Question 1: Belton Company currently sells its products for $25 per unit. Management is contemplating a 20% increase in the sales price for next year. Variable costs are currently 30% of sales revenue and are not expected to change next year. Fixed expenses are $150,000. If fixed costs were to decrease 10% during the current year, contribution margin would do what?
A. Increase 10%
B. Impossible to determine with the given data
C. Decrease 10%
D. Remain the same
Question 2: Fish farm grows salmon in coastal fish enclosures. When an enclosure is empties and the fish are processes, 4,000 pounds of fillets and 1,000 pounds of fish meal are produced at a cost of $12,000. Fillets sell for $3/pound, while fish meal sells for $1/pound. Fish Farm can process fillets further to produce lox. Lox sell for $10/pound. The smoking process costs $2 per pound of lox produces. Also, 3 pounds of fillets are requires to produce one pound of lox. Should Fish farm produce lox?
A. Yes.
B. No.
C. Cannot tell
Question 3: Simpson company sells two products, A and B. Product A has a contribution margin of $2/unit. Product B has a contribution margin of $3/unit. The current sales mix is 50% product A and 50% product B. If the sales mix changes to 60% product A and 40% product B then the breakeven point, in number of units,
A. Increase
B. Decreases
C. Doesn't change
D. Either increase, decrease or remain unchanged. It's impossible to tell.
Question 4. Clay's market research department has recommended an introductory unit sales price of $30. The incremental selling expenses are estimated to be $500,000 annually plus $2 for each unit sold, regardless of the manufacturing method.
Capital-intensive labor-intensive
Direct materials $5.00/unit $5.50/unit
Direct labor $6.00/unit $7.20/unit
Variable overhead $3.00/unit $4.80/unit
Fixed manufacturing costs $2,440,000 $1,390,000
Suppose the market research department concludes that it is equally likely that demand will be either 260,000 units or 310,000 units, with equal probability. Given uncertain demand, the expected operating profit is higher if the labor-intensive production method is chosen. Suppose that a special study by the market research department can determine market demand with certainty before the choice of production method must be made. What is the highest price that Clay company should consider paying for the special study?
A. 0 B. $10,200 C. 15,000 D. 17,500 E. none of these