FINAL ACCOUNTING EXAM
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McKendree University *
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Accounting
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Jun 13, 2024
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docx
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Question 1)
Computate Inc. produces microprocessors for laptops. Last year, the company recognized revenues of $4,000,000. Total costs for the period were $2,000,000, of which $500,000 were fixed.
If sales were to increase by $150,000, by how much would Computate’s operating income increase?
The Operating Income would increase by $93,750
Total Revenue = $4,000,000
Total costs = $2,000,000
Fixed costs = $500,000
Increase in sales = $150,000
Variable Costs:
= Total costs – Fixed costs
= 2,000,000 – 500,000
= 1,500,000
Variable Cost per Unit of Sales:
= Variable Costs / Total Revenue
= 2,000,000 / 4,000,000
= 0.375
= 37.5%
Additional Variable Costs Incurred:
= Variable Cost per Unit of Sales x Sales Increase
= 37.5% x 150,000
= $56,250
Operating Income:
= Increase in Sales – Additional Variable Costs
= 150,000 – 56,250
= 93,750
Question 2)
Premier Printing produces custom labels and stationary for companies. In conducting CVP analysis of its Personalized Package, management decided to determine how many of the
packages would need to be sold in order to justify continuing the product line. Management determined that fixed costs direct related to this particular product amounted to $27,000 annually. Premier reported $120,000 of gross sales related to this product and variable product costs of $90,000.
Assuming that each Personalized Package sells for $12 per unit, what is the minimum number of Personalized Packages that Premier needs to sell to break even and therefore justify the product line?
Fixed costs = $27,000
Gross sales = $120,000
Variable costs = $90,000
Selling price per unit = $12
Variable Cost per Unit of Sales:
= Variable costs / Gross sales
= $90,000 / $120,000
= $0.75
Contribution Margin per Unit:
= Selling price per unit – Variable cost per unit of sale
= $12 – $0.75
= $11.25
Break-Even Point in Units:
= Fixed costs / Contribution Margin per Unit
= $27,000 / $11.25
= 2,400
Premier needs to sell approximately 2,400 personalized packages to break even and therefore justify the product line. This is the minimum number of units that need to be sold to cover the fixed costs. After selling these units, the company would start making a profit. Question 3)
Jaroni Inc. produces specialty quilts and blankets using a partly manual, partly automated manufacturing process. Total sales for the previous period were $60,000. Wages, materials, and variable manufacturing overhead totaled $10,200. Salaries, depreciation, rent, and other fixed expenses amounted to $14,940. Jaroni charges $500 per customized blanket.
What is Jaroni's break-even point in Sales Dollars?
Sales = $60,000
Total Variable Costs = $10,200
Contribution Margin:
= Sales - Total Variable Costs = $60,000 - $10,200
= $49,800
CM Ratio:
= (Contribution Margin / Sales) x 100
= ($49,800 / $60,000) x 100
= 0.83 x 100
= 83%
Fixed Costs = $14,940
Break-Even Point in Sales Dollars:
= Fixed Costs / CM Ratio
= $14,940 / 83%
= $18,000
Jaroni Inc. would need to make $18,000 in sales to cover all their fixed and variable costs and to start making a profit.
Question 4)
Rough N' Tough (RNT) manufactures outdoors accessories. Management is considering producing the poles for their tents rather than continuing to purchase from their current supplier. The supplier charges $60 per set of poles.
The cost accounting team has estimated that RNT would incur the following costs if they were to produce the poles instead: $40 per set for direct materials, $10 per set for direct labor, $7 per set for variable overhead, and $20 per set for fixed overhead application.
RNT currently has unused production capacity and manufacturing equipment that could be used to manufacture the poles. RNT has planned to sell 5,000 tents this year.
What would the change in overall cost be for the company if RNT produced the poles rather than purchasing them?
The cost of manufacturing a set of poles:
= direct materials cost + direct labor cost + variable overhead cost + fixed overhead application cost
= 40 + 10 + 7 + 20 = $77
The cost of buying a set of poles from supplier = $60
The total cost if the poles are purchased from the supplier would be:
= $60 * 5,000
= $300,000
The total cost if the poles are produced in house would be:
= $77 * 50 = $385,000
The change in overall cost if RNT produced the poles rather than purchasing them would be:
= $385,000 - $300,000 = $85,000
If RNT decides to produce the poles in-house instead of purchasing them from the
supplier, it would result in an increase in overall cost by $85,000. Question 5)
Scholar Suppliers manufactures backpacks for students. The backpacks come in two sizes: Small, and Large. Scholar Suppliers anticipates the following sales volumes and prices for the coming period:
Size
Sales Volume
Selling Price
Small
3,000 backpacks
$25 each
Large
6,000 backpacks
$75 each
What is the budgeted level of revenue for the coming period?
Total revenue of small backpacks:
= sales volume * selling price
= 3,000 * $25
= $75,000
Total revenue of large backpacks:
= sales volume * selling price
= 6,000 * $75
= $450,000
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Show Transcribed Text
D. OUU
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- Last year Minden Company introduced a new product and sold 25,500 units of it at a price of $90 per unit. The product's variable expenses are $60 per unit and its fixed expenses are $831,300 per year. Required: 1. What was this product's net operating income (loss) last year? 2. What is the product's break-even point in unit sales and dollar sales? 3. Assume the company has conducted a marketing study that estimates it can increase annual sales of this product by 5,000 units for each $2 reduction in its selling price. If the company will only consider price reductions in increments of $2 (e.g., $68, $66, etc.), what is the maximum annual profit that it can earn on this product? What sales volume and selling price per unit generate the maximum profit? 4. What would be the break - even point in unit sales and in dollar sales using the selling price that you determined in requirement 3?arrow_forwardLast year Minden Company introduced a new product and sold 25,800 units of it at a price of $95 per unit. The product's variable expenses are $65 per unit and its fixed expenses are $830,400 per year. Required: 1. What was this product's net operating income (loss) last year? 2. What is the product's break-even point in unit sales and dollar sales? 3. Assume the company has conducted a marketing study that estimates it can increase annual sales of this product by 5,000 units for each $2 reduction in its selling price. If the company will only consider price reductions in increments of $2 (e.g., $68, $66, etc.), what is the maximum annual profit that it can earn on this product? What sales volume and selling price per unit generate the maximum profit? 4. What would be the break-even point in unit sales and in dollar sales using the selling price that you determined in requirement 3? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3…arrow_forwardLast year Minden Company introduced a new product and sold 25,800 units of it at a price of $95 per unit. The product's variable expenses are $65 per unit and its fixed expenses are $836,100 per year. Required: 1. What was this product's net operating income (loss) last year? 2. What is the product's break-even point in unit sales and dollar sales? 3. Assume the company has conducted a marketing study that estimates it can increase annual sales of this product by 5,000 units for each $2 reduction in its selling price. If the company will only consider price reductions in increments of $2 (e.g., $68, $66, etc.), what is the maximum annual profit that it can earn on this product? What sales volume and selling price per unit generate the maximum profit? 4. What would be the break-even point in unit sales and in dollar sales using the selling price that you determined in requirement 3? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3…arrow_forward
- Last year Minden Company introduced a new product and sold 25,700 units of it at a price of $100 per unit. The product's variable expenses are $70 per unit and its fixed expenses are $838,200 per year. Required: 1. What was this product's net operating income (loss) last year? 2. What is the product's break-even point in unit sales and dollar sales? 3. Assume the company has conducted a marketing study that estimates it can increase annual sales of this product by 5,000 units for each $2 reduction in its selling price. If the company will only consider price reductions in increments of $2 (e.g., $68, $66, etc.), what is the maximum annual profit that it can earn on this product? What sales volume and selling price per unit generate the maximum profit? 4. What would be the break-even point in unit sales and in dollar sales using the selling price that you determined in requirement 3? Complete this question by entering your answers in the tabs below. Required 1 Required 2 Required 3 What…arrow_forwardLast year Minden Company introduced a new product and sold 25,500 units of it at a price of $99 per unit. The product's variable expenses are $69 per unit and its fixed expenses are $836,400 per year. Required: 1. What was this product's net operating income (loss) last year? 2. What is the product's break-even point in unit sales and dollar sales? 3. Assume the company has conducted a marketing study that estimates it can increase annual sales of this product by 5,000 units for each $2 reduction in its selling price. If the company will only consider price reductions in increments of $2 (e.g., $68, $66, etc.), what is the maximum annual profit that it can earn on this product? What sales volume and selling price per unit generate the maximum profit? 4. What would be the break-even point in unit sales and in dollar sales using the selling price that you determined in requirement 3? subpart number 4arrow_forwardLast year Minden Company Introduced a new product and sold 25,100 units of It at a price of $95 per unit. The product's varlable expenses are $65 per unit and its fixed expenses are $835,500 per year. Required: 1. What was this product's net operating Income (loss) last year? 2 What is the product's break-even point in unit sales and dollar sales? 3. Assume the company has conducted a marketing study that estimates It can Increase annual sales of this product by 5.000 units for each $2 reduction In Its selling price. If the company will only consider price reductions in increments of $2 (e.g. $68. $6, etc.). what is the maximum annual profit that It can earn on this product? What sales volume and selling price per unit generate the maximum profit? 4. What would be the break-even polnt In unit sales and In dollar sales using the selling price that you determined In requirement 3? Complete this question by entering your answvers in the tabs below. Required 1 Required 2 Required 3…arrow_forward
- The Doral Company manufactures and sells pens. Currently, 5,000,000 units are sold per year at $0.50 per unit. Fixed costs are $900,000 per year. Variable costs are $0.30 per unit. Consider each case separately: Q1. a. What is the current annual operating income? b. What is the current breakeven point in revenues? Compute the new operating income for each of the following changes: Q2. A $0.04 per unit increase in variable costs Q3. A 10% increase in fixed costs and a 10% increase in units sold Q4. A 20% decrease in fixed costs, a 20% decrease in selling price, a 10% decrease in variable cost per unit, and a 40% increase in units sold Compute the new breakeven point in units for each of the following changes: Q5. A 10% increase in fixed costs Q6. A 10% increase in selling price and a $20,000 increase in fixed costsarrow_forwardYour corporation sells a product for $10 per unit. The variable expenses are $6 per unit, and the fixed expenses total $35,000 per period. By how much will net operating income change if sales are expected to increase by $40,000?arrow_forwardThe Titan Company provides you with the following information for the current year: Revenues = $2,000,000Cost of goods sold = $750,000 (2/3 of this amount varies with the number of units produced)S&A costs = $200,000 (1/2 of this amount is fixed)Selling price = $40 per unit The company sold 50,000 units of their product in the current year. The company expects unit sales of their product to increase 20% in the next year. Based on the information above, what would be the expected increase to profit before taxes in the coming year?arrow_forward
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