M3-Sample%20Exam%2bSolutions-1

M3-Sample%20Exam%2bSolutions-1 - On the surface the answer...

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Unformatted text preview: On the surface the answer to question "F" would seem to be the decision to lower the unit pric because gross profit increased from $33,000 to $33,800 But in fact the increase in gross profit may have been caused by the decrease in unit cost, no You can check this out by adding back the unit cost variance to the November cost of sales. NOVEMBER OCTOBER SALES 57,000 55,000 (450) < Unit cost variance COST OF SALES (23,200) (1.8333) (22,000) (1.8333) Gross profit after deducting the unit cost variance >> 33,350 33,000 UNITS SOLD 12,900 12,000 The gross profit would have decreased from $33,800 to $33,350 - but it would still have been than in October ($33,000) - so the decision to lower the price was correct. What was done above can be explained another way. We recalculated the November income November dollar sales, and multiplying November units sold times the October unit cost to ge for November. By keeping the unit cost the same in both October and November, we are mea We have eliminated the effect on November gross profit caused by any change in unit cost b or decrease in gross profit that was produced ONLY by the change in unit price and its effect (450+23,20 0)/12,900 = 1.8333 Var. Var. The variable expense (2) (25 Points) DECISIONS, DECISIONS, DECISIONS, INC. Exp. % Exp. % percent is calculated "A" Per Unit "B" Per Unit by dividing the SALES $120,000 12.00 $120,000 7.50 variable expenses VARIABLE EXPENSES 54,000 4.50 45.0% 67,200 4.20 56.0% by the dollar sales CONTRIBUTION MARGIN 66,000 52,800 FIXED EXPENSES 66,000 52,800 < Contribution margin DIRECT 55,000 (55,000) 39,000 (39,000) < Direct fixed expenses 11,000 << Compare >> 13,800 < Departmental Income INDIRECT 10,000 16,000 NET INCOME $1,000 ($2,200) COVERS 12,000 20,000 ANSWERING THE FOLLOWING 2 QUESTIONS. A) Which answer indicates what restaurant you should sell and also gives (5 Pts) the correct reason for selling it? a) I would sell "A" because it has the highest fixed expenses b) I would sell "B" because "A" has the highest departmental income Correct > c) I would sell "A" because "B" has the highest departmental income d) I would sell "B" because it has the highest direct fixed expenses B) Assume that $1,000 of Restaurant "B's" indirect fixed expenses could be eliminated Scroll B) (5 Pts) by closing it. Which restaurant would you sell? right for a (5 Pts) by closing it. Which restaurant would you sell? a) I would sell "A" because it has the highest fixed expenses variation a) I would sell "A" because it has the highest fixed expenses b) I would sell "B" because "A" has the highest departmental income of Ques. Correct > b) I would sell "B" because "A" has the highest departmental income Correct > c) I would sell "A" because "B" has the highest departmental income B) c) I would sell "A" because "B" has the highest departmental income d) I would sell "B" because it has the highest direct fixed expenses d) I would sell "B" because it has the highest direct fixed expenses C) Assume that you owned restaurant "A" and a customer offerred to buy 200 covers from...
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M3-Sample%20Exam%2bSolutions-1 - On the surface the answer...

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