Accounting 311 Exam #2

Question #1
Bob Newhart operates a bed and breakfast hotel in Vermont. Depreciation on the
hotel is $60,000 per year. Bob employs a maintenance person, George Utley, at
an annual salary of $41,000 and a cleaning person, Stephanie Vanderkellen, at an
annual salary of $24,000. Real estate taxes are $10,000 per year. The rooms rent
at an average price of $60 per person per night including breakfast. Other costs
are laundry and cleaning service at a cost of $10 per person per night and the cost
of food which is $5 per person per night.

Required:
(a) Determine the number of rentals and the sales revenue Bob needs to break
even using the contribution margin technique.
(b) If the current level of rentals is 4,000, by what percentage can rentals
decrease before Bob has to worry about having a net loss?
(c) Bob is considering upgrading the breakfast service to attract more business
and increase prices. This will cost an additional $3 for food costs per person
per night. Bob’s wife Joanna feels she can increase the room rate to $68 per
person per night. Determine the number of rentals and the sales revenue Bob
needs to break even if the changes are made.

Question #2
Game World, Inc. has the following information available for October 2020.
Unit selling price of video game consoles $ 400
Unit variable costs $ 280
Total fixed costs $48,000
Units sold 500

Required:
(a) Prepare a CVP income statement that shows both total and per unit
amounts.
(b) Compute Game World's breakeven in units.
Question #3
Galaxy Electronics, Inc. sells computers and video game systems. The business is
divided into two divisions along product lines. Variable costing income statements
for the current 2020 year are presented below:
Computers VG Systems Total
Sales $700,000 $300,000 $1,000,000
Variable costs 420,000 210,000 630,000
Contribution margin $280,000 $ 90,000 370,000
Fixed costs 296,000
Net income $ 74,000

Required:
(a) Determine the sales mix and contribution margin ratio for each division.
(b) Calculate the company’s weighted-average contribution margin ratio.
(c) Calculate the company’s break-even point in dollars.
(d) Determine the sales level, in dollars, for each division at the break-even point.

Question #4
Torque Master Tools produced and sold 50,000 Nematic Socket Torque Wrenches
and is operating at 70% of plant capacity. Unit information about its product is as
follows:
Sales price $70
Variable manufacturing cost $45
Fixed manufacturing cost ($500,000 ÷ 50,000) 10 55
Profit per unit $15
The company received a proposal from a foreign company to buy 10,000 Nematic
Socket Torque Wrenches for $50 each. This is a one-time only order and
acceptance of this proposal will not affect the company’s regular sales. The
president of Torque Master Tools, Inc. Andy Granatelli, is reluctant to accept the
proposal because he is concerned that the company will lose money on the
special order.

Required:
Prepare a schedule reflecting an incremental analysis of this proposal and indicate
the effect the acceptance of this order might have on the company’s income.
Question #5
Larry Empery’s Diesel Service, Inc. repairs commercial diesel generators used to
power heavy equipment and locomotive motors for the BNSF Railway. The
following budgeted cost data is available for 2020:
Time Material
Charges Charges
Technicians’ wages and benefits $500,000
Parts manager’s salary and benefits $ 72,000
Office manager’s salary and benefits 112,000 18,000
Other overhead 48,000 135,000
Total budgeted costs $660,000 $225,000

The company has budgeted for 10,000 hours of technician time during the coming
year. It desires a $54 profit margin per hour of labor and a 40% profit margin on
parts. It is estimated the total invoice cost of parts and materials in 2020 will be
$500,000.

Required:
1. Compute the rate charged per hour of labor.
2. Compute the material loading charge.
3. Larry has received a request from BNSF Railway for an estimate to repair a
diesel generator for their Roseville Locomotive #459. Larry estimates that it
would take 20 hours of labor and $8,000 of parts. Compute the total estimated
bill.