# Managerial Accounting

1. value: 10.00 points

Disk City, Inc. is a retailer for digital video disks. The projected net income for the current year is $2,320,000 based on a sales volume of 230,000 video disks. Disk City has been selling the disks for $19 each. The variable costs consist of the $5 unit purchase price of the disks and a handling cost of $2 per disk. Disk City’s annual fixed costs are $440,000.

Management is planning for the coming year, when it expects that the unit purchase price of the video disks will increase 30 percent. (Ignore income taxes.)

Required:

1. Calculate Disk city’s break-even point for the current year in number of video disks. (Round your answer to the nearest whole number.)

Break-even point units =

2. What will be the company’s net income for the current year if there is a 15 percent increase in projected unit sales volume? (Omit the “$” sign in your response.)

Net income = $

3. What volume of sales (in dollars) must Disk City achieve in the coming year to maintain the same net income as projected for the current year if the unit selling price remains at $19? (Do not round intermediate calculations and round your final answer to 2 decimal places. Omit the “$” sign in your response.)

Volume of sales = $

4. In order to cover a 30 percent increase in the disk’s purchase price for the coming year and still maintain the current contribution-margin ratio, what selling price per disk must Disk City establish for the coming year? (Do not round intermediate calculations and round your final answer to 2 decimal places. Omit the “$” sign in your response.)

Selling price = $

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[The following information applies to the questions displayed below.]

Corrigan Enterprises is studying the acquisition of two electrical component insertion systems for producing its sole product, the universal gismo. Data relevant to the systems follow.

Model no. 6754:

Variable costs, $17.00 per unit

Annual fixed costs, $986,100

Model no. 4399:

Variable costs, $11.80 per unit

Annual fixed costs, $1,114,000

Corrigan’s selling price is $62 per unit for the universal gismo, which is subject to a 5 percent sales commission. (In the following requirements, ignore income taxes.)

2.value:10.00 points

Required:

1. How many units must the company sell to break even if Model 6754 is selected? (Do not round intermediate calculations and round your final answer to the nearest whole number.)

Break-even point units =

3. value: 10.00 points

2-a. Calculate the net income of the two systems if sales and production are expected to average 44,000 units per year. (Omit the “$” sign in your response.)

Net Income

Model 6754 = $

Model 4399 = $

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2-b. Which of the two systems would be more profitable?

O – Model 4399

O – Model 6754

4. value: 10.00 points

3. Assume Model 4399 requires the purchase of additional equipment that is not reflected in the preceding figures. The equipment will cost $450,000 and will be depreciated over a five-year life by the straight-line method. How many units must Corrigan sell to earn $961,000 of income if Model 4399 is selected? As in requirement (2), sales and production are expected to average 44,000 units per year. (Do not round intermediate calculations and round your final answer to the nearest whole number.)

Required sales = units

5. value: 10.00 points

4. Ignoring the information presented in part (3), at what volume level will the annual total cost of each system be equal? (Round your answer to the nearest whole number.)

Volume level = units

6. value:10.00 points

Houston-based Advanced Electronics manufactures audio speakers for desktop computers. The following data relate to the period just ended when the company produced and sold 44,000 speaker sets:

Sales $ 3,520,000

Variable costs 880,000

Fixed costs 2,250,000

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Management is considering relocating its manufacturing facilities to northern Mexico to reduce costs. Variable costs are expected to average $18 per set; annual fixed costs are anticipated to be $2,170,000. (In the following requirements, ignore income taxes.)

Required:

1. Calculate the company’s current income and determine the level of dollar sales needed to double that figure, assuming that manufacturing operations remain in the United States. (Omit the “$” sign in your response.)

Current income = $

Required sales = $

2. Determine the break-even point in speaker sets if operations are shifted to Mexico.

Break-even point = units

3. Assume that management desires to achieve the Mexican break-even point; however, operations will remain in the United States.

a. If variable costs remain constant, by how much must fixed costs change? (Input the amount as positive value. Omit the “$” sign in your response.)

Fixed costs (Click to select)increase or decrease by = $

b. If fixed costs remain constant, by how much must unit variable cost change? (Input the amount as positive value. Do not round your intermediate calculations. Round your answer to 2 decimal places. Omit the “$” sign in your response.)

Variable costs (Click to select)increase or decrease by = $

4. Determine the impact (increase, decrease, or no effect) of the following operating changes.

a. Effect of an increase in direct material costs on the break-even point. (Click to select) No effect or Decrease or Increase

b. Effect of an increase in fixed administrative costs on the unit contribution margin. (Click to select) Increase or Decrease or No effect

c. Effect of an increase in the unit contribution margin on net income. (Click to select) Increase or Decrease or No effect

d. Effect of a decrease in the number of units sold on the break-even point. (Click to select) Decrease or Increase or No effect