Exam 18: Pricing and Profitability Analysis

The following information about Morgantown Avionics' two Altimeter models is provided: Budgeted Actual Analog model sales in units 25,000 25,900 Digital model sales in units 15,000 13,500 Analog model budgeted contribution margin \ 70 Digital model budgeted contribution margin \ 100 Budgeted average unit contribution margin \ 81.25 Total contribution margin \ 3,250,000 \ 3,246,200 Calculate the sales mix variance.

Consolidated Corporation had the following information: Revenues \ 250,000 Cost of goods sold: Direct materials \ 50,000 Direct labor 37,500 Overhead 62,500 150,000 Gross profit \ 100,000 Selling and administrative expenses 37,500 Operating income \ 62,500 What is the markup based on materials?

Which of the following statements is FALSE?

Price discrimination is the charging of different prices to different customers to promote fairer competition.

Aquamarine Company has the following information for the month of May of the current year: Selling price \ 220 per unit Variable production costs \ 90 per unit produced Variable selling and admin. expenses \ 25 per unit sold Fixed production costs \ 620,000 Fixed selling and admin. expenses \ 350,000 Units produced 12,000 units Units sold 11,500 units There were no beginning inventories. Compute Aquamarine's operating income for the month of May using the variable-costing method.

Profits are measured to determine the viability of a firm and its adherence to government regulations, to measure managerial performance, and to signal the market to encourage stockholders.

Many products have a predictable profit or product life cycle. Describe the product life cycle from the marketing perspective. In addition, graph profit versus the different phases. Finally, discuss the impact of the product life cycle on products, learning effects, setups, purchasing, and marketing expenses.

The following information pertains to Guillotine Corporation: Beginning inventory 1,000 units Ending inventory 6,000 units Direct labor per unit \ 40 Direct materials per unit 20 Variable overhead per unit 10 Fixed overhead per unit 30 Variable selling and admin. costs per unit 6 Fixed selling and admin. costs per unit 14 What is the value of the ending inventory using the variable costing method?

The __________ variance is the difference between actual and budgeted contribution margin.

The budgeted quantity of Product P sold by Alpha, Inc., is 1,500 units. The actual quantity sold is 1,600 units. The budgeted average unit contribution margin is $8.50. Compute the contribution margin volume variance.

Scottish Company manufactures a variety of toys and games. John Chisholm, president, is disappointed in the sales of a new board game. The game sold only 10,000 units in 2018 when 30,000 were projected. Sales for 2019 look no better. At $100 per game, it is not a hot seller. Direct costs of the board game are $56 variable cost and $100,000 fixed. John is considering several options. Option One: Cut the price to $70 and perhaps sell 15,000 units. Option Two: Cut the price to $60, reduce material costs by $10, and cut advertising by $60,000. Anticipated volume for this option is 10,000 units. Option Three: Cut the price to $80 and include a $10 mail-in rebate offer. It is anticipated that 15,000 units could be sold and only 30 percent of the rebate coupons would be redeemed. What is the profit (loss) from Option Three?

When the market share variance is unfavorable, it means that the budgeted share of the market is:

The Lancashire Corporation manufactures bottled water with an average manufacturing cost of $2 per case (a case contains 24 bottles). Bayview sold 1,000,000 cases last year to the following types of customers: USTOMER PRICE PER CASE CASES SOLD Drugstore chains \ 5.00 375,000 Gas station chains \ 5.50 125,000 Supermarket chains \ 6.50 500,000 Local pharmacies \ 6.00 250,000 The drugstore chains have special handling costs of $0.20 a case and increased administrative assistance costing $45,000 per year. The gas station chains require special marketing promotions that cost $50,000. Sales commissions of 10% are paid. The supermarket chains order electronically through EDI which costs $25,000 annually. Bayview is responsible for shipping costs, which totaled $0.50 a case and special labels costing $0.02 per bottle Local pharmacies have special handling costs of $0.10 per case and sales commissions are paid to agents costing $0.25 per case. Bad debt expense averages 10% of sales. What customer type has the least total cost per case ?

Franklin Company's expected sales were 2,000 units at $100 per unit. During 2018, it had actual sales of 1,800 units at $110 per unit. Budgeted variable costs were $60 per unit. What is Franklin's sales price variance?

Kasawaki Company incurred the following costs in manufacturing digital cameras: Direct materials \ 14 Indirect materials (variable) 4 Direct labor 8 Indirect labor (variable) 6 Other variable factory overhead 10 Fixed factory overhead 28 Variable selling expenses 20 Fixed selling expenses 14 During the period, the company produced and sold 1,000 units. What is the inventory cost per unit using variable costing?

Johanson Company had the following information: Revenues \4 00,000 Cost of goods sold: Direct materials \ 100,000 Direct labor 50,000 Overhead 50,000 \2 00,000 Gross profit \ 200,000 Selling and administrative expenses 75,000 Onerating income \1 25,000 What is the markup based on prime costs?

Kasawaki Company incurred the following costs in manufacturing digital cameras: Direct materials \ 14 Indirect materials (variable) 4 Direct labor 8 Indirect labor (variable) 6 Other variable factory overhead 10 Fixed factory overhead 28 Variable selling expenses 20 Fixed selling expenses 14 During the period, the company produced and sold 1,000 units. What is the inventory cost per unit using absorption costing?

Allison Manufacturing Company produces three products: A, B, and C. The income statement for 2018 is as follows: Sales \ 200,000 Less: Variable expenses 127,000 Contribution margin \ 73,000 Less fixed expenses: Manufacturing \ 20,000 Selling and administrative 14,000 34,000 Net income \ 39,000 The sales, contribution margin ratios, and direct fixed expenses for the three types of products are as follows: A B C Sales \ 60,000 \ 40,000 \ 100,000 Contribution margin ratio 35\% 30\% 40\% Direct fixed expenses of products \ 8,000 \ 5,000 \ 4,000 Required: Prepare income statements segmented by products. Include a column for the entire firm in the statement.

Profits are lower in the introductory phase because revenues are low and investment and learning may be high.

In order for an effect of changing sales mix on profit to exist, a company must produce: