Exam 1 - Practice Problems.pdf

7000 units of j and 7000 units of k b 14000 units of

Info icon This preview shows pages 10–14. Sign up to view the full content.

7,000 units of J and 7,000 units of K (B) 14,000 units of J and 7,000 units of K (C) 10,000 units of J and 5,000 units of K (D) 5,000 units of J and 2,500 units of K (E) 2,500 units of J and 5,000 units of K (F) none of the above 4. Information Inc. sells accounting software. Each unit can be sold for $100 and has a variable cost of $30 per unit. Fixed costs are $10,000. How many units must Information Inc. sell in order to yield an after-tax income of $2,400. Assume that the tax rate is 40% and taxes are paid on the basis of book income. (A) 200 units (B) 170 units (C) 150 units (D) 145 units (E) only a loss is possible given these data (F) none of the above
Image of page 10

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

Page 11 Accounting 102, Practice Problems - Exam 1 Solution: 1. The $50,000 that was spent to make the obsolete inventory is irrelevant in this question because the cost is already sunk. If the inventory is reworked, the firm receives $55,000 - $18,000 in rework costs, or $37,000. However, it gives up the opportunity to dispose of the obsolete inventory for $30,000. The net effect of reworking the inventory is an increase of $7,000 (answer D). 2. Answering this question requires us to set the cost of purchasing equal to the cost of making internally. Let Q = the production level: If Buy: $48*Q - $260,000 (the savings in fixed overhead) If Make: $22*Q + $16*Q + $2*Q Setting these equations equal to each other and solving for Q gives us a product level of 32,500 units (answer A). 3. Since 2 units of J are sold for every 1 unit of K, you can think of this problem as asking for how many “bundles” of 2 J’s and 1 K are needed to break-even (also note that only answers B, C, and D can possibly be solutions given this mix). The total contribution margin for a “bundle” of J and K is 2*$4 + 1*$6 = $14 per bundle. The break-even point is Fixed cost/Contribution margin per bundle = $70,000/$14 = 5000 bundles. Since there are 2 J’s and 1 K in each bundle, the solution is answer (c). 4. The contribution margin per unit is $100 - $30 = $70. The desired profit is $2,400 after tax, meaning that we need to “gross up” (or divide) this figure by (1 – tax rate) to get the pre-tax amount. When we do this, the required pre-tax profit is $4,000. Thus: (Fixed cost + Desired Profit)/Contribution margin per unit = ($14,000)/$70 = 200 units (answer A).
Image of page 11
Page 12 Accounting 102, Practice Problems - Exam 1 PROBLEM: Circle the correct answer(s) 1. Kent Co.’s operating percentages were as follows: Revenues Cost of goods sold Variable 50% 100% Fixed 10% 60% Gross margin 40% Other operating expenses Variable 20% Fixed 15% 35% Operating income 5% Kent’s sales totaled $2 million. At what revenue level would Kent break even? (A) $1,900,000 (B) $1,666,667 (C) $1,250,000 (D) $833,333 (E) None of the above 2. A company with $280,000 of fixed costs has the following data: Product A Product B Sales price per unit $5 $6 Variable costs per unit $3 $5 Assume that three units of A are sold for each unit of B sold. Revenues for product B at the breakeven point will equal: (A) $200,000 (B) $240,000 (C) $600,000 (D) $840,000 (E) None of the above
Image of page 12

Info icon This preview has intentionally blurred sections. Sign up to view the full version.

Page 13 Accounting 102, Practice Problems - Exam 1 3. Moorehead Manufacturing Company produces two products for which the following data have been tabulated.
Image of page 13
Image of page 14
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern