Cost Accounting Exam 1 Study Guide

692 Words Aug 20th, 2014 3 Pages
Test 1 Review

Use the following information to answer questions 1-3.

Tee Times, Inc. produces and sells the finest quality golf clubs in all of Clay County. The company expects the following revenues and costs in 2004 for its Elite Quality golf club sets:
Revenues (400 sets sold @ $600 per set) $240,000
Variable costs 160,000
Fixed costs 50,000

1. How many sets of clubs must be sold for Tee Times, Inc. to reach their breakeven point?
a. 400
b. 250
c. 200
d. 150

2. How many sets of clubs must be sold to earn a target operating income of $90,000?
a. 700
b. 500
c. 400
d. 300

3. What amount of sales must Tee Times, Inc. have to earn a target net income of $63,000 if they have a tax rate of 30 percent?
a. $489,000
…show more content…
Estimate total cost of utilities for the month.

*Know basic concepts and terms from CVP chapter in your book. Also, make sure you understand the SEWMEX concepts and problems.

Answers

1. Variable costs per unit = $160,000/400 units sold = $400
Contribution Margin = $600 – 400 = $200 per unit
Breakeven point = $50,000/$200 = 250 units

2. TOI = $50,000 + $90,000/$200 = 700 units

3. TNI = $50,000 + $63,000/(1 – .30)/$200 = 700 units × $600 = $420,000

4a. Sales ($68 per unit × 410,000 units) $27,880,000 Variable costs ($60 per unit × 410,000 units) 24,600,000 Contribution margin $ 3,280,000

4b. Contribution margin (from above) $3,280,000 Fixed costs 1,640,000 Operating income $1,640,000

5a. Sales (from above) $27,880,000 Variable costs ($54 per unit × 410,000 units) 22,140,000 Contribution margin $ 5,740,000

5b. Contribution margin $5,740,000 Fixed costs 5,330,000 Operating income $ 410,000

6. Operating income is expected to decrease by $1,230,000 ($1,640,000 − $410,000) if Ms. Schoenen’s proposal is accepted. The management would consider other factors before making the final decision. It is likely that product quality would improve as a result of using state of the art equipment. Due to increased automation, probably many workers will have to be laid off. Garrett’s management will have to consider the impact of such an action on employee morale. In

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