A company wants to open a new store in one of three nearby shopping malls. In Mall A. the rent will be $300,000 per year. In Mall B, the rent will be 4% of gross revenues In Man C, rent will be $150,000 per year plus 3% of gross revenues. Assume that revenues and all other elements under consideration are the same for all three malls.What is the maximum level of revenues at which Mall C will be the most desirable of the three options?
Answer(s): D
Mall C will never be the optimal choice because it will be less desirable than Mall B as long as 1% of gross revenue is less than $150,000. that is. until revenues reach $15,000,000 [$150,000 minimum ÷ (4% -- 3%)] However, at any level of revenues greater than $7,500,000 ($300,000 . 4%), Mall A (a flat $300,000 rental) will be more desirable than either of the other choices. Thus, Mall C will never be the most desirable.
Based on potential sales of 1.000 units per year, a new product has estimated mated costs of $600.000. Vat is the target price to obtain a 20% return on sales?
Answer(s): B
It the company wants a 20% return on sales, the $600,000 of costs represent 80% of the 1selling price. Dividing $600,000 by .8 results in a total selling price of $750,000, or $750 per un.
Pontotoc Industries manufactures a product that is used as a subcomponent by other manufacturers. It has the following price and cost structure;What will the contribution margin per unit be if the company sells 10,000 units?
Contribution margin is the excess of sales over variable costs Sales will be at $300 per unit. Variable costs are $100. consisting of $40 of direct materials, $30 of direct labor, $24 of variable overhead. and $6 of variable selling costs. Thus, the contribution margin will be $200 per unit ($300 --$100)
Pontotoc industries manufactures a product that is used as a subcomponent by other manufacturers It has the following price and cost structureDuring the next year, sales are expected to be 10.000 units all costs will remain the same except for fixed manufacturing overhead, which will increase 20%. and direct materials. which will increase 10%. The selling price per unit for next year will be $320. Based on this information, Pontotoc's contribution margin for next year will be
Answer(s): C
Contribution margin is the excess of sales over variable costs. Sales of 10,000 units at $320 each will produce total revenue of $3,200,000. Variable costs will be $104 per Unit, consisting of $44 for direct maternal, $30 for direct labor. $24 for variable overhead, and $6 for selling costs. At $104 per unit, the 10,000 units will have total variable costs of $1,040,000, resulting in a contribution margin of $2,160,000 ($3,200,000 -- $1,040,000).
ExhibitThe percentage difference between the actual and the budgeted breakeven point in units was that actual was
Answer(s): A
According to the budget, sales of 250 units would produce a contribution margin of $700, or $2.80 per unit. Dividing the $448 of budgeted fixed costs by $2.80 gives a breakeven point of 160 units. The 260 actual units sold produced a contribution margin of $650, or $2.50 per unit. Dividing the $420 of fixed costs by $2.50 gives a breakeven point of 168 units. Consequenty, the actual breakeven point is 5% (8 ÷ 160) above the budget.
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