ADMS 2510 practice questions.pdf - Midterm Notes(Practice...

• 15

This preview shows page 1 - 4 out of 15 pages.

Midterm Notes (Practice problems) ADMS 2510 Chapter 1,2,3: Question 1:Jordan Sports Inc. has labour costs and overhead totalling \$4.5 million during a given period. The company purchased \$12.6 million of materials during the period and used \$11.8 million of this amount. What is the amount of total manufacturing cost for the period? (Enter your answer in millions rounded to 1 decimal place.) Question 2:If a merchandising company has a beginning inventory of \$401,000 and an ending inventory of \$203,000, and the company purchased \$1,602,000 of inventory during the month, what is the company’s cost of goods sold? Chapter 9: Question 1: Harold McWilliams owns and manages a general merchandise store in a rural area of Virginia. Harold sells appliances, clothing, auto parts, and farming equipment, among a wide variety of other types of merchandise. Because of normal seasonal and cyclical fluctuations in the local economy, he knows that his business will also have these fluctuations, and he is planning to use CVP analysis to help him understand how he can expect his profits to change with these fluctuations. Harold has the following information for his most recent year. The cost of goods sold represents the cost paid for the merchandise he sells while operating costs represent rent, insurance, and salaries, which are entirely fixed. Sales \$ 840,000Cost of merchandise sold 562,800Contribution margin 277,200Operating costs 131,010Operating profit \$ 146,190Required: 1-a. What is Harold’s margin of safety (MOS) in dollars? (Do not round intermediate calculations.)
1-b. What is the margin of safety (MOS) ratio? (Input your answer as a percentage rounded to 2 decimal places (i.e., 0.1567 = 15.67%).) 3. What is Harold’s margin of safety (in dollars) and operating profit if sales should fall to \$705,000? (Do not round intermediate calculations.) Explanation for Question 1-a and 1-b: First, calculate the breakeven point, using the contribution margin ratio (CMR), as follows:
Contribution margin = Sales \$ × CMR = \$705,000 × 0.33 \$ 232,65 0 Less fixed costs 131,01 0 Operating profit \$ 101,64 0 Or, using the relationship between the MOS and Operating profit: Operating profit = MOS × CMR \$101,640 = \$308,000 × 0.33 Why this works: Operating profit = MOS × CMR = (Expected sales − Breakeven) × CMR = (Expected sales × CMR) − (Breakeven sales × CMR) = Contribution margin − Fixed costs (F) = Operating profit