Reference no: EM13339764

Question 1:

Breakeven analysis and target profit, taxes - Patterson Parkas Company's sales revenue is $30 per unit, variable costs are $19.50 per unit, and fixed costs are $147,000.

a) Compute Patterson's contribution margin per unit and contribution margin ratio.

b) Determine the number of units Patterson must sell to break even.

c) Determine the sales revenue required to earn (pretax) income equal to 20% of revenue.

d) How many units must Patterson sell to generate an after-tax profit of $109,200 if the tax rate is 35%?

e) Patterson is considering increasing its advertising expenses by $38,500. How much of an increase in sales units is necessary from expanded advertising to justify this expenditure (generate an incremental contribution margin of $38,500)?

Question 2:

Make-or buy and relevant costs - The assembly division of Davenport, Inc., is bidding on an order of 50,000 smart phones. The division is eager to get this order because it has a substantial amount of unused plant capacity. The variable cost for each smart phone if $140 in addition to the cost of the display and touchscreen component. The divisional purchasing manager has received two bids for the component. One is from Davenport's electronics division. This bid if for $35 per unit, although its variable cost if only $30 per unit. The other is from an outside vendor for $34 per unit. Davenport's electronics division has sufficient unused capacity for this order.

a) Determine the relevant costs for this order for the assembly division under both internal and outsourcing arrangements.

b) Determine the relevant costs for this order for Davenport as a company under each of the sourcing arrangements.

Question 3:

Dropping a segment - George's Grill analyzes profitability of three operating units: restaurant, bar, and billiards room. Revenues, variable costs, and attributable fixed costs (which can be avoided if the unit is eliminated) for each unit are as follows:

Restaurant Bar Billiards Rm

Revenue $320,000 $150,000 $40,000

Variable costs 120,000 35,000 10,000

Attributable fixed costs 80,000 25,000 15,000

George the owner, is considering converting the billiards area into an expanded bar area.

a) Ignoring remodeling costs, by how much will the bar segment margin have to increase for the grill's income to be at least as high as it is now?

b) What other considerations will George want to consider before making the decision to eliminate the billiards unit to expand the bar area?

Question 4:

Special order pricing - Shorewood Shoes Company makes and sells a variety of leather shoes for children. For its current mix of different models and seizes, the average selling price and costs per pair of shoes are as follows:

Item Amount

Price $20

Costs:

Direct materials $6

Direct labor $4

Variable manufacturing overhead $2

Variable selling costs $1

Fixed overhead $3

Total Costs $16

Shoes are manufacture in batch sizes of 100 pairs. Each bath required 5 machine hours to manufacture. The plant has a total capacity of 4,000 machine hours per month, but current monthly production consumes only about 80% of the capacity.

A discount store has approached Shorewood to buy 10,000 pairs of shoes next month. It has requested that the shoes bear its own private label. Embossing the private label will cost Shorewood an additional $0.50 per pair. However, no variable selling costs will be incurred for fulfilling this special order.

Determine the minimum (floor) price that Shorewood Shoes should charge for this order. What other considerations are relevant in this decision?