What price should be charged in order to maximize profits

Reference no: EM131902460

Questions -

Q1. Testor Paints sells varnish with a variable cost of $6.50 per gallon. The company is unsure which price to charge in order to maximize profits. The price charged will also affect the demand. If fixed costs are $80,000 and the table below represents the demand at various prices, what price should be charged in order to maximize profits? (Complete the table below, add column titles, to show the analysis)

Unit Price Per Gallon	Gallons Demanded
$11	20,000
$10	30,000
$9	40,000
$8	50,000

Q2. Jackson, Inc. uses a job-order costing system. It reported the following amounts for March:

Raw materials, March 1	12,300
Raw materials, March 31	12,000
Work in process, March 1	38,000
Work in process, March 31	35,000
Cost of goods manufactured	169,000
Direct labor used	64,000
Direct materials used	63,000
Finished goods, March 1	14,000
Finished goods, March 31	17,500

How much of the above amounts will the company report on its balance sheet at the end of March?

Q3. The building maintenance department for Advantage Toys budgets annual costs of $4,200,000 based on the expected operating level for the coming year. The costs are allocated to two production departments (A & B). The following data relate to the allocation bases:

Base	Dept. A	Dept. B	Total
Square footage	15,000	45,000	60,000	Sq Ft.
Direct labor hours	25,000	50,000	75,000	Hours

a. If Advantage assigns the costs to departments based just on square footage, how much annual maintenance cost will be allocated to A and B?

b. If Advantage assigns the costs to departments based on just Diect labor hours, how much annual maintenance cost will be allocated to A and B? And what is the difference from above?

Q4. Bright Sports has three product lines: football, basketball, and soccer. Common costs are allocated based on relative sales. A product line income statement for the year ended December 31, 2016 follows:

	Football	Basketball	Soccer	Total
Sales	$600,000	$800,000	$400,000	$1,800,000
Cost of goods sold	260,000	400,000	230,000	890,000
Gross margin	340,000	400,000	170,000	910,000
Less other variable costs	85,000	120,000	80,000	285,000
Contribution margin	255,000	280,000	90,000	625,000
Less direct salaries	50,000	60,000	45,000	155,000
Less common fixed costs	85,000	100,000	55,000	240,000
Net income	$120,000	$120,000	-$10,000	$230,000

Since the profit for soccer is relatively low, the company is considering dropping this product line. What is the incremental effect on net income of dropping soccer?

Q5. For ABC company, variable cost per unit is budgeted to be $8.00 and fixed cost per unit is budgeted to be $5.00 in a period when 4,000 units are to be produced. If production is actually 5,100 units, what is the expected total cost of the units produced? Complete the following table:

Number of Units:	4,000	5,100
Total Variable Costs
Total Fixed Costs
Total Costs

Q6. Boston Rx and Health, Inc. are two companies in the pharmaceutical industry. Boston Rx 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. Information for the current year follows:

	Boston Rx	Health, Inc.
Sales	$180,000	$116,000
Less variable costs	74,000	62,000
Contribution margin	106,000	54,000
Less fixed costs	40,000	36,000
Profit total	$66,000	$18,000

a. Calculate the expected percentage change in profit for a 25 percent decrease in sales for each company.

b. Which company has the higher operating leverage?

Q7. The 2016 income statement for the West Division of Big Company is as follows:

Sales	$1,800,000
Operating expenses	1,380,000
Net operating income	420,000
Interest expense	120,000
Earnings before taxes	300,000
Income tax expense (40%)	120,000
Net income	$180,000

This division's invested capital is $4,000,000. (based on its Assets - NIBCL)

How much is the West Division's NOPAT for 2016?

Q8. How much is the West Division's return on investment (ROI) for 2016?

Q9. Sports & More is considering the development of an e-commerce business. The company knows that development will require an initial outlay of $360,000. The estimated annual cash flows (additional expenses and revenue) for years 1-4 are shown below. Assuming the company limits its analysis to four years due to economic uncertainties, determine the net present value of the business plan assuming a 6% required rate.

	Cash flow	PV Factor	PV Amount
Year 0
Year 1	-$60,000
Year 2	$140,000
Year 3	$210,000
Year 4	$130,000

Total NPV

And is this a good investment (yes or no)?

Attachment:- Assignment File.rar

Reference no: EM131902460

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