Exam 4: Short-Term Decision Making

Techno Inc manufactures pagers that sell for $130 each.Annual fixed costs total $3,185,000 while variable costs are $39 per unit.The company is subject to a 32% corporate tax and wants to earn an after-tax profit of $675,000. (a)What is the contribution margin ratio? (b)What is the breakeven point in sales dollars? (c)How many pagers must the company sell to reach its after-tax profit goal? (d)If Techno increased the selling price of the fax machine by 10%,what would the breakeven point in units be?

The cost associated with maintaining the manufacturing equipment daily is a/an

The point where the total revenue line intersects the total cost line is called the:

Your firm is involved in a make or buy decision for an important component of its single product.The quantitative analysis results in a small advantage for the buy option.Would you accept this alternative? Why or why not?

Bug-Ez Corporation manufactures one product,Itch-A-Way,which,when applied to a bug bite,soothes the itch.The unit contribution margin for Itch-A-Way is $4.20,while total fixed costs amount to $537,000.Given a selling price of $8.25 per unit and a target profit of $147,000,Bug-Ez must sell:

Zippo Inc manufactures digital camera that sell for $240 each.Annual fixed costs total $4,850,000 while variable costs are $92 per unit.The company is subject to a 30% corporate tax and wants to earn an after-tax profit of $975,000. (a)What is the contribution margin ratio? (b)What is the breakeven point in sales dollars? (c)How many pagers must the company sell to reach its after-tax profit goal? (d)If Zippo increased the selling price of the digital camera by 10%,what would the breakeven point in units be?

Explain why contribution margin is all profit above the breakeven point.

If a company decreases its fixed cost and decreases its variable cost,what is the impact on its contribution margin and breakeven point?

If selling price per unit increases,how will this affect the contribution margin and breakeven point?

When analyzing the incremental costs used to help make a short-term operating decision:

You are seeing your mother off on a cruise when you hear the cruise director say that they have "several empty cabins".The cruise is costing your mother $849 but you offer the cruise line $250 for a ticket.Under what conditions should the cruise line accept your offer.

Use the following to answer questions Knockdown Products normally sells boxing gloves for $85 a pair. Knockdown just received a special order for 1,500 pair at a price of $50 a pair. To purchase, store, and ship the gloves, it costs a total of $55 a pair, which consists of $43 in variable costs and $12 in fixed costs. -Assuming Knockdown has no way of purchasing any additional gloves,and,that accepting this order will mean losing an equivalent quantity of sales to regular customers,Knockdown should:

Bean Town Company currently produces and sells 12,000 units of its product each month at $15 each.Another firm has offered to buy an additional 1,000 units at $10 per unit.Bean Town's total cost per unit is as follows: Fixed overhead costs per unit are based on production of 12,000 units per month.Bean Town currently has the capacity to produce 15,000 units per month.By how much would profit change if Bean Town accepts this offer?

Use the following to answer questions Naui Industries produces flowered shirts which normally sell for $24 each. The total cost to manufacture each shirt is $17, which consists of $11 of variable costs and $6 of fixed costs. A hotel chain has approached Naui with a special order for 2,000 shirts at $15 each. -Assuming Naui has sufficient excess capacity to fill this special order without affecting sales to current customers,it should:

Managers of Prestissimo Corporation are thinking about eliminating one of their products,EasyGlo.EasyGlo sells for $8 per unit.Unit-related costs are $5,batch-related costs are $300 per batch,and 3 batches of EasyGlo have been required each month.Prestissimo spends $3,000 each month to advertise EasyGlo.Rent and insurance on the factory allocated to EasyGlo total $4,000.If Prestissimo is currently producing and selling 1,500 units of EasyGlo each month,what is the relevant profit for the product-elimination decision?

The rule for making sound economic decisions is that one should choose the alternative with the

If only the selling price increase the breakeven point

Use the following to answer questions Knockdown Products normally sells boxing gloves for $85 a pair. Knockdown just received a special order for 1,500 pair at a price of $50 a pair. To purchase, store, and ship the gloves, it costs a total of $55 a pair, which consists of $43 in variable costs and $12 in fixed costs. -Assuming Knockdown has enough excess gloves on hand to fill the special order,it should:

Dreary Days,Inc.sells raincoats at a selling price of $25.00 for each raincoat.The variable cost per raincoat is $16.25.Total fixed costs are $142,000.The breakeven point in units is: