1-81
114.
Travon’s Limo Service provides transportation services in and around Bentonville. Its
profits have been declining, and management is planning to add a package delivery
service that is expected to increase revenue by $275,000 per year. The total cost to lease
additional delivery vehicles from the local dealer is $60,000 per year. The present manager
will continue to supervise all services. However, labor and utilities costs will increase by
40% and rent and other costs will increase by 15% when the package delivery service is
added.
Travon’s Limo Service
Annual Income Statement
Before Expansion
Sales Revenue
$960,000
Costs:
Vehicle leases
$400,000
Labor
290,000
Utilities
50,000
Rent
100,000
Other Costs
60,000
Manager’s Salary
120,000
Total Costs
1,020,000
Operating Profit (Loss)
($60,000)
1-82
Costs:
Utilities
Rent
Total Costs
$1,240,000
Profit (Loss)
115.
Morris Inc. is a management consulting firm that specializes in management training
programs. Tackle Manufacturing Inc. has approached Morris to contract for management
training for a one-year period. Last year’s income statement for Morris is as follows:
Sales Revenue
$360,000
Costs:
Labor
$120,000
Equipment Lease
12,000
1-83
Rent
24,000
Utilities
8,400
Supplies
23,600
Other Costs
14,400
Manager’s Salary
80,000
Total Costs
282,400
Operating Profit (Loss)
$77,600
(a) Differential Costs
Trainer
Supplies
Other Costs
New Equipment Lease
$49,492
116.
The Arielle Company reported the following results for the manufacture and sale of one of
its products known as Controllers during the most recent year.
1-84
Sales (6,500 Controllers at $130 each)
$845,000
Cost of sales
390,000
Distribution costs
65,000
Advertising expense
275,000
Salaries
25,000
Building costs
145,000
Operating loss
($55,000)
1-86
117.
The management of Parachute Corporation is considering dropping product ABC123. Data
from the company’s accounting system appear below:
Sales
$260,000
Cost of goods sold
125,000
Building expenses
88,000
Selling and administrative expenses
75,000
Sales
Cost of goods sold
Operating profits (losses)
($28,000)
1-88
118.
The management of Marvel Corporation has been concerned for some time with the
financial performance of its product EX123 and has considered discontinuing it on several
occasions. Data from the company’s accounting system appear below:
Sales
$650,000
Cost of goods sold
$293,000
Building expenses
$221,000
Selling and administrative expenses
$150,000
Cost of goods sold
Building expenses
Selling and administrative expenses
($14,000)
1-90
119.
Place the letter of the appropriate element of an organization’s value chain in Column 2 in
the blank next to each operation in Column 1.
Column 1
Column 2
___
Macy’s replies to
customers’ questions on
merchandise.
A.
Research and
Development
___
Updating PetSmart’s
electronic Internet
catalogue of chew bones
and leash merchandise.
B.
Design
___
Development of new
software applications at
Apple.
C.
Production
___
Contracting with United
Parcel Services to ship
computers to customers
at Best Buy
D.
Marketing
___
Writing of software
programs at QuickBook’s
Professional Accountant
Division.
E.
Distribution
___
Creation of new movie
ideas at Universal
Studios.
F.
Customer
Service
Column 1
Column 2
1-92
120.
Old-Fashion Flavors is a local ice cream shop. The company currently is showing an
operating loss, as evidenced by the income statement below:
Sales
$75,000
Costs:
Food supplies
20,000
Labor
16,000
Utilities
4,000
Rent
12,000
Other
4,000
Manager’s salary
25,000
Total Costs
81,000
Operating Profits (Losses)
($6,000)
Sales
Costs:
Labor
1-94
121.
The Brogan family currently lives in a suburb of a major city. They have a lovely home
close to major routes of transportation. Both Mr. and Mrs. Brogan have convenient
commutes of 30 minutes or less. Because the school system in their town does not have a
quality reputation, they currently send their daughter to private school, conveniently
located less than one mile from their home. The family’s current monthly living expenses
are listed below:
Monthly
Budget
Mortgage, including taxes and
insurance
$5,000
Other utilities, including water, heat
and telephone
500
Costs of running automobiles
800
Cost of private school
2,000
Total monthly budget
$8,300
1-96
122.
Place the letter of the appropriate business function of the value chain in Column 2 in the
blank next to each cost item in Column 1.
Column 1
Column 2
___
cost of customer order
forms
A
Research and
development
___
cost of paper used in
manufacture of books
B
Design
___
cost of paper used in
packing cartons to ship
books
C
Production
___
cost of paper used in
display at national trade
show
D
Marketing
___
depreciation of trucks
used to transport books
to college bookstores
E
Distribution
___
cost of the wood used to
manufacture paper
F
Customer
service
___
salary of the scientists
attempting to find another
source of printing ink
___
cost of defining the book
size so that a standard-
sized box is filled to
capacity
Column 1
Column 2
forms
development
123.
Morgantown Manufacturing produces electronic storage devices, and uses the following
three-part classification for its manufacturing costs: materials, labor, and support costs.
Total support costs for June were $300 million, and were allocated to each product on the
basis of labor costs of each line. Summary data (in millions) for June for the most popular
electronic storage device, the Giant Watt, was:
Material costs
$9,000,000
Labor costs
$3,000,000
Support costs
$8,500,000
Units produced
40,000
124.
The list of representative cost drivers in the right column below are randomized with
respect to the list of functions in the left column. That is, they do not match.
Function
Representative Cost
Driver
Purchasing
A.
Number of employees
Billing
B.
Number of shipments
Shipping
C.
Number of customers
Computer
Support
D.
Number of invoices
Personnel
E.
Number of desktop
computers
Customer
Service
F.
Number of purchase orders
Required:
Match each business function with its representative cost driver.
Function
Insert letter of appropriate
driver (A through F)
1.
Purchasing
2.
Billing
3.
Shipping
4.
Computer
Support
5.
Personnel
6.
Customer
Service
