Solved by verified expert :Week 6 Quiz
(TCO 7) Elliot’s Escargots sells
commercial and home snail extraction tools and serving pieces. Currently,
the Serving Pieces Section takes up approximately 50% of the company’s
retail floor space. The CEO of Elliot’s wants to decide if the company
should continue offering Serving Pieces or focus only on Snail Extraction
Tools. If the Serving Pieces are dropped, salaries and other direct fixed
costs can be avoided and Snail Extraction sales and variable costs would
increase by 13%. Allocated fixed costs would remain unchanged.
Less cost of goods sold
Less Avoidable direct fixed costs:
Less Unavoidable allocated fixed
Prepare an incremental analysis in good form to determine the
incremental effect on profit of discontinuing the serving pieces line.
(TCO 4) Paschal’s Parasailing
Enterprises has estimated that fixed costs per month are $115,600 and
variable cost per dollar of sales is $0.38 (6 points).
What is the break-even point per month in sales dollars?
What level of sales is needed in dollars for a monthly profit of
For the month of August, Paschal’s anticipates sales of $585,000. What is
the expected level of profit?
(TCO 6) Princess Cruise Lines has the
following service departments; concierge, valet, and maintenance. Expenses
for these departments are allocated to Mediterranean and transatlantic
cruises. Expenses for the departments are totaled (both variable and fixed
components are combined) and as follows.
The sea miles logged are 6,000,000 for the Mediterranean and 18,000,000 for
the transatlantic voyages.
Using sea miles logged as the allocation base, allocate the service
department costs to the Mediterranean and Transatlantic cruise lines (6
(TCO 9) Thurman Munster, the owner of
Adams Family RVs, is considering the addition of a service center his lot.
The building and equipment are estimated to cost $1,200,000, and both the
building and equipment will be depreciated over 10 years using the
straight-line method. The building and equipment have zero estimated residual
value at the end of 10 years. Munster’s required rate of return for this
project is 12%. Net income related to each year of the investment is as
Income before taxes
Taxes at 40%
(A) Determine the net present value of the investment in the service
center. Should Munster invest in the service center?
(B) Calculate the internal rate of return of the investment to the nearest
(C) Calculate the payback period of the investment.
(D) Calculate the accounting rate of return.
(TCO 5) The following information
relates to Vice Versa Ventures for calendar year 2013, the company’s first
year of operations.
Selling price per unit
Direct material per unit
Direct labor per unit
Variable manufacturing overhead per
Variable selling cost per unit
Annual fixed manufacturing overhead
Annual fixed selling and
(a) Prepare an income statement using full costing.
(b) Prepare an income statement using variable costing.
(TCO 8) Leekee Shipyards has a new
barnacle-removing product for ocean-going vessels. The company invests
$1,200,000 in operating assets and plans to produce and sell 400,000 units
per year. Leekee wants to make a return on investment of 20% each year. Leekee
needs to know what price to charge for this product.
Use the absorption costing approach to determine the (1) unit product cost
and (2) markup necessary to make the desired return on investment based on
the following information.
Fixed Manufacturing Overhead
Variable Selling and Administrative
Fixed Selling and Administrative