7. Krier Industries has just completed its sales forecasts and its marketing department estimates that the company will sell 43,200 units during the upcoming year. In the past, management has maintained inventories of finished goods at approximately 3 months' sales. However, the estimated inventory at the start of the year of the budget period is only 7,200 units. Sales occur evenly throughout the year. What is the estimated production level (units) for the first month of the upcoming budget year?

14,400.

7,200.

10,800.

3,600.

8. Frocks and Gowns, Inc., has two divisions, Day Wear and Night Wear. The Day Wear Division has an investment base of $790,000 and produces (and sells) 110,000 units of Collars at a market price of $11.40 per unit. Variable costs total $5.60 per unit, and fixed charges are $5.00 per unit (based on a capacity of 130,000 units). The Night Wear Division wants to purchase 29,000 units of Collars from The Day Wear Division. However, the Night Wear Division is only willing to pay $7.65 per unit. What is the contribution margin for the Day Wear Division if it transfers 29,000 units to the Night Wear Division at $7.65 per unit?

$645,250.

$88,000.

$841,500.

$638,000.

9. One division of the Marvin Educational Enterprises has depreciable assets costing $4,120,000. The cash flows from these assets for the past three years have been:

Year		Cash flows
1		$	1,380,000
2		$	1,448,000
3		$	1,632,000

The current (i.e., replacement) costs of these assets were expected to increase 25% each year. Marvin used the straight-line depreciation method; the estimated useful life is 10-years with no salvage value. For return on investment (ROI) calculations, Marvin uses end-of-year balances. What is the residual income for each year, assuming the cost of capital is 15% and Marvin uses historical costs and gross book values to compute residual income?

	Year 1			Year 2			Year 3
A.	$	350,000		$	418,000		$	602,000
B.	$	206,000		$	206,000		$	206,000
C.	$	345,000		$	362,000		$	408,000
D.	$	345,000		$	418,000		$	244,800

Option A

Option B

Option C

Option D