#13

b. Which of the following costs would be included in Cost of Sales (on the Income Statement) if the contribution margin method of costing were used? (Select all that apply) 1. Direct materials 2. Direct labor 3. Variable manufacturing overhead 4. Fixed selling/administrative expenses 12. Website Builders, Inc. has excess capacity to develop websites for customers. It normally gets a 40% contribution margin on all services it performs for customers. Mr. Pennypincher needs a website for his company and offers to pay $25,000 to Website Builders to develop his website. At this price, Website Builders determines it would only make a 20% contribution margin on Mr. Pennypincher's website about half what it normally makes. Should Website Builders, Inc. take Mr. Pennypincher's offer? Why or Why Not? 13. It is obvious from #14 above that Mr. Pennypincher is a financial genius. His cousin, Ralph Moneybags, owns three local hardware stores and seeks Mr. Pennypincher's "expert advice on what to do with store number 3 that has not been profitable for the past two years. The company's traceable and common fixed costs will not change by dropping Store #3.Ralph presents the following financial information and asks for Pennypincher's advice. (numbers in thousands) Total Sales $500 Cost of Sales 250 Gross Profit $250 Traceable Fixed Costs 195 Operating Profit $ 55 Common Fixed Costs 15 Profit before Taxes S 40 Store 1 Store 2 Store 3 $200 $150 $150 85 75 90 $115 $ 75 $ 60 70 60 65 S 45 $ 15 S (5) Pennypincher's advice: CLOSE STORE 3 Do you agree? Why or Why not