Julia’s Catering has a monthly target operating income of $6,000. Variable expenses are 40% of sales & monthly fixed expenses are $3,600. What is the monthly margin of safety in dollars if the business achieves its operating income goal?
A. $ 10,000 B. $ 22,000
C. $ 16,000 D. $ 4,000
11. The higher the operating leverage factor, the:
A. greater the impact of volume on operating income.
B. lesser the impact of volume on operating income.
C. more likely operating income is to stay constant.
D. greater the chance that none of the above occur.
1. Which of the following describes a sunk cost?
A. One that is relevant to a decision because it changes depending on the alternative course of action selected
B. An outlay expected to be incurred in the future
C. A historical cost that is always irrelevant
D. A historical cost that may be relevant
3. Which would be a consideration for making special orders?
A. Available capacity to fill the order
B. If price will cover incremental costs of filling the order
C. If the order will affect regular sales in the long run
D. All of the above
4. Clear Sky Sailmakers manufactures sails for sailboats. The company has the capacity to produce 15,000 sails per year, but is currently producing & selling 10,000 sails per year. The following information relates to current production:
Sale price per unit $250
Variable costs per unit:
Marketing & administrative $50
Total fixed costs:
Marketing & administrative $200,000
If a special sales order is accepted for 2,500 sails at a price of $205 per unit, fixed costs increase by $14,000, & variable marketing & administrative costs for that order are $25 per unit, how would operating income be affected? (Assume regular sales are not affected by the special order.)
A. Increase by $23,500 B. Decrease by $23,500
C. Increase by $37,500 D. Increase by $86,000
7. A Company produces a part that is used in the manufacture of one of its products. The unit manufacturing costs of this part, assuming a production level of 5,000 units, are as follows:
Direct materials $2.00
Direct labor $4.00
Variable manufacturing overhead $3.00
Fixed manufacturing overhead $1.00
Total cost $10.00
The fixed overhead costs are unavoidable.
Assuming no other use for its facilities, what is the highest price per unit that the Company should be willing to pay for the part?
A. $10 B. $6 C. $3 D. $9
8. A Corporation has in its inventory 4,000 damaged radios that cost $50,000. The radios can be sold in their present condition for $32,000, or repaired at a cost of $43,000 & sold for $66,000. What is the opportunity cost of selling the radios in their present condition?
A. $23,000 B. $109,000
C. $82,000 D. $75,000
9. When deciding whether to outsource a product or service, managers should consider which of the following?
A. Quality of the product or service
B. Delivery schedule of the product or service
C. Cost charged for the product or service
D. All of the above
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