CENTENNIAL BREWERY PRODUCED REVENUES OF $1,145,227 IN 2008. IT HAS EXPENSES (EXCLUDING DEPRECIATION) OF $812,640, DEPRECIATION OF $131,335, AND INTEREST EXPENSE OF $81,112. IT PAYS A MARGINAL TAX RATE OF 34 PERCENT

CENTENNIAL BREWERY PRODUCED REVENUES OF $1,145,227 IN 2008. IT HAS EXPENSES (EXCLUDING DEPRECIATION) OF $812,640, DEPRECIATION OF $131,335, AND INTEREST EXPENSE OF $81,112. IT PAYS A MARGINAL TAX RATE OF 34 PERCENT

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Centennial Brewery produced revenues of $1,145,227 in 2008. It has expenses (excluding
depreciation) of $812,640, depreciation of $131,335, and interest expense of $81,112. It pays a
marginal tax rate of 34 percent. What is the firm’s net income after taxes? Show and label your
calculations.
$120,140
$248,475
$79,292 X
$40,848
Solution:
Earnings before taxes = $1,145,227 – ($812,640 + $131,335 + $81,112) = $120,140
Net income = $120,140 (1 – 0.34) = $79,292
01. Hurricane Wings has budgeted the following costs for a month in which 24,000 wings will be
cooked and sold.
Wings, breading, and sauce $4,900
Direct labor (Variable) 3,500
Rent (per month) 1,100

2. Depreciation (per month) 900
Other fixed costs 400

Each wing sells for $0.80 each. What is the budgeted total variable cost?
A. $8,400
B. $9,500
C. $10,400
D. $10,800
02. Rincon Gifts had the following costs in May when 400 ceramic pots were produced:
materials, $4,200; hourly labor, $1,600; depreciation, $800 per month; monthly rent, $700; and
other fixed costs, $500 per month. If the production level changes to 500 units, how much will the
total costs be?
A. $9,750
B. $7,800
C. $9,250
D. $1,950
03. Hanover Binding plans to produce 40,000 books next year at a total cost of $1,640,000 with a
selling price per book of $66.00. The fixed costs total $280,000. Management is considering
lowering the price to $60.00 per book, and feels that this action will cause sales to climb to
50,000 books. What will be the incremental costs incurred if 50,000 books are sold?
A. $340,000
B. $20,000

3. C. $1,700,000
D. $1,300,000
04. Hardigree Insurance has collected the following information over the last six months.
Month Units produced Total costs
March 2,000 $6,700
April 3,200 9,400
May 2,200 7,100
June 3,000 9,500
July 2,800 8,000
August 2,100 6,600
Using the high-low method, how much is the total fixed cost?
A. $2,300
B. $2,200
C. $4,400
D. $7,910
05. Revert Creations sells a single product at a price of $50 per unit. Fixed costs total $312,000
and variable costs per unit are $24. Revert is considering the purchase of new equipment that
would reduce variable costs per unit to $21, but fixed costs would increase to $334,370. Above
what volume would Revert be profitable with the new machine, assuming the selling price
remains constant?
12,000 units
11,530 units

4. 23,530 units
There is not enough information provided to determine the answer.
06. Castillo Pens produces two models of titanium pens—Grande and Petite. Operations
information appears below for the current year:
Grande​ ​Petite
Units 2,500 4,500
Sales revenue $160,000 $96,000
Variable cost 64,000 42,000
Fixed costs ​40,000​ ​16,000
Profit ​$ 56,000​ ​$ 38,000
Profit per pen $22.40 $8.44
Contribution margin per pen $38.40 $12.00
Ounces of titanium per pen 8.50 2.50
Due to a supplier problem, only 1,400 pounds (22,400 ounces) of titanium will be available during
each of the next few months. Castillo needs to produce at least 900 of each model to stay
competitive and can sell all it produces. Given the limited resource, how many Petite’s should
Castillo produce to maximize profits?
5,900 units
900 units
8,960 units
5,625 units

5. 07. Teal Sports offers 2 different types of water sport activities—sailfish rental and banana boat
rides. The company has two different activities—lifeguarding and maintenance—that provide
input into its cost objectives. Data on estimated overhead for the year follows:
Activity Driver Estimated
Overhead
Cost
Sailfish Rental
Estimate
Boat Rides
Estimate
Lifeguarding # of Labor hours $63,940 3,280 hours 2,280 hours
Maintenance Hours of riding
time
$88,000 1,500 hours 2,500 hours
The company provides 2,400 banana boat rides and 1,200 sailfish rentals each year. How much
overhead will be assigned to each banana boat ride?
A. $42.20
B $73.24
C $22.56
D. $33.84
08. Intermodal Moving uses the direct method and allocates its maintenance costs on the basis
of repair hours and its payroll department costs on the basis of employees. Estimated costs and
information on the services and production departments follows:
Payroll $36,000
Maintenance $48,000
Packing 30 employees, 280 repair hours
Driving 10 employees, 1,960 repair hours

6. How much of the payroll and maintenance costs will be allocated to the packing department?
Payroll​ ​Maintenance
A. $900 $171.43
B. $27,000 $6,000
C. $27,000 $21.43
D. $1,200 $6,000
09. Unique Finds sells fine collectible statues and has implemented activity-based costing. Costs
in the shipping department have been divided into three cost pools. The first cost pool contains
costs that are related to packaging and shipping. Unique has determined that the number of
boxes shipped is an appropriate cost driver for these costs. The second cost pool is made up of
costs related to the final inspection of each item before it is shipped and the cost driver for this
pool is the number of individual items that are inspected. The final cost pool is used for general
operations of the department and the cost driver is the number of orders. Information about the
activities is summarized below:
Cost Pool Estimated Total
Costs
Cost Driver Estimated Annual
Activity
Packaging and
shipping
$ 67,200 Number of boxes shipped 16,000 boxes
Final inspection 200,000 Number of individual items
inspected
100,000 items
General operations 85,000 Number of orders 10,000 orders
During June, 4,000 items were sold reflecting 800 orders that were packed and shipped in 2,100
boxes. What amount is allocated to each order for general operations of the department?
A. $4.20

7. B. $29.53
C. $8.50
D. $10.00
10. Speedo produces signature goggles which it sells for $35. The company produces 15,000
pairs of these goggles annually but has the capacity to produce 20,000. An order for
manufacturing and selling 1,000 pairs at $25 has been received from the U.S. Olympic swim
team that would not disrupt current operations. Current costs for the signature goggles are as
follows:
Direct materials $ 6.00
Direct labor 10.00
Variable overhead 3.00
Fixed overhead ​8.00
Total ​$27.00
In addition, the Olympic coach would like to add the U.S. Olympic logo to each pair which would
require an additional $2 per pair of goggles in additional labor costs. The company would also
have to rent a logo stamper to stamp the logo which would cost $600. Which statement is true
with regard to this order?
A. Incremental profit will be $4,000.
B. Incremental costs will be $27,000.
C. Incremental costs will be $21,600.
D. Incremental costs will exceed incremental revenues by $4,600.
11. Swell Computers has 12 obsolete computers that are carried in its inventory at a cost of
$13,200. If these computers are upgraded at a cost of $7,500, they could be sold for $15,300.
Alternatively, the computers could be sold “as is” for $9,000. What is the net advantage or
disadvantage of upgrading the computers?

8. A. $6,300 advantage
B. $1,200 disadvantage
C. $5,400 disadvantage
D. $3,000 advantage
12. Foot Print has three product lines in its retail stores: shoes, boots, and sandals. The allocated
fixed costs are unavoidable while direct fixed costs are avoidable. Results of June follow:
Socks Boots Sandals Total
Units sold 800 1,200 2,400 4,400
Revenue $24,800 $30,400 $36,600 $91,800
Variable costs 13,600 13,200 16,800 43,600
Direct fixed costs 5,000 7,000 6,500 18,500
Allocated fixed costs 8,000 9,000 8,000 25,000
Net income (loss) $(1,800) $ 1,200 $ 5,300 $ 4,700
Demand of individual products is not affected by changes in other product lines. How much is the
incremental effect on income of dropping socks?
A. Decrease of $11,200
B. Decrease of $6,200
C. Increase of $1,800
D. Decrease of $1,500

9. 13. Ralston Tile produces three types of ceramic tiles, models 33, 41, and 56 from clay, which is
mined in the Arizona desert. Budgeted data for next month follows:
33​ ​41​ ​56
Units produced 3,000 4,500 6,000
Sales value at split-off per unit $15 $18 $24
Additional processing costs per unit $4 $6 $7
Joint production costs per unit $2 $5 $5
Sales value if processed further per unit $20 $23 $32
The joint cost of mining the clay is $80,000. Which of the products should be produced beyond
the split-off point?
33​ ​41​ ​56
A. Yes Yes Yes
B. Yes Yes No
C. No Yes Yes
D. Yes No Yes
14. Right Air Supply sells a specialized air filter that has a variable cost of $10 each. Fixed costs
are estimated to be $700,000 across all levels of sales shown below:
Units Demanded​ ​Unit Price
80,000 $35
90,000 $33
100,000 $31
110,000 $30

10. 120,000 $28
What price should Right Air Supply charge to maximize profits?
A. $35
B. $33
C. $31
D. $30
E. $28
15. A company believes it can sell 8,000 units of its proposed new garage door opener at a price
of $100 each. If the company desires to make a profit of 30% of selling price on the garage door
opener, what is the target cost per opener?
A. $130
B. $110
C. $70
D. $30
16. A company estimates that ordering costs are $3.20 per order, picking costs are $2.15 per
unique item ordered, packing costs are $0.04 per item, and return costs are $15.00 per return. A
customer orders $8,440 worth of goods with direct costs of $5,200. The customer places 85
orders, orders 72 unique items, 450 total items, and makes 5 returns. What is the customer
profit?
A. $519.60
B. $3,240
C. $2,720.20
D. $7,920.20

11. 17. Splurge Electronics sells homework machines for $80 each. Variable costs per unit are $45
and total fixed costs are $43,750. Splurge is considering the purchase of new equipment that
would increase fixed costs to $48,700, but decrease the variable costs per unit by $5. At that
level, Splurge Electronics expects it can sell 1,500 units next year. What is the company’s
break-even point in units if it purchases the new equipment, assuming the selling price remains
constant? (Round your answer to the nearest whole number.)