122.
Alden Corporation produces and sells a single product. Data concerning that product
appear below:
Per Unit
Percent of Sales
Selling price
$190
100%
Variable costs
38
20%
Contribution margin
$152
80%
Fixed costs are $110,000 per month. The company is currently selling 1,000 units per
month.
Required:
Management is considering using a new component that would increase the variable cost
per unit by $56. Since the new component would improve the company’s product, the
marketing manager predicts that monthly sales would increase by 500 units. What should
be the overall effect on the company’s monthly operating profit of this change if fixed
costs are unaffected?
New total contribution margin:
1,500 units × $96 per unit
Current total contribution margin:
1,000 units × $152 per unit
and in operating profit
3-102
123.
124.
Renee Tyne, now retired, owns the Downtown Beauty Shop. She employs five (5) stylists
and pays each a base rate of $500 per month. One of the stylists serves as the manager
and receives an extra $300 per month. In addition to the base rate, each stylist also
receives a commission of $3 per haircut. A stylist can do as many as 20 haircuts a day, but
the average is 14 haircuts per day. The Downtown Beauty Shop is open 24 days a month.
You can safely ignore income taxes.
Other costs are incurred as follows:
Advertising
Rent
Beauty Supplies
Utilities
Magazines
Cleaning
Supplies
125.
You have been provided with the following information regarding the Fremont
Manufacturing Company:
Sales price
$50
Variable manufacturing
cost per unit
24
Variable marketing cost
per unit
6
Fixed manufacturing
costs
360,000
Fixed administrative
costs
80,000
126.
Xi-Tech, Inc. is considering the introduction of a new music player with the following price
and cost characteristics:
Sales price
$125
each
Variable costs
75
each
Fixed costs
180,000
per year
3-106
127.
John Martin, now retired, owns the Corner Barber Shop. He employs five (5) barbers and
pays each a base rate of $500 per month. One of the barbers serves as the manager and
receives an extra $300 per month. In addition to the base rate, each barber also receives a
commission of $3 per haircut. A barber can do as many as 20 haircuts a day, but the
average is 14 haircuts per day. The Corner Barber Shop is a corporation with a 30% tax
rate and is open 24 days a month.
Other costs are incurred as follows:
Advertising
$200 per month
Rent
$400 per month
Barber Supplies
$.90 per haircut
Utilities
$175 per month plus $.35 per
haircut
Magazines
$25 per month
Cleaning
Supplies
$.15 per haircut
3-107
128.
The president of Equipment Enterprises is considering expanding sales by producing three
different versions of its product. Each will be targeted by the marketing department to
different income levels and, hence, will be produced from three different qualities of
materials. After reviewing the sales forecasts, the sales department feels that for every
item of Large sold, 4 of Medium can be sold, and 8 of Small can be sold.
The following information has been assembled by the sales department and the
production department.
Large
Medium
Small
Sales price (per unit)
$15.00
$10.00
$5.00
Material cost
5.00
4.00
2.00
Direct labor
2.00
1.50
1.25
Variable Overhead
2.00
1.50
1.25
129.
Galena Company manufactures and sells adjustable canopies that attach to motor homes
and trailers. The market covers both new unit purchases as well as replacement canopies.
3-108
130.
You have been provided with the following information regarding the Ralston
Manufacturing Company:
Sales price
$50
Variable manufacturing
cost per unit
24
Fixed manufacturing
costs per unit
12
Variable marketing cost
per unit
6
Fixed administrative
costs per unit
3
131.
Nation Inc. sells three products. Last month’s results are as follows:
P1
P2
P3
Revenues
$200,000
$300,000
$300,000
Variable costs
80,000
280,000
160,000
132.
Carrie sells three products. Last month‘s results are as follows:
P1
P2
P3
Revenues
$150,000
$225,000
$225,000
Variable costs
60,000
210,000
120,000
133.
134.
3-115
135.
The sales manager of Springdale Enterprises is considering expanding sales by producing
three different versions of its product. Each will be targeted by the marketing department
to different income levels and will be produced from three different qualities of materials.
After reviewing the sales forecasts, the sales department feels that 40% of units sold will
be the original product, 35% will be new model #1 and the remainder will be new model
#2.
The following information has been assembled by the sales department and the
production department.
Original
Model
#1
Model
#2
Sales price (per
unit)
$100.00
$70.00
$50.00
Material cost
45.00
30.00
20.00
Direct labor
20.00
15.00
10.00
Variable overhead
15.00
11.25
7.50
3-116
136.
The sales manager of Thompson Sales is considering expanding sales by producing three
different versions of its product. Each will be targeted by the marketing department to
different income levels and will be produced from three different qualities of materials.
After reviewing the sales forecasts, the sales department feels that 70% of units sold will
be the original product, 20% will be new model #1 and the remainder will be new model
#2.
The following information has been assembled by the sales department and the
production department.
Original
Model
#1
Model
#2
Sales price (per
unit)
$50.00
$35.00
$25.00
Material cost
22.50
15.00
10.00
Direct labor
10.00
7.50
5.00
Variable overhead
7.00
5.25
3.50
137.
The Teri Aki Diner is a new buffet-style restaurant offering stir-fry and Thai dishes. The
buffet has a fixed price of $8.50 per person. The estimated food costs are $2.00 per
person, regardless of volume. Fixed costs are related to the number of buffet lines that are
maintained, with the estimated costs as follows:
Monthly volume
Fixed Costs
1 line
0 – 4,000
$30,000
2 lines
4,001 – 6,000
$37,000
3 lines
6,001 – 7,500
$40,000
3-119
138.
The Beach Party packages horseradish and mustards in a factory that can operate one,
two, or three shifts. The product sells for $10 a case and has variable costs of $4 per case.
Fixed costs are related to the number of shifts that are operated, with the estimated costs
as follows:
Daily volume
Fixed Costs
1 shift
0 – 2,000
$3,000
2 shifts
2,001 – 4,000
$5,700
3 shifts
4,001 – 6,000
$8,200
3-120
139.