Question 1

Sherpa Manufacturing has the following income statement for 6,000 units:  (a) At what sales volume (in sales dollars) does Sherpa break even?
(b) At what sales volume (in units) does Sherpa break even?
(c) Given the income statement above, compute the margin of safety.
(d) What level of sales volume must be attained to reach net income of $200,000?
(e) What level of sales volume must be attained to reach net income of $180,000, assuming Sherpa had to pay income taxes at a rate of 40%?

Accepted Answer

The answer of Sherpa Manufacturing has the following income statement...

Question 2

Hoctor Industries wishes to determine the profitability of its products and asks the cost accountant to make a comparative analysis of sales, cost of sales and distribution costs of each product for the year. The accountant gathers the following information which will be useful in preparing the analysis:  Advertising expenses total $100,000, with 60% being expended to advertise the Deluxe model. The representatives commissions are 5% and 7% for the standard and deluxe models, respectively. The sales manager's salary of $50,000 is allocated evenly between products. Other miscellaneous selling costs are estimated to be $6 per order received.
(a) Compute the selling cost per unit.
(b) Prepare an analysis for Hoctor Industries that will show in comparative form the income derived from the sale of each unit for the year.

Accepted Answer

The answer of Hoctor Industries wishes to determine the profitability...

Question 3

The Gaylord Company has sales of $800,000, variable costs of $400,000, and fixed costs of $250,000.
Compute the following:
a.Contribution margin ratio
b.Break-even sales volume
c.Margin of safety ratio
d.Net income as a percentage of sales

Accepted Answer

The answer of The Gaylord Company has sales of $800,000,...

Question 4

Westwood Gear, Inc., recently received a special order to manufacture 10,000 units for a Canadian company. This order specified that the selling price per unit should not exceed $50. Since the order was received without the effort of the sales department, no commission would be paid. However, an export handling charge of $5 per unit would be incurred. Management anticipates that acceptance of the order will have no effect on other sales.
The company is now operating at 80 percent of capacity, or 80,000 units, and expects to continue at this level for the coming year without the Canadian order. Unit costs based on estimated actual capacity for the coming year include:  Prepare an analysis showing the effect on profits if the special order is accepted by the company. Based on your analysis, should the order be filled, and why?

Accepted Answer

The answer of Westwood Gear, Inc., recently received a special...

Question 5

Tress Enterprises manufactures shampoo and conditioner. Last year, Tress sold 120,000 bottles of product. Unit sales of conditioner amounted to 60% of the number of units of shampoo. This trend is expected to continue. The selling price for both products is $12.00, however, the variable cost of a unit of shampoo is $6.00, while the variable cost of a unit of conditioner is $8.00. Fixed costs are expected to be $420,000.
(a) Compute the number of each product sold.
(b) Compute the weighted-average contribution margin per unit.
(c) Compute the overall break-even point in units.
(d) Compute the unit sales of shampoo and conditioner at the break-even point.
(e) Compute the dollar sales of shampoo and conditioner at the break-even point.

Accepted Answer

The answer of Tress Enterprises manufactures shampoo and conditioner. Last...

Question 6

Busby Company needs 10,000 units of a certain part to use in its production cycle. The following information is available:  If Busby buys the part from Thurco instead of making it, Busby could not use the released facilities in another manufacturing activity. However, twenty percent of the fixed overhead would be avoided because one of the supervisors could be let go.
(a) In deciding whether to make or buy the part, what are the relevant costs that Busby must consider.
(b) What decision should Busby make?

Accepted Answer

The answer of Busby Company needs 10,000 units of a...

Quiz 10: Cost Analysis for Management Decision Making

The Gaylord Company has sales of $800,000, variable costs of $400,000, and fixed costs of $250,000. Compute the following: a.Contribution margin ratio b.Break-even sales volume c.Margin of safety ratio d.Net income as a percentage of sales