Devry ACCT336 week 6 Quiz

| July 29, 2018

Question 1.1.(TCO 7) Elliot’s Escargots sells commercial and
home snail extraction tools and serving pieces. Currently, the Serving Pieces
Section takes up approximately 50% of the company’s retail floor space. The
CEO of Elliot’s wants to decide if the company should continue offering
Serving Pieces or focus only on Snail Extraction Tools. If the Serving Pieces
are dropped, salaries and other direct fixed costs can be avoided and Snail
Extraction sales would increase by 13%. Allocated fixed costs are assigned
based on relative sales.

Snail
Extraction

Serving

Tools

Pieces

Total

Sales

$1,200,000

$800,000

$2,000,000

Less
cost of goods sold

500,000

700,000

1,200,000

Contribution
margin

700,000

100,000

800,000

Less
Avoidable direct fixed costs:

Salaries

175,000

175,000

350,000

Other

60,000

60,000

120,000

Less
Unavoidable allocated fixed costs:

Rent

14,118

9,882

24,000

Insurance

3,529

2,471

6,000

Cleaning

4,117

2,883

7,000

Executive
salary

76,470

53,530

130,000

Other

7,058

4,942

12,000

Total
costs

340,292

308,708

649,000

Net
income

($359,708)

($208,708)

$151,000

Prepare an incremental analysis in good form to determine the incremental
effect on profit of discontinuing the snail extraction tool line. (Points : 6)

Question 2.2.(TCO 4) Paschal’s Parasailing Enterprises has
estimated that fixed costs per month are $115,600 and variable cost per
dollar of sales is $0.35 (6 points).

What is the break-even point per month in sales?
What level of sales is needed for a monthly profit of $70,000?
For the month of August, Paschal’s anticipates sales of $600,000. What is the
expected level of profit?(Points :
6)

Question 3.3.(TCO 6) Princess Cruise Lines has the following
service departments; concierge, valet, and maintenance. Expenses for these
departments are allocated to Mediterranean and transatlantic cruises.
Expenses for the departments are totaled (both variable and
components are combined) and as follows.

Concierge $1,500,000
Valet $2,750,000
Maintenance $2,250,000

The sea miles logged are 5,000,000 for the Mediterranean and 20,000,000 for
the transatlantic voyages.

Based upon the sea miles logged, allocate the service department costs (6
points). (Points : 6)

Question 4.4.(TCO 9) Thurman Munster, the owner of Adams
Family RVs, is considering the addition of a service center his lot. The
building and equipment are estimated to cost $1,200,000, and both the
building and equipment will be depreciated over 10 years using the
straight-line method. The building and equipment have zero estimated residual
value at the end of 10 years. Munster’s required rate of return for this
project is 12%. Net income related to each year of the investment is as
follows.

Revenue

$450,000

Less:

Material
Cost

$60,000

Labor

100,000

Depreciation

120,000

Other

10,000

290,000

Income
before taxes

160,000

Taxes
at 40%

64,000

Net
Income

$96,000

(A) Determine the net present value of the investment in the service center.
Should Munster invest in the service center?
(B) Calculate the internal rate of return of the investment to the nearest
0.5%.
(C) Calculate the payback period of the investment.
(D) Calculate the accounting rate of return. (Points
: 8)

Question 5.5.(TCO 5) The following information relates to Vice
Versa Ventures for calendar year 20XX, the company’s first year of
operations.

Units
produced

20,000

Units
sold

15,000

Selling
price per unit

$30

Direct
material per unit

$5

Direct
labor per unit

$5

Variable
manufacturing overhead per unit

$2

Variable
selling cost per unit

$3

Annual
fixed manufacturing overhead

$160,000

Annual
fixed selling and administrative expense

$80,000

(a) Prepare an income statement using full costing.
(b) Prepare an income statement using variable costing. (Points : 8)

Question 6.6.(TCO 8) Leekee Shipyards has a new
barnacle-removing product for ocean-going vessels. The company invests
$1,200,000 in operating assets and plans to produce and sell 400,000 units
per year. Leekee wants to make a return on investment of 20% each year. Leekee
needs to know what price to charge for this product.

Use the absorption costing approach to determine the markup necessary to make
the desired return on investment based on the following information.

Per
Unit

Total

Direct
Materials

$2.00

Direct
Labor

$1.50

Variable Manufacturing
Overhead

$1.00

Fixed
Manufacturing Overhead

$100,000

Variable
Selling and Administrative Expense

$0.10

Fixed
Selling and Administrative Expense

$100,000

(Points : 6)

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