Quiz 3

1. Jackson Aviation presents the following information:

Sales / $100 per passenger
Fixed Costs:
Marketing and Administration / $2,000
Overhead / $1,000
Variable Costs:
Marketing and Administration / $5 per passenger
Overhead / $10 per passenger
Direct labor / $15 per passenger
Direct material / $20 per passenger
Passengers / 150

a.  Prepare an income statement for internal purposes showing the contribution margin

b.  What would be the impact on the contribution margin per unit if the volume of passengers doubles? Why?

c.  If Jackson eliminated 20% of the direct labor costs, would this affect the total contribution margin? By how much?

d.  Jackson is thinking about leasing a new ticketing system. The system will add a fixed cost of $500 but will allow him to reduce his direct labor costs by $3 per passenger. Should Jackson lease the ticketing system? Explain

2.  Sun Devil, Inc. is considering the introduction of a new product with the following price and cost characteristics:

Sales price $75 each

Variable Cost $25 each

Fixed Cost $300,000 per year

It expects to sell 70,000 units per year.

a)  How many units must be sold to breakeven?

b)  How many units must be sold to make an operating profit of $15,000

c)  If 7,000 units are sold, what operating profit is expected?

d)  What would be the breakeven point in units if the sales price is decreased by 20%?

e)  What is the breakeven point in units if the variable costs per unit decreased by 40%?

f)  What would be the breakeven point in units if fixed costs were increased by $50,000?

3.  MultiFrame Company has the following revenue and cost budgets for the two products it sells.

Plastic Frames / Glass Frames
Sales price / $10.00 / $15.00
Direct materials / (2.00) / (3.00)
Direct labor / (3.00) / (5.00)
Fixed overhead / (3.00) / (4.00)
Net income per unit / $2.00 / $3.00
Budgeted unit sales / 100,000 / 300,000

The budgeted unit sales equal the current unit demand, and total fixed overhead for the year is budgeted at $975,000. Assume that the company plans to maintain the same proportional mix. In numerical calculations, MultiFrame rounds to the nearest cent and unit.

a)  What is the total number of units MultiFrame needs to produce and sell to breakeven?

b)  What is the total number of units needed to break even if the budgeted direct labor costs were $2 for plastic frames instead of $3?

c)  What is the total number of units needed to break even if sales were budgeted at 150,000 units of plastic frames and 300,000 units of glass frames with all other costs remaining constant?