QUESTIONS

Question 1. (10 points)

Gordon Company sells its only product for $18 per unit. Gordon's variable production costs are $6 per unit, while its selling and administrative costs are $3 per unit. Finally, the fixed costs to produce 10,000 units were $10,000. What is the contribution ratio?

Question 2 (15 points)

Kobe Jones intends to sell his customers a special round-trip airline ticket package. He is able to purchase the package from the airline carrier for $300 each. The airline intends to reimburse Kobe for any unsold ticket packages. The round-trip tickets will be sold for $400 each.

How many ticket packages will he need to sell in order to break even, assuming Kobe incurred $6,000 in expenses to advertise the sale, and there are no other expenses?

Question 3 (10 points)

Assume the following cost information for Jackson Company:

Selling price per unit $ 144

Variable costs per unit 80

Total fixed costs 80,000

Tax rate 40%

What is the number of units that must be sold to earn an after-tax net income of $40,800?

Question 4 (20 points)

State University is planning to hold a fundraising banquet at one of the local country clubs. It has two options for the banquet:

1. Donor Country Club

a. Fixed rental cost of $1,200.

b. $11.25 per person for food.

2. Bunker Country Club

a. Fixed rental cost of $2,160.

b. A caterer who charges $9.00 per person for food.

State University has budgeted $1,800 for administrative and marketing expenses. It plans to hire a band, which will cost another $800. Tickets are expected to be $30 per person. Any other items required for the event will be donated by its local business supporters.

a. What is the "operating income," assuming 250 people attend and option two is chosen?

b. How many people must purchase tickets, assuming option two is chosen and State University expects to raise $5,005 for the athletic fund? Assume no one pays more than the cost of his/her ticket.

Question 5 (20 points)

Alta Company has gathered the following information:

June 30, cash balance, $45,000

Dividends paid in July, $12,000

Cash expenditures in July for operating expenses, $36,800

Depreciation expense in July, $4,500

Cash collections in July, $89,000

Merchandise purchases paid in cash in July, $56,200

Purchased equipment for cash in July, $17,500

Alta desires to keep a minimum cash balance of $10,000.

Prepare a cash budget for July, and indicate whether or not Alta meets minimum cash requirements.

Question 6 (20 points)

Willie Company has the following data:

Month Budgeted Sales

January $120,000

February 108,000

March 132,000

April 144,000

The gross profit rate is 40 percent, and the inventory at the end of December was $21,600. Desired inventory levels are 30 percent of next month's sales at cost.

What is the expected total purchases budgeted for March?

Multiple Choice Questions (10 points)