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Name: ______________________________
(print or type)
Quiz #1
ACCT 6273
There are 100 points on this quiz. Show your formulas and your work to receive partial
credit. There is no partial credit for multiple choice or True/False.
Problem 1
FunToys is introducing a new game. The expected costs for this game are as follows:
Variable Manufacturing Expenses
Fixed Manufacturing Expenses
Variable Selling and Admin Expenses
Fixed Selling and Admin Expenses
$15 per unit
$10,000 per year
$3 per unit
$5,000 per year
The expected selling price is $20 per unit.
a. Compute the contribution margin per unit. [5 points]
Answer: ______________
b. Compute the breakeven point in units. [10 points]
Answer: ______________
c. Compute the number of units which must be sold to earn $20,000 profit. [5 points]
Answer: _____________
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d. Due to its excellent brand reputation and brand recognition, FunToys expects that it will
sell 25,000 new games without spending anything on advertising for these games.
However, if FunToys spends $25,000 on advertising for the games, an additional 20,000
games are expected to be sold. Should FunToys spend $25,000 on advertising?
(Circle (or highlight) one) [5 points]
Yes
No
Explain why: [5 points]
e. If FunToys increases the price for this new game to $22 per game, do you expect the
breakeven for the game to be greater than, or less than, the breakeven that you calculated
in question 1b, above?
(Circle (or highlight) one) [5 points]
Greater than
Explain why without using calculations: [5 points]
Less than
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f. Prepare a Contribution Margin Income Statement assuming that FunToys sets the price
for the new game at $22, and that they sell 15,000 units. [10 points]
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Problem 2
Contribution Margin Income Statements for Alpha Company and Beta Company are below:
Revenue
Less: Variable Cost
Contribution Margin
Less Fixed Cost
Net Income
Alpha
$100,000
20,000
80,000
75,000
$ 5,000
Beta
$100,000
75,000
25,000
20,000
$ 5,000
Assuming sales increase by $1,000, determine if each of the following statements is True or
False. Circle (or highlight) the correct answer. [5 points each for a total of 20 points]
a. Alpha’s net income will be more than Beta’s net income.
True
False
b. Beta’s net income will increase by $200.
True
False
c. Both companies will experience an increase in profit.
True
False
d. Alpha’s net income will increase by $800.
True
False
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Problem 3
1. Dodge Company expected to sell 150,000 games during the month of November. The
following budgeted data are based on that level of sales:
Revenue (150,000 games)
Variable cost
Fixed manufacturing cost
Fixed selling and administrative cost
Net operating income
$2,400,000
1,425,000
250,000
500,000
$225,000
Dodge’s actual sales during November were 180,000 games. What should the net
operating income during November have been? (Circle or highlight one) [5 points]
a. $450,000
b. $270,000
c. $420,000
d. $510,000
2. Kritzberg Company sells a product at $60 per unit that has unit variable costs of $40. The
company’s breakeven sales is $120,000.
How much profit will the company make if it sells 4,000 units? (Circle or highlight one)
[5 points]
a. $40,000
b. $80,000
c. $120,000
d. $240,000
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3. Once sales reach the breakeven point, each additional unit sold will: (Circle or highlight
one) [10 points]
a. increase fixed costs by a proportionate amount
b. reduce the margin of safety
c. increase profit by the contribution margin per unit
d. decrease variable costs per unit
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Problem 4
Golden Gloves Corporation manufactures and sells boxing equipment. Recent marketing
activity caused a 20% increase in the number of units produced and sold. What is the impact of a
20% increase in volume on fixed cost per unit and total variable cost? (Circle or highlight the
correct answer) [10 points]
Fixed cost per unit
Total variable cost
a.
No change
No change
b.
Decrease
Increase
c.
Decrease
No change
d.
Decrease
Decrease
e.
Increase
No change
f.
Increase
Increase
g.
Increase
Decrease