FINAL EXAM FALL 2010 - ACCOUNTING 5110 FINAL EXAM FALL 2010...

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ACCOUNTING 5110 NAME ____Hui Li_______ FINAL EXAM FALL 2010 (20 points) 1. An analysis of Gardner Corporation’s operating income changes between 2005 and 2006 show the following: Operating income for 2005 $1,000,000 Add growth component 50,000 Deduct price-recovery component (30,000) Add productivity component 120,000 Operating income for 2006 $1,140,000 Required: Is Gardner’s operating income gain consistent with the product differentiation or cost leadership strategy? Explain briefly. Gardner’s operating income gain is consistent with the cost leadership strategy. There was a negative price-recovery component of -$30,000, which is due to decreased selling price and inability to recover increased costs. But because of a positive growth component and a large productivity component, the operating income of 2006 still increased by a lot compared to that of 2005. The growth component of a change in operating income from one year to the next measures the increase in operating income from selling more units of the product. There is a big number of Growth component of $50,000, meaning Gardner has sold more units of the same product. There was also a significant increase in operating income attributable to Productivity component which is $120,000. Productivity component is brought by a reduction in costs attributable to a reduction in the quantity of inputs used. Gardner made use of its productivity gain to reduce prices and to gain market growth. Threrefore Gardner’s operating income gain is consistent with the cost leadership strategy.
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ACCOUNTING 5110 NAME ____Hui Li________ FINAL EXAM FALL 2010 (15 points) 2. Sportswear Company manufactures socks. The Athletic Division sells its socks for $6 a pair to outsiders. Socks have manufacturing costs of $2.50 each for variable and $1.50 for fixed. The division's total fixed manufacturing costs are $105,000 at the normal volume of 70,000 units. The European Division has offered to buy 15,000 socks at the full cost of $4. The Athletic Division has excess capacity and the 15,000 units can be produced without interfering with the current outside sales of 70,000. The 85,000 volume is within the division's relevant operating range. Explain whether the Athletic Division should accept the offer. Athletic Division should accept the offer. Cost: Fixed: 2.5 Variable: 1.5 Sell price: 6 Total fixed cost: 105000 According to the information above, the Athletic Division has excess capacity and the 15,000 units can be produced without interfering with the current outside sales of 70,000. The 85,000 volume is within the division's relevant operating range. The fixed cost will
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This note was uploaded on 07/21/2011 for the course BADM 5140 taught by Professor Rag during the Spring '11 term at East Tennessee State University.

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FINAL EXAM FALL 2010 - ACCOUNTING 5110 FINAL EXAM FALL 2010...

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