41Grove Company makes special equipment used in cell towers. Each unit sells for $400. Grove uses just- in-time inventory procedures: they produce and sell 10,000 units per year. They have provided the following income statement data:
Absorption Costing
|
Contribution Margin
|
Revenue
|
$4,000,000
|
Revenue
|
$4,000,000
|
Cost of goods sold
|
3,000,000
|
Variable expenses
|
|
Gross profit
|
1,000,000
|
Manufacturing
|
1,000,000
|
Selling & admin expenses
|
650,000
|
Selling & admin
|
400,000
|
|
|
Contribution margin
|
2,600,000
|
|
|
Fixed expenses
|
|
|
|
Manufacturing
|
2,000,000
|
|
|
Selling & admin
|
250,000
|
Operating income
|
$350,000
|
Operating income
|
$350,000
|
|
|
|
|
An African cell phone company has offered a one-time deal to buy 200 units for a specially reduced price of $210 per unit. The marketing manager says the sale will not negatively impact the company’s regular sales. The sales manager says that this sale will not require any variable selling & marketing costs. The production manager reports that it would require an additional $25,000 of fixed manufacturing costs to accommodate the specifications of the buyer. If Grove accepts the deal, how will this impact operating income?
A) Up $5,000
B) Down $8,000
C) Up $1,000
D) Down $3,000
42Majestic Products is a price-setter, and they use cost-plus methodology for pricing their products which are unique, artistically designed architectural decorations. They produce and sell 5,000 units per year, at their maximum capacity. Variable costs are $270 per unit. Total fixed costs are $800,000 per year. The CEO has a target of $40,000 operating profit which he wants to hit by year-end. Using the cost-plus method, what price should Majestic use? (Please round to nearest whole dollar.)
A) $322 per unit
B) $430 per unit
C) $438 per unit
D) $278 per unit
43Vacuum Products is a price-setter, and they use cost-plus methodology for pricing their products which are specialty vacuum tubes used in sound equipment. The CEO is certain that he can produce and sell 200,000 units per year, due to the high demand for the product. Variable costs are $1.40 per unit. Total fixed costs are $950,000 per year. The CEO will receive stock options if he reports $100,000 of operating income for the year. Using the cost-plus method, what price would allow the CEO to achieve his target? (Please round to nearest cent.)
A) $3.75 per unit
B) $6.50 per unit
C) $1.90 per unit
D) $6.15 per unit
44Maxi Production is a price-taker. They produce large spools of electrical wire in a highly competitive market, and so they practice target pricing. The current market price is $800 per unit. The company has $2,000,000 in assets and shareholders expect a return of 5% on assets. The company provides the following information:
Sales volume
|
90,000
|
Units per year
|
Variable costs
|
$680
|
Per unit
|
Fixed costs
|
$12,000,000
|
Per year
|
Currently the cost structure is such that the company cannot achieve its profit objective and must cut costs. If variable costs CANNOT be reduced, how much reduction in fixed costs will be needed to achieve the profit target?
A) Reduce fixed costs by $1,300,000
B) Reduce fixed costs by $1,050,000
C) Reduce fixed costs by $990,000
D) Reduce fixed costs by $1,200,000
45Maxi Production is a price-taker. They produce large spools of electrical wire in a highly competitive market, and so they practice target pricing. The current market price is $800 per unit. The company has $2,000,000 in assets and shareholders expect a return of 5% on assets. The company provides the following information:
Sales volume
|
90,000
|
Units per year
|
Variable costs
|
$680
|
Per unit
|
Fixed costs
|
$12,000,000
|
Per year
|
Currently the cost structure is such that the company cannot achieve its profit objective and must cut costs. If fixed costs cannot be reduced, how much reduction in total variable costs will be needed to achieve the profit target?
A) Reduce variable costs by $1,300,000
B) Reduce variable costs by $1,050,000
C) Reduce variable costs by $990,000
D) Reduce variable costs by $1,200,000
$2,000,000 x 5% = $100,000
$72,000,000 - $100,000 = $71,900,000
$73,200,000 - $71,900,000 = $1,300,000
46Maxi Production is a price-taker. They produce large spools of electrical wire in a highly competitive market, and so they practice target pricing. The current market price is $800 per unit. The company has $2,000,000 in assets and shareholders expect a return of 5% on assets. The company provides the following information:
Sales volume
|
90,000
|
Units per year
|
Variable costs
|
$680
|
Per unit
|
Fixed costs
|
$12,000,000
|
Per year
|
Currently the cost structure is such that the company cannot achieve its profit objective and must cut costs. If fixed costs CANNOT be reduced, how much does the variable cost per unit need to be in order to hit the profit goal? (Please round to the nearest cent.)
A) $675.67 per unit
B) $642.00 per unit
C) $665.56 per unit
D $694.20 per unit
47Potlatch Company manufactures sonars for fishing boats. Model 100 sells for $200. Potlatch produces and sells 5,000 of them per year. Cost data are as follows:
Variable manufacturing
|
$105.00
|
Per unit
|
Variable marketing
|
$5.00
|
Per unit
|
Fixed manufacturing
|
$270,000
|
Per year
|
Fixed marketing & admin
|
$140,000
|
Per year
|
A foreign company has offered to make a one-time purchase of 20 units at a price of $150 per unit. The marketing manager says that this sale will not affect Potlatch’s normal sales activity, and it will not require any variable marketing costs. The production manager says that the company is working nearly at capacity and will have to take on additional fixed costs of $1,000 per year in order to accommodate the deal. If Potlatch accepts the sale, how will it affect operating income?
A) Decrease by $100
B) Increase by $1,500
C) Increase by $900
D) Decrease by $900
48Potlatch Company manufactures sonars for fishing boats. Model 100 sells for $200. Potlatch produces and sells 5,000 of them per year. Cost data are as follows:
Variable manufacturing
|
$105.00
|
Per unit
|
Variable marketing
|
$5.00
|
Per unit
|
Fixed manufacturing
|
$270,000
|
Per year
|
Fixed marketing & admin
|
$140,000
|
Per year
|
An offer has come in for a one time sale of 100 units at a special price of $120 per unit. The marketing manager says that the sale will not negatively impact the company’s regular sales activities, and that it will not require any variable marketing costs. The production manager says that there’s plenty of excess capacity and the deal will not impact fixed costs in any way. What is the effect of this deal on operating income?
A) Increase $200
B) Increase $500
C) Increase $1,000
D) Increase $1,500
49 The Squash Company has 5,500 machine hours available annually to manufacture racquets.
The following information is available for the two different racquets produced by Squash:
Pro
|
|
Unit sales price
|
$200
|
Unit variable costs
|
$120
|
Annual demand
|
2,000 units
|
Machine time
|
2 hours per unit
|
Mid
|
|
Unit sales price
|
$120
|
Unit variable costs
|
$66
|
Annual demand
|
4,000 units
|
Machine time
|
1.25 hours per unit
|
How many units of each racquet should be manufactured for Squash to maximize its operating
income?
A) 2,000 units of Pro and 1,200 units of Mid
B) 4,000 units of Mid and 250 units of Pro
C) 2,000 units of Pro and 4,000 units of Mid
D) 4,000 units of Mid and 500 units of Pro