PROBLEM 20.7B
DORSAL RANCH (concluded)
c. and d.
Operating income with new heating
and lighting equipment: Cod Salmon
HOMETEAM SPORTS
a. Contribution margins of product lines:
(2) Monthly operating income:
Total sales 1,500,000$
(3) Monthly break-even sales volume (in dollars):
Fixed costs and expenses 684,000$
(1) Average contribution margin ratio:
(2) Monthly operating income:
Total sales 1,500,000$
(3) Monthly break-even sales volume (in dollars):
PROBLEM 20.8B
HOMETEAM SPORTS (concluded)
SOLUTIONS TO CRITICAL THINKING CASES
CASE 20.1
MULTIPLE PERSPECTIVES
—
ATTEND OUR SEMINAR
20 Minutes, Medium
The following are possible reasons you could give each of the individuals to motivate them to
come to your seminar:
The factory worker who serves as her company’s labor union representative in charge of contract
negotiations
Knowledge of budgeting and budget processes is a source of empowerment in most
organizations. When it comes to negotiating a labor contract, lack of budgetary knowledge can
put one at a distinct disadvantage. The factory’s labor union representative will be directly
CASE 20.2
DON’T MESS WITH THE PURPLE COW
a. 1,500
1,282
2,782
(1) (2)
Reduce Increase
Selling Advertising
Price Expense
× 3,600
c.
Memo to Management:
RE: Alternative marketing proposals: price reductions or additional advertising
Sales (in gallons) required to earn $10,000 per month
Estimated sales (gallons):
If selling price is reduced, 3,000 × 120%
40 Minutes, Strong
b.
Sales (in gallons) required to earn $10,000 per month:
Sales (in gallons) required to break even
Sales (in gallons) beyond break-even point required to earn $10,000
Projected monthly results for typical drive-in store:
per month, $10,000 ÷ $7.80 ($8.00 – $0.20 bonus)
CASE 20.2
DON’T MESS WITH THE PURPLE COW (concluded)
1,500
$ 11,700
This amount exceeds by $300 the projected monthly operating income from the better of the
two proposed new marketing strategies.
Operating income under current conditions
(1,500 gallons × $7.80 per gallon)
Contribution margin per unit of sales over the break-even point
Sales volume in excess of break-even point (in gallons)
(3,000 gallons, less 1,500-gallon break-even point)
CASE 20.3
SEC FORM 8-K
ETHICS, FRAUD AND CORPORATE GOVERNANCE
a.
10 Minutes, Easy
Section 409 of the Sarbanes-Oxley Act (SOX) requires public companies disclose certain
material events within four business days after they occur. Such events include
management’s commitment to dispose of long-lived assets and/or terminating employees
under a pension plan. SOX also requires that a firm file a Form 8-K if certain long-lived
assets have become materially impaired.
CASE 20.4
FORD MOTOR COMPANY
INTERNET
a.
b.
15 Minutes, Easy
Approximately 5.7% of the company’s total revenue is generated by its Financial Services
operations. The remaining 94.3% of its revenue is from automotive sales.
The company’s gross profit as a percentage of sales is a very narrow 11%.