Answer the following questions using the information below:
Ruben intends to sell his customers a special round-trip airline ticket package. He is able to purchase the package from the airline carrier for $150 each. The round-trip tickets will be sold for $200 each and the airline intends to reimburse Ruben for any unsold ticket packages. Fixed costs include $5,000 in advertising costs.
20) What is the contribution margin per ticket package? A) $50 B) $100 C) $150 D) $200 Answer: A
Explanation: A) $200 - $150 = $50
Diff: 2
Objective: 2
AACSB: Application of knowledge
21) How many ticket packages will Ruben need to sell to break even? A) 34 packages B) 50 packages C) 100 packages D) 150 packages Answer: C
Explanation: C) $200X - $150X - $5,000 = 0; X = 100
Diff: 2
Objective: 2
AACSB: Application of knowledge
22) How many ticket packages will Ruben need to sell in order to achieve $60,000 of operating income? A) 367 packages B) 434 packages C) 1,100 packages D) 1,300 packages Answer: D
Explanation: D) $200X - $150X - $5,000 = $60,000; X = 1,300
Diff: 2
Objective: 2
AACSB: Application of knowledge
23) For every $25,000 of ticket packages sold, operating income will increase by ________. A) $6,250 B) $12,500 C) $18,750 D) $15,000 Answer: A
Explanation: A) $25,000 × [($200 - $150 / $200)] = $6,250
Diff: 3
Objective: 2
AACSB: Application of knowledge
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24) Bovous Stores, Inc., sells several products. Information of average revenue and costs is as follows: Selling price per unit $20.00 Variable costs per unit: Direct material $4.00 Direct manufacturing labor $1.60 Manufacturing overhead $0.40 Selling costs $2.00 Annual fixed costs $96,000
What is the contribution margin percentage? A) 60% B) 66% C) 33% D) 55% Answer: A
Explanation: A) Contribution margin percentage = ($20 ? $4.00 ? $1.60 ? $0.40 ? $2.00) / 20 = 60%
Diff: 2
Objective: 2
AACSB: Application of knowledge
25) Bovous Stores, Inc., sells several products. Information of average revenue and costs is as follows: Selling price per unit $20.00 Variable costs per unit: Direct material $4.00 Direct manufacturing labor $1.60 Manufacturing overhead $0.40 Selling costs $2.00 Annual fixed costs $96,000
The revenues that the company must earn annually to make a profit of $144,000 are ________. A) $378,000 B) $425,000 C) $400,000 D) $450,000 Answer: C
Explanation: C) Desired sales = ($96,000 + $144,000) / 0.60 = $400,000
Diff: 2
Objective: 2
AACSB: Application of knowledge
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26) Frazer Corp sells several products. Information of average revenue and costs is as follows: Selling price per unit $28.50 Variable costs per unit: Direct material $5.50 Direct manufacturing labor $1.15 Manufacturing overhead $0.85 Selling costs $2.50 Annual fixed costs $125,000
What is the operating income earned if the company sells 15,000 units? A) $162,750 B) $150,000 C) $148,500 D) $152,500 Answer: D
Explanation: D) Contribution = $28.5 - $5.50 ? $1.15 ? $0.85 - $2.50 = $18.50 × 15,000 = $277,500 Operating income = $277,500 - $125,000 = $152,500
Diff: 2
Objective: 2
AACSB: Application of knowledge
27) Frazer Corp sells several products. Information of average revenue and costs is as follows: Selling price per unit $28.50 Variable costs per unit: Direct material $5.50 Direct manufacturing labor $1.15 Manufacturing overhead $0.85 Selling costs $2.50 Annual fixed costs $125,000
If the company decides to lower its selling price by 12.25%, the operating income is reduced by ________. A) $52,500 B) $50,500 C) $55,500 D) $29,500 Answer: A
Explanation: A) $28.50 × 12.25% = $3.50. Therefore the new selling price is $25.00 ($28.50 - $3.50). Contribution = ($25.00 - $5.50 ? $1.15 ? $0.85 - $2.50) × 15,000 = $225,000 Operating income = $225,000 - $125,000 = $100,000.
Diff: 3
Objective: 2
AACSB: Application of knowledge
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Answer the following questions using the information below:
The following information is for High Corp: Selling price $60 per unit Variable costs $40 per unit Total fixed costs $125,000
28) The number of units that High Corp must sell to reach targeted operating income of $25,000 is ________. A) 6,000 units B) 7,500 units C) 3,334 units D) 4,334 units Answer: B
Explanation: B) ($125,000 + $25,000)/($60 ? $40) = 7,500 units
Diff: 2
Objective: 2
AACSB: Application of knowledge
29) If targeted operating income is $50,000, then targeted sales revenue is ________. A) $525,052 B) $533,333 C) $498,133 D) $517,072 Answer: A
Explanation: A) ($125,000 + $50,000) / *($60 ? $40) / $60+ = $525,052
Diff: 2
Objective: 2
AACSB: Application of knowledge
Answer the following questions using the information below:
Stephanie's Bridal Shoppe sells wedding dresses. The average selling price of each dress is $1,000, variable costs are $400, and fixed costs are $90,000.
30) What is the Bridal Shoppe's operating income when 200 dresses are sold? A) $30,000 B) $80,000 C) $200,000 D) $100,000 Answer: A
Explanation: A) 200($1,000) - 200($400) - $90,000 = $30,000
Diff: 2
Objective: 2
AACSB: Application of knowledge
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