Reference no: EM13845679

Problem 1: 

Rhetorix, Inc., produces stereo speakers. Each unit (a pair of speakers) sells for $870. Below is information on production/sales and costs for 2013:

	Production and Sales in Units	Production Costs	Selling and Admin. Costs
January	106	$88,900	$23,700
February	116	97,000	26,000
March	97	83,000	22,800
April	105	89,500	23,800
May	117	96,500	24,400
June	125	103,200	26,600
July	129	106,000	27,000
August	130	108,400	27,900
September	137	112,280	28,120
October	125	104,300	26,700
November	124	102,900	26,400
December	108	91,500	23,300
Total	1,419	$1,183,480	$306,720
Average cost per unit		$834.02396	$216.15222

Use the high-low method to identify the fixed and variable cost components for both production costs and selling and administrative costs.

The company estimates that production and sales in 2014 will be 1,700 units. Based on this estimate, forecast income before taxes for 2014.

Problem 2:

Watson's Fish Company buys whole salmon from various fishermen is at $4 per pound and sells the fish to restaurants for $5 per pound. Its fixed costs are $10,410 per month.

How many pounds must be sold to break even, and how many pounds must be sold to earn a profit of $5,300 per month? Exercise 4-12
Lake Stevens Marina has estimated that fixed costs per month are $344,800 and variable cost per dollar of sales is $0.41. What is the break-even point per month in sales dollars?

What level of sales dollars is needed for a monthly orofit of $61.500?

For the month of July, the marina anticipates sales of $1,049,000. What is the expected level of profit?

Problem 3: 

Wilde Home & Garden is organized into three departments. The following sales and cost data are available for the prior year:

	Dept.A	Dept.B	Dept.0	Total
Sales	$282,000	$805,000	$975,000	$2,062,000
Less variable costs	123,000	559,000	763,000	1,445,000
Contribution margin	159,000	246,000	212,000	617,000
Less fixed costs	72,000	86,000	91,900	249,900
Profit	$87,000	$160,000	$120,100	$367,100

What is the weighted average contribution margin ratio?

What is the contribution margin ratios of the three departments?

Wilde Home & Garden places an advertisement in the local paper each week. All else equal, which department would you emphasize in the advertisement?

Problem 4:

Equillion, Inc., and Storis, Inc., are two companies in the pharmaceutical industry. Equillion has relatively high fixed costs related to research and development. Storis, however, does little research and development. Instead, the company pays for the right to produce and market drugs that have been developed by other companies. The amount paid is a percent of sales. Thus, Storis has relatively high variable costs and relatively low fixed costs:

	Equillion, Inc.	Storis, Inc.
Sales	$155,365,000	$155,365,000
Less variable costs	45,055,850	85,450,750
Less fixed costs	84,241,000	43,846,100
Profit	$26,068,150	$26,068,150

Which company has the higher operating leverage?

Calculate the expected percentage change in profit for a 20 percent increase (or for a 20 percent decrease) in sales for each company.

Which company is more risky?