1. Elroy Rocket is entering his senior year as an accounting major and has a number of options for his summer break. His options for the 3 month break follow:
(1) Work full time at a local accounting firm making $3,950 per month.
(2) Take a summer class which will cost $800 and work half time making $1,100 per month.
(3) Take a class at a cost of $800 and not work at all during the summer.
Elroy's incremental profit or loss if he chooses option 2 over option 1 would be?
2. Triton Company's copy department, which does almost all of the photocopying for the sales department and the administrative department, budgets the following costs for the year, based on the expected activity of copies:
Salaries (fixed) $90,000
Employee benefits (fixed) 10,000
Depreciation of copy machines (fixed) 10,000
Utilities (fixed) 5,000
Paper (variable, 1 cent per copy) 50,000
Toner (variable, 1 cent per copy) 50,000
The costs are assigned to two cost pools, one for fixed and one for variable costs. The costs are then assigned to the sales department and the administrative department. Fixed costs are assigned on a lump-sum basis, 40 percent to sales and 60 percent to administration. The variable costs are assigned at a rate of 2 cents per copy.
Assuming the following copies were made during the year, 2,851,250 for sales and 3,255,000 for administration, calculate the copy department costs allocated to sales.
3. Mama Italiano Sauce is in the process of preparing a production cost budget for May. The actual costs in April were:
Mama Italian Sauce
Production Cost Budget
April 2008
Production - Jars of sauce 20,000
Ingredient cost (variable) $16,000
Labor cost (variable) 9,000
Rent (fixed) 4,000
Depreciation (fixed) 6,000
Other (fixed) 1,000
Total $36,000
Using this information, prepare a budget for May stating the total amount for the May budget. Assume the budget will increase to 23,500 jars of sauce reflecting anticipated sales increase related to a new marketing campaign.
4. Consider the production cost information for Mama Italiano Sauce given below:
Mama Italian Sauce
Production Cost Budget
April 2008
Production - Jars of sauce 20,000
Ingredient cost (variable) $16,000
Labor cost (variable) 9,000
Rent (fixed) 4,000
Depreciation (fixed) 6,000
Other (fixed) 1,000
Total $36,000
The company is currently producing and selling jars of sauce The jars of sauce sell for $4 per jar. The company is considering lowering the price to $3.70 per jar. Suppose this action will increase sales. What is the incremental costs associated with producing an extra 66,500 jars of sauce?
5. Consider the production cost information for Mama Italiano Sauce given below:
Mama Italiano Sauce
Production Cost Budget
April 2008
Production - Jars of sauce 20,000
Ingredient cost (variable) $16,000
Labor cost (variable) 9,000
Rent (fixed) 4,000
Depreciation (fixed) 6,000
Other (fixed) 1,000
Total $36,000
The company is currently producing and selling 250,000 jars of sauce annually. The jars of sauce sell for $4 per jar. The company is considering lowering the price to $3.65 per jar. Suppose this action will increase sales to 312,000 jars of sauce. What is the incremental revenue associated with the price reduction of sauce?
6. Ceradyne projects its factory rent to be $6,000 in August when 8,600 units are expected to be produced. If rent is a fixed cost, and if production is expected to drop to 7,000 units in September, what is the expected cost of rent in September?