Solano Company has sales of $760,000, cost of goods sold of $500,000, other operating expenses of $40,000, average invested assets of $2,250,000, and a hurdle rate of 11 percent.

1. Determine Solano’s return on investment (ROI), investment turnover, profit margin, and residual income. (Do not round your intermediate calculations. Enter your ROI and Profit Margin percentage answer to the nearest 2 decimal places, (i.e., 0.1234 should be entered as 12.34%). Round your Investment Turnover answer to 4 decimal places.)

2. Several possible changes that Solano could face in the upcoming year follow. Determine each scenario’s impact on Solano’s ROI and residual income. (Note: Treat each scenario independently.) (Enter your ROI percentage answers to 2 decimal places, (i.e., 0.1234 should be entered as 12.34%.))

   a. Company sales and cost of goods sold increase by 40 percent. (Find ROI and Residual income)

  b. Operating expenses decrease by $11,000.   (Find ROI and Residual income)

   c. Operating expenses increase by 20 percent. (Find ROI and Residual income)
  d. Average invested assets increase by $430,000. (Find ROI and Residual income)

  e. Solano changes its hurdle rate to 17 percent. (Find ROI and Residual income)

One of the most important costs in the hospitality businesses is the Cost of Sales (or Cost of Goods Sold). How is it determined? Please select the most appropriate answer from the list below.

1. It is calculated by adding up all purchases of inventory during one accounting period.

2. It is the amount of inventory available on hand. It is calculated by adding the value of individual items by counting them.

3. It is determined by adding all purchases to the beginning inventory amount, and then by subtracting the amount of inventory on hand.

4. It is calculated by multiplying the target percentage (%) predetermined by the management.

How do we determine whether the labor expense has truly grown in a year compared with that of the previous year?

1. If the current year's amount is larger than that of the previous year, it has truly grown.

2. If the current year's difference between the budgeted labor expense and the actual one than that of the previous year, then this year's labor expense has truly grown.

3. Compare each year's labor expense against the revenues amount of the relevant year. If this year's labor expense percentage (%) is larger than that of the previous year, it has truly grown.

4. Divide the current year's labor expense by the previous year's labor expense. If the result is larger than 100%, then it has truly grown.

A manufacturing company has prepared the following budgeted information for year 2: K

Direct material 800,000

Direct labour 200,000

Direct expenses 40,000

Production overhead 600,000

Administrative overhead 328,000

Budgeted activity levels include: Units

Budgeted production 600,000

Machine hours 50,000

Labour hours 40,000

It has recently spent heavily upon advanced technological machinery and reduced its workforce. As a consequence it is thinking about changing its basis for overhead absorption from a percentage of direct labour cost to either a machine hour or labour hour basis. The administrative overhead it to be absorbed as a percentage of factory cost.

Required: (a) Prepare predetermined overheads absorption rates for production overheads based upon the three different basis for absorption mentioned above.

(b) Select the overhead absorption rate that you think the organisation should use giving reasons for your decision.

(c) The company has been asked to price job AX. This required the following:

Direct material K3,788

Direct labour K1,100

Direct expenses K 422

Machine hours 120

Labour hours 220

Compute the selling price for this job using the absorption rate selected in (b) above, given that the company profit margins is equal to 10% of the price

Coffee Blending Model: A coffee manufacturer blends three component coffee beans into three final blends of coffee. The Table below summarizes the very precise recipes for the final coffee blends, the cost and availability information for the three components, and the wholesale price per pound of the final blends. The percentages in the body of the table indicate the percentage of each component to be used in each blend.

Table: Percentage of each component to be used in each blend

_____________________________________________________________________________                                   Final Blend (percent)                

                                                                                 Cost Per            Maximum Availability

           Component                   1        2         3            Pound           Each Week (Pound)

_____________________________________________________________________________                                                                                                 

               1                 80       0         20       $0.60      40,000

               2                 50       15       35       $0.80      25,000

               3                 0         40       60       $0.55      20,000

_____________________________________________________________________________  

           Wholesale Price/lb.       $1.25   $1.50   $1.40 _____________________________________________________________________________

Weekly capacity for the processor's plant is 100,000 pounds, and the company wishes to operate at capacity. There is no problem in selling the final blends, although there is a requirement that minimum production level of 10,000, 25,000 and 30,000 pounds, respectively, be met for blends 1, 2 and 3. The manufacturer wishes to determine the number of pounds of each component that should be used in each blend so as to maximize total weekly profit.

Formulate the problem as an L.P. model.  

Could you present it as the set up in Excel?

1. A department’s maintained markup is 38 percent, reductions are $560, and net sales are $28,000. What’s the initial markup percentage?

2. Maintained markup is 39 percent, net sales are $52,000, and reductions are $2,500. What are gross margin in dollars and the initial markup as a percentage? Explain why initial markup is greater than maintained markup.

3. The cost of a product is $150, markup is 50 percent, and markdown is 30 percent. What’s the final selling price?

4. Manny Perez bought a tie for $9 and priced it to sell for $15. What was his markup on the tie?

5. Answer the following: (a) The Limited is planning a new line of leather jean jackets for fall. It plans to retail the jackets for $100. It is having the jackets produced in the Dominican Republic. Although The Limited does not own the factory, its product development and design costs are $400,000. The total cost of the jacket, including transportation to the stores, is $45. For this line to be successful, The Limited needs to make $900,000 profit. (A). What is its break-even point in units and dollars? (b) The buyer has just found out that The GAP, one of The Limited's major competitors, is bringing out a similar jacket that will retail for $90. If The Limited wishes to match The GAP's price, how many units will it have to sell? Expert Answer

1. A department’s maintained markup is 38 percent, reductions are $560, and net sales are

$28,000. What’s the initial markup percentage?

2. Maintained markup is 39 percent, net sales are $52,000, and reductions are $2,500. What are

gross margin in dollars and the initial markup as a percentage? Explain why initial markup is

greater than maintained markup.

3. The cost of a product is $150, markup is 50 percent, and markdown is 30 percent. What’s the

final selling price?

4. Manny Perez bought a tie for $9 and priced it to sell for $15. What was his markup on the tie?

5. Answer the following:

(a) The Limited is planning a new line of leather jean jackets for fall.

It plans to retail the jackets for $100. It is having the jackets produced in the Dominican

Republic. Although The Limited does not own the factory, its product development and

design costs are $400,000. The total cost of the jacket, including transportation to the stores,

is $45. For this line to be successful, The Limited needs to make $900,000 profit. (A). What

is its break-even point in units and dollars?

(b) The buyer has just found out that The GAP, one of The Limited's major competitors, is

bringing out a similar jacket that will retail for $90. If The Limited wishes to match The

GAP's price, how many units will it have to sell?

A company sells clocks for $20 each. Its variable cost per unit is $14, and its fixed cost per year is $9,000.

1. If it sells 2,000 clocks this year, what is its contribution margin?

2. If it sells 2,000 clocks this year, what is its operating income?

3. If it sells 2,000 clocks this year, what is its operating leverage?

4. If it sells 2,000 clocks this year, what would be the percentage change in its operating income if it sells 5% more clocks next year?

5. What is the company’s contribution margin per unit?

6. What is the company’s contribution margin ratio?

7. How many units must the company sell to break even?

8. What amount of sales dollars is needed to break even?

9. How many units must the company sell to earn an operating income of $6,000?

10. What amount of sales dollars is needed to earn an operating income of $6,000?

11. If the company is currently selling 2,000 clocks, what is the margin of safety in units?

12. If the company is currently selling 2,000 clocks, what is the margin of safety in sales dollars?

13. If the company is currently selling 2,000 clocks, what is the margin of safety percentage?

Data are drawn from a relatively symmetric and bell shaped distribution with a mean of 30 and a standard deviation of 3.

a.) what percentage of the observations fall between 27 and 33?

b.) what percentage of the observations fall between 24 and 36?

c.) what percentage of the observations are less than 24?

Specifications for a DVD player says that it should weight between 24 and 25 ounces. The process has a normal distribution with a mean of 24.5 ounces and a standard deviation of .25 ounces.

What percentage of parts will not meet the weight specifications? (The answer should be a percentage with two decimal places; no percentage sign).