Quiz - Chapter 9 - Solutions

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1 Quiz - Chapter 9 - Solutions 1. Royco, Inc. contracted, for the current year, to purchase $425,000 worth of light fixtures from a retailer for $5 per unit. Royco keeps 12 1/2 percent of its annual purchases (in dollars) on hand at the end of each calendar year to avoid stockouts in early January, a period when most retailers are out of fixtures. If Royco purchased $725,000 worth of inventory last year at $7.50 per unit, what are the unit sales for the current year? Royco uses a FIFO inventory system. A 128,542 B 97,083 C 86,458 D 84,583 (725,000/7.50) ,000/ x = (425,000/5.00) The Axel Company's contribution margin ratio is 25% and its total fixed costs are $80,000. Certain changes are planned that will increase total fixed costs by 10% but decrease variable expenses by 20% per unit. What sales volume will achieve a pre-tax income of $16,000? (Round your answer to the nearest $1,000.) A $149,000 B $173,000 C $260,000 D $347,000 fixed costs = 80,000 (1.10) = 88, = (Sales VC/Sales) VC =.75 sales if VC decrease by 20%, then VA =.60 sales sales -.60 sales - 88,000 = sales = 88, ,000 = 104,000 Sales = 104,000/.4 = 260,000

2 3. The Sledge Hammer Company manufactures a line of high quality tools. The company sold 1,000,000 hammers at a price of $4 per unit in The company estimates that this volume represents a 20% share of the current hammers market. The market is expected to increase by 5%. Marketing specialists have determined that, as a result of a new advertising campaign and packaging, the company will increase its share of this larger market to 24%. Due to changes in prices, the new price for the hammer will be $4.30 per unit. This new price is expected to be in line with the competition and have no effect on the volume estimates. What are the estimated sales revenues in 1994? A $5,040,000 B $5,160,000 C $5,418,000 D $5,689, sales = 1,000,000 ($4) = $4,000, market size = 1,000,000/.20 = 5,000, sales volume = 5,000,000 (1.05) (.24) = 1,260, sales = 1,260,000 (4.30) = $5,418,000 For the following question(s) refer to the information below. Each column is a separate situation) Sales 100,000 units 40,000 units $2,000,000? Production 110,000 units? 1,950,000 $55,000 Beg. Finished Goods 20,000 units 5,000 units? 7,000 Ending Finished Goods? 7,500 units 10,000 9, What is the ending finished goods inventory (in units) column 1? A 10,000 B 27,000 C 30,000 D 100,000 X = 20, , ,000 = 30,000

3 5. What is the production volume (in units) for column 2? A 50,000 B 42,500 C 35,000 D 12,500 ANSWER: B 5,000 + x - 40,000 = 7,500 X = 7, ,000 5,000 = 42, What is the beginning finished goods in column 3? A $40,000 B $50,000 C $60,000 D $90,000 x + 1,950,000-2,000,000 = 10,000 x= 2,000,000 1,950,000 = 10,000 = 60, What are the sales in column 4? A $62,000 B $55,000 C $52,500 D $16,500 7, ,000 - x = 9,500 7, ,000-9,500 = x 52,500 = x

4 For the following question(s) refer to the information below. T. Jackson Retail seeks your assistance to develop cash and other budget information for May, June, and July. At April 30, the company had cash of $5,500, accounts receivable of $437,000, inventories of $309,400, and accounts payable of $133,055. The budget is to be based on the following assumptions: SALES: Each month's sales are billed on the last day of the month. Customers are allowed a 3% discount if payment is made within 10 days after the billing date. Receivables are recorded in the accounts at their gross amounts (not net of discounts). 55% of the billings are collected within the discount period; 30% are collected by the end of the month; 9% are collected by the end of the second month; and 6% turn out to be uncollectible. PURCHASES: 60% of all purchases of merchandise and selling, general, and administrative expenses are paid in the month purchased and the remainder in the following month. The number of units in each month's ending inventory is equal to 125% of the next month's units of sales. The cost of each unit of inventory is $30. Selling, general, and administrative expenses, of which $3,000 is depreciation, are equal to 15% of the current month's sales. Actual and projected sales are as shown below: Dollars Units March ,000 11,800 April ,000 12,100 May ,000 11,900 June ,000 11,400 July ,000 12,000 August ,000 12,200

5 8. What are the budgeted merchandise purchases (in dollars) for May? A $338,250 B $355,500 C $357,000 D $375,750 ANSWER: A 1.25 (11,900) + x - 11,900 = 1.25 (11,400) X = 11,275 purchases = 11,275 (30) = $338, What are the budgeted merchandise purchases (in dollars) for June? A $319,500 B $342,000 C $364,500 D $375, (11,400) + x - 11,400 = 1.25 (12,000) x = 12,150 purchases = 12,150(30) = $364, What are the budgeted cash disbursements during the month of June? A $407,520 B $420,600 C $421,950 D $434,280 ANSWER: B merchandise purchases =.60 (364,500) +.40 (338,250) = $354,000 Expenses =.60 [(.15)(456,000) - $3,000] +.40[(.15) 476, ] = 66,600 Cash Disbursements = 354, ,600 = 420,600

6 11. What are the budgeted cash collections during the month of May? A $445,894 B $453,880 C $472,114 D $474,934 ANSWER: A From April: 484,000 (.55) (97) + 484,000 (.30) = $403,414 From March: 472,000 (.09) = $42,480 Total Cash Collections = 403, ,480 = 445, What are the budgeted number of inventory units that need to be purchased in July? A 15,250 B 15,000 C 12,250 D 12,000 Beg Bal + purchases sales = ending balance 1.25 (12,000) + x - 12,000 = 1.25 (12,200) 15,000 + x -12,000 = 15,250 3,000 + x = 15,250 X = 12,250

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