Question
Question #1: Chapter 6 SHOW WORK DeMont Tax Services provides primarily two lines of service: accounting and tax. Accounting-related services represent 60% of its revenue
Question #1:Chapter 6 SHOW WORK
DeMont Tax Services provides primarily two lines of service: accounting and tax. Accounting-related services represent 60% of its revenue and provide a contribution margin ratio of 30%. Tax services represent 40% of its revenue and provide a 40% contribution margin ratio. The company's fixed costs are $4,590,000.
Instructions
(a)Calculate the revenue from each type of service that the company must achieve to break even.
(b)The company has a desired net income of $1,700,000. What amount of revenue would DeMont earn from tax services if it achieves this goal with the current sales mix?
Question #2:Chapter 7 SHOW WORK
Felter Company produced and sold 50,000 units of product and is operating at 70% of plant capacity. Unit information about its product is as follows:
Sales price$70
Variable manufacturing cost$45
Fixed manufacturing cost ($500,000 50,000) 10 55
Profit per unit $15
The company received a proposal from a foreign company to buy 10,000 units of Felter Company's product for $50 per unit. This is a one-time only order and acceptance of this proposal will not affect the company's regular sales. The president of Felter Company is reluctant to accept the proposal because he is concerned that the company will lose money on the special order.
Instructions
Make a schedule reflecting an incremental analysis of this proposal and indicate the effect the acceptance of this order might have on the company's income.
Question #3:Chapter 7 SHOW WORK
Trump Forest Corporation operates two divisions, the Timber Division and the Consumer Division. The Timber Division manufactures and sells logs to paper manufacturers. The Consumer Division operates retail lumber mills which sell a variety of products in the do-it-yourself homeowner market. The company is considering disposing of the Consumer Division since it has been consistently unprofitable for a number of years. The income statements for the two divisions for the year ended December 31, 2019 are presented below:
Timber DivisionConsumer DivisionTotal
Sales$1,500,000$500,000 $2,000,000
Cost of goods sold900,000350,000 1,250,000
Gross profit600,000150,000 750,000
Selling & administrative expenses 250,000 180,000 430,000
Net income$350,000 $ (30,000) $320,000
In the Consumer Division, 70% of the cost of goods sold are variable costs and 35% of selling and administrative expenses are variable costs. The management of the company feels it can save $45,000 of fixed cost of goods sold and $50,000 of fixed selling expenses if it discontinues operation of the Consumer Division.
Instructions
(a)Determine whether the company should discontinue operating the Consumer Division.
(b)If the company had discontinued the division for 2019, determine what net income would have been.
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