Subject: Business / Management
Each wing sells for $0.80 each. What is the budgeted total variable cost?
02. Rincon Gifts had the following costs in May when 400 ceramic pots were produced: materials, $4,200; hourly labor, $1,600; depreciation, $800 per month; monthly rent, $700; and other fixed costs, $500 per month. If the production level changes to 500 units, how much will the total costs be?
03. Hanover Binding plans to produce 40,000 books next year at a total cost of $1,640,000 with a selling price per book of $66.00. The fixed costs total $280,000. Management is considering lowering the price to $60.00 per book, and feels that this action will cause sales to climb to 50,000 books. What will be the incremental costs incurred if 50,000 books are sold?
04. Hardigree Insurance has collected the following information over the last six months.
Month Units produced Total costs
March 2,000 $6,700
April 3,200 9,400
May 2,200 7,100
June 3,000 9,500
July 2,800 8,000
August 2,100 6,600
Using the high-low method, how much is the total fixed cost?
05. Revert Creations sells a single product at a price of $50 per unit. Fixed costs total $312,000 and variable costs per unit are $24. Revert is considering the purchase of new equipment that would reduce variable costs per unit to $21, but fixed costs would increase to $334,370. Above what volume would Revert be profitable with the new machine, assuming the selling price remains constant?
There is not enough information provided to determine the answer.
06. Castillo Pens produces two models of titanium pens—Grande and Petite. Operations information appears below for the current year:
Units 2,500 4,500
Sales revenue $160,000 $96,000
Variable cost 64,000 42,000
Fixed costs 40,000 16,000
Profit $ 56,000 $ 38,000
Profit per pen $22.40 $8.44
Contribution margin per pen $38.40 $12.00
Ounces of titanium per pen 8.50 2.50
Due to a supplier problem, only 1,400 pounds (22,400 ounces) of titanium will be available during each of the next few months. Castillo needs to produce at least 900 of each model to stay competitive and can sell all it produces. Given the limited resource, how many Petite’s should Castillo produce to maximize profits?
07. Teal Sports offers 2 different types of water sport activities—sailfish rental and banana boat rides. The company has two different activities—lifeguarding and maintenance—that provide input into its cost objectives. Data on estimated overhead for the year follows:
Sailfish Rental Estimate
Boat Rides Estimate
# of Labor hours
Hours of riding time
The company provides 2,400 banana boat rides and 1,200 sailfish rentals each year. How much overhead will be assigned to each banana boat ride?
08. Intermodal Moving uses the direct method and allocates its maintenance costs on the basis of repair hours and its payroll department costs on the basis of employees. Estimated costs and information on the services and production departments follows:
Packing 30 employees, 280 repair hours
Driving 10 employees, 1,960 repair hours
How much of the payroll and maintenance costs will be allocated to the packing department?
A. $900 $171.43
B. $27,000 $6,000
C. $27,000 $21.43
D. $1,200 $6,000
09. Unique Finds sells fine collectible statues and has implemented activity-based costing. Costs in the shipping department have been divided into three cost pools. The first cost pool contains costs that are related to packaging and shipping. Unique has determined that the number of boxes shipped is an appropriate cost driver for these costs. The second cost pool is made up of costs related to the final inspection of each item before it is shipped and the cost driver for this pool is the number of individual items that are inspected. The final cost pool is used for general operations of the department and the cost driver is the number of orders. Information about the activities is summarized below:
Estimated Total Costs
Estimated Annual Activity
Packaging and shipping
Number of boxes shipped
Number of individual items inspected
Number of orders
During June, 4,000 items were sold reflecting 800 orders that were packed and shipped in 2,100 boxes. What amount is allocated to each order for general operations of the department?
10. Speedo produces signature goggles which it sells for $35. The company produces 15,000 pairs of these goggles annually but has the capacity to produce 20,000. An order for manufacturing and selling 1,000 pairs at $25 has been received from the U.S. Olympic swim team that would not disrupt current operations. Current costs for the signature goggles are as follows:
Direct materials $ 6.00
Direct labor 10.00
Variable overhead 3.00
Fixed overhead 8.00
In addition, the Olympic coach would like to add the U.S. Olympic logo to each pair which would require an additional $2 per pair of goggles in additional labor costs. The company would also have to rent a logo stamper to stamp the logo which would cost $600. Which statement is true with regard to this order?
A. Incremental profit will be $4,000.
B. Incremental costs will be $27,000.
C. Incremental costs will be $21,600.
D. Incremental costs will exceed incremental revenues by $4,600.
11. Swell Computers has 12 obsolete computers that are carried in its inventory at a cost of $13,200. If these computers are upgraded at a cost of $7,500, they could be sold for $15,300. Alternatively, the computers could be sold “as is” for $9,000. What is the net advantage or disadvantage of upgrading the computers?
A. $6,300 advantage
B. $1,200 disadvantage
C. $5,400 disadvantage
D. $3,000 advantage
12. Foot Print has three product lines in its retail stores: shoes, boots, and sandals. The allocated fixed costs are unavoidable while direct fixed costs are avoidable. Results of June follow:
Direct fixed costs
Allocated fixed costs
Net income (loss)
Demand of individual products is not affected by changes in other product lines. How much is the incremental effect on income of dropping socks?
A. Decrease of $11,200
B. Decrease of $6,200
C. Increase of $1,800
D. Decrease of $1,500
13. Ralston Tile produces three types of ceramic tiles, models 33, 41, and 56 from clay, which is mined in the Arizona desert. Budgeted data for next month follows:
33 41 56
Sales value at split-off per unit $15 $18 $24
Additional processing costs per unit $4 $6 $7
Joint production costs per unit $2 $5 $5
Sales value if processed further per unit $20 $23 $32
The joint cost of mining the clay is $80,000. Which of the products should be produced beyond the split-off point?
33 41 56
A. Yes Yes Yes
B. Yes Yes No
C. No Yes Yes
D. Yes No Yes
14. Right Air Supply sells a specialized air filter that has a variable cost of $10 each. Fixed costs are estimated to be $700,000 across all levels of sales shown below:
Units Demanded Unit Price
What price should Right Air Supply charge to maximize profits?
15. A company believes it can sell 8,000 units of its proposed new garage door opener at a price of $100 each. If the company desires to make a profit of 30% of selling price on the garage door opener, what is the target cost per opener?
16. A company estimates that ordering costs are $3.20 per order, picking costs are $2.15 per unique item ordered, packing costs are $0.04 per item, and return costs are $15.00 per return. A customer orders $8,440 worth of goods with direct costs of $5,200. The customer places 85 orders, orders 72 unique items, 450 total items, and makes 5 returns. What is the customer profit?
17. Splurge Electronics sells homework machines for $80 each. Variable costs per unit are $45 and total fixed costs are $43,750. Splurge is considering the purchase of new equipment that would increase fixed costs to $48,700, but decrease the variable costs per unit by $5. At that level, Splurge Electronics expects it can sell 1,500 units next year. What is the company’s break-even point in units if it purchases the new equipment, assuming the selling price remains constant? (Round your answer to the nearest whole number.)
A. 1,250 units
B. 1,218 units
C. 650 units
D. 2,312 units
18. Ransom Widgets allocates the estimated cost of its accounting department, $200,000, to its production and sales departments since the accounting department supports these departments with regard to payroll and accounts payable functions. The accounting department costs will be allocated based on the number of employees using the direct method. Information regarding employees follows:
How much of the accounting department costs will be allocated to the production and sales departments, respectively?
A. $150,000 $50,000
B. $180,000 $60,000
C. $1,800,000 $600,000
D. $22,222 $66,667
19. Teal Sports offers 2 different types of water sport activities—sailfish rental and banana boat rides. The company has two different activities—lifeguarding and maintenance—that provide input into its cost objectives. Data on estimated overhead for the year follows:
Sailfish Rental Estimate
Boat Rides Estimate
# of Labor hours
Hours of riding time
What overhead rates will be used in each department to assign costs to the banana boat rides?
A. $28.04 $22.00
B. $11.50 $22.00
C. $28.04 $35.20
D. $11.50 $35.20
20. Vanana Tees sells its cool-zone t-shirts for $24 each. Unit product costs are as follows:
Direct materials $4.50
Direct labor 1.80
Manufacturing overhead 3.50
A special order to purchase 1,200 shirts was recently received. There is enough capacity to fill the order. Filling this order will not disrupt current operations. Vanana expects to incur an additional $1.10 per unit for additional labor costs due to a slight modification the buyer wants made to the shirts. The manufacturing overhead costs consist of 30% allocated fixed costs with the other 70% being variable. In negotiating a price, how much is Vanana Tees’ minimum acceptable selling price per t-shirt in order to avoid a loss?