Reference no: EM133040126

Questions -

Q1. Link wants to make $100,000 after tax on his new venture into selling pizza-on-a-stick, using a "push along" cart at the beach. For each pizza-on-a-stick, he incurs raw material costs of $5 and sells them for $10. He pays a salary to his friend Zelda, who operates the cart for $50,000. If he buys the cart himself, he will incur fixed expenses of $20,000. Or, he can rent the cart and pay $1 to the cart supplier each time he sells a pizza stick. What is his point of indifference? That is, at what volume of pizza sticks is he indifferent about renting or buying the cart?

Q2. Like Link, Chrom sells pizza-on-a-stick at the beach. But Chrom also sells dogs-in-a-pocket, which are hot dogs you can carry with you that have enough preservatives to survive in your pocket for years. For each pizza-on-a-stick, Chrom incurs raw material costs of $5 and sells them for $10. He incurs material costs of $3 for the dogs and sells them for $5. He sells 3 times as many dogs as he does pizzas and incurs fixed expenses of $50,000. To achieve an operating income of $60,000 how many dogs must Chrom sell?

Q3. The Beach Comber is a take-out food store at a popular Virginia Beach resort. Palatuna, owner of the Beach Comber, is deciding how much refrigerator space to devote to four different drinks. Data on these drinks are:

Sales price per case

Monster $18.00

V6 $19.20

Punch $26.40

Lemonade $38.40

Variable cost per case

Monster $13.50

V6 $15.20

Punch $20.10

Lemonade $30.20

Cases sold per foot of shelf space per day

Monster 25

V6 24

Punch 4

Lemonade 5

Sexton has a maximum front shelf space of 12 feet to devote to the four drinks. She wants a minimum of 1 foot and a maximum of 6 feet of front shelf space for each drink. What shelf space allocation (in feet) for Monster, V6, and Punch maximizes the daily contribution from drink sales, and what is the total contribution margin per day from that optimal shelf space allocation?

Monster-

V6-

Punch-

Lemonade-

Total CM/day-

Q4. MinMin Corporation gathered the following information:

Income tax rate 40%

Contribution-margin ratio 30%

If fixed costs are $600,000, what level of sales dollars is needed to produce an after-tax net income of $150,000? (Round to the nearest dollar).

Q5. Mrs. Tannenbaum is going to sell Christmas tree lights for $40 a box. The lights cost Mrs. Tannenbaum $10 a box and any unsold lights can be returned for a full refund. She is planning to rent a booth at the upcoming Happy Holidays Convention, which offers three options:

1. paying a fixed fee of $3,000, or

2. paying a $1,000 fee plus 10% of revenues made at the convention, or

3. paying 25% of revenues made at the convention.

Which of the following statements is FALSE?

A) Her decision will determine the risk she faces.

B) Contribution margin will vary depending upon the option chosen.

C) One of the options will allow Mrs. Tannenbaum to break even, even if she doesn't sell any lights.

D) Operating income will be the greatest for Option 3.