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?