Accounting

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nc2424

Business Finance

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In these problems, you will apply what you have learned in this week’s textbook reading. You may make multiple attempts in order to master the content.

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QUESTION 1 Contribution Margin Molly Company sells 35,000 units at $13 per unit. Variable costs are $10.66 per unit, and fixed costs are $28,700. Determine (a) the contribution margin ratio, (b) the unit contribution margin, and (c) income from operations. a. Contribution margin ratio (Enter as a whole number.) % b. Unit contribution margin (Round to the nearest cent.) $ c. Income from operations $ per unit QUESTION 2 Break-Even Point Radison Enterprises sells a product for $111 per unit. The variable cost is $59 per unit, while fixed costs are $1,319,552. Determine (a) the break-even point in sales units and (b) the break-even point if the selling price were increased to $120 per unit. a. Break-even point in sales units units b. Break-even point if the selling price were increased to $120 per unit units QUESTION 3 Classify Costs Following is a list of various costs incurred in producing replacement automobile parts. With respect to the production and sale of these auto parts, classify each cost as either variable costs, fixed costs, or mixed costs. 1. Oil used in manufacturing equipment 2. Plastic 3. Property taxes, $165,000 per year on factory building and equipment 4. Salary of plant manager 5. Cost of labor for hourly workers 6. Packaging 7. Factory cleaning costs, $6,000 per month 8. Metal 9. Rent on warehouse, $10,000 per month plus $25 per square foot of storage used 10. Property insurance premiums, $3,600 per month plus $0.01 for each dollar of property over $1,200,000 11. Straight-line depreciation on the production equipment 12. Hourly wages of machine operators 13. Electricity costs, $0.20 per kilowatt-hour 14. Computer chip (purchased from a vendor) 15. Pension cost, $1.00 per employee hour on the job QUESTION 4 1. Determine the amount of sales (units) that would be necessary under Break-Even Sales Under Present and Proposed Conditions Darby Company, operating at full capacity, sold 93,150 units at a price of $75 per unit during the current year. Its income statement for the current year is as follows: Sales $6,986,250 Cost of goods sold 3,450,000 Gross profit $3,536,250 Expenses: Selling expenses $1,725,000 Administrative expenses 1,725,000 Total expenses 3,450,000 Income from operations $86,250 The division of costs between fixed and variable is as follows: Cost of goods sold Selling expenses Administrative expenses Variable 70% 75% Fixed 30% 25% 50% 50% Management is considering a plant expansion program that will permit an increase of $600,000 in yearly sales. The expansion will increase fixed costs by $60,000, but will not affect the relationship between sales and variable costs. Required: 1. Determine the total variable costs and the total fixed costs for the current year. Enter the final answers rounded to the nearest dollar. Total variable costs $ Total fixed costs $ 2. Determine (a) the unit variable cost and (b) the unit contribution margin for the current year. Enter the final answers rounded to two decimal places. Unit variable cost $ Unit contribution margin $ 3. Compute the break-even sales (units) for the current year. Enter the final answers rounded to the nearest whole number. units 4. Compute the break-even sales (units) under the proposed program for the following year. Enter the final answers rounded to the nearest whole number. units 5. Determine the amount of sales (units) that would be necessary under the proposed program to realize the $86,250 of income from operations that was earned in the current year. Enter the final answers rounded to the nearest whole number. units 6. Determine the maximum income from operations possible with the expanded plant. Enter the final answer rounded to the nearest dollar. $ 7. If the proposal is accepted and sales remain at the current level, what will the income or loss from operations be for the following year? Enter the final answer rounded to the nearest dollar. $ 8. Based on the data given, would you recommend accepting the proposal? a. In favor of the proposal because of the reduction in break-even point. b. In favor of the proposal because of the possibility of increasing income from operations. c. In favor of the proposal because of the increase in break-even point. d. Reject the proposal because if future sales remain at the current level, the income from operations will increase. e. Reject the proposal because the sales necessary to maintain the current income from operations would be below the current year sales. Choose the correct answer. •
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