a unit selling price of $12.00. Their Fixed costs are $24,000 for the year, during which 12,000 units are expected to be sold. A 25% profit margin on sales is included in the selling price. What is MBI's unit variable cost?

$7 per unit *Explanation:* Unit Total Cost, using F1=12*(1-25%)=$9.00.UFC=$24,000/12,000=$2.00. Therefore, UVC=$9-$2=$7.00

Mighty Widget Manufacturers Inc. sells each unit for $7 to Widget Wholesalers who then sell it for $10 to Robust Retailers Inc. Therefore, Widget Wholesaler's......

%muc=42.86%, %musp=30.00% *Explanation:* WW buy for $7 and sell for $10, so $mu=10-7=$3. %muc=3/7=42.86%; %musp=3/10=30%

A manufacturer sells $8/unit to wholesalers who mark up by 20% on retailer purchase price. Afterwards, the retailers mark up by 50.00% on wholesaler selling price. Here after rounding to 2 decimals.

%muc=50% and $mu=$5 are both correct. *Explanation:* 8/(1-20%)=$10.00 (retailer cost). then, $10.00*(1+50%)=$15.00, which is a $5 markup on a $10 cost.

*Question:* The table below provides raw score performance information on three students in a class that carries a total of 1,000 semester points. Which student has the lowest grade? (Note: 90% or above = A; 80%-89% = B; 70%-79% = C; 60%-69% = D, and 59% and below = F) Maximum Score for each assignment - Homework 1 - 100 - Homework 2 - 100 - Homework 3 - 100 - Mid-Term Exam - 300 - Final Exam - 400 Student A - Homework 1 - 70 - Homework 2 - 75 - Homework 3 - 80 - Mid-Term Exam - 150 - Final Exam - 240 Student B - Homework 1 - 80 - Homework 2 - 85 - Homework 3 - 90 - Mid-Term Exam - 210 - Final Exam - 320 Student C - Homework 1 - 60 - Homework 2 - 70 - Homework 3 - 80 - Mid-Term Exam - 285 - Final Exam - 360

(10%*70/100)+(10%*75/100)+(10%*80/100)+(30%*150/300)+(40%*240/400) *Explanation:* First convert each grade of Students A to a %. Then combine these using the % weight for each, which is its max score/1000.

It is January 2020. SIB Inc, a small manufacturer unhappy with its performance, (i) hires an independent agent (and therefore, the agent's sales force), and (ii) gets rid of its own "salary only" sales force. All other costs remaining the same, how will these changes affect SIB in 2020 versus 2019?

(i) will increase unit variable cost, and (ii) will decrease total fixed cost

*Question:* Sunshine company manufactures 100,000 table fans every year with a unit selling price of $20. The direct material cost for a table fan is $5, and direct labor cost is $4. The factory overhead is $150,000 and the administrative costs are $ 200,000. The company also expends $ 150,000 on advertising every year. What is the $C of a table fan?

*Answer:* $ 11 *Explanation:* USP $20 - UVC $9 = $C = $11

*Question:* Cool Fan Company sells 10,000 units to wholesalers each year at $60 per unit. The materials cost $10 per fan and unit labor cost is $15. The total promotion and marketing costs are $100,000. The facility expenses are $80,000 per year and other overheads cost $20,000. What is the total $ contribution of 10,000 fans?

*Answer:* $ 350,000 *Explanation:* USP = 60, UVC = 25, $C = 35, Total $C = 35 x 10000 = $350,000

*Question:* Sunny Wonderland sells its books to the wholesalers at $8 each, which sells it to the retailers at the 10% muc. The retailer sells the books to the consumers at 15%musp. What is the cost to the wholesaler?

*Answer:* $ 8 *Explanation:* Wholesaler buys for $8.00

*Answer:* $ 8.80 *Explanation:* Wholesaler sells and retailer buys for F3 = 8 x (1 + 10%) = $8.80

*Question:* Based on the two Income Statement below, what is the % growth in $ 2019 Net Income? Year ending Dec 31, 2019 - Gross sales $860,000 - Returns and Allowances $10,000 - Cost of Goods Sold $510,000 - Operating Expenses $110,000 - Administrative Expenses $55,000 - General Expenses $40,000 Year ending Dec 31, 2018 - Gross sales $800,000 - Returns and Allowances $10,000 - Cost of Goods Sold $500,000 - Operating Expenses $100,000 - Administrative Expenses $50,000 - General Expenses $40,000 a. the $ net profit decreased form 2018 to 2019 b. $ Net Profit and % Net Profit, both increased from 2018 to 2019 c. the $ net profit increased from 2018 to 2019 d. the net profit % decreased from 2018 to 2019 e. the net profit % increased from 2018 to 2019

*Answer:* $ Net Profit and % Net Profit, both increased from 2018 to 2019. *Explanation:* 2018: NI=$100,000 or 12.665% of Net Sales of $790,000. 2019 NI=$135,000 or 15.88% of Net Sales of $850,000

*Question:* ABC mfg co has estimated breakeven volume of 50,000 units for its new widget. If fixed costs are $100,000 and unit variable cost is $18.00, what is the $ BEP?

*Answer:* $1,000,000 *Explanation:* $C = $2. USP = $18 + $2 = $20. Total Sales = $20 x 50,000 = $1,000,000

*Question:* ABC mfg co sells widgets. If unit selling price is $25.00, unit variable cost is $23.00 and Total Fixed Cost is $100,000, what is $BEP?

*Answer:* $1,250,000 *Explanation:* $C = $25 - $23 = $2.00. #BEP = $100,000/$2 = 50,000 units. $BEP = 50,000 x $25 = $1,250,000

*Question:* Panda Toys Inc. plans to sell one line of its panda toys for $ 20. The material cost per unit is $ 4 and unit labor cost is $ 6. The annual overhead fixed costs are $ 500,000 and the promotion and advertising cost is $100,000. What is the $C of this panda toy line?

*Answer:* $10 *Explanation:* $C = usp of $20 - uvc of ($4 + $6) = $10

*Question:* A manufacturer makes a product for $8 and adds a 25% profit on cost. They sell to a wholesaler who sells it for 50% markup based on cost. The retailer marks it up by 33.33% on wholesaler selling price and sells the product to the consumer. What is the total $ channel markup in going from wholesaler cost to retailer selling price, i.e., the $ difference between the two?

*Answer:* $10 *Explanation:* Manufacturer markup is 25%muc. Wholesaler markup is 50%muc. Retailer markup is 33.33% muc. Therefore, the correct markup chain for calculating retail selling requires applying F3 three times: $8 * (1 + 25%) * (1 + 50%) * (1 + 33.33%) = $20 In this chain, the first link deals with the manufacturer who makes for $8 and sells for $10. The difference between wholesaler cost (manufacturer sp) and consumer purchase price is $20 - $10 = $10

*Question:* A manufacturer makes a product for $6 an adds a 25% profit on selling price. They sell to a wholesaler who sells it for 50%markup based on manufacturer selling price. The retailer marks it up by 25% on consumer purchase price and sells the product to the consumer. What is the total $ markup in going from manufacturer's cost to consumer purchase price, i.e., the $ difference between the two?

*Answer:* $10 *Explanation:* Manufacturer markup is 25%musp. Wholesaler markup is 50%muc. Retailer markup is 25% musp. Therefore, the correct markup chain for calculating retail selling price requires applying F2, then F3, then F2 again: [$6 / (1 - 25%)] * (1 + 50%) / (1 - 25%) = $16. The difference between manufacturer cost and consumer purchase price is $16 - $6 = $10

*Question:* Mini Blenders 9. Mini Blenders Inc. has set a unit selling price of $15.00. Their Fixed costs are $20,000 for the year, during which 10,000 units are expected to be sold. A 20% markup on sales is included in the selling price. What is MBI's unit variable cost?

*Answer:* $10 per unit *Explanation:* Unit Total Cost, using F1 = 15 * (1 - 20%) = $20.00 UFC = $20,000/10,000 = $2.00 Therefore, UVC = $12 - $2 = $10.00

*Question:* ABC Company sells its 4G SD memory card for $15 per unit. The unit production cost is $3 and unit labor cost is $5. The packaging and shipping costs additional $2 per unit. The annual manufacturing costs are $60,000 and the promotion and advertising cost is $40,000. If the company sold 22,000 units last year, what is the profit of the company?

*Answer:* $10,000 *Explanation:* $C = 15 - 10 = 5 TFC = $100,000 #BEP = 20,000 Excess = Sales - #BEP => 22,000 - 20,000 = 2,000. $Profit = Excess * $C = 2,000 * $5 = $10,000

*Question:* ABC manufacturing company sells each of its tractors at $20,000 directly to the retailers. ABC pays each of its ten salespersons $60,000 per year. Each salesperson also receives a %5 commission for every tractor sold. The direct labor and material cost $ 8,500. What is ABC's $C for each tractor?

*Answer:* $10,500 *Explanation:* UVC = 8500 + commission of 1000 = $9,500. $C = 20000 - 9500 = $10,500

*Answer:* $10,500,000 *Explanation:* $C = $10,500 multiplied by 1,000, Total $C = $10,500,000

*Answer:* $10.35 *Explanation:* Retailer buys: F3 = 8 * (1 + 10%) = $8.80 Retailer sells = F2 = 8.80/(1 - 15%) = $10.35 This is the consumer purchase price.

*Question:* Sunny Wonderland sells its books to the wholesalers at $8 each, which sells it to the retailers at the markup of $2. The retailer sells the books to the consumers at 10 %muc. What is the selling price of the retailer?

*Answer:* $11 *Explanation:* Retailer buys for 8 + 2 = $10. Then ads %muc of 10%. Therefore sells for F3: 10 * (1 + 10%) = $11

*Question:* Adibas desires to establish retail selling price for its new skateboard on the basis of Perceived Value. The average market price for this item is $12.50. Consumers, when asked to allocate 100 points among Adibas and four other competitors, gave Adibas an average of 18 points. Your recommended PV-based Adibas retail price?

*Answer:* $11.50 *Explanation:* Adibas received 18 points which is more than the average perception of 100/5 = 20 points. 18/20 = 90% of 0.9. Average price is $12.50. If you multiply that by 0.9, you get $11.50, which would be the suggested adibas price according to Perceived Value Pricing.

*Question:* A manufacturer makes a product for $8 and adds a 20% profit on wholesaler purchase price. The wholesaler then sells it for 50% markup based on manufacturer selling price. The retailer marks it up by 33.33% on wholesaler selling price and sells the product to the consumer. What is the total $ markup in going from manufacturer's cost to consumer purchase price, i.e., the $ difference between the two (round to two decimals)?

*Answer:* $12 *Explanation:* Manufacturer makes for $8.00, then %musp = 20%. Use F2, sp = $10.00 Wholesaler buys for $10.00, then %muc = 50%, F3, usp = $15.00. Retailer buys for $15.00, then %muc = 33.33%, F3, usp = $20.00. Difference between manufacturer cost of $8.00 and retailer selling price of $20.00 is $12.00

*Question:* LilGuy Inc has manufacturing variable cost of $7.00 per unit, fixed costs of $27,000 and anticipated sales of 9,000 units. What is the desired selling price for an ROI of 10% on an investment of $180,000?

*Answer:* $12.00 *Explanation:* uvc = $7.00; ufc = $27,000/9,000 = $3.00. therefore unit total cost = $7 + $3 = $10.00. To this $ROI per unit must be added. $ROI = 10% x $180,000 = $18,000. pr unit, this is $18,000/9,000 = $2.00. Therefore usp = $10 + $2 = $12.00.

*Question:* ABC mfg co has estimated breakeven volume of 60,000 units for its new widget. If fixed costs are $150,000, unit selling price is $25.00 and ABC sales force commission is 8% of selling price, what is their $contribution?

*Answer:* $2.50 *Explanation:* $C = TFC/#BEP = $150,000/60,000 = $2.50. Additional information is superfluous

*Question:* Adibas desires to establish retail selling price for its new skateboard on the basis of Perceived Value. The average market price for this item is $12.50. Consumers, when asked to allocate 100 points among Adibas and four other competitors, gave Adibas an average of 20 points. Your recommended PV-based Adibas retail price?

*Answer:* $12.50 *Explanation:* Adibas received 20 points which is more than the average perception of 100/5 = 20 points. 20/20 = 100% of 1.0. Average price is $12.50. If you multiply that by 1.00, you get $12.50, which would be the suggested adibas price according to Perceived Value Pricing.

*Question:* A wholesaler purchases widgets for $8 per unit from the manufacturer and sells it to retailers who then sell to consumers. The wholesaler marks up by 20% on the retailer purchase price, while the retailers mark up by 25% on the wholesaler selling price. Here, the retail selling price to the consumer is:

*Answer:* $12.50 *Explanation:* Starting with $8.00, the wholesaler's cost, apply F2 using the 20%musp of the wholesaler, followed by F3 and the 25%muc of the retailer, usp retailer = [8 / (1 - 20%)] * (1 + 25%) = $12.50

*Question:* LilGuy Inc. has manufacturing variable cost of $8.00 per unit, fixed costs of $27,000 and anticipated sales of 9,000 units. What is the desired selling price for an ROI of 10% on an investment of $180,000?

*Answer:* $13.00 uvc = $8.00; ufc = $27,000/9,000 = $3.00. therefore unit total cost = $8 + $3 = $11.00. To this $ROI per unit must be added $ROI = 10% x $180,000 = $18,000 or $18,000/9,000 = $2.00 per unit. Therefore usp = $11 + $2 = $13.00.

*Question:* Based on the Income Statement information below, what is the 2019 Net Income? Year ending Dec 31, 2019 - Gross sales $860,000 - Returns and Allowances $10,000 - Cost of Goods Sold $510,000 - Operating Expenses $110,000 - Administrative Expenses $55,000 - General Expenses $40,000

*Answer:* $135,000 *Explanation:* $860,000 - all else = $135,000

*Question:* Consumers buy swimming goggles at $20 per pair. The retailer sells the goggles at a 20 %musp. The wholesaler adds a $2 markup in selling to the retailer. What is the selling price of the manufacturer?

*Answer:* $14 *Explanation:* Wholesaler selling price = retailer cost Using F1, 20 * (1 - 20%) = $16 Wholesaler $mu = $2, so their cost = manufacturer selling price = 16 - 2 = $14

*Question:* The table shows the likelihood of NT Inc's unit sales at different prices. At a price of $20.00, a reasonable estimate of NT's expected sales in dollars is: Sales Volume in Units: - 6,000 * $5.00 = 0.10 * $10.00 = 0.40 * $20.00 = 0.60 - 8,000 * $5.00 = 0.20 * $10.00 = 0.20 * $20.00 = 0.20 - 10,000 * $5.00 = 0.40 * $10.00 = 0.20 * $20.00 = 0.10 - 12,000 * $5.00 = 0.30 * $10.00 = 0.20 * $20.00 = 0.10

*Answer:* $148,000 *Explanation:* At $20.00, weighted average for units sold = 60% X 6000 + 20% X 8000 + 10% X 10000 + 10% X 12000 = 7,400 units 7,400 units * $20 = $148,000 in sales

*Question:* Adibas desires to establish retail selling price for its new skateboard on the basis of Perceived Value. The average market price for this item is $10.50. Consumers, when asked to allocate 100 points among Adibas and four other competitors, gave Adibas an average of 24 points. Your recommended PV-based Adibas retail price?

*Answer:* $15.75 *Explanation:* Adibas received 30 points which is more than the average perception of 100/5 = 20 points. 30/20 = 150% of 1.5. Average price is $10.50. If you multiply that by 1.50, you get $15.75, which would be the suggested adibas price according to Perceived Value Pricing.

*Question:* Moonlight Inc. had sales of $500,000 in 2019, and the cost of goods sold was $150,000. The promotion cost was $80,000 and the administration costs were $120,000. What is the company's net profit, also called contribution to margin or CTM?

*Answer:* $150,000 *Explanation:* $500,000 - ($150,000 + $80,000 + $120,000) = $150,000

*Answer:* $150,000 *Explanation:* Total $C = $350,000, TFC = $200,000, Therefore CTM = $150,000

*Question:* Consumers buy swimming goggles at $20 per pair. The retailer sells the goggles at a 20 %musp. The manufacturer adds $2 to its cost and sells it to the wholesaler. What is the retailer's cost?

*Answer:* $16 *Explanation:* Retailer cost using F1, 20 * (1 - 20%)

*Question:* LeCake produces and sells two types of gourmet cakes: Strawberry Vanilla Rainbow Cake, sells for $9 and account for 70% of the sales. Chocolate Coffee Cake, sells for $10 and accounts for the remaining 30% of the sales. In 2019, LeCake sold 4,000 cakes in total, the average variable cost per cake, regardless of type, was $6.50, and the total fixed cost was $5,000. What was LeCake's 2019 $BEP?

*Answer:* $16,609.80 *Explanation:* $BEP = #BEP * USP = (TFC/$C) * USP = (TFC/USP - UVC) * USP = 1,786 * $9.30 = $16,609.80

*Question:* Rainbow Inc. had total sales of $480,000 in 2019 and the credits and allowances totaled $10,000. The cost of goods sold was $300,000 and the administrative and sales costs were $100,000. What is the gross margin of the company in 2019?

*Answer:* $170,000 *Explanation:* - Net sales = $480,000 - $10,000 = 470,000. - Gross Margin = $470,000 - COGS (300,000) = $170,000

*Question:* Adibas desires to establish retail selling price for its new skateboard on the basis of Perceived Value. The average market price for this item is $15.00. Consumers, when asked to allocate 100 points among Adibas and four other competitors, gave Adibas an average of 24 points. Your recommended PV-based Adibas retail price?

*Answer:* $18.00 *Explanation:* Adibas received 24 points which is more than the average perception of 100/5 = 20 points. 24/20 = 120% of 1.2. Average price is $15.00. If you multiply that by 1.20, you get $18.00, which would be the suggested adibas price according to Perceived Value Pricing.

*Question:* Aha! Inc. had inventory of $500,000 at the beginning of 2019. The company purchased $2,000,000 less purchase discount of 10%. The freight cost was $200,000 and the company had inventory of $300,000 at the end of the year. What is the company's 2019 cost of goods sold? $1,500,000 $500,000 $2,500,000 $300,000 $2,200,000

*Answer:* $2,200,000 *Explanation:* COGS = $500 + ($2000 - 10% * $2000) + $200 - $300 = $2,200,000

*Question:* LeCake produces and sells two types of gourmet cakes: Strawberry Vanilla Rainbow Cake, sells for $9 and account for 70% of the sales. Chocolate Coffee Cake, sells for $10 and accounts for remaining 30% of the sales. In 2019, LeCake sold 4,000 cakes in total, the average variable cost per cake, regardless of type, was $6.50, and the total fixed cost was $5,000. What is LeCake's 2019 $contribution per cake?

*Answer:* $2.80 $C per unit = USP - UVC = $9.30 - $6.50 = $2.80

"Question:" Mini Blenders Inc. e 2. Mini Blenders Inc. estimates manufacturing unit variable cost as $6. Fixed costs are $20,000 for the year, during which 10,000 units are expected to be sold. A 60% profit margin on unit selling price is desired. What should be MBI's selling price per unit?

*Answer:* $20.00 per unit *Explanation:* UVC = $6.00; UFC = $20,000/10,000 units = $2.00 Therefore, unit total cost = $6 + $2 = $8.00 Desired profit = 60% on unit selling price. Therefore, usp, using F2 = $8 / (1 - 60%) = $20.00

"Question:" Mini Blenders Inc. e 2. Mini Blenders Inc. estimates manufacturing unit variable cost as $4. Fixed costs are $16,000 for the year, during which 8,000 units are expected to be sold. A 75% profit margin on unit selling price is desired. What should be MBI's selling price per unit?

*Answer:* $24.00 per unit *Explanation:* UVC = $4.00; UFC = $16,000/8,000 units = $2.00 Therefore, unit total cost = $6 + $2 = $8.00 Desired profit = 75% on unit selling price. Therefore, usp, using F2 = $6 / (1 - 75%) = $24.00

*Answer:* $250,000 *Explanation:* Unit Variable Cost = 10 + 15 = 25 Total Variable Cost = 25 * 10,000 = $250,000

*Question:* ATT Inc. is developing a new type of cordless phone that would be sold for $50 per unit. The unit material cost if $10 and unit labor cost is $15. The R&D costs incurred so far for the prototype are $500,000. The annual manufacturing costs are $1 million an the promotion an advertising costs are expected to be $500,000. What is $BEP for the company?

*Answer:* $3,000,000 *Explanation:* $C = usp - uvc $C = $50 - ($10 + $15) = $25 TFC = 1.5 million (exclude R& D, a sunk cost). #BEP = 1.5 million/$25 = 60,000 $BEP = 60,000 * $50 = $3,000,000

*Question:* Mini Blenders Inc. estimates manufacturing unit variable cost as $9. Fixed costs are $30,000 for the year, during which 10,000 units are expected to be sold. A 60% markup on unit selling price is desired. What should be MBI's selling price per unit?

*Answer:* $30.00 per unit *Explanation:* UVC = $9.00; UFC = $30,000/10,000 = $3 Therefore unit total cost = $9 + $3 = $12.00 Desired profit = 60% on unit total cost. Therefore, USP, using F2 = $12 * (1 - 60%) = $30.00

*Question:* ABC mfg co has estimated breakeven volume of 100,000 units for its new widget. If fixed costs are $400,00, unit selling price, what is the unit variable cost (including commission)?

*Answer:* $31.00 *Explanation:* $C = TFC/#BEP = $40,000/100,000 = $4 UVC = USP - $C = $35 - $4 = $31

*Answer:* $35 *Explanation:* Unit Selling Price = $60 Unit Variable Cost = $25 $ Contribution = $60 - $25 = $35

*Question:* In 2019, Star! Inc. had net sales of $1,600,000 and the cost of goods sold was $500,000. The sales and administrative expenses were $450,000 and the financial expense was $300,000. What was the company's income before income taxes? $1,600,000 $650,000 $350,000 $300,000 $1,100,000

*Answer:* $350,000 *Explanation:* $1600 - ($500 + $450+ $300) = $350,000

*Question:* In 2019, Star! Inc. had current assets of $1,500,000 and the value of its property, plant and equipments were $2,000,000. The company's other assets were valued at $800,000 and its long-term debts totaled $900,000. How much is the company's total assets? $4,300,000 $800,000 $900,000 $3,500,000 $1,500,000

*Answer:* $4,300,000 *Explanation:* Exclude the debt, a liability. Therefore, Total assets = $1500 + $2000 +$800 = $4,300,000

*Question:* The following table shows the likelihood of different sales volumes at different prices. At a price of $5.00, a reasonable estimate of expected sales in dollars is: Sales Volume in Units: - 6,000 * $5.00 = 0.10 * $10.00 = 0.40 * $20.00 = 0.60 - 8,000 * $5.00 = 0.20 * $10.00 = 0.20 * $20.00 = 0.20 - 10,000 * $5.00 = 0.40 * $10.00 = 0.20 * $20.00 = 0.10 - 12,000 * $5.00 = 0.30 * $10.00 = 0.20 * $20.00 = 0.10

*Answer:* $49,000 *Explanation:* Weighted sales = 9800 units * $5 = $49,000

*Question:* Mini Blenders Inc. has come up with a unit selling price of $10.00. Their Fixed costs are $20,000 for the year, during which 10,000 units are expected to be sold. A 20% profit margin on sales is included in the selling price. What is MBI's unit variable cost?

*Answer:* $6 per unit *Explanation:* Unit Total Cost, using F1 = 10 x (1 - 20%) = $8.00. UFC = $20,000/10,000 = $2.00. Therefore, UVC = $5 - $2 = $6.00

*Question:* ATT Inc. is developing a new type of cordless phone that would be sold for $50 per unit. The unit material cost if $10 and unit labor cost is $15. The annual manufacturing overheads are $ 1 million and promotion and advertising cost are $500,000. If the promotion cost increased by $ 35,000. What is Δ$BEP for the company?

*Answer:* $70,000 *Explanation:* $C = usp $15 - uvc ($10 + $15) = $25. Delta i.e. the change TFC = $35,000. Therefore Delta #BEP = 35000/25 = 1,400, Delta $BEP = 1400 x 50 = $70,000

*Question:* Rainbow Inc. had total sales of $480,000 in 2019 and the credits and allowances totaled $10,000. The company sold 150,000 units with per unit cost of goods sold of $2. The administrative and sales costs were $100,000. What is the net profit of the company in 2019?

*Answer:* $70,000 *Explanation:* Net Profit = Gross Profit - Fixed Expenses GP = 480,000 - 10,000 - (150,000 * $2) = $170,000 Net Profit = $170,000 - $100,000 = $70,000

*Question:* You point out to I.M. Boss, your CEO, that in NPV analysis, value of THIS depends upon the risk associated with a project. Low risk projects tend to have low value for THIS and high risk projects tends to have high value for this. THIS=?

*Answer:* Cost of Capital *Explanation:* See discussion on Cost of Capital in Chapter 9 NPV along with the Project A vs B and Gadgets cases.

A retailer sells a product for $16 after marking up 33.33% on wholesaler selling price. The wholesaler's markup is 50% based on manufacturer selling price. In this instance, what is the manufacturer selling price (round to 2 decimals where necessary)?

*Answer:* $8.00 *Explanation:* Here, both retailer and wholesaler markup are %muc. Therefore starting with $16 and applying F4 twice, wholesaler cost = 16/1.3333/1.50 = $8.00. This is also the manufacturer selling price.

*Question:* Mini Blenders Inc. estimates manufacturing unit variable cost as $4. Fixed costs are $16,000 for the year, during which 8,000 units are expected to be sold. A 45% profit margin on unit total cost is desired. What should be MBI's selling price per unit?

*Answer:* $8.70 per unit *Explanation:* UVC = $4.00; UFC = $16,000/8,000 = $2 Therefore unit total cost = $4 + $2 = $6 Desired profit = 45% on unit total cost. Therefore, USP, using F3 = $6 * (1 + 45%) = $8.70

*Question:* The table shows the likelihood of NT Inc's unit sales at different prices. At a price of $10.00, a reasonable estimate of NT's expected sales in dollars is: Sales Volume in Units: - 6,000 * $5.00 = 0.10 * $10.00 = 0.40 * $20.00 = 0.60 - 8,000 * $5.00 = 0.20 * $10.00 = 0.20 * $20.00 = 0.20 - 10,000 * $5.00 = 0.40 * $10.00 = 0.20 * $20.00 = 0.10 - 12,000 * $5.00 = 0.30 * $10.00 = 0.20 * $20.00 = 0.10

*Answer:* $80,000 *Explanation:* At $10.00, weighted average for units sold = 40% * 6000 + 30% * 8000 + 20% * 10000 + 10% * 12000 = 8000 units. This is $80,000 in sales.

*Question:* Fancy Jean sells its women's jean for $60 to the wholesalers, and the consumers buy it from retailer for $ 90. The retailers add 10 %muc. Which of the following statements is correct?

*Answer:* $81.82 and $21.82 are both correct *Explanation:* Retailer cost, using F4 = 90/1.10 = 81.82. This is also the wholesaler sp. Since the wholesaler buys for $60, their $mu = $21.82

*Question:* LeCake produces and sells two types of gourmet cakes: Strawberry Vanilla Rainbow Cake, sells for $9 and account for 70% of the sales. Chocolate Coffee Cake, sells for $10 and accounts for remaining 30% of the sales. In 2019, LeCake sold 4,000 cakes in total, the average variable cost per cake, regardless of type, was $6.50, and the total fixed cost was $5,000. What is the weighted manufacturer selling price of a cake sold by LeCake?

*Answer:* $9.30 *Explanation:* Weighted USP = 70% x $9 + 30% x $10 = $9.30

*Question:* ABC mfg co has estimated breakeven volume of 30,000 units for its new widget. If fixed costs are $300,000, unit selling price is $20.00 and ABC sales force commission is 3% of selling price, what is the non-commission unit variable cost?

*Answer:* $9.40 *Explanation:* $C = TFC/#BEP = $300,000/30,000 = $10.00. UVC = USP - $C = $20.00 - $10.00 = $10.00. Commission = 3.00% x $20.00 = $0.60. Therefore, non-commission UVC = $10.00 - $0.60 = $9.40

*Question:* Which of the following statements about $BEP is not correct?

*Answer:* $BEP = TVC/%C *Explanation:* Total Variable Cost (TVC) does not belong here. It should be TFC (Total Fixed Costs). For a better explanation see BEP in Chapter 4 and the associated formula.

*Question:* For the channel chain of manufacturer -> wholesaler -> retailer -> consumer which of the following statements is wrong?

*Answer:* % markup based on retailer cost is less than % markup based on retailer selling price. *Explanation:* It is the other way, %muc & gt, %musp. For a better explanation see Chapter 3.

*Question:* Please advise Denton Snacks Inc on % Mark Up!. Typically....

*Answer:* %muc > %musp because Selling Price > Cost *Explanation:* The $ markup amount is identical for both %muc and %musp. In %muc, that $ is divided by cost. In %musp, by selling price. Since sp is > cost, the denominator is greater in calculating %musp which, therefore, is < %muc.

Relax Inn has four types of room, which target at different kinds of customers. Based on the information in the table below, how will you calculate their weighted average room rate per night? 1 Type of room: Economy % of all rooms: 40% Rate per night: $100 2 Type of room: Comfort % of all rooms: 25% Rate per night $120 3 Type of room: Deluxe % of all rooms: 20% Rate per night $150 4 Type of room: Luxury % of all rooms: 15% Rate per night $200

*Answer:* ($100 * 40%) + ($120 * 25%) + ($150 * 20%) +($200 * 15%) *Explanation:* Multiply each rate by its %, then add the result.

*Question:* Relax Inn has four types of room, which target at different kinds of customers. Based on the information in the table below, how will you calculate their simple average room rate per night? 1 Type of room: Economy % of all rooms: 40 %Rate per night: $100 2 Type of room: Comfort % of all rooms: 25 %Rate per night $120 3 Type of room: Deluxe % of all rooms: 20 %Rate per night $150 4 Type of room: Luxury % of all rooms: 15 %Rate per night $200

*Answer:* ($100 + $120 + $150 + $200)/4 *Explanation:* Add all rates, then divide by 4

*Question:* Consumers buy swimming goggles at $20 per pair. The retailer sells the goggles at a 20 %musp. The wholesaler adds a $ 2 markup in selling to the retailer. Which of the following is the correct markup chain for computing the cost of the wholesaler?

*Answer:* ($20 x (1 - 20%musp)) - $2

*Question:* Apple Computer Co. t 2. Apple Computer Co. typically calculates the proposed price for one of its new products two ways: (1) Start with an attractive retail price and then figure out whether Apple can profitably make the product if it sells at that retail price, and (2) Start with how much it costs to produce a unit, add their typical profit margin an then estimate the likely price to the consumer at the retail outlet. In other words,

*Answer:* (1) is bottom up markup pricing, (2) is top down markup pricing and (1) is backward markup pricing, (2) is forward markup pricing are both correct. *Explanation:* The first approach goes from the retailer towards the manufacturer and is the bottom up or backward markup pricing approach. The second goes from the manufacturer towards the retailer and is the top down or forwards markup pricing approach.

*Question:* Estimating the trend-based 2020 growth rate for ABC Inc., in a growth industry. Sales for 2019 = 50,000 units; 2018 = 45,000; 2017 = 40,000 units. Pick the correct expression.

*Answer:* (50,000-45,000)/45,000 *Explanation:* Growth Rate % for 2019 = (2019 - 2018)/2018

*Question:* NT Inc has registered an impressive 35% sales growth for the just concluded calendar year 2019 and expects to repeat this for 2020. This means..... (S = Sales)

*Answer:* (S2019 - S2018)/S2018 = 35%; Growth Multiplier for 2020 = 1.35 *Explanation:* 2019 Growth Rate % = (just concluded year 2019 - previous year 2018)/previous year 2018. Growth Multiplier for Upcoming 2020 = 1 + Growth Rate 2019

*Question:* In January 2021, Crazy toys Inc will switch FROM a relatively shorter distribution channel (direct to the 4,000 retailers) TO a relatively longer distribution channel (sell only to 10 wholesalers, who take full responsibility for servicing 4,000 retailers, who then sell to consumers). The product will also be modified with additional features to address a safety issue. However, company demand is stable, and hence production quantity will pretty much stay at 2017 levels. Therefore, Crazy Toys Inc is most likely to see...

*Answer:* (increased unit manufacturing variable costs) and (decrease in sales force costs, variable and/or fixed) are both likely to happen. *Explanation:* Switching FROM serving 4000 retailers TO just 10 wholesalers will require fewer salespeople. Modifying the product will result in an increase in unit manufacturing variable cost.

*Question:* It is January 2020. You have the following data for ABC Inc. Sales for 2019 = 45,000 units; for 2018 = 40,000; for 2017 = 35,000. Assuming trend projection, based on the previous year, which of the following correctly computes the growth multiplier for 2020?

*Answer:* 1 + [(45,000 - 40,000)/40,000] *Explanation:* Growth Rate % for 2019 = (2019 - 2018)/2018 This is expected to continue for 2020. Growth Multiplier for 2020 = 1 + GR for 2019

*Question:* NPV is 13. Project M has a 10 year life span and you, as the consultant, are looking at its NPV worksheet. Which of these is the correct way of calculating the Discount Rate for Year 5. %CC is the Cost of Capital for the project.

*Answer:* 1 / (1 + %CC) ^ 5 *Explanation:* See discussion on Discount Rate in Chapter 9 NPV along with the Project A vs B and Gadgets cases.

*Answer:* 1 / (1 + %CC) ^ 8 *Explanation:* See discussion on Discount Rate in Chapter 9 NPV along with the Project A vs B and Gadgets cases.

*Question:* Company ABC has four different products. Based on the information in the table, what is the growth multiplier for dollar sales of product S, in forecasting 2020 based on trend? S - Unit Sales 2018 100,000 - Unit Sales 2019 120,000 - $ Sales 2018 $500,000 - $ Sales 2019 $600,000 T - Unit Sales 2018 40,000 - Unit Sales 2019 50,000 - $ Sales 2018 $800,000 - $ Sales 2019 $1,000,000 U - Unit Sales 2018 10,000 - Unit Sales 2019 12,000 - $ Sales 2018 $600,000 - $ Sales 2019 $780,000 X - Unit Sales 2018 50,000 - Unit Sales 2019 60,000 - $ Sales 2018 $200,000 - $ Sales 2019 $250,000 Company - Unit Sales 2018 200,000 - Unit Sales 2019 242,000 - $ Sales 2018 $2,100,000 - $ Sales 2019 $2,630,000

*Answer:* 1.20 *Explanation:* 1 + ($600 - $500)/$500 = 1.20

*Question:* Company ABC has four different products. Based on the information in the table, what is the growth multiplier for unit sales of the company in forecasting 2020 based on trend? S - Unit Sales 2018 100,000 - Unit Sales 2019 120,000 - $ Sales 2018 $500,000 - $ Sales 2019 $600,000 T - Unit Sales 2018 40,000 - Unit Sales 2019 50,000 - $ Sales 2018 $800,000 - $ Sales 2019 $1,000,000 U - Unit Sales 2018 10,000 - Unit Sales 2019 12,000 - $ Sales 2018 $600,000 - $ Sales 2019 $780,000 X - Unit Sales 2018 50,000 - Unit Sales 2019 60,000 - $ Sales 2018 $200,000 - $ Sales 2019 $250,000 Company - Unit Sales 2018 200,000 - Unit Sales 2019 242,000 - $ Sales 2018 $2,100,000 - $ Sales 2019 $2,630,000

*Answer:* 1.21 *Explanation:* 1 + (242-200)/200 = 1.21

*Question:* Company ABC has four different products. Based on the information in the table, what is the growth multiplier for dollar sales of product T, in forecasting 2020 based on trend? S - Unit Sales 2018 100,000 - Unit Sales 2019 120,000 - $ Sales 2018 $500,000 - $ Sales 2019 $600,000 T - Unit Sales 2018 40,000 - Unit Sales 2019 50,000 - $ Sales 2018 $800,000 - $ Sales 2019 $1,000,000 U - Unit Sales 2018 10,000 - Unit Sales 2019 12,000 - $ Sales 2018 $600,000 - $ Sales 2019 $780,000 X - Unit Sales 2018 50,000 - Unit Sales 2019 60,000 - $ Sales 2018 $200,000 - $ Sales 2019 $250,000 Company - Unit Sales 2018 200,000 - Unit Sales 2019 242,000 - $ Sales 2018 $2,100,000 - $ Sales 2019 $2,630,000

*Answer:* 1.25 *Explanation:* 1 + ($1000 - $800)/$800 = 1.25

*Question:* Company ABC has four different products. Based on the information in the table, what is the growth multiplier for dollar sales of the company in forecasting 2020 based on trend? S - Unit Sales 2018 100,000 - Unit Sales 2019 120,000 - $ Sales 2018 $500,000 - $ Sales 2019 $600,000 T - Unit Sales 2018 40,000 - Unit Sales 2019 50,000 - $ Sales 2018 $800,000 - $ Sales 2019 $1,000,000 U - Unit Sales 2018 10,000 - Unit Sales 2019 12,000 - $ Sales 2018 $600,000 - $ Sales 2019 $780,000 X - Unit Sales 2018 50,000 - Unit Sales 2019 60,000 - $ Sales 2018 $200,000 - $ Sales 2019 $250,000 Company - Unit Sales 2018 200,000 - Unit Sales 2019 242,000 - $ Sales 2018 $2,100,000 - $ Sales 2019 $2,630,000

*Answer:* 1.25 *Explanation:* 1 + ($2630 - $2100)/$2100 = 1.25

*Answer:* 10% *Explanation:* $C = TFC/#BEP = $150,000/60,000 = $2.50. %C = $C/USP = $2.50/$25.00 = 10.00% Additional information is superfluous

*Question:* LilGuy Inc has manufacturing variable cost of $10.00 per unit, fixed costs of $25,000 and anticipated sales of 5,000 units. What must have been the desired %ROI on an investment of $250,000, if the selling price has been set at $20?

*Answer:* 10% *Explanation:* uvc = $10.00; ufc = $25,000/5,000 = $5.00. therefore unit total cost = $10 + $5 = $15.00. usp = $20.00, so $ROI added per unit must be $20.00 - $15.00 = $5.00. $ROI for 5,000 unit = $5 x 5,000 = $25,000. %ROI = $25,000/$250,000 = 10%

*Question:* Golden State Petroleum Company is running a coupon promotion to popularize its motor oil. They forecast to sell 66,000 cases of which 65% are expected to be coupon sales. When the 65% is broken down further, 75% of that is expected to be new sales. Assuming that each coupon and non-coupon transaction result in positive $C and knowing what you do about the relevant issue here, which of the following part (s) of the breakup of the forecast sales is the main source of adverse profit impact for GSPC?

*Answer:* 10,725 cases *Explanation:* Coupon transactions bring in lower $C than non coupon transactions. However, coupon transactions that are +ve $C (link here) and bring in new customers are OK because they are building the company's customer base. Here 76,000 * 65% = 42,900 coupon cases. Of the 42,900, 75% are new customers. The remaining 25% or 42,900 * 25% = 10,725 cases are existing customers who use a coupon i.e., cannibalize. They, therefore generate lower $C each than they would have without the coupon.

*Question:* Golden State Petroleum Company is running a coupon promotion to popularize its motor oil. They forecast to sell 77,000 cases of which 60% are expected to be coupon sales. When the 60% is broken down further, 70% of that is expected to be new sales. Assuming that each coupon and non-coupon transaction result in positive $C and knowing what you do about the relevant issue here, which of the following part (s) of the breakup of the forecast sales is the main source of adverse profit impact for GSPC?

*Answer:* 13,860 cases *Explanation:* Coupon transactions bring in lower $C than non coupon transactions. However, coupon transactions that are +ve $C (link here) and bring in new customers are OK because they are building the company's customer base. Here 77,000 * 60% = 46,200 coupon cases. Of the 46,200, 70% are new customers. The remaining 30% or 46,200 * 30% = 13,860 cases are existing customers who use a coupon i.e., cannibalize. They, therefore generate lower $C each than they would have without the coupon.

*Question:* Company ABC has four different products. Based on the information in the table, what is the forecast 2020 sales of product U, based on trend? S - Unit Sales 2018 100,000 - Unit Sales 2019 120,000 - $ Sales 2018 $500,000 - $ Sales 2019 $600,000 T - Unit Sales 2018 40,000 - Unit Sales 2019 50,000 - $ Sales 2018 $800,000 - $ Sales 2019 $1,000,000 U - Unit Sales 2018 10,000 - Unit Sales 2019 12,000 - $ Sales 2018 $600,000 - $ Sales 2019 $780,000 X - Unit Sales 2018 50,000 - Unit Sales 2019 60,000 - $ Sales 2018 $200,000 - $ Sales 2019 $250,000 Company - Unit Sales 2018 200,000 - Unit Sales 2019 242,000 - $ Sales 2018 $2,100,000 - $ Sales 2019 $2,630,000 Options: $1,014,000 $780,000 12,000 untis 14,400 units, $1,014,000 are both correct 14,400 units

*Answer:* 14,400 units, $1,014,000 are both correct *Explanation:* 12,000 in 2019 * gm of 1.20 = 14,400 units in 2020; $780,000 in 2019 * gm of 1.30 = $1,014,000 in 2020. Both are true!

*Question:* Vegi Juice Inc. sells its product to supermarket at $12 per case. Each case has 10 bottles of Vegi Juice. The total variable costs per case are $10. What is Vegi Juice Inc.'s %C?

*Answer:* 16.67% *Explanation:* $C = $2 per case. %C = 2/12 = 16.67%

*Question:* Aha! Inc. had finished goods inventory of $300,000 at the beginning of 2019. The company added new finished goods inventory of $2,500,000 during the year and had finished goods inventory of $400,000 at the end of the year. What is the company's cost of goods sold in 2019? $300,000 $2,400,000 $400,000 $1,600,000 $2,500,000

*Answer:* 2,400,000 *Explanation:* $300,000 + $2,500,000 - $400,000 = $2,400,000

*Question:* Company ABC has four different products. Based on the information in the table, what is the growth percentage for unit sales of product X 2018-2019? S - Unit Sales 2018 100,000 - Unit Sales 2019 120,000 - $ Sales 2018 $500,000 - $ Sales 2019 $600,000 T - Unit Sales 2018 40,000 - Unit Sales 2019 50,000 - $ Sales 2018 $800,000 - $ Sales 2019 $1,000,000 U - Unit Sales 2018 10,000 - Unit Sales 2019 12,000 - $ Sales 2018 $600,000 - $ Sales 2019 $780,000 X - Unit Sales 2018 50,000 - Unit Sales 2019 60,000 - $ Sales 2018 $200,000 - $ Sales 2019 $250,000 Company - Unit Sales 2018 200,000 - Unit Sales 2019 242,000 - $ Sales 2018 $2,100,000 - $ Sales 2019 $2,630,000

*Answer:* 20% *Explanation:* (60000-50000)/50000 = 20%

*Answer:* 20,000 *Explanation:* $C = 15 - 10 =- 5 TFC = $100,000, #BEP = 20,000

*Question:* Based on the Income Statement information below, what is the rounded down 2019 index number for Total Expenses? Year ending Dec 31, 2019 - Gross sales $860,000 - Returns and Allowances $10,000 - Cost of Goods Sold $510,000 - Operating Expenses $110,000 - Administrative Expenses $55,000 - General Expenses $40,000

*Answer:* 24 *Explanation:* Net Sales = $860 - $10 = $850. Total Expenses = $110 + $55 + $40 = $205. Index # = $205/$850 = 24

*Answer:* 25% *Explanation:* 20% profit on sales = %musp. Using F6, %muc = 20% / (1 - 20%) = 25%. All other information is unnecessary! Alternatively, using F1, Cost = 10 * (1 - 20%) = $8 and $Profit = 10 - 8 = $2. Therefore, %profit on cost = 2/8 = 25%

*Question:* Mini Blenders Inc. has set a unit selling price of $20.00. Their Fixed costs are $30,000 for the year, during which 10,000 units are expected to be sold. A 20% markup on sales is included in the selling price. What is MBI's % profit on cost?

*Answer:* 25% *Explanation:* 20% profit on sales = %musp. Using F6, %muc = 20% / (1 - 20%) = 25%. Alternatively, using F1, Cost = 20 * (1 - 20%) = $16 and $profit = $20 - $16 = $4. Therefore, %profit on cost = $4.00/$16.00 = 25%

*Question:* A manufacturer sells a product for $5 per unit to a wholesaler who sells it at a markup of 37.5%, based on retailer purchase price. The retailer adds another $2 and sells the product to the consumer. What is the retailer's markup?

*Answer:* 25%muc, 20%musp *Explanation:* wholesaler buys for %5 and marks up 37.5% on retailer purchase price i.e. %musp for wholesaler. Using F2, wholesaler selling price = retailer cost = $5/(1-37.5%) = $8. Retailer adds $2 markup so retailer sp = 8 + 2 = $10. %muc retailer = 2/8 = 25%; %musp retailer = 2/10 = 20%

*Question:* Topdog is a toy company, whose profit/sales percentage is 13% in 2017, 16% in 2018 and 20% in 2019. Assuming simple trend, what is the growth rate percentage of the p/s % of this company from 2018-2019?

*Answer:* 25.00% *Explanation:* (20.00% - 16.00%)/16.00% = 25.00%

*Question:* Topdog is a toy company, whose profit/sales percentage is 13% in 2017, 16% in 2018 and 20% in 2019. Assuming simple trend, what is the predicted profit/sales % of this company for 2020? 27% 23.80% 24.6% 24% 25.00%

*Answer:* 25.00% *Explanation:* 20.00% in 2019 * gm of 1.25 = 25.00% in 2020

*Question:* Assuming no change in other relevant aspects, which of the following could increase the Break Even Point?

*Answer:* Decreasing USP or increasing UVC would increase BEP *Explanation:* Increasing either could affect #BEP or $BEP or both. Review C4 and the BEP formulae.

*Answer:* 35% *Explanation:* NI 2019 = $135,000. NI 2018 = $100,000 Therefore, growth in NI for 2019 = $35,000 and % growth in NI for 2019 = $35,000/$100,000 = 35%

*Question:* Estimating trend-based 2020 sales for ABC Inc, in growth industry. Sales for 2019 = 50,000 units; 2018 = 45,000; 2017 = 40,000 units. Pick the correct expression.

*Answer:* 50,000 * 1.1111 or (50,000 - 45,000)/50,000 *Explanation:* Growth rate % for 2019 = (2019 - 2018)/2018 = (50,000 - 45,000)/45,000 = 5,000/45,000 = 1/9 or 11.11% This is expected to repeat for the upcoming 2020. Therefore, Growth Multiplier for 2020 = 1 + GR% for 2019 = 1 +11.11% = 1.1111. And sales for 2020 = sales 2019 * GM = 50,000 * 1.1111

*Answer:* 54,456 *Explanation:* new $C = usp of $20 - uvc of ($4 + $5) = $11; new #BEP = TFC of $600,000/$11 = 54,546, rounded up

*Answer:* 55% *Explanation:* $C = $11, %C = 11/20 = 55%

*Question:* Macy's sells 12 skirts at $ 50 each and it sells 5 more at $40 each. What is the % markdown here?

*Answer:* 6.25% *Explanation:* %markdown = $markdown/total revenue = $50/$800 = 6.25%

*Answer:* 60,000 *Explanation:* $C = $300,000/100,000 = $3 TFC = 100,000 + 80,000 = $180,000 #BEP = $180,000/$3 = 60,000

*Answer:* 60,000 *Explanation:* $C = usp $15 - uvc ($10 + $15) = $25. TFC = $1.5 million (exclude R&D, a sunk cost!). #BEP = $1.5 million/$25 = 60,000

*Answer:* 60,000 *Explanation:* $C = usp of $20 - uvc of ($4 + $6) = $10, TFC = 500 + 100 = $600,000. #BEP = $600,000/10 = 60,000

*Question:* Advise Denton Snacks, Inc., one more time! A 200% markup on cost is the same as...

*Answer:* 66.67% markup based on selling price *Explanation:* Assume cost = $100 Markup is 200% of this = $200 Therefore usp = 100 + 200 = $300 %musp = $mu/sp = 200/300 = 66.67%

*Question:* The table shows the likelihood of NT Inc's unit sales at different prices. At a price of $20.00, a reasonable estimate of NT's expected sales in units is: Sales Volume in Units: - 6,000 * $5.00 = 0.10 * $10.00 = 0.40 * $20.00 = 0.60 - 8,000 * $5.00 = 0.20 * $10.00 = 0.20 * $20.00 = 0.20 - 10,000 * $5.00 = 0.40 * $10.00 = 0.20 * $20.00 = 0.10 - 12,000 * $5.00 = 0.30 * $10.00 = 0.20 * $20.00 = 0.10

*Answer:* 7,400 *Explanation:* At $20.00, weighted average for units sold = 60% X 6000 + 20% X 8000 + 10% X 10000 + 10% X 12000

*Question:* Panda Inc. had total sales of $24,000 from bamboo bowls in 2019. The company sold 6,000 units of bamboo bowls and the total variable costs were $6,000. What is the %C of each bamboo bowl?

*Answer:* 75% *Explanation:* Total $C = 24000- 6000, %C = $18000/24000 = 75%

*Question:* The table shows the likelihood of NT Inc's unit sales at different prices. At a price of $10.00, a reasonable estimate of NT's expected sales in units is: Sales Volume in Units: - 6,000 * $5.00 = 0.10 * $10.00 = 0.40 * $20.00 = 0.60 - 8,000 * $5.00 = 0.20 * $10.00 = 0.20 * $20.00 = 0.20 - 10,000 * $5.00 = 0.40 * $10.00 = 0.20 * $20.00 = 0.10 - 12,000 * $5.00 = 0.30 * $10.00 = 0.20 * $20.00 = 0.10

*Answer:* 8,000 *Explanation:* At $10.00, weighted average for units = 40% X 6000 + 30% X 8000 + 20% X 10000 + 10% X 12000

*Question:* The following table shows the likelihood of different sales volumes at different prices. At a price of $10.00, a reasonable estimate of the expected sales in units is: Price Sales Volume 6,000 8,000 10,000 12,000 $5.00 0.10 0.20 0.40 0.30 $10.00 0.40 0.20 0.20 0.20 $20.00 0.60 0.20 0.10 0.10

*Answer:* 8,400 *Explanation:* weighted unit sales at $10 price=8400 (6,000 * 0.40) + (8,000 * 0.20) + (10,000 * 0.20) + (12,000 * 0.20)=8,400

*Question:* The American market for memory cards is about 10 million units a year and ABC Company sold 900,000 units last year, while one of its competitors sold 1 million units. What is ABC's market share?

*Answer:* 9% *Explanation:* ABC's 900,000/total market 10,000,000 = 9% Note that this is Market Share % in Units.

*Question:* Panda6 Inc. has three divisions. The following table shows the sales revenues for each division in 2018 and 2019. Please calculate the Division One's growth rate percentage in 2019. 1 Sales Revenue in $ Millions 2018: $110 2019: $120 2 Sales Revenue in $ Millions 2018: $80 2019: $90 3 Sales Revenue in $ Millions 2018: $200 2019: $220

*Answer:* 9.09% $120 in 2019, $110 in 2018. ($120 - $110)/$110 = 9.09%

*Question:* NT Inc would like to adjust the price of their brand, based on sensitivity of the demand to price. This concept is called.

*Answer:* Elasticity of Demand *Explanation:* See discussion on Elasticity of Demand in Chapter 7 Pricing along with LSLC an Printo Printer cases.

*Question:* Which of these items is unlikely to be relatively accurately estimated, when preparing the 2020 pro-forma Income Statement for NT Inc., in an uncertain economy?

*Answer:* All of the 4 answers will at best be approximate estimates in such an economy. So, (a) cost of goods sold (as a % of sales), (b) gross margin, (c) sales forecast and hence, sales revenue, and (d) sales force commission at a rate of 6% of the sales dollar. *Explanation:* In an uncertain economy, sales forecast is uncertain. Therefore all things related to that are also iffy. Note that gross margin is sales minus CoGS. Since they are unlikely to be firm estimates, so too would Gross Margin.

*Questions:* You would like to determine the profit impact of adding a new product that has similarities with an existing product (same customers, same use etc.). If you use the Before-After Approach this information is needed Sales forecast for the new product, non-cannibalized sales, Sales forecast for the new product, cannibalized sales, Sales forecast for the existing product. before and after the new product, $C for the existing and the new product, All of the other 4 answer are needed for the Before-After approach

*Answer:* All of the other 4 answers are needed for the Before-After approach

*Question:* NT Wholesalers would like to investigate the dollar cost of carrying average inventory. Which of the following items to contribute to this cost?

*Answer:* All of the remaining answers except delayed payments by customers. *Explanation:* See discussion on Inventory Carrying Cost in Chapter 8 Place along with the Secure Craft and Backyard Bonanza cases.

*Question:* A wholesaler purchases widgets for $8 per unit from the manufacturer and it sells it after marking up by 20% on retailer purchase price. Afterwards, the retailer marks up by 50% on wholesaler selling price and sells to consumers at the store. Here, Wholesaler markup is $2 Retail selling price is $15 Retailer markup is $5 Wholesaler selling price is $10 All the following (b) through (e) are true

*Answer:* All the following (b) through (e) are true *Explanation:* wholesaler buys for $8.00 and marks up 20% on retailer purchase price i.e. %musp. Therefore wholesaler sp, using F2, sp = 8/(1 - 20%) = $10.00. This is the retailer purchase price and they markup 50% on wholesaler selling price i.e. %muc. Therefore retailer selling price, using F3, = 10 x (1 + 50%) = $15.00. $markup wholesaler = 10 - 8 = $2.00. Retailer markup = $15 - $10 = $5.00

*Question:* Advise NT Inc. Which of these IS likely to be treated as a unit variable cost? Direct material Direct labor Packaging of each unit Sales force commission All the other 4 answers are UVC item

*Answer:* All the other 4 answers are UVC items

*Question:* You have a need to explain the difference between RLS and BEP. Which of the following statements will you make? BEP denotes recovery of FC only while RLS denotes recovery of both FC and profits At BEP, the companies do not make profits, while the companies make profits at RLS The term BEP may be used in place of RLS so long as inclusion of the profit goal is clarified BEP does not consider profits while RLS considers it All the other 4 answers are correct

*Answer:* All the other 4 answers are correct

*Question:* A manufacturer sells $8/unit to wholesalers who mark up by 20% on retailer purchase price. Afterwards, the retailers mark up by 50.00% on wholesaler selling price. Here, after rounding to 2 decimals. Wholesaler $markup is $2, Retailer $markup is $5, Retailer %markup on cost is 50%, Wholesaler %markup on selling price is 20%, All the other 4 answers are correct

*Answer:* All the other 4 answers are correct *Explanation:* Manufacturer sells to wholesaler for $8.00 Wholesaler markup is based on retailer purchase price i.e. %musp = 20% Therefore usp of wholesaler, using F2 = $8/(1 - 20%) = $10.00 Wholesaler $markup = 10 - 8 = $2.00 Retailer purchases for $10.00 and markup based on wholesaler selling price i.e. %muc for wholesaler. Therefore, retailer usp, using F3, = 10 x (1 + 50%) = $15.00 Retailer $ markup is 15 - 10 = $5.00

*Question:* Percentages are likely to be used in reporting the following marketing data: Company profit growth Company sales growth Company profit to sales ratio Market sales growth All the other 4 answers are correct

*Answer:* All the other 4 answers are correct *Explanation:* See examples in C1

*Question:* Advising NT Inc., you point out that weighted averaging may be done in the context of...

*Answer:* All the other 4 answers are correct. So, (a) Different unit packaging costs for different products; (b) Different unit selling prices for different products; (c) Different unit shipping costs for different products; (d) Different unit material costs for different products. *Explanation:* All four situations could be simplified by applying weighted average. For instance, if you know the % of unit or dollar sales for each product, these could be used as weights to calculate weighted average of selling prices, packaging costs, material costs or shipping costs.

*Question:* Which of the following costs are typically estimated on a per unit basis. Packaging cost, Material cost, Shipping cost, Labor cost, All other four answers are typically estimated per unit

*Answer:* All the other four answers are typically estimated per unit

*Question:* Which variation of Markup pricing approach starts with desirable retail price, figures out the how much the manufacturer selling price needs to be to achieve that desirable outcome and then examines whether that manufacturer selling price is feasible?

*Answer:* Both "bottom up" and "backward" are correct *Explanation:* The "bottom up" or "backward" Markup Pricing method starts with the desired retail prices, works bottom-up or backward to calculate the manufacturer selling price and then examines the feasibility of that manufacturer selling price given the cost.

*Question:* Which Variation 1. Which variation of Markup pricing approach starts with how much the product costs the firm and then adds the desired profit?

*Answer:* Both "top down" and "forward" are correct. *Explanation:* The "top down" or "forward" Markup Pricing method starts with how much the product costs the firm and adds the desired profit.

*Question:* If the consumer' purchase price is known, you could work towards the manufacturer's selling price using.

*Answer:* Bottom up and backward are both correct

*Question:* In NPV analysis of multiple project opportunities, which of the following is likely to be set differently primarily as a result of the risk associated with each project?

*Answer:* Cost of Capital *Explanation:* Please review Chapter 9

*Question:* This is very likely to be strongly influenced by forces beyond the control of NT Inc. Hence, it must be carefully estimated for an accurate pro-forma income statement which is CRITICALLY dependent on this.

*Answer:* Estimated sales forecast and hence, sales revenue *Explanation:* The company's sales forecast is impacted and determined by many external forces and therefore, is usually beyond the control of the company.

*Question:* Fixed Costs are NOT usually thought of or estimated on a per unit basis. Which of the following situations is the exception?

*Answer:* Figuring out and setting the Unit Selling Price for product *Explanation:* Recall that when pricing a product you must estimate UVC and UFC. UVC is on firm grounds. UFC is a guestimate based on TFC (which is likely to be relatively a more robust estimate) divided by estimated unit sales (which is likely to be relatively more shaky because it depends on accurate forecast.) Remember the admonition to be conservative regarding the forecast i.e. overestimate UFC. If it turns out to be lower, you are OK.

*Question:* You have prepared a 2020 Proforma Income Statement for Denton Snacks. They ask you to give them an idea of the breakeven requirements for the upcoming year. In doing the breakeven analysis, you will typically consider most of the budgeted items under "Marketing, Administrative and General Expenses" category of the Proforma IS as

*Answer:* Fixed Costs *Explanation:* MAG expenses are lumpsum amounts, not per unit. Therefore, they are fixed costs.

*Question:* NT Inc has registered an impressive 40% sales growth for the just concluded calendar year 2019 and expects to repeat this for 2020. Therefore, (S=Sales).

*Answer:* Growth Rate for 2020 = (S2019 - S2018)/S2018 = 40% *Explanation:* 2019 Growth Rate % = (just concluded year 2019 - previous year 2018)/previous year 2018. This is given to be 40% and assumed to repeat for 2020.

*Questions:* Which of the following statements on markdown is not correct?

*Answer:* High % markdown is desirable in a retail context. *Explanation:* High %markdown means lots of (usually negative) things: ordered too much, ordered the wrong kind, selling price too high etc

*Question:* You are wondering how to explain price elasticity of demand to management of the Houston Astros baseball team, in user-friendly language. You decide to talk about

*Answer:* How demand increases when price is decreased and How demand decreases when price is increased are correct *Explanation:* See discussion on Elasticity of Demand in Chapter 7 Pricing along with the LSLC an Printo Printer cases.

*Question:* A friend of yours rates three cars as follows: Predict the car (or cars if there is a tie) that he is MOST LIKELY to buy based only on his information. Volkswagen - Importance 0.5 Attribute Economy 3 - Importance 0.3 Attribute Quality 5 - Importance 0.2 Attribute Roominess 9 Toyota - Importance 0.5 Attribute Economy 5 - Importance 0.3 Attribute Quality 8 - Importance 0.2 Attribute Roominess 7 Hyundai - Importance 0.5 Attribute Economy 8 - Importance 0.3 Attribute Quality 8 - Importance 0.2 Attribute Roominess 2

*Answer:* Hyundai *Explanation:* weighted score for Hyundai is 6.8, which is the highest on the 1-10 scale.

*Question:* NPV is 8. Which of the following can be explained as the "% CC at which Cumulative Discounted NCF reaches $0 over the project's life?"

*Answer:* IRR *Explanation:* Please review Chapter 9 NPV on Discount Rate and see its application in the Project A vs B and Gadgets cases.

*Questions:* Which of the following statements is correct? If the growth percentage is negative, the growth rate multiplier is greater than 1. If the growth percentage is positive, the growth rate multiplier is less than 1. If the growth percentage is zero, the growth rate multiplier is equal to 1. If the growth percentage is positive, the growth rate multiplier is greater than 1 AND if the growth percentage is zero, the growth rate multiplier is equal to 1. Both are correct.

*Answer:* If the growth percentage is positive, the growth rate multiplier is greater than 1 AND if the growth percentage is zero, the growth rate multiplier is equal to 1. Both are correct. *Explanation:* See examples in C1

*Question:* Which of the following statements is correct? In general, a company's growth rate percentage is better than the growth rate % of its worst performing division. In general, a company's growth rate percentage is worse than the growth rate % of its best performing division. In general, a company's growth rate percentage is worse than the growth rate % of its worst performing division. In general, a company's growth rate percentage is worse than the growth rate % of its best performing division AND in general, a company's growth rate percentage is better than the growth rate % of its worst performing division. Both are correct. In general, a company's growth rate percentage is better than the growth rate % of its best performing division.

*Answer:* In general, a company's growth rate percentage is worse than the growth rate % of its best performing division AND in general, a company's growth rate percentage is better than the growth rate % of its worst performing division. Both are correct. *Explanation:* See examples in C1

*Question:* Typically, NT Inc's ______________ is accurate, while their _____________ is approximate.

*Answer:* Income statement and pro-forma IS So, Typically, NT Inc's Income statement is accurate, while their pro-forma IS is approximate. income statement; pro-forma IS *Explanation:* Income Statement is based on past, firm date = more accurate. Proforma Income Statement is based on projections that rely on assumptions = approximate, less accurate.

*Question:* In terms of the anal. In terms of analogy explained in Chapter 9, which of these NPV concepts is the equivalent of the "maximum % interest rate you could pay a loan shark for your investment amount loan and still walk away a free person at the end of the project's life span"?

*Answer:* Internal Rate of Return or IRR *Explanation:* Refer to the NPV problems. e.g. A vs B or Gadgets. Recall setting the %CC equal to the IRR and seeing the previously calculated NPV become zero. Therefore, IRR is that cost of capital for which the Cumulative Discounted Net Cash Flow over the Life of the Project i.e. NPV becomes zero. We used the analogy and said the IRR is like the interest you pay the loan shark. That is why, IRR needs to be > > > % CC for a NPV problem. If it does, it is good news!

*Question:* Lucky Pizza used flyers to promote its pizzas every week. Last week it mailed 200,000 copies of flyers out to neighbor communities, at a total cost of $4,000. How should the marketing manager of the pizzeria treat the cost of flyers?

*Answer:* It is fixed cost. *Explanation:* The cost of the flyer is not one of the variable costs. It is not a part of the variable cost of each pizza.

*Question:* Which of the following statements about the Balance Sheet is not correct? It has two part: assets and liabilities Liabilities are arranged by the immediacy of the obligations All entries are expressed in dollars Assets are arranged by liquidity It reports the results of a company's operations over a period of time

*Answer:* It reports the results of a company's operations over a period of time

*Question:* Which of these has the potential to create the cannibalization problem, as Nabisco gets ready to add MINTO, a "mint cookie" to its current cookie line?

*Answer:* MINTO purchases replace Nabisco's current customers' usual Nabisco cookie purchases *Explanation:* Cannibalization is the phenomenon when a company's new product eats in to the sales (and, therefore, profits) of that company's existing product. The new product can hurt its own sibling, stablemate, especially if $C for the new product is lower than that for the existing product. See Great Lakes, Shaalimaar cases in C5.

*Question:* It is January 1, 2020. Forecasting skills are likely to be of critical importance to NT Inc (NTI) in preparing this document.

*Answer:* NTI's 2020 proforma income statement *Explanation:* Forecasting for 2020 means 2019 is irrelevant. January 2020 means NTI would like to know what might happed during 2020. This requires proforma income statement for 2020.

*Question:* Project M has a 10 year life span and you, as the consultant, are looking at its Excel worksheet and feel quite comfortable with "the Cumulative Discounted Net Cash Flow over the life of the project." In other words, the ______ is looking good.

*Answer:* Net Present Value *Explanation:* "Cumulative Discounted Net Cash Flow over the Life of the Project" is the last entry in the CDNCF column of the NPV worksheet and its short name is NPV. See the A vs B, Gadgets INC. examples in C9

*Question:* You are explaining the similarities between income statement and contribution analysis to a client. Net Contribution may be treated as approximately equivalent to:

*Answer:* Net Profit *Explanation:* See end of C4 for a comparison of Income Statement and Contribution Analysis

*Question:* Which of these will NOT create the cannibalization problem, as Nabisco gets ready to add MIINTO, a "mint-cookie" to its current cookie line?

*Answer:* Only the scenario in which MINTO purchases replace Nabisco's current customers' usual Nabisco cookie purchases is likely to create the cannibalization issue. The other three scenarios will not create a cannibalization issue. *Explanation:* Cannibalization is the phenomenon when a company's new product eats into the sales (and, therefore, profits) of that company's existing product. The new product can hurt its own sibling, stable mate, especially if $C for the new product is lower than that for the existing product. See the Great Lakes, Shaalimaar cases in Chapter 5.

*Question:* A product sells 110 units at a price of $60p each. When price is reduced to $55 each, sales go up to 115. Recalling the concept of Price Elasticity of Demand, here...

*Answer:* PED equals 0.5454 an demand is inelastic. *Explanation:* PED = [(NewQ - OldQ) / OldQ] / [(NewP - OldP) / OldP] Here, PE = [(115 - 110) / 110] / [($55 - $60) / $60] = - 0.54 = 0.54 expressed as absolute value. This is < 1, therefore demand is inelastic.

*Question:* PVP 2. Sony typically finalizes prices for its production in the consumer electronics market based on what consumers think Sony's offering is worth. They probably know a thing or two about...

*Answer:* Perceived value pricing *Explanation:* See discussion on PVP in Chapter 7 Pricing along with the Dependable Vacuuum Company case.

*Question:* Since the total revenue increases when price is decreased, demand for products like a Caribbean cruise is generally considered...

*Answer:* Price-elastic *Explanation:* Please review Price Elasticity of Demand in Chapter 7 Price, including the LSLSC and Printo Printer cases.

*Question:* Company XYZ uses two factors to screen new products. Factor 1 is TWO times as important as Factor 2. Which of two new products IS likely to pass the test? A minimum weighted score of 6.5 or higher is needed for additional consideration. Factor #1: Profit Potential - Product A: 7 - Product B: 3 Factor #2: Market Share - Product A: 6 - Product B: 9

*Answer:* Product A *Explanation:* Weights F1: 0.80, F2: 0,20 Weighted scores - A is 6.8 - B is 4.2 - A passes, B fails

*Question:* Company XYZ uses two factors to screen new products. Factor 1 is TWO times as important as Factor 2. Which of two new products is NOT likely to pass the test? A minimum weighted score of 6.5 or higher is needed for additional consideration. Factor #1: Profit Potential - Product A: 7 - Product B: 3 Factor #2: Market Share - Product A: 6 - Product B: 9

*Answer:* Product B *Explanation:* Weights F1: 0.80, F2: 0,20 Weighted scores - A is 6.8 - B is 4.2 - A passes, B fails

NT Inc sells Product A for $60, with unit variable cost of $20. They also sell Product B for $40 and its UVC is $10. Which product is relatively MORE profitable and why?

*Answer:* Product B, Higher %C *Explanation:* %C for A = (60 - 20)/60 = 66.67% %C for B = (40 -10)/40 = 75% Be is relatively more profitable because it has the higher %C

*Question:* Which of the following statements about cost of goods sold is wrong?

*Answer:* Raw material is considered in determining cost of goods sold for channel intermediaries *Explanation:* Channel intermediaries such as wholesalers and retailers simply buy and sell finished products. They do not handle raw materials nor engage in other manufacturing operations.

*Question:* Explain to I.M. Boss, you CEO. The "substantial" criterion in NPV analysis...

*Answer:* Refers to $NPV. Usually compared to $ invested in the project. *Explanation:* Substantial means "large". We desire a large NPV, compared to the initial investment.

*Question:* You are wondering ho 2. You are wondering how to explain price elasticity of demand to the management of the Houston Astros baseball team, in user-friendly language. As you know, price elasticity may be calculated using the formula in which the denominator is...

*Answer:* Relative change in price and % change in price are both correct *Explanation:* Denominator is relative change in P, which is also the % change in P.

*Question:* Advise NT Inc. Which of these is typically treated as a MARKETING variable cost? Direct material VP/Marketing's salary Packaging of each unit Sales force commission Direct labor

*Answer:* Sales force commission

*Question:* John's Hardware, a small retailer in your part of town, would like to estimate their ballpark retail selling price for a new flue fun that they buy direct from the manufacturer. The store's customary % markup is based on manufacturer selling price. Which of these would get JH off to a good start?

*Answer:* Selling Price = Cost X (1 + % markup) *Explanation:* Markup based on manufacturer selling price = %muc for JH Since they know their cost (purchase price), JH should determine usp using F3. That is, sp = cost * (1 - %muc)

*Answer:* Student A *Explanation:* Student A has the lowest total of 615/1000

*Question:* The table below provides raw score performance information on three students in a class that carries a total of 1,000 semester points. Which student has the highest grade? (Note: 90% or above = A; 80%-89% = B; 70%-79% = C; 60%-69% = D, and 59% and below = F) Maximum Score for each assignment - Homework 1 - 100 - Homework 2 - 100 - Homework 3 - 100 - Mid-Term Exam - 300 - Final Exam - 400 Student A - Homework 1 - 70 - Homework 2 - 75 - Homework 3 - 80 - Mid-Term Exam - 150 - Final Exam - 240 Student B - Homework 1 - 80 - Homework 2 - 85 - Homework 3 - 90 - Mid-Term Exam - 210 - Final Exam - 320 Student C - Homework 1 - 60 - Homework 2 - 70 - Homework 3 - 80 - Mid-Term Exam - 285 - Final Exam - 360

*Answer:* Student C *Explanation:* Student C has the highest total of 855/1000

*Question:* You point out to I.M. Boss, your CEO, that in NPV analysis, a new project is likely to be rated positively. If... (a) the cumulative discounted net cash flow is positive and substantial, (b) the payback period is reasonable, compared to the project life, and (c)...

*Answer:* The % cost of capital is much lower than the % Internal Rate of Return *Explanation:* % IRR is the third criterion in assessing a NPV analysis. It needs to substantially exceed the %CC. See Chapter 9 cases.

*Question:* In NPV analysis, when a project achieves payback...

*Answer:* The Cumulative Discounted Net Cash Flow reaches $0 *Explanation:* Review Chapter 9

*Question:* T. Jones, sales manager for AutoComp Inc., an American manufacturer of automotive components for the replacement market had just returned from Inia with a near-deal for an "exclusive" wholesale distributor to handle sales to independent Indian auto parts retailers. However the wholesaler is insisting on a markup of 25% on Indian retailer purchase price. In the USA, AutoComp's wholesalers typically mark up 25% on the manufacturer selling price. T. Jones desires a competitive selling price (i.e. lower the better) to the Indian retailer. Which option in better? (choose the best answer!)

*Answer:* The USA practice of 25% markup on manufacturer selling price. *Explanation:* Wholesaler wants 25% on retailer purchase price = %musp for wholesaler. AutoComp is offering 25% on manufacturer selling price i.e. %muc for wholesaler. Using F5, you can figure out that 25%muc is 20%musp. So, wholesaler wants 25%musp, AutoComp is offering 20%musp, which is better for the company and they should stick to it.

*Question:* If ABC company's fresh produce division's growth multiplier is equal to 1 this year, the trend suggests: The fresh product division's performance cannot be predicted based on the information available. All the other 4 answer are incorrect. The fresh produce division will perform better in next year than in this year. The fresh produce division will perform the same in next year as in this year. The fresh produce division will perform worse in next year than in this year.

*Answer:* The fresh produce division will perform the same in next year as in this year. *Explanation:* See example in C1

*Question:* Frito Lay is concerned about likely cannibalization of their existing salty snack lines by their proposed line of veggie snacks. This is LESS LIKELY to be a MAJOR problem, IF, for the same quantity of product e.g. per pound,

*Answer:* The new line's $C is higher than the existing line's $C *Explanation:* If the new line's $C is higher, the more the cannibalization, the better for Frito Lay's profits

*Question:* The marketing manager at Fun! Inc. is likely to be relatively more interested in (must choose best answer): The profitability of their decisions The profitability of their decision AND the proforma income statement of their strategy Whether and where to borrow money for their decisions Liquidity situation of their company The proforma income statement of their strategy

*Answer:* The profitability of their decision AND the proforma income statement of their strategy *Explanation:* They are interested in actual profits from the IS and likely profits from the proforma IS

*Question:* J. Smith, sales manager for Chemco, an American manufacturer of industrial adhesives has just returned from China with a near-deal for an "exclusive" wholesaler to handle sales to Chinese retailers. However the wholesaler is insisting on a markup of 25% on Chemco's selling prices. In the USA, Chemco's wholesalers typically mark up only 20% on the retailer purchase price. How would you advise J. Smith if the goal is a competitive (i.e. lower the better) retail price for Chemco in China? (choose the best answer)

*Answer:* There is no problem here, since the two markup %s are equivalent. *Explanation:* China wholesaler is asking for 25%muc. In the USA Chemco wholesaler markup is 20% retailer purchase price which 20% musp for wholesaler. You can use F5 or F6 to verify that for the wholesaler, 25%muc is the same as 20%musp.

*Question:* You are explaining the similarities between income statement and contribution analysis to a client. Total Cost of Goods Sold may be treated as approximately equivalent to:

*Answer:* Total Variable Cost *Explanation:* See the comparison of IS and contribution Analysis at the end of Chapter 4.

Demand for products like a Caribbean cruise is generally considered price-elastic. This means...

*Answer:* Total revenue increases when price is decreased and Total revenue decreases when price is increased are both correct *Explanation:* price-elastic means demand is very senseitve to price. When price is increased, demand falls sharply, so revenue ends up decreasing. When price is decreased, demand increases sharply, so revenue ends up increasing.

*Question:* The Houston Astros discover by carrying out research on select game days that for a relatively price-elastic product product such as a ball game, (up to a point, of course)...

*Answer:* Total revenue increases when price is decreased and Total revenue decreases when price is increased are both correct *Explanation:* price-elastic means demand is very sensitive to price. When price is increased, demand falls sharply, so revenue ends up decreasing. When price is decreased, demand increases sharply, so revenue ends up increasing

*Question:* Auto gasoline maybe one example of a relatively price-inelastic product for which...

*Answer:* Total revenue increases when price is increased and Total revenue decreases when price is decreased are both correct. *Explanation:* See discussion on Elasticity of Demand in Chapter 7 Pricing along with the LSLC an Printo Printer cases.

*Question:* NT inc will set the final price based on the concept of Perceived Value Pricing. That is, based on...

*Answer:* What customers think their product is worth *Explanation:* See discussion on PVP in Chapter 7 Pricing along with the Dependable Vacuum Company case.

*Question:* A manufacturer $8/unit to wholesalers who mark up by 25% on retailer purchase price. Afterwards, the retailers mark up by 33.33% on wholesaler selling price. Here,

*Answer:* Wholesaler markup is based on selling price, retailer markup on cost *Explanation:* Wholesaler markup is based on retailer purchase price i.e. %musp for wholesaler. Retailer markup is based on wholesaler selling price i.e. %muc for the retailer.

*Question:* A wholesaler purchases widgets for $8 per unit from the manufacturer and sells it to retailers who then sell to consumers. The wholesaler marks up by 20% on the retailer purchase price, while the retailer mark up by 25% on the wholesaler selling price. Here, the correct markup chain for calculating retail selling price to the consumer is:

*Answer:* [$8 / (1 - 20%)] * (1 + 25%) *Explanation:* Wholesaler buys for $8 and then marks up 20%musp to sell to the retailer. Then retailer marks up 25%muc. Therefore, the markup chain for calculating retail selling price applies F2, then F3, $8 / (1 - 20%) * (1 + 25%) = $12.50

*Question:* You are invited to give a lecture on breakeven analysis to the Chamber of Commerce. Which of these represents "equivalence" i.e. both sides of the "=" are the same?

*Answer:* [BEP nits * USP = Total Fixed Costs / %C] an [BEP dollars / USP = Total Fixed Costs / $C]; In both, left side = right side. *Explanation:* Both sides of Choice A calculate $BEP. Both sides of choice C calculate #BEP. Therefore, equivalence applies to both A and C.

*Question:* NT. Inc. makes each unit incurring variable costs of $7 for materials and $3 for labor. Another $2 is estimated to be the fixed cost burden on each unit. They then add a profit of 40% on unit selling price. Assume that material and labor are the variable costs. Based on these details...(must choose best answer)

*Answer:* [Each dollar of sales of the product generates contribution of 50 cents] and [Each unit of the product generates $C of $10] are both correct *Explanation:* uvc = $7 + $3 = $10. total cost = $10 + $2 %musp = 40%. Therefore, using F2, usp = 12/(1 - 40%) = $20 $C = usp - uvc = $20 - $10 = $10 per unit. %C = $C/usp = $10/$20 = 50% i.e. 50 cents on every dollar of sales.

*Question:* SIB Inc, a small company, hires salespeople whom it plans to motivate to give their best. At the same time, the company also wishes to protect the salespeople from income uncertainty and anxiety. Your advice on how the SIB salespeople should be paid?

*Answer:* combination of salary and % commission *Explanation:* Salary provides secure, certain, income. Commission % motivates, challenges the salesforce towards better performance and commensurate rewards. Therefore, incorporating both features in the compensation plan is a good idea, given SIB's objectives.

*Question:* Brand A has higher $C but lower %C compared to Brand B. You have proposals for increasing the fixed cost for each brand by the same $ amount. Which of these is correct?

*Answer:* delta breakeven dollars will be higher for Brand A than Brand B *Explanation:* A has higher $C so, lower delta #BEP compared to B. A has lower %C, so higher delta $BEP, compared to B.

*Question:* Brand A has higher %C but lower $C compared to Brand B. You have proposals for increasing the fixed cost for each brand by the same $ amount. Which of these is correct?

*Answer:* incremental (or Δ) breakeven units will be higher for Brand A than Brand B *Explanation:* Recall that #BEP = TFC /$C and $BEP = TFC/%C. A has higher %C, so lower $BEP. A has lower $C, so higher #BEP.

*Question:* Brand A has lower %C but higher $C compared to Brand B. You have proposals for increasing the fixed cost for each brand by the same $ amount. Which of these is correct?

*Answer:* incremental (or Δ) breakeven units will be lower for Brand B than Brand A *Explanation:* Recall that #BEP = TFC/$C and $BEP = TFC/%C. A had lower %C, so higher $BEP. A has higher $C, so lower #BEP

*Question:* Brand A has lower %C but same $C compared to Brand B. You have proposals for increasing the fixed cost for each brand by the same $ amount. Which of these is correct?

*Answer:* incremental (or Δ) breakeven units will be the same for both brands *Explanation:* Recall that #BEP = TFC/$C and $BEP = TFC/%C. Change in fixed cost amount is the same for both brands. Since $C is the same, delta #BEP will be the same.

NT Inc sells Product A for $80, with unit variable cost of $16. They also sell Product B for $90 and its UVC is $18. Which product is relatively MORE profitable and why?

*Answer:* no difference in relative profitability between the two products *Explanation:* $C for A = 80- 16 = $64.00. %C = 64/80 = 80% $C for B = 90-18 = $72.00. %C = 72/90 = 80% No difference in %C between the two products. Therefore, no difference in relative profitability.

*Question:* Which of these items is likely to be relatively accurately estimated, when preparing the 2020 pro-forma Income Statement for NT Inc., in an uncertain economy?

*Answer:* rent on corporate headquarter *Explanation:* In an uncertain economy, sales forecast is uncertain. Therefore all things related to that are also iffy. Rent is based on a lease and must be paid according to predetermined schedule, regardless of anything else. Therefore that rent in a Proforma Income Statement is likely to be quite accurate, regardless of the state of the economy.

New Concept notebook Inc. sells its pocket pc (PPC) to retailers at $50 each. The retailers add 10 %muc and sell the PPC to the consumers. NC's direct labor and material cost are $20 for every PPC. What is the %C of each PPC to New Concept?

60%

*Question:* Astra is reviewing the proposed marketing plan to support its new line of athletic shoes. The promotion initiatives include: (1) an addition of 3 new people to the sales force with a cost of $15,000 in annual salary per person, (2) magazine advertising 10 times during a year at $10,000 per placement, (3) 12% salesforce commission on every pair of athletic shoes sold, (4) two trade shows ($5,000 per show), and (5) 80 hours for website modifications at $75 per hour. Which one out of these expenditures is a variable cost?

*Answer:* salesforce commission *Explanation:* Only the salesforce commission on pair of athletic shoe sales. This amount will change/vary depending on how many shoes the sales person sells, thus, it is a variable cost.

*Question:* Explain Payback Period (see Chapter 9) to I.M. Boss, your CEO. It is...

*Answer:* that point in time when the Cumulative Discounted Net Cash Flow reach $0

*Question:* You point out to I.M. Boss, your CEO, that in NPV analysis, a new project is likely to be rated positively. if... (a) the % cost of capital is much lower than the % Internal Rate of Return, (b) the cumulative discounted net cash flow is positive and substantial, and (c) ...

*Answer:* the payback period is reasonable, compared to the project life *Explanation:* See discussion on NPV evaluation criteria in Chapter 9 NPV along with the Project A vs B and Gadgets cases

*Question:* A manufacturer sells $8/unit to wholesalers who mark up by 25% on manufacturer selling price. Afterwards, the retailers mark up by 33.33% on the consumer purchase price. Here,

*Answer:* wholesaler markup is based on cost, retailer markup on selling price *Explanation:* wholesaler marks up on manufacturer selling price = %muc. retailer marks up on consumer purchase price = %musp.

*Questions:* The point in time when the Cumulative Discounted Net Cash Flow reaches $0 refers to...

*Answers:* Payback Period

LeCake produces and sells two types of gourmet cakes: Strawberry Vanilla Rainbow Cake, sells for $9 and account for 70% of the sales. Chocolate coffee cake, sells for $10 and accounts for the remaining 30% of the sales. in 2019, LeCake sold 4,000 cakes in total, the average variable cost per cake, regardless of type, was $6.50, and the total fixed cost was $5,000. What was LeCake's 2019 #BEP?

1,786

Fortune! Company had the annual sales had the annual sales of $120,000 in 2017, $150,000 in 2018, and $190,000 in 2019. Assuming simple trend, what is the growth multiplier of this company for 2020?

1.27 *Examples:* 1+($190,000-$150,000)/$150,000=1.27

Project M has a 10 year life span and you, as the consultant, are looking at its NPV worksheet. Which of these is the correct way of calculating the Discount Rate for Year 7. %CC is the Cost of Capital for the project.

1/ (1+%CC)^7 *Explanation:* B is the correct formula for calculating the Discount Rate. See the A vs B, Gadgets, Inc. examples in C9.

LilGuy Inc has manufacturing variable cost of $8.00 per unit, fixed costs of $20,000 and anticipated sales of 10,000 units. What must have been the desired %ROI on an investment of $300,000, if the selling price has been set at $13?

10%

Panda6 Inc. has three divisions. The following table shows the sales revenues for each division in 2018 and 2019. Please calculate the company's growth rate percentage in 2019. 1 Sales Revenue in $ Millions 2018: $110 2019: $120 2 Sales Revenue in $ Millions 2018: $80 2019: $90 3 Sales Revenue in $ Millions 2018: $200 2019: $220

10.26% *Explanation:* $430 in 2019, $390 in 2018. ($430-$390)/$390=10.26%

The American market for memory cards is about $1,500 million a year and ABC Company had total sales of $250 million last year, while one of its competitors has total revenue of $505 million. What is the company's market share?

16.67%

LilGuy Inc has manufacturing variable cost of $6.00 per unit, fixed costs of $15,000 and anticipated sales of 10,000 units. What must have been the desired %ROI on an investment of $250,000, if the selling price has been set at $12.50?

20% *Explanation:* uvc=$6.00; ufc=$15,000/10,000=$1.50. Therefore, unit total cost=$7.50usp=$12.50, so $ROI added per unit must be $12.50-$7.50=$5.00. $ROI for 10,000 units=$50,000. %ROI = $50,000/$250,000 = 20%.

Company ABC has four different products. Based on the information in the table, what is the growth percentage for unit sales of product X 2018-2019? S - Unit Sales 2018 100,000 - Unit Sales 2019 120,000 - $ Sales 2018 $500,000 - $ Sales 2019 $600,000 T - Unit Sales 2018 40,000 - Unit Sales 2019 50,000 - $ Sales 2018 $800,000 - $ Sales 2019 $1,000,000 U - Unit Sales 2018 10,000 - Unit Sales 2019 12,000 - $ Sales 2018 $600,000 - $ Sales 2019 $780,000 X - Unit Sales 2018 50,000 - Unit Sales 2019 60,000 - $ Sales 2018 $200,000 - $ Sales 2019 $250,000 Company - Unit Sales 2018 200,000 - Unit Sales 2019 242,000 - $ Sales 2018 $2,100,000 - $ Sales 2019 $2,630,000

25% *Explanation:* $250 in 2019; $200 in 2018; ($250-$200)/$200=25.00%

Mini Blenders Inc. has come up with a unit selling price of $15.00. Their Fixed costs are $30,000 for the year, during which 15,000 units are expected to be sold. A 25% profit margin on sales is included in the selling price. What is MBI's % profit on cost?

33.33%

Estimating the trend-based 2020 sales for ABC Inc., in a growth industry. Sales for 2019 = 50,000 units; 2018 = 45,000; 2017 = 40,000 units. Pick the correct expression.

50,000*1.1111 *Explanation:* Growth Rate % for 2019 = 50,000-45,000)/45,000=.1111 2020 repeats 2020 Growth multiplier=1+.1111=1.1111 2020 Sales=50,000*1.1111

58.33% *Explanation:* USP=$60, UVC=$25, $C=$35. %C=35/60=58.33%.

Based on the Income Statement information below, what is the rounded down 2019 index number for CoGS? Year ending Dec 31, 2019 - Gross sales $860,000 - Returns and Allowances $10,000 - Cost of Goods Sold $510,000 - Operating Expenses $110,000 - Administrative Expenses $55,000 - General Expenses $40,000

60 *Explanation:* Net Sales=$860-$10=$850. CoGS Index # =$510/$850=60

As a sales manager for Mighty Widgets Manufacturers Inc., you are negotiating a 40% markup based on retailer purchase price to Widget Wholesalers, a promising new prospect. However, Widget Wholesalers are used to % markup based on manufacturer selling price. You want to help them understand what you are offering and decide to express it in terms that the Widget Wholesalers can readily understand and relate to. Pick the correct equivalent of the 40%

66.67%

Company XYZ uses two factors to screen new products. Factor 1 is TWO times as important as Factor 2. What are the correct weights assignable to Factor 1 and Factor 2? Factor #1: Profit Potential - Product A: 7 - Product B: 3 Factor #2: Market Share - Product A: 6 - Product B: 9

67% for F1, 33% for F2 *Explanation:* F1=2F2, so 2F2+F2=3F2=100%. Therefore, F2=33%, F1=67%

Golden State Petroleum Company is running a coupon promotion to popularize its motor oil. They forecast to sell 66,000 cases of which 60% are expected to be coupon sales. When the 60% is broken down further, 80% of that is expected to be new sales. Assuming that each coupon and non-coupon transaction results in positive $C and knowing what you do about the relevant issue here, which of the following part(s) of the breakup of the forecast sales is the main source of adverse profit impact for GSPC?

7,920 cases *Explanation:* Coupon transactions bring in lower $C than non coupon transactions. However, coupon transactions that are +ve $C (like here) and bring in new customers are OK because they are building the company's customer base. Here 66,000*60% = 39,600 coupon cases. Of the 39,600, 80% are new customers. The remaining 20% or 39,600*20%=7,920 cases are existing customers who use a coupon i.e., cannibalize. They, therefore generate lower $C each than they would have without the coupon.

8% *Explanation:* $C=TFC/#BEP=$100,000/50,000=$2.00.%C=$c/usp=2/25=8%.Additional information is superfluous.

Company XYZ uses two factors to screen new products. Factor 1 is TWO times as important as Factor 2. Which of two new products IS likely to pass the test? A minimum weighted score of 6.5 or higher is needed for additional consideration. Factor #1: Profit Potential - Product A: 7 - Product B: 3 Factor #2: Market Share - Product A: 6 - Product B: 9

80% for F1, 20% for F2 *Explanation:* F1=4F2 plus F2 = 100% Therefore SF2=100% and F2=20%, so F1=80%

*Question:* The following table shows the likelihood of different sales volumes at different prices. At a price of $5.00, a reasonable estimate of the expected sales in units is: Price Sales Volume 6,000 8,000 10,000 12,000 $5.00 0.10 0.20 0.40 0.30 $10.00 0.40 0.20 0.20 0.20 $20.00 0.60 0.20 0.10 0.10

9,800 *Explanation:* weighted unit sales at $5 price = 9,800

Which of the following statements on Pro forma Income Statements is not correct?

A pro forma income statement is typically very accurate. *Explanation:* Something based on projections and assumptions is unlikely to be very accurate! See C2.

Snacko! is still evaluating "Spicies", a proposed new snack for 2020. First year breakeven requirements and market share implications would naturally play a key role in their decision to go ahead or scrap the idea. In the analyses involved, Snacko! should include, i.e. consider relevant, which of the following costs?

All costs except cost of samples are all relevant and should be included (Budgeted advertising $ for Spicies, Budgeted production fixed costs $ for Spicies, Budgeted sales force $ for Spicies, and Costs of already produced samples of Spicies). *Explanation:* Cost of already produced samples have to be written off, if the product is not introduced. A sunk cost. All the other items are relevant costs which will inly be incurred after the decision to go ahead is made.

Which of the following statements on index numbers is correct?

All of the other 4 answers are correct (It is easiest and most common form of ratio analysis, The index number based used for balance sheet is usually total assets, The index number base used for income statements is usually net sales or net revenue, The base is usually set to 100). *Explanation:* See C2. All of these apply to Index #s.

For the channel of manufacturer - wholesaler - retailer - consumer, we know that...

All of the other answers except the one that says %muc < %musp are correct

Which of the following statements about average inventory is correct?

All the other 4 answers are correct (Lower average inventory means lower total inventory carrying cost, It is usually determined by dividing cost of goods sold by the # of inventory turns, It necessarily results in tying up some of the firm's working capital, A higher # for inventory turns means lower average inventory). *Explanation:* See C2

Which of the following statements on growth multiplier is not correct?

All the other 4 answers are correct (The growth multiplier can be equal to 1, The growth multiplier can be less than 1, The growth multiplier is never equal to zero. The growth multiplier can be greater than 1). *Explanation:* See examples in Chapter 1

MM Inc. plans to replace direct sales to 5,000 US retailers spread out all over the country, with indirect sales by incorporating a layer of 15 wholesalers. It would be reasonable for them to expect changes in.....

All the other 4 costs will change

Which of the following items on Income Statements are considered fixed costs?

All the other 4 things are correct (Factory building rent, Factory utilities, Trade show booth rental and registration, Salesforce salary).

In NPV analysis of multiple project opportunities, which of the following is likely to be set differently primarily as a result of the risk associated with each project?

Cost of Capital

You point out to I.M. Boss, your CEO, that in NPV analysis, value of THIS depends upon the risk associated with a project. Low risk projects tend to have low value for THIS and high risk projects tend to have high value for this. THIS=?

Cost of Capital

You point out to I.M. Boss, your CEO, that in NPV analysis, an approximate idea of the Payback Period (based on class/Chapter 9 discussion) can be usually inferred once THIS information has been calculated and is available for each period (e.g. year) of the project. THIS=?

Cumulative Discounted Net Cash Flow *Explanation:* Look at any of the NPV examples: AvsB, Gadgets. Payback is that year or period in which CDNCF reaches zero. Recall that we identified that year in which CDNCF went from negative to positive and then precisely estimated the decimal part. Therefore the CDNCF column is key to Payback Period.

I.M. Boss asks you to explain the difference between the Cost of Capital and Discount Rate in a multi-year Net Present Value analysis of a single project. You correctly point out that typically....

DR is derived from CC AND CC stays fixed for this NPV problem, but DR changes from year to year are both correct *Explanation:* Recall any of the NPV problems, say, A vs B, Gadgets Inc. There the CC% was 11% or something like that and we used that for the entire problem. However the DR for each of the 10 years was calculated as DR=1/(1+CC%)^year, so DR differed for Y1, Y2 etc. Recall that the farther the year, the lower the DR.

Which of the following tells you the present value of one dollar, recieved or spent at a specific future point?

Discount rate

Productivo is considering TWO potential new products, while keeping their existing product. Resources permit only one new product to be added. Their existing product X has a $C of $5 (%C= 25%). New product Y has $C of $3 (%C=60%). New product Z has a $C of $4 (%C=20%). Cannibalization is expected with each new product. You recommend this as the bestapproach:

Figure the impact of X+Y vs X+Z on Productivo's Total $C, then decide. *Explanation:* Cannot tell from per unit information for the three products. Must look at what happens to the company: without either Y or Z vs X+Y vs X+Z. Essentially a variation of the Before-After Approach. See Great Lakes, Hannibal or Shaalimaar cases in C5.

The table below provides raw score performance information on three students in a class that carries a total of 1,000 semester points. What is the letter grade of student C? (Note: 90% or above = A; 80%-89% = B; 70%-79% = C; 60%-69% = D, and 59% and below = F) Maximum Score for each assignment - Homework 1 - 100 - Homework 2 - 100 - Homework 3 - 100 - Mid-Term Exam - 300 - Final Exam - 400 Student A - Homework 1 - 70 - Homework 2 - 75 - Homework 3 - 80 - Mid-Term Exam - 150 - Final Exam - 240 Student B - Homework 1 - 80 - Homework 2 - 85 - Homework 3 - 90 - Mid-Term Exam - 210 - Final Exam - 320 Student C - Homework 1 - 60 - Homework 2 - 70 - Homework 3 - 80 - Mid-Term Exam - 285 - Final Exam - 360

Grade B

Coupon promotions for consumer non-durables, such as packaged frozen foods, are often money losing propositions for manufacturers such as P&G. That is, the revenue from the promotions does not cover their costs. This results from....

Inability to prevent coupon redemption by existing as opposed to new customers *Explanation:* Coupon promotions often end up losing money because of cannibalization by existing customers who get hold of the coupon and use it, although it was not intended for them. However, coupon promotions also bring in lots of new customers whose subsequent purchases without coupon and therefore at higher $C are likely to erase those losses, if any, from the coupon promotion itself. See the Baja Foods case in C6.

Applet desires a 20% profit on sales of its smart phone. How will you handle this information in breakeven analysis? Assume that unit selling price, unit variable costs and fixed costs are all known.

Increase uvc by 20% of usp. Recalculate $C then #BEP=TFC/recalculated $C and $BEP=#BEP*usp OR Reduce the 20% from current %C. Then, $BEP=TFC/reduced %C and #BEP=$BEP/usp. Both approaches are correct. *Explanation:* Review the MMC case and pages 75-78n of C4.

Brand A has same %C, but higher $C compared to Brand B. You p=have proposals for increasing the fixed cost for each brand by the same $ amount. Which of these is correct?

Incremental (or triangle) breakeven dollars will be the same for both Brands

Which of the following statements about an income statement is not correct?

It reflects a company's financial condition on a specific date. *Explanation:* That is the Balance Sheet, not the Income Statement. See C2.

As you know, price elasticity may be calculated using the following formula. [(New Quantity - Old Quantity) / Old Quantity] ---------------------------------------------------- [(New Price - Old Price) / Old Price] For a price-inelastic product, the resulting number is...

Less than 1 *Explanation:* See discussion on Elasticity of Demand in Chapter 7 Pricing along with the LSLC an Printo Printer cases.

Benton Foods, which is one of the largest frozen foods manufacturers in the U.S., implemented a coupon promotion for their frozen seafood product. The promotion resulted in a modest loss. Which of the following would be the best option going forward for Benton Foods?

Look at market research data collected during the coupon promotion to assess its effectiveness in attracting new customers *Explanation:* See Chapter 6, e.g. Baja foods and Dijon cases. The high value of the coupon, necessary to attract new consumers, drastically reduces $C of coupon sales units. That plus cannibalization by existing customers during the promotion usually results in Total $C lower than the Fixed Costs of the promotion, leading to a loss. However, if lots of new customers buy the product and it is as good as the company claims, a large % of them will buy again without a coupon. This usually takes care of the initial loss during the coupon pro motion. Therefore, the success of a coupon promotion is not assessed based on its ability to generate a profit (typically unlikely) but the number of new customers it brings in (higher the better).

A product sells 550 units at a price of $160 each. When price is increased to $180 each, sales go down to 450. Recalling Price Elasticity of Demand(see formula sheet), here...

PED equals 1.4545 and demand is elastic *Explanation:* PED=[(new Q-old Q)/Old Q] / [(new P-old P)/Old P]. Here, PED=[(450-550)/550] / [($180-$160)/$160]=-1.4545=1.4545 expressed as absolute value. This is > 1, therefore demand is elastic.

A product sells 550 units at a price of $160 each. When price is increased to $180 each, sales decrease to 400. Recalling Price Elasticity of Demand (see formula sheet), here...

PED equals 2.1818 and demand is elastic *Explanation:* PED=[(new Q-old Q)/Old Q] / [(new P-old P)/Old P]. Here, PED=[(400-550)/550] / [($180-$160)/$160]=-2.1818=2.1818 expressed as absolute value. This is > 1, therefore demand is elastic.

NT Inc would like to adjust the price of their brand, based on original, primary consumer data that shows what people think it is worth, relative to competition. This is called....

Perceived Value Pricing *Explanation:* Pricing based on what people think of and how they evaluate a product relative to competition is Perceived Value Pricing. See the SFL case in C7.

NT Inc sells Product A for $80, with unit variable cost of $18. They also sell Product B for $90 and its UVC is $16. Which product is relatively MORE profitable and why?

Product B, higher %C

The dollar cost of carrying average accounts receivable is one of the most important factors for a manufacturer exploring changes to its distributions. The company can use the dollar cost of carrying average accounts receivable to investigate...

Profit impact of delays in collecting accounts receivable

Two projects, A and B, have an expected life span of 5 years. For both, assume that the initial investment, % cost of capital and 5 year Net Cash Flows of $10K, $20K, $30K, $40K and $50K are all identical. There is one with a key difference: Project A starts with $10K NCF in Year 1 and ends with $50K in year 5. Project B is just the opposite: $50K NCF in Y1, $10K in Y5. NPV analysis is likely to favor which investment and why?

Project B because of the larger NCFs coming in sooner *Explanation:* B is better than A because its larger NCFs come in sooner and therefore, once discounted, yield larger present dollars.

Advise NT Inc. Which of these is NOT likely to be treated as a unit variable cost?

Sales force salary *Explanation:* Salesforce salary is not per unit of product. It is lumpsum amount and a fixed cost.

You would like to determine the profit impact of adding a new product that has similarities with an existing product (same customers, same use etc.). If you use the Incremental Approach, this information is NOT needed.

Sales forecasts for the existing product, before and after the new product *Explanation:* The advantage of the incremental approach is that it requires less data. Specifically, the before new product and after new product sales estimates for the existing product is not needed. See the Great Lakes, Hannibal and Shaalimaar cases in C5.

Astra is reviewing the proposed marketing plan to support its new line of athletic shoes. The promotion initiatives include: (1) an addition of 3 new people to the sales force with a cost of $15,000 in annual salary per person, (2) magazine advertising 10 times during a year at $10,000 per placement, (3) 12% salesforce commission on every pair of athletic shoes sold, (4) two trade shows ($5,000 per show), and (5) 80 hours for website modifications at $75 per hour. Which one out of these expenditures is a variable cost?

Salesforce commission

If ABC company's frozen product division's growth multiplier is less than 1, the trend suggests:

The frozen product division will perform worse in next year than in this year *Explanation:* See examples in C1

which of the following statements on growth multiplier is wrong?

The growth multiplier is always greater than 1. *Explanation:* See examples in C1

Frito Lay is concerned about likely cannibalization of their existing salty snack lines by their proposed line of veggie snacks. This is LESS LIKELY to be a MAJOR problem, IF, for the same quantity of product e.g. per pound,

The new line's $C is higher than the existing line's $C

Increasing the profitability of a company can be accomplished by doing this, while holding all other things constant.

The other 4 changes will all improve profitability. (Increasing the sales revenue, increasing the gross margin, decreasing the fixed costs, and decreasing the variable costs) *Explanation:* All are options. Review C2 (Income Statement) and C4 (BEP)

The sales manager for Tetsu Inc. a Japanese maker of electronic components has just returned from the very price-sensitive USA market, searching for an exclusive distributor. The most promising USA prospects insists on a markup of 25% based on Tetsu's selling price. In Japan, Tetsu is used to typical markup of 20% based on their distributor's selling price to the distributor's customers. What would you recommend to resolve the matter?

There is no difference in the two cited markups. They are equivalent. *Explanation:* Prospect is insisting on 25%muc. Tetsu is offer 20%musp based on prospect's selling price. You can use f5 and f6 to verify that these two %mus are the same. For a given channel entity, i.e. the prospect, 25%muc=20% musp.

Coupon promotions for consumer non-durable products, such as ready-to-eat packaged foods, are often money losing propositions. That is, the revenue from the promotions does not cover their costs. Still, they are quite popular, probably because...

They often bring lots of new customers who then do significant repeat buying

If the manufacturer's selling price is known, you could work towards the consumer's purchase price using...

Top down and forward are both correct. *Explanation:* See C3, LSLC Case

Demand for products like store brand Vitamin D Milk are generally considered price inelastic. This means.....

Total revenue increases when price is increased and Total revenue decreases when price is decreased are both correct *Explanation:* Inelastic means weaker demand response to changes in price. Therefore, price increase means demand falls but not strongly, so total revenue increases. When there is a price decrease, demand goes up, but weak response means total revenue decreases. You simply do not greatly increase or decrease your consumption of a basic product such as milk in response to a price change, down or up.

The premium priced Starbucks Coffee maybe one example of a relatively price-inelastic product for which.....

Total revenue increases when price is increased and Total revenue decreases when price is decreased are both correct *Explanation:* price-inelastic means demand is not very sensitive to price. When price is increased, demand may fall but not sharply, so revenue ends up increasing. When price is decreased, demand may increase but not sharply, so revenue ends up decreasing.

A friend of yours rates three cars as follows: Predict the car (or cars if there is a tie) that he is MOST LIKELY to buy based only on his information. Volkswagen - Importance 0.5 Attribute Economy 5 - Importance 0.3 Attribute Quality 8 - Importance 0.2 Attribute Roominess 7 Toyota - Importance 0.5 Attribute Economy 8 - Importance 0.3 Attribute Quality 8 - Importance 0.2 Attribute Roominess 2 Hyundai - Importance 0.5 Attribute Economy 3 - Importance 0.3 Attribute Quality 5 - Importance 0.2 Attribute Roominess 9

Toyota *Explanation:* weighted score for Toyota =6.8, the highest on the 1-10 scale.

For 2020, ABC Company would like to compare the implication of using a coupon promotion for a particular product versus increasing the sales force commission for the product. You point out that such questions can be easily addressed using the following analysis.

breakeven analysis *Explanation:* Review C4 cases.

Advise NT Inc. Cost/(1-%musp) calculates the same thing as which of the following?

cost*(1+%muc)

Which of the following is used in converting future dollars to the present

discount rate

I.M. Boss, the CEO of your company would like to know the rate you are using for converting each future dollar to the present,. i.e. the CEO wants to know the....

discount rate *Explanation:* As you know, from any of the NPV problems, e.g. A vs B, Gadgets Inc., this is the Discount Rate, calculated from the Cost of Capital % using the formula DR=1/(1+CC%)^year, resulting in smaller DR for distant years.

none of (a-d) above fits the PV criterion *Explanation:* Adibas received 30 points which is more than the average perception of 100/5=20 points. 30/20=150% or 1.5. Average price is $14.00. If you multiply that by 1.50, you get $21.00, which would be the suggested Adibas price according to Perceived Value Pricing.

A manufacturer sells $8/unit to wholesalers who markup by 25% on retailer purchase price. Afterwards, the retailers markup by 33.33% on the wholesaler selling price. In this instance, how will you calculate retailer selling price?

sp=cost*(1+%muc)

Explain Cumulative Discounted Net Cash Flow to I.M. Boss, your CEO. It is...

the cumulative present value of all present and future cash inflows minus outflows *Explanation:* Look at any of the NPV examples: AvsB, Gadgets Inc. This is the CDNCF column.It keeps cumulating with each period's discounted net cash flows, finally ending in NPV for the last period. Net cash flow for each period is inflow minus outflow and discounting expresses that in present dollars.

Which of the following refers to "substantial" criterion in NPV analysis...

the requirement that the $NPV significantly exceed the $investment in the project

MKTG 3700 UNT - Fall 2020

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