HW #5
– Chapter 3
Directions:
Please submit your work in Word or PDF
formats only. You can submit an
Excel file to support calculations, but please “cut and paste” your solutions
into the Word or PDF file. Be sure to show how you did your calculations.
Question #1
The
Nicholas Corporation sells only one product. The following is budgeted
information for that product:
Annual production and sales
capacity (units)
200,000
Budgeted selling price
$100
per unit
Variable cost of goods sold
$46
per unit
Fixed
manufacturing costs
$602,000
Variable selling and
administrative costs
$14
per unit
Fixed selling and administrative
costs
$802,000
Nicholas’s
corporate tax rate is 37.5%.
a)
How many units does Nicholas need to
sell to breakeven?
b)
How much revenue does Nicholas need to
generate to breakeven?
c)
How many units does Nicholas need to
sell to earn an operating profit (before taxes) of $546,000?
d)
How much revenue does Nicholas need to
generate to earn net income (after taxes) of $273,800?
e) Assume
Nicholas is currently producing and selling 100,000 units. By what percentage
will operating income change if sales increase by 15% from 100,000 units? Be sure to provide figures to justify your
answer.
f) Assume
Nicholas is currently producing and selling 100,000 units. By what percentage
will operating income change if sales decrease by 12% from 100,000 units? Be sure to provide figures to justify your
answer.
Question #2
A
production company is planning to sell tickets to a show for $175 each. It
budgets variable costs to be $25 per attendee. Total fixed costs are estimated
to be $180,000. The theatre can accommodate up to 1,000 people because of
safety concerns. What should the production company do? Why? Be specific in your response.
Question #3
The
following is budgeted information for the Betty Corporation:
Product
1
Product
2
Annual production & sales
80,000
20,000
Projected selling price
$45
$100
Direct Production Cost Information
Materials (per unit)
$8
$14
Direct Labor (per unit)
$13
$22
Additional
information:
Selling & administrative costs
(a mixed cost) are budgeted to be $865,000 at the production and sales
listed above. The variable component is $4 per unit (same for each
product).
Manufacturing overhead costs (a
mixed cost) are budgeted to be $1,301,000 at the production and sales
listed above. The fixed component is $701,000. Each product uses the same
amount of variable manufacturing overhead per unit.
Assuming
the budgeted sales mix remains intact, how many units of each product does Betty need to sell in order to break
even?
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