Refresher Managerial Accounting Sample Problems - show all your work in detail.
Question 1. Darien Industries operates a cafeteria for its employees. The operation of the cafeteria requires fixed costs of $4,700 per month and variable costs of 40% of sales. Cafeteria sales are currently averaging $12,000 per month. Darien has an opportunity to replace the cafeteria with vending machines. Gross customer spending at the vending machines is estimated to be 40% greater than current sales because the machines are available at all hours. By replacing the cafeteria with vending machines, Darien would receive 16% of the gross customer spending and avoid all cafeteria costs.
How much does monthly operating income change if Darien Industries replaces the cafeteria with vending machines?
Question 2. Silky Smooth Lotions come in three sizes: 4, 8, and 12 ounces. The following table summarizes the selling prices and variable costs per case of each lotion size.
Per Case 4 oz 8 oz 12 oz
Price $36.00 $66.00 $72.00
Variable Cost $13.00 $24.50 $27.00
Fixed costs are $771,000.
Current production and sales are:
2,000 cases of 4 oz bottles; 4,000 cases of 8 oz bottles, and 1,000 cases of 12 oz bottles
Silky Smooth typically sells the three lotion sizes in fixed proportions as represented by the preceding sales amounts.
How many cases of 4, 8 and 12-oz lotion bottles must be produced and sold for Silky Smooth to break even, assuming that the three sizes are sold in fixed proportions?
Question 3: J.P. Max is a department store carrying a large and varied stock of merchandise. Management is considering leasing part of its floor space for $72 per square foot per year to an outside jewelry company that would sell merchandise. Two areas currently in use are being considered: home appliances (1,000 sq ft) and televisions (1,200 sq ft). These departments had annual profits of $64,000 for appliances and $82,000 for televisions after allocated fixed occupancy costs of $7 per square foot were deducted. Allocated fixed occupancy costs include property taxes, mortgage interest, insurance, and exterior maintenance for the department store.
Considering all relevant factors, which department should be leased and why?
Question 4. A present investment of $50,000 is expected to yield receipts of $8,330 a year for seven years. What is the internal rate of return on this investment?