5.)

Pauley Company needs to determine a markup for a new product. Pauley expects to sell 15,000 units and wants a target profit of $30 per unit. Additional information is as follows:

Variable Costs per Unit		Fixed Costs (total)
Direct materials	$ 12	Overhead	$ 37,150
Direct labor	13	General and administrative	44,150
Overhead	6
General and administrative	15

Using the variable cost method, what markup percentage to variable cost should be used?

Multiple Choice

• 67%

• 72%

• 88%

• 77%

• 76%

6.)

Lattimer Company had the following results of operations for the past year:

Contribution margin income statement	Per Unit	Annual Total
Sales (20,700 units)	$ 12.00	$ 248,400
Variable costs
Direct materials	1.50	31,050
Direct labor	4.00	82,800
Overhead	1.00	20,700
Contribution margin	5.50	113,850
Fixed costs
Fixed overhead	1.00	20,700
Fixed selling and administrative expenses	1.40	28,980
Income	$ 3.10	$ 64,170

A foreign company offers to buy 6,900 units at $7.50 per unit. In addition to variable costs, selling these units would add a $0.25 selling expense for export fees. Lattimers annual production capacity is 30,700 units. If Lattimer accepts this additional business, the special order will yield a:

Multiple Choice

• $2,950 loss.

• $11,575 loss.

• $5,175 profit.

• $4,675 loss.

• $6,900 profit.

8.)

Soar Incorporated is considering eliminating its mountain bike division, which reported a loss for the recent year of $6,000 as shown below.

Segment Income (Loss)
Sales	$ 1,125,000
Variable costs	890,000
Contribution margin	235,000
Fixed costs	241,000
Income (loss)	$ (6,000)

If the mountain bike division is dropped, all $890,000 of its variable costs are avoidable, and $72,300 of its fixed costs are avoidable. The impact on operating income for eliminating this business segment would be:

Multiple Choice

• $72,300 decrease

• $162,700 decrease

• $66,300 decrease

• $235,000 increase

• $235,000 decrease