Question
1. A company's break-even point in sales revenue is $200,000. Its variable expenses are 60% of sales. What level of sales revenue would this company
1. A company's break-even point in sales revenue is $200,000. Its variable expenses are 60% of sales.
What level of sales revenue would this company need in order to achieve an operating profit of $30,000?
2. Freiman Corporation's most recent balance sheet and income statement appear below:
Balance Sheet | |||||||||||
December 31, Year 2 and Year 1 | |||||||||||
(in thousands of dollars) | |||||||||||
Year 2 | Year 1 | ||||||||||
Assets | |||||||||||
Current assets: | |||||||||||
Cash | $ | 170 | $ | 130 | |||||||
Accounts receivable, net | 245 | 265 | |||||||||
Inventory | 130 | 140 | |||||||||
Prepaid expenses | 45 | 45 | |||||||||
Total current assets | 590 | 580 | |||||||||
Plant and equipment, net | 750 | 750 | |||||||||
Total assets | $ | 1,340 | $ | 1,330 | |||||||
Liabilities and Stockholders' Equity | |||||||||||
Current liabilities: | |||||||||||
Accounts payable | $ | 140 | $ | 160 | |||||||
Accrued liabilities | 95 | 95 | |||||||||
Notes payable, short term | 65 | 75 | |||||||||
Total current liabilities | 300 | 330 | |||||||||
Bonds payable | 295 | 305 | |||||||||
Total liabilities | 595 | 635 | |||||||||
Stockholders' equity: | |||||||||||
Common stock, $2 par value | 110 | 110 | |||||||||
Additional paid-in capital | 225 | 225 | |||||||||
Retained earnings | 410 | 360 | |||||||||
Total stockholders' equity | 745 | 695 | |||||||||
Total liabilities & stockholders' equity | $ | 1,340 | $ | 1,330 | |||||||
Income Statement | |||||||||||
For the Year Ended December 31, Year 2 | |||||||||||
(in thousands of dollars) | |||||||||||
Sales (all on account) | $ | 1,510 | |||||||||
Cost of goods sold | 880 | ||||||||||
Gross margin | 630 | ||||||||||
Selling and administrative expenses | 384 | ||||||||||
Net operating income | 246 | ||||||||||
Interest expense | 45 | ||||||||||
Net income before taxes | 201 | ||||||||||
Income taxes (30%) | 60 | ||||||||||
Net income | $ | 141 | |||||||||
The acid-test (quick) ratio at the end of Year 2 is closest to:
3. The management of Casablanca Manufacturing Corporation believes that machine-hours is an appropriate measure of activity for overhead cost. Shown below are machine-hours and total overhead costs for the past six months:
Machine-Hours | Overhead Cost | |||||
Jan | 150,000 | $ | 339,000 | |||
Feb | 140,000 | $ | 328,000 | |||
Mar | 160,000 | $ | 350,000 | |||
Apr | 130,000 | $ | 319,500 | |||
May | 170,000 | $ | 362,500 | |||
Jun | 200,000 | $ | 400,000 | |||
Assume that the relevant range includes all of the activity levels mentioned in this problem.
If Casablanca expects to incur 185,000 machine hours next month, what will the estimated total overhead cost be using the high-low method? (Round your intermediate calculations to 2 decimal places.)
4. The following data pertains to activity and maintenance cost for two recent periods:
Activity level (units) | 8,000 | 7,000 | |||
Maintenance cost | $ | 34,000 | $ | 31,500 | |
Maintenance cost is a mixed cost with both fixed and variable components. Using the high-low method, the cost formula for maintenance cost is: (Round your intermediate calculations to 2 decimal places.)
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started