1. Slippers Inc. produces and sells shoes in chain stores. Company sells 10 kinds of cheap shoes with similar costs and selling prices. Each store has a manager working for a salary. Each salesperson is paid salary plus a sales Premium. Company pays extra 1 TL premium to sales person and 1 TL to manager for each pair of shoes sold beyond BEP. Company is to decide whether to open up or not a new store. Budgeted revenue and costs are given below. Per pair (TL) 50.00 25,00 5.00 30,00 Unit variable data Price Unit manufacturing cost Sales commissions Unit variable costs Annual fixed costs Rent Salaries Advertisement Other fixed costs Total fixed costs 100.000 300.000 180.000 20.000 600.000 Required: (evaluate each item seperately) (25 puan) a) Compute BEP in units and TL. b) Compute operating profit (loss) assuming 35,000 pairs of shoes are sold. c) Compute BEP in units and TL if company increases salaries by TL 150,000 instead of paying sales premium d) Compute target sales in units and TL to earn TL 180,000 operating profit. e) Assume Company pays extra 1 TL premium to sales person for each pair sold over 40.000 pairs. Compute operating profit if 50,000 pairs of shoes are sold. 2. Pennell Company gathered the following information for the year ended December 31, 2008: $180,000 55,000 25,000 Fixed costs: Manufacturing Marketing Administrative Variable costs: Manufacturing Marketing Administrative $112,500 37,500 45,000 During the year, Pennell produced and sold 75,000 units of product at a sale price of $6.60 per unit. There was no beginning inventory of product on January 1, 2008. Required: (25 points) a) Prepare Contribution Margin Income Statement. b) Compute BEP (in units and TL) c) Compute Operating Leverage d) Compute Safety Margin e) Compute the amount that must be sold to increase operating income (net income) 100%. f) Marketing manager believes there will be 10% increase in sales if Company decreases price by 10%. Should price be decreased? Explain. g) If Company decreases price by 10%, how many units must be sold to maintain current profit? 3. Lazy Days Inc. (LDI), sells hammocks. Revenue and cost information is given below: Sales Price TL 30 Unit Variable Cost 20 Annual Fixed Operating Expenses 47,500 Required: (15 points) a) Determine the sales volume in units and TL amount that would be required to attain a TL 12,500 profit. Verify your answer by preparing an income statement using the contribution margin format b) LDI is considering the implementation of a quality improvement program. The program will require a TL 2.50 increase in the variable cost per unit. To inform its customers of the quality improvements, the company plans to spend an additional TL 5,000 for advertising. Assuming that the improvement program will increase sales to a level that is 1,500 units above the amount computed in requirement a, should LDI proceed with plans to improve product quality? Support your answer by preparing a budgeted income statement c) Determine the new break-even point volume of units and sales in TL as well as the margin of safety percentage, assuming that the quality improvement program is initiated. 4. Quiet Truck manufactures part WB23 used in several of its truck models. 10,000 units are produced each year with production costs as follows: Direct materials Direct labor Variable support costs Fixed support costs Total costs $ 45,000 15,000 35,000 25,000 $120.000 Quiet Truck has the option of purchasing part WB23 from an outside supplier at $11.20 per unit. If part WB23 is outsourced, 40% of the fixed costs cannot be immediately converted to other uses. Required: (15 points) a. Describe avoidable costs. What amount of the part WB23's production costs is avoidable? b. Should Quiet Truck outsource part WB23? Why or why not? c. What other items should Quiet Truck consider before outsourcing any of the parts it currently manufactures? 5. Assume you are a sophomore in college and are committed to earning an undergraduate degree. Your current decision is whether to finish college in four consecutive years or take a year off and work some extra cash Required: (20 points) a. Identify at least two revenues or costs that are relevant to making this decision. Explain why each is relevant. b. Identify at least two costs that would be considered sunk costs for this decision. c. Comment on at least one qualitative consideration for this decision