Final Fa2009 Solution

4ursuccess inc is a retail store that sells business

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Unformatted text preview: nswer questions 3 through 6. 4UrSuccess, Inc. is a retail store that sells business suits to college students. Because it custom orders each suit from a local manufacturer, it holds no inventory. In planning for 2010, 4UrSuccess made the following estimates based on sales of 3,600 suits. Average Per Suit Selling price $300 Purchase cost 120 Variable selling and administrative cost 60 Fixed selling and administrative cost 80 Profit $40 3. 4UrSuccess prepared its Master Budget using a contribution margin format. Compute the total contribution margin that appeared on that budget. Units Revenue Purchase cost Variable selling and admin Contribution Margin 3,600 @ $300 3,600 @ $120 3,600 @ $60 3,600 $1,080,000 432,000 216,000 $432,000 4. The management of 4UrSuccess believes that a tight job market will increase its sales significantly. It has revised its budgeted sales volume upward by 40%, arriving at a new sales estimate of 5,040 suits sold. By what amount will the total profit on its master budget increase if it makes this change? Change in profit = Number of increased units * contribution margin per unit = (5,040 – 3,600) * ($300-$120-$60) = 1,440 * $120 = $172,800 5. 4UrSuccess is applying for a bank loan. Its banker believes the economy will decrease 4UrSuccess’s sales volume and is worried about whether that will cause 4URSuccess to lose money. Compute 4UrSuccess’s breakeven point in units. Breakeven point in units: Q where profit is zero Fixed costs are $80 when 3,600 units are sold, so total fixed cost is $80 * 3,600 = $288,000 So, find Q where Q * $120 – $288,000 = 0 Q = ($288,000) / ($120 per unit) Q = 2,400 6A:002 Fall 2009 – Final Exam Page 4 6. Compute 4UrSuccess’s contribution margin ratio. $120 / $300 = 40% 7. University Book Store sells textbooks. Its contribution margin ratio is 40%. Total fixed costs are $240,000 per year. It is a not-for-profit enterprise, so it pays no income taxes. Compute the annual sales revenue it must achieve in order to generate a profit of $75,000. F...
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