1. Jennas Jeans produces 40,000 pairs of jeans each month for a total cost of $500,000. The costs are described below.

Direct materials	$200,000
Direct labor	180,000
Manufacturing overhead	120,000
Total	$500,000

Additional analysis reveals manufacturing overhead is 40% variable. Jenna normally sells these jeans to wholesalers for $20 each, however, a large retailer (Courteneys Cowboy Costumes) in a state far away is interested in possibly selling her jeans. Courteney is concerned about product demand for the jeans, so she doesnt want to pay the full $20. Instead, she offers Jenna $12,000 for 1,000 jeans. Jenna could fill the order without sacrificing other sales (she has excess capacity), but Courteney wants a special design that requires Jenna to purchase a special machine for $1,000. This machine has zero resale value after it is used.

Jenna wants to earn the additional business, but she is unwilling to take the offer if it loses her money. If Jenna accepts the offer, how much will her profits increase or decrease?

2. Different take on Jennas Jeans:

Jennas Jeans produces 40,000 pairs of jeans each month for a total cost of $500,000. The costs are described below. Manufacturing overhead is 40% variable.

Direct materials	$200,000
Direct labor	180,000
Manufacturing overhead	120,000
Total	$500,000

Zippers represent an important component of jeans. Jenna currently makes the zippers for her jeans, but she has considered purchasing them from Zacchaeuss Zippers instead. Jennas current monthly cost for zippers are as follows:

Direct materials	$5,000
Direct labor	15,000
Manufacturing overhead	20,000
Total	$40,000

If Jenna purchases zippers instead of making them, she can avoid 60% of the manufacturing overhead related to zippers. Additionally, discontinuing the zippers will allow Jenna to produce and sell 4,000 more jeans each month. What is the highest price Jenna can pay Zacchaeus for each zipper, such that buying zippers is would be better than making them?

3. Schell and Larsen is a law firm based in Warrensburg. The firm is considering expanding current operations into Sedalia because the higher crime rate would likely generate more business. They do not simply want to move, though, as their office in Warrensburg is doing quite well. Thus, Schell and Larsen must incur additional expenses in order to open a Sedalia branch. In particular, they would need to hire a lawyer and a secretary, rent a building, and implement an aggressive advertising campaign. The lawyers salary is anticipated to be $80,000 per year. The buildings rent will be $4,000 per month. The secretary will be paid $12 per hour and will work 40 hours per week. Benefits for the lawyer and secretary amount to 10% of what they are paid. The advertising campaign will cost $6,000 per month for the first six months, and $3,000 for each of the remaining six months of the first year. The revenues generated are a little complicated, but Schell and Larsen plan on charging $50 per initial consultation, and $500 per case thereafter. Assuming 10% of initial consultations result in an actual case being generated, how many initial consultations will the Sedalia branch have to generate during the first year in order to break even?

4. Arielle sells Atoms, which are super-fast exoskeleton cars. Arielle sells three different versions of the Atom, a regular version, a really fast version, and a racetrack version. Last years sales and cost data for the Atoms are as follows:

	Regular	Really Fast	RaceTrack
Selling price	$65,000	$90,000	$54,000
Units sold	200	150	25
Manufacturing cost per unit	30,000	40,000	25,000
Total selling expense	800,000	2,000,000	300,000
Total administrative expense	700,000	650,000	525,000

Additional information indicates $1.5 million of administrative expenses were allocated to the three branches equally ($500,000 each), with the remaining administrative expenses being variable. The selling expenses each contain $200,000 of fixed selling expenses, with the remainder being variable.

What was the total profit for Arielle Atoms?

Assuming the product mix is constant, how many of each type of Atom must be sold in order for Arielle to break even?

What is Arielles overall contribution margin ratio?

What is the companys degree of operating leverage (assume profit from a) is net operating income)?

Approximately how much would sales have to increase in order for net operating income to increase $1,025,000?

55. 5. Mikes Magical Mysteries sells two types of Magical Mysteries, Mega Mysteries and Menial Mysteries. Mega Mysteries sell for $20 each, and Menial Mysteries sell for $5 each. The cost information for the Magical Mysteries is as follows:

	Mega	Menial
Mystery dust	3 pounds	8 pounds
Mystery powder	0.5 pounds	1 pound
Mystery flakes	4 pounds	2 pounds
Secret solution	1 gallon	3 gallons

The costs of inputs are as follows:

	$	Per unit
Mystery dust	$0.10	pound
Mystery powder	0.50	pound
Mystery flakes	0.25	pound
Secret solution	0.1	gallon

Assume all costs are variable.

What is the contribution margin of Mega Mysteries?

What is the contribution margin of Mega Mysteries?

If gallons of secret solution are rare and that is our constrained resource, which product should be produced assuming unlimited demand, and why?

If pounds of mystery flakes are rare and that is our constrained resource, which product should be produced assuming unlimited demand, and why?

6. The Bay Area Rapid Transit (BART) is a rail system used to transport people around the San Francisco Bay area. They began a project of connecting the Oakland Airport to the system.

The following is from the San Francisco Chronicle:

It doesnt look like we are going to be putting the brakes on this project, said Robert Raburn, a BART board member who would clearly love to do just that. Raburn, whose district includes the area around Oakland International Airport, asked interim GM Sherwood Wakeman to estimate how much it would cost to kill the proposed $484 million connector.

The answer: The $95 million that BART has already spent on the planned 3.5-mile line from the Coliseum Station to the airport would be money down the drain. Paying off contractors who have already been hired would cost another $30 million to $150 million. The projects backers say it will create construction jobs and raise the Oakland airports regional profile. Some transit activists think the money would be better spent on increasing bus service in the area or fixing up BART itself. We still dont have the local money for buying new cars, which is a top priority with everyone, Raburn said.

The lines biggest backer was former BART Director Carole Ward Allen whom Raburn unseated in the November election.

It would be a huge waste of public funds to stop at this point, said BART Director Joel Keller, whose district stretches across northern Contra Costa County.

BART estimates the OAC will require some $10/trip operating subsidy more than 5 times required for a Bus Rapid Transit (BRT). And the BRT would provide faster door-door travel time, meaning it would likely generate higher ridership [BRT is an already existing alternative to the BART expansion].

Evaluate the decision to continue the Oakland Airport Connection project. Be specific!

7. Why do so many firms use cost plus pricing to set initial selling prices when economists say we should set prices at whatever maximizes total contribution margin?

At a break-even point of 100 units, variable costs were $200 and fixed costs were $500. How much will the 101st unit sold contribute to operating profit?

The contribution margin ratio is 30% for a company and the break-even point is sales is $120,000. If the companys target operating profit is $226,000, how much would the companys sales have to be?

8. Based on the following information, please calculate the cost of goods manufactured for the month:

Sales revenue	$1,500,000
Gross margin	$600,000
Ending work-in-process inventory	$50,000
Beginning work-in-process inventory	$80,000
Ending finished goods inventory	$100,000
Beginning finished goods inventory	$125,000
Marketing costs	$250,000
Administrative costs	$150,00

Diez sells disposable dishes. Each dish sells for $20 and costs $10 to make. The $10 cost is entirely variable, however, she also incurs $5,000 of fixed costs each month. How many dishes will Diez have to sell in order to make a profit of $45,000 per month if taxes are 25%?

(Need to double check my answers ) Please explain / workout your answers if possible , thank you very many !