Gleason Co. has two products, a frozen dessert and ready-to-bake breakfast rolls, ready for introduction. However, plant capacity is limited, and only one product can be introduced at present. Therefore, Gleason has conducted a market study, at a cost of $26000, to determine which product will be more profitable. The results of the study follow.*Gleason treats production tooling as a current operating expense rather than capitalizing it as a fixed asset.According to Gleason's market study, the expected value of the sales volume of the breakfast rolls is
Answer(s): B
The expected value is found by multiplying the probability of each possibility by the potential volumes:
Gleason Co. has two products, a frozen dessert and ready4o-bake breakfast rolls, ready for introduction. However, plant capacity is limited, and only one product can be introduced at present. Therefore, Gleason has conducted a market study, at a cost of $26000, to determine which product will be more profitable. The results of the study follow.*Gleason treats production tooling as a current operating expense rather than capitalizing it as a fixed asset.Applying a deterministic approach, Gleason's revenue from sales of frozen desserts would be
The word deterministic is used to characterize processes that are not probabilistic. Such an approach uses the most likely value. In this case, sales of desserts would most likely be 300,000 units. At $1.80 each1 total revenue would be $540,000.
Gleason Co. has two products, a frozen dessert and ready-to-bake breakfast rolls, ready for introduction. However, plant capacity is limited, and only one product can be introduced at present. Therefore, Gleason has conducted a market study, at a cost of $26,000, to determine which product will be more profitable. The results of the study follow.*Gleason treats production tooling as a current operating expense rather than capitalizing it as a fixed asset.The expected value of Gleason's operating profit directly traceable to the sale of frozen desserts is
Answer(s): C
The expected volume for sales of frozen desserts is 305,000 [(250000 x .30) + (300000 x40) + (350,000 x .20) + (400 .000 x .10)]. At $1 .80 each1 the total revenue from 305,000 units would be $549,000. Variable costs would total $1.15 each ($40 + $35 + $40), or $350750 for 305.000 units. Fixed costs total $78,000 ($48,000 + $30000). Thus, operating profit would be $120,250 ($549,000 --$350,750-- $78,000).
Gleason Co. has two products, a frozen dessert and ready-to-bake breakfast rolls, ready for introduction. However, plant capacity is limited, and only one product can be introduced at present. Therefore, Gleason has conducted a market study, at a cost of $26,000, to determine which product will be more profitable. The results of the study follow.Gleason treats production tooling as a current operating expense rather than capitalizing it as a fixed asset.In order to recover the costs of production tooling and advertising for the breakfast rolls, Gleason's sales of the breakfast rolls would have to be
Fixed costs of $45,000 ($25,000 + $20,000) should be divided by the unit contribution margin of $45 ($1 .20 selling price -- $.25 -- $30 -- $.20). The unit breakeven point is therefore 100,000 units ($45,000 ÷ $45).
Gleason Co. has two products, a frozen dessert and ready-to-bake breakfast rolls, ready for introduction. However, plant capacity is limited, and only one product can be introduced at present. Therefore, Gleason has conducted a market study, at a cost of $26,000, to determine which product will be more profitable. The results of the study follow.*Gleason treats production tooling as a current operating expense rather than capitalizing it as a fixed asset.The cost incurred by Gleason for the market study is a(n)
Answer(s): D
A sunk cost is a previously incurred cost that is the result of a past irrevocable management decision. Nothing can be done in the future about sunk costs. The market study cost is an example.
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