Belmain Co. expects to maintain the same inventories at the end of 20Y7 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during the year. A summary report of these estimates is as follows:

It is expected that 5,920 units will be sold at a price of $150 a unit. Maximum sales within the relevant range are 7,000 units.

Required:

1. Prepare an estimated income statement for 20Y7.

2. What is the expected contribution margin ratio? Round to the nearest whole percent.
%

3. Determine the break-even sales in units and dollars.

4. Construct a cost-volume-profit chart on your own paper. What is the break-even sales?
$

5. What is the expected margin of safety in dollars and as a percentage of sales?

6. Determine the operating leverage. Round to one decimal place.

1. Belmain Co. expects to maintain the same inventories at the end of 20Y7 as at the beginning of the year. The total of all production costs for the year is therefore assumed to be equal to the cost of goods sold. With this in mind, the various department heads were asked to submit estimates of the costs for their departments during the year. A summary report of these estimates is as follows:

   		Estimated Fixed Cost			Estimated Variable Cost (per unit sold)
   Production costs:
   	Direct materials				$26
   	Direct labor				17
   	Factory overhead	$114,300			13
   Selling expenses:
   	Sales salaries and commissions	23,700			6
   	Advertising	8,000
   	Travel	1,800
   	Miscellaneous selling expense	2,000			5
   Administrative expenses:
   	Office and officers' salaries	23,200
   	Supplies	2,900			2
   	Miscellaneous administrative expense	2,660			3
   	Total	$178,560			$72

   It is expected that 5,580 units will be sold at a price of $144 a unit. Maximum sales within the relevant range are 7,000 units.

   Required:

   1. Prepare an estimated income statement for 20Y7.

   Belmain Co.
   Estimated Income Statement
   For the Year Ended December 31, 20Y7
   			$
   Cost of goods sold:
   		$
   Cost of goods sold
   Gross profit			$
   Expenses:
   Selling expenses:
   	$
   Total selling expenses		$
   Administrative expenses:
   	$
   Total administrative expenses
   Total expenses
   Income from operations			$

   2. What is the expected contribution margin ratio? Round to the nearest whole percent.
   %

   3. Determine the break-even sales in units and dollars.

   Units	units
   Dollars	units

   4. Construct a cost-volume-profit chart on your own paper. What is the break-even sales?
   $

   5. What is the expected margin of safety in dollars and as a percentage of sales?

   Dollars:	$
   Percentage: (Round to the nearest whole percent.)		%

   6. Determine the operating leverage. Round to one decimal place.

Your company is considering buying back some of its stock. You are assigned the task of correctly assessing the value of the company so that the company can make a rational decision.

Select 4 ratios that you believe would provide the best insight into the condition of the company and provide a rationale as to why you feel that they would be most relevant.

Current Ratio                                                     =                                                  Current assets/current liabilities

Acid-test Ratio    =                             Cash+accounts recieveable/current liabilities

Return on equity    =    Net Income/total common equity

Return on Assets    =    Net income/total assets

Profit Margin    = net income after taxes/sales

Operating return on assets    =    operating profits/total assets

Accounts Receivable Turnover    =    annual credit sales/accounts recievable

Days in Inventory                                               =    inventory/daily cost of goods sold

Inventory Turnover    =    cost of goods sold/inventory

Total Asset Turnover                                       =    sales/total assets

Fixed Asset Turnover    =    sales/net fixed assets

Debt-to-Ratio                                                    = total debt/total assets

Debt-to-Asset                                                    =    liability(debt)/assets

Debt-to-Equity                                                 =    total liabilities(debt)/shareholders equity

2. If marginal benefit from a particular activity is greater than its marginal cost, a rational choice involves

a. More of the activity

b. Less of the activity

c. No more of the activity

d. More or less, depending on the benefits of other activities

.

3. Which of the following is an example of an implicit cost

a. Dividends paid out to stockholders

b. The uncompensated services of the spouse of a firm's owner

c. Payments made to audit companies

d. Payments made to workers who are unproductive

.

4. Suppose, a measure of total output of an American economy takes into account the production of any American or American-owned entity, regardless of where in the world the actual production process is taking place. Then this estimate of total output is

a. Gross Domestic Product

b. Gross National product

c. Net Domestic Product

d. None of a, b and c

.

5. Economic profit is calculated as deviation between

a. Total revenue - total explicit & implicit costs

b. Total revenue - total explicit costs

c. Total revenue - total implicit costs

d. All a, b, and c will give same measure

Suppose that the cost of producing q appliances is c(q)=200-q+0.96q^2 and the demand function is given by q=400-25p.

1. Develop the total revenue, total cost (if not given), and profit functions. Explain these functions in few sentences.
2. Compute the point elasticity of demand.
3. Find the intervals where the demand is inelastic, elastic, and the price for which the demand is unit elastic.
4. Find the quantity that maximizes the total revenue and the corresponding price. Interpret your result.
5. Find the quantity that minimizes the average cost function and the corresponding price. Interpret your results.
6. What are the quantity and the price that maximize the profit? What is the maximum profit? Interpret your result.
7. Discuss the results of 6, 7 and 8.

In this part, we assume that the supply function is given by, p=8+q

8. Find the price and the quantity at the equilibrium.
9. Calculate the consumer surplus.
10. Calculate the producer surplus.

Robinson Products Company has two service departments (S1 and S2) and two production departments (P1 and P2). The distribution of each service department’s efforts (in percentages) to the other departments is:

The direct operating costs of the departments (including both variable and fixed costs) are:

Required:

1. Determine the total cost of P1 and P2 using the direct method.

Production Dept. 1:

Production Dept. 2:

2. Determine the total cost of P1 and P2 using the step method.

Production Dept. 1:

Production Dept. 2:

3. Determine the total cost of P1 and P2 using the reciprocal method.

Production Dept. 1:

Production Dept. 2:

Is this statement true or false? Explain why it is true or false.

Two firms, 1 and 2, can control their emissions of a pollutant according to the following marginal cost equations: MC₁ = $1*q₁ and MC₂ = $1/2*q₂, where q₁ and q₂ are the amount of emissions controlled by firm 1 and firm 2, respectively. In addition, each firm is currently emitting 100 units of pollution and neither firm is controlling its emissions. Assuming the control authority has concluded that the total emissions generated by the two firms must be reduced by 90 units. Suppose the government implements a cap-and-trade system by initially allocating all of the pollution allowances to firm 1. The total cost of pollution for firm 2 will be less than the total cost of pollution for firm 1, because firm 2 is better at controlling pollution.

Cost of Units Transferred Out and Ending Work in Process

The costs per equivalent unit of direct materials and conversion in the Rolling Department of Oak Ridge Steel Company are $0.80 and $0.45, respectively. The equivalent units to be assigned costs are as follows:

The beginning work in process inventory on July 1 had a cost of $3,140. Determine the cost of completed and transferred-out production, the ending work in process inventory, and the total costs assigned by the Rolling Department.

Privack Corporation has a standard cost system in which it applies overhead to products based on the standard direct labor-hours allowed for the actual output of the period. Data concerning the most recent year appear below:

Required:

1. Compute the predetermined overhead rate for the year. Be sure to include the total budgeted fixed overhead and the total budgeted variable overhead in the numerator of your rate. (Round your answer to the nearest whole dollar amount.)

2. Compute the amount of overhead that would be applied to the output of the period.

The operations manager for an auto supply company is evaluating the potential purchase of a new machine for the production of a transmission component.   Current manufacturing costs are fixed costs of $11,000 and a variable cost of $0.50 per unit.  The new machine would have fixed cost of $4,000 and a variable cost of $0.75 per unit. Each component is sold for $1.50 per unit.

a.  Develop two separate models in your spreadsheet to calculate Total Profit for each option. (8 pts)

            The models must be flexible and able to calculate Total profit for any Quantity produced.

b.  Find the break-even quantity for each option (4 pts)

c.  Graph the Total profit for each option vs Quantity (both lines on one graph) Show Quantity from 0 to 50,000 (10 pts)

d.  Write an interpretation of your graph (8 pts)