Exam 4: Short-Term Decision Making

A product line should be temporarily discontinued if

True Fruit,Inc.sells frozen raspberry fruit bars for $2.50 each.The variable cost per bar is $1.35.Total fixed costs are $25,645.The breakeven point in units is:

Purinton Company has prepared the following income statement for the year: How far above breakeven point is Purinton operating?

Explain why the total amount of loss increases as the number of units sold falls below the breakeven point?

The Foggy Daze Company sells a "one size fits all" rain poncho for $11.50.Variable costs per unit are $3.86,while total fixed costs amount to $572,200.The corporate tax rate is 30% and the company wants to earn an after-tax profit of $209,000.The breakeven point in units is:

Marquette Company currently produces all its product components.Another firm has offered to supply the casings at $6 each.Marquette's total cost per casing is as follows: The fixed overhead is based on production of 3,000 casings,and none of it would be eliminated if Marquette accepted the offer.By how much would profit change if Leggier accepts this offer and purchases 3,000 casings?

WyKan Corporation sells three types of speaker systems,the Model A,the Model B and the Model C.The profit report for these speaker systems for the most recent period is shown below by product line.The facility sustaining costs are fixed and allocated as shown below between each of the three product lines. WyKan has analyzed the data wants to determine whether or not to drop Model C speakers of their line of product.What action should WyKan take? Justify your position given the data you have above.

Explain the effect on breakeven point of an (a)increase in sales price,(b)a decrease in materials cost,and (c)an increase in insurance cost on the factory.

The Foggy Daze Company sells a "one size fits all" rain poncho for $11.50.Variable costs per unit are $3.86,while total fixed costs amount to $572,200.The corporate tax rate is 30% and the company wants to earn an after-tax profit of $209,000.The total sales needed to break even are:

Selling price less variable costs equals:

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 have total sales of:

Nowlin & Rudder is a manufacturer of sports equipment.It has been approached by a large European retailer about the possibility of producing a special order of tennis rackets.Under which of the following conditions should Nowlin & Rudder accept this offer?

The breakeven point is the point at which:

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

Use the following to answer questions Ogallah Inc. sells its product for $9.25 per unit. The variable costs per units are $2.50 and total fixed costs are $452,250. If Ogallah buys new software for the production process at a cost of $55,250, variable costs will be reduced by 20%. -If Ogallah raised the selling price of its product,what effect would that have on the breakeven point prior to and after the purchase of the computer,respectively?

The Manhattan Company sells its one and only product for $89.00 per unit.Variable costs per unit amount to $63.50,and total fixed costs are $3,697,500.If Manhattan increases its total fixed costs by $267,500 it can reduce variable costs by $5.00 per unit.How will this affect the breakeven point in units?

Contribution Margin is defined as:

Qualco inspects 10% of each raw material shipment received.The inspection costs are an example of a/an

Brio Company is considering eliminating a product line.If it eliminates the product,equipment,which originally cost $250,000,will be disposed of for $6,000.The equipment has a book value of $75,000 and annual depreciation of $25,000.Ignoring income tax,what is the relevant amount for the product-elimination decision?