1. Brooke Company desires net income of $360,000 when it has $1,000,000 of fixed costs and variable costs of 60% of sales. Contribution margin equals...

a. $3,400,000.

b. $1,360,000.

c. $640,000.

d. $600,000

2.

Assume October is the high-volume month for a toy manufacturer and July is the low-volume month. The following total production costs and volume levels have been recorded:

Total Costs Volume

October $30,000 6,000

July $12,000 2,000

The total fixed costs are....

a. $18,000

b. $3,000

c. $9,000

d. $6,000

3. Peterson Company incurred the following high and low maintenance costs totals during 2011: $432,000 at 20,000 units of activity during March and $320,000 at 12,000 units during August. Instructions: Answer parts (a) through (c) below, presenting carefully labeled supporting calculations in all cases.

(a) Use the high-low method to compute the variable cost per unit and the total fixed cost element of the mixed cost component.

(b) Based on the above analysis, express the total maintenance cost in formula format.

(c) Compute the total maintenance cost for May when activity is 16,000 units.

4. For two years, Annette Larson has been the manager of the production department of a company manufacturing toys made of plastic-coated cardboard. One of the toys is a paper doll, whose "clothes" are made of acetate, and stay on the doll with static electricity. The company's sales were mainly to large educational institutions until last year, when the dolls were sold for the first time to a large discount retailer. The dolls were sold out immediately, and enough orders were received to keep the department at full capacity for the immediate future.

The fixed costs for the department are $50,000, with $1 per unit variable costs. A paper doll and one set of clothes sell for $3. The maximum volume is 80,000 units. With the increased volume, Ms. Larson is considering two options to improve profitability. One would reduce variable costs to $0.75, and the other would reduce fixed costs to $35,000.

Required:

Given the fact that sales are increasing, make a short (one paragraph) recommendation to Ms. Larson about which option she should choose. Support your recommendation with a calculation showing her how profitability will change with each option