Ac314-Q 2 - .........................- --

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Unformatted text preview: .........................- -- ............................................. X THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 1 THROUGH 4: Kaiser’s Kraft Korner sells a single product. 7,000 units were sold resulting in $70,000 of sales revenue, $28,000 of variable costs, and $12,000 of fixed costs. 1. Contribution margin per unit is a. $4.00 b. $4.29 c. $6.00 d. None of these answers are correct. Answer: c ($70,000 – $28,000) / 7,000 units = $6 per unit 2. Breakeven point in units is: a. 2,000 units b. 3,000 units c. 5,000 units d. None of these answers are correct. Answer: a $10X – $4X – $12,000 = 0; X = 2,000 units 3. The number of units that must be sold to achieve $60,000 of operating income is: a. 10,000 units b. 11,666 units c. 12,000 units d. None of these answers are correct. Answer: c 10X – 4X – 12,000 = 60,000; X = 12,000 units 4. If sales increase by $25,000, operating income will increase by: a. $10,000 b. $15,000 c. $22,200 d. None of these answers are correct. Answer: b [($70,000 – $28,000) / $70,000] x $25,000 = $15,000 5. Sales total $200,000 when variable costs total $150,000 and fixed costs total $30,000. The breakeven point in sales dollars is: a. $200,000 b. $120,000 c. $ 40,000 d. $ 30,000 Answer: b ($200,000 – $150,000) / $200,000 = 25% CM%; $30,000 / 0.25 = $120,000 BE sales THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 6 AND 7: Assume the following cost information for Fernandez Company: Selling price Variable costs Total fixed costs Tax rate 6. $120 per unit $80 per unit $80,000 40% What minimum volume of sales dollars is required to earn an after-tax net income of $30,000? a. $465,000 b. $330,000 c. $390,000 d. $165,000 Answer: c [$80,000 + ($30,000/0.6)] / [($120 – $80) / $120] = $390,000 7. What is the number of units that must be sold to earn an after-tax net income of $42,000? a. 3,750 units b. 4,625 units c. 3,050 units d. 1,875 units Answer: a [$80,000 + ($42,000 / 0.6)] / ($120 – $80) = 3,750 units 8. The Tessmer Company has fixed costs of $400,000 and variable costs are 75% of the selling price. To realize profits of $100,000 from sales of 500,000 units, the selling price per unit: a. must be $1.00 b. must be $1.33 c. must be $4.00 d. is indeterminable Answer: c ($400,000 + $100,000) / .25 = $2,000,000 in sales / 500,000 units = $4 per unit THE FOLLOWING INFORMATION APPLIES TO QUESTIONS 9 THROUGH 10: Southwestern College is planning to hold a fundraising banquet at one of the local country clubs. It has two options for the banquet: OPTION 1: Crestview Country Club a. Fixed rental cost of $1,000 b. $12 per person for food OPTION 2: Tallgrass Country Club a. Fixed rental cost of $3,000 b. A caterer who charges $8.00 per person for food Southwestern College has budgeted $1,800 for administrative and marketing expenses. It plans to hire a band which will cost another $800. Tickets are expected to be $30 per person. Local business supporters will donate any other items required for the event. 9. Which option provides the greatest operating income if 600 people attend? a. Option one b. Option two c. Operating incomes are identical. d. Operating income is indeterminable. Answer: b Option 1: $18 x 600 – $3,600 = $7,200; Option 2: $22 x 600 – $5,600 = $7,600 10. Which option provides the greatest degree of operating leverage if 600 people attend? a. Option one b. Option two c. Both options provide equal degrees of operating leverage. d. Operating leverage is indeterminable. Answer: b Option 1: $18 x 600 / $7,200 = 1.50; Option 2: $22 x 600 / $7,600 = 1.74 ...
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This note was uploaded on 04/05/2010 for the course BUSINESS 11 taught by Professor 11 during the Spring '10 term at University of Hawaii, Manoa.

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