1. Palmer's Gourmet Chocolates produces and sells assorted boxed chocolates. The unit selling price is $50, unit variable costs are $25, and total fixed costs are $2,000.
1a. How many boxes of chocolates must Palmer's Gourmet Chocolates sell to breakeven?
1b. What are breakeven sales in dollars?
2. Extreme Sports received a special order for 1,000 units of its extreme motorbike at a selling price of $250 per motorbike. Extreme Sports has enough extra capacity to accept the order. No additional selling costs will be incurred. Unit costs to make and sell this product are as follows: Direct materials, $100; direct labor, $50; variable manufacturing overhead, $14; fixed manufacturing overhead, $10, and variable selling costs, $2.
2a. List the relevant costs.
2b. What will be the change in operating income if Extreme Sports accepts the special order?
2c. Should Extreme Sports accept the special order? Why or why not?
3. Totally Technology manufactures Cameras and Video Recorders. The company's product line income statement follows:
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Camera
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Video Recorder
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Total
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Sales revenue
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$3,00,000
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$1,00,000
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$4,00,000
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Cost of goods sold
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Variable
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$75,000
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$49,000
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$1,24,000
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Fixed
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$82,000
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$28,000
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$1,10,000
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Total cost of goods sold
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$1,57,000
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$77,000
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$2,34,000
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Gross profit
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$1,43,000
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$23,000
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$1,66,000
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Marketing and administrative expenses
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Variable
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$25,000
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$28,000
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$53,000
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Fixed
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$32,000
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$19,000
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$51,000
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Total marketing and administrative expenses
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$57,000
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$47,000
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$1,04,000
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Operating income (loss)
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$86,000
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(24,000)
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$62,000
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Management is considering discontinuing the Video Recorder product line. Accountants for the company estimate that discontinuing the Video Recorder line will decrease fixed cost of goods sold by $10,000 and fixed marketing and administrative expenses by $4,000.
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