Jim is a florist who runs Bountiful Flower Shop as a sole owner. His typical monthly operating results include the following: sales revenue $4,000, flower costs $800, supplies $300, labor costs $600, utilities $250, rent $720, and other costs $350.

Jim recently attended a trade show and was attracted by a national chain that offered him referral service, baskets, and new flower arrangements in exchange for a monthly licensing fee of $1,000. He figures that the additional business from referrals will increase his revenues by 40%, flower materials, supplies, and labor costs by 45%, utilities by 10%, and other costs by 20%. Rent will not change as he would still use the same facility.

A. Should Jim expand his business to be associated with the national chain?________ In the space below, show how you determined your answer?

B. If Jim can negotiate a different term with the national chain, what licensing fee makes him indifferent between the two choices (i.e., the status quo of going solo vs. the alternative of being associated with the national chain)?

Write you answer on this line ____________________ .Show your work below.

Question 2

The account balances are listed below for Eagle Manufacturing Company for the month of March.

Finished goods inventory, March 31	$29,000		Direct materials purchases	$70,000
Indirect labor	21,000		Direct labor	48,000
Work-in-process inventory, March 31	73,000		Factory supervisory salaries	12,000
Direct materials inventory, March 1	12,000		Factory utilities expense	4,000
Work-in-process inventory, March 1	54,000		Factory depreciation expense	5,000
Finished goods inventory, March 1	33,000		Direct materials inventory, March 31	21,000

Using the form below, prepare a cost of goods manufactured and sold statement for Eagle Manufacturing Company for the month ended March 31.

Question 3

The following information is available for each unit of finished product produced and sold:

Sales price	$60		Variable manufacturing cost	$20
Fixed manufacturing cost*	12		Variable marketing and administrative cost	6
Fixed marketing and administrative cost *	4
*The unit fixed manufacturing cost and fixed marketing and administrative costs are based on an estimated volume of 6,000 units produced and sold.

Determine each of the following.Show your work in the area below your answer.

a) Full absorption cost __________

b) Variable cost _____________

c) Full cost _______________

d) Gross margin _______________

e) Contribution margin _________________

f) Operating profit per unit _______________