Exam 3: Defining and Using Cost Estimates

Thompson Company produces scientific and business calculators. For the coming year, Thompson expects to sell 200,000 scientific calculators and 100,000 business calculators. A segmented income statement for the two products is given below: -How many business calculators must be sold to reach a target net income of $800,000 for the company as a whole?

Starlight Theater stages a number of summer musicals at its theater in northern Ohio. Preliminary planning has just begun for the upcoming season, and Starlight has developed the following estimated data. ¹ Represent payments to production companies and are based on tickets sold. ² Costs directly associated with the entire run of each production for costumes, sets, and artist fees. Starlight will also incur $565,000 of common fixed operating charges (administrative overhead, facility costs, and advertising) for the entire season, and is subject to a 30% income tax rate. If management desires Mr. Wonderful to produce an after-tax contribution of $210,000 toward the firm's overall operating income for the year, total attendance for the production would have to be:

A company sells two products: Sparta and Volta. Volta is manufactured by a third-party supplier, which charges the company a contractual price for each unit of Volta manufactured. A summary of revenue and costs assumptions for each product is as follows. The company has the opportunity to spend an additional $10,000 in promotional expenditures on either Sparta or Volta, anticipating a 10% increase in unit sales volume as a result. Both product lines have idle capacity and can support the increase in unit volume. The company should spend the additional promotional expenditure on:

Rogers Company has the following data for 2018: -How many units must be sold to reach a target profit of $100,000, before tax?

Ace Manufacturing plans to produce two products, Product C and Product F, during the next year, with the following characteristics. Total projected fixed costs for the company are $30,000. Assume that the product mix would be the same at the breakeven point as at the expected level of sales of both products. What is the projected number of units (rounded) of Product C to be sold at the breakeven point?

For the year just ended, Silverstone Company's sales revenue was $450,000. Silverstone's fixed costs were $120,000 and its variable costs amounted to $270,000. For the current year, sales are forecasted at $500,000. If the fixed costs do not change, Silverstone's profits this year will be:

Nadal Company currently produces and sells 20,000 cans of tennis balls at a selling price of $10 each. The product has variable costs of $4 per unit and fixed costs of $50,000. The company currently earns a total contribution margin of:

Siche Company manufactures cell phone covers that sell for $10 each. Fixed costs are $48,000 and variable costs are $7.20 per unit. Siche can buy a newer molding press that will increase fixed costs by $16,000 per year, but variable costs will be decreased by $.80 per unit. What effect will the purchase of the new press have on the breakeven point in units of Siche Company?

The basic cost estimate is (variable cost per unit - fixed cost per unit) times volume sold plus price per unit times volume.

Rogers Company has the following data for 2018: -What is the margin of safety in dollars?

Bargain Press is considering publishing a new textbook. The publisher has developed the following cost data related to a production run of 6,000, the minimum possible production run. Bargain Press will sell the textbook for $45 per copy. How many textbooks must Bargain Press sell in order to generate operating earnings (earnings before interest and taxes) of 20% on sales? (Round your answer up to the nearest whole textbook.)

Thompson Company produces scientific and business calculators. For the coming year, Thompson expects to sell 200,000 scientific calculators and 100,000 business calculators. A segmented income statement for the two products is given below: -Match the term on the right with the definition on the left.

Spandex, Inc., has fixed costs of $36,000 and a contribution ratio of 20%. If sales are $200,000, what is the margin of safety percentage?

A product cost is incurred every period (normally a month) regardless of whether or not the company is open for business.

Lar Company has found that its total electricity cost has both a fixed component and a variable component within the relevant range. The variable component seems to vary directly with the number of units produced. Which one of the following statements concerning Lar's electricity cost is incorrect?

Material cost is the significant costs (raw materials and direct labor) used in making a product.

Company A's cost structure includes costs that are mostly variable, whereas Company B's cost structure includes costs that are mostly fixed. In a time of increasing sales, which company will tend to realize the most rapid increase in profits? Explain. (Tip: Use operating leverage.)

Costs set a limit on profit given a set price.

Fowler Co. provides the following summary of its total budgeted production costs at three production levels. The cost behavior of each of the costs, respectively, is:

Newport Company's breakeven point is 2,000 boats. Its boats have an average price of $5,000 and variable costs per boat are $2,800. What is Newport's total fixed cost amount?