Question

Please show work

22. The most recent income statement for the Midwest Branch of Third Financial Bank is presented below:

Sales $57,000
Variable costs 31,500
Contribution margin 25,500
Avoidable fixed costs 13,500
Unavoidable fixed costs 18,000
Operating loss $(6,000)

Third Financial Bank is thinking about eliminating the Midwest Branch. If the branch is eliminated, Third Financial Bank's operating income will ________.
A) increase by $6,000
B) increase by $13,500
C) decrease by $12,000
D) decrease by $25,500

33. Upstairs Company has the following data:

Month Budgeted Sales
January $112,000
February 125,000
March 132,000
April 120,000

The gross profit rate is 40% of sales and ending inventory at December 31 was $26,325. Desired ending inventory levels are 25% of next month's sales at cost. What are the expected total purchases for March?
A) $77,400    
B) $86,480
C) $100,750
D) $105,575

Answer 1

Question 22

Correct answer---(C) Decrease by $12000

Loss of Contribution	$   25,500.00
Less: Avoidable fixed cost	$ (13,500.00)
Net Decrease in income	$   12,000.00

Unavoidable fixed cost is not considered because this cost will be paid even if Midwest branch is eliminated.

Avo9idable fixed cost on the other hand is saving in cost if branch is eliminated.

Total loss of contribution minus avoidable fixed cost is net decrease in income if Midwest is eliminated.

Question 33

Correct answer---(A) $77400

Purchase budget for march
Cost of goods sold	$   79,200.00
Add: Desired Ending Inventory	$   18,000.00
Total goods needed	$   97,200.00
Less: Beginning Inventory (79200*25%)	$   19,800.00
Purchases	$   77,400.00

	January	February	March	April
Sales	$ 112,000.00	$ 125,000.00	$       132,000.00	$ 120,000.00
GP ratio	40%	40%	40%	40%
Cost of Goods sold ratio (100-40)	60%	60%	60%	60%
Cost of Goods sold	$    67,200.00	$    75,000.00	$         79,200.00	$    72,000.00