1. Amanda Deleon, a college student is contemplating the following options for her 3-month summer break:
(1) Take a summer course which will cost $800 and work half-time making $1,500 per month.
(2) Work full time at the local dinner making $3,000 per month.
(3) Take the summer class at a cost of $800 and not work during the summer.
Amanda’s incremental profit or loss if she chooses option 1 over option 2 would be:
2. Ronodex, Inc., a manufacturing company produces 80,000 units of product A at a total cost of $2.4 million. Total fixed costs are $1.4 million. If the company increases production by 25% and uses a 40% markup, the price per unit will be
Use the following to answer questions 3-4:
NTN Company’s market for the Model 55 has changed significantly, and NTN has had to drop the price per unit from $265 to $125. There are some units in the work in process inventory that have costs of $150 per unit associated with them. NTN could sell these units in their current state for $100 each. It will cost NTN $10 per unit to complete these units so that they can be sold for $125 each.
3. A new employee looks at the analysis and exclaims, “We’ll lose money with either of these alternatives! Let’s just throw these units in the trash!” Suppose the alternative to trashing is choosing the more profitable of the two alternatives (that the new employee looked at and did not like). What effect will the trashing option (that the new employee
wants) have on net income?
A) Net income will increase by $35 per unit for each unit discarded.
B) Net income will decrease by $115 per unit for each unit discarded.
C) It will have no effect on net income.
D) Net income will decrease by $100 per unit for each unit discarded.
4. When the incremental revenues and expenses are analyzed, the company is better off by
A) $15 per unit if they complete the units.
B) $25 per unit if they sell the units in their current state.
C) $10 per unit if they sell the units in their current state.
D) $125 per unit if they complete the units.
5. A company using activity based pricing marks up the direct cost of goods by 40% plus charges customers for indirect costs based on the activities utilized by the customer. Indirect costs are charged as follows: $6.00 per order placed; $3.00 per separate item ordered; $28.00 per return. A customer places 10 orders with a total direct cost of $2,000, orders 300 separate items, and makes 5 returns. What will the customer be charged?
6. Manufacturing overhead is allocated to products based on the number of machine hours required. In a year when 20,000 machine hours were anticipated, costs were budgeted at $125,000. If a product requires 8,000 machine hours, how much manufacturing overhead will be allocated to this product?
Use the following information to answer questions 7-8:
The EconoPrice Hotel has 200 rooms. Each room rents at $110 per night and variable costs total $27 per room per night of occupancy. Fixed costs total $76,000 per month.
7. If the hotel spends an additional $20,000 in the month of February on advertising they feel that they can expect occupancy rate to increase by 10%. What would be the financial impact of spending this additional money on advertising for the month of February (28 days)?
A) Total fixed costs will increase by $10,500.
B) Net income will increase by $16,320.
C) Net income will increase by $26,480.
D) Total fixed costs will remain the same.
8. If 75% of the rooms are occupied each night in the month of February (28 days) what will total costs be for the month?
A) $189,400
B) $173,600.
C) $197,400
D) $155,680.