1. The Cabinet Shoppe is considering the addition of a new line of kitchen cabin

Question

1.

The Cabinet Shoppe is considering the addition of a new line of kitchen cabinets to its current product lines. Expected cost and revenue data for the new cabinets are as follows:

  
If the new cabinets are added, it is expected that the contribution margin of other product lines at the cabinet shop will drop by $20,200 per year.

If the new cabinet product line is added next year, the increase in net operating income resulting from this decision would be:

$97,700

$244,800

$142,800

$122,600

2. Stuchlik Catering uses two measures of activity, jobs and meals, in the cost formulas in its flexible budgets. The cost formula for catering supplies is $640 per month plus $84 per job plus $20 per meal. A typical job involves serving a number of meals to guests at a corporate function or at a host's home. The company expected its activity in January to be 49 jobs and 230 meals, but the actual activity was 50 jobs and 235 meals. The actual cost for catering supplies in January was $7,600. The catering supplies in the planning budget for January would be closest to:

$7,600

$9,440

$9,356

$9,540

Eckels Wares is a division of a major corporation. The following data are for the latest year of operations:

What is the division's margin? (Round your answer to 2 decimal places.)

What is the division's turnover? (Round your answer to 2 decimal places.)

What is the division's return on investment (ROI)? (Do not round intermediate calculations and round your final answer to 2 decimal places.)

What is the division's residual income?

  Annual sales 5,100 units       Selling price per unit $185       Variable costs per unit:      Production $121          Selling $16       Avoidable fixed costs per year:      Production $41,000          Selling $61,000       Allocated common fixed costs per year $45,100    

Explanation / Answer

Answer

If new cabinets added to the product line:

Allocated common fixed cost is not relevent that is sunk cost

a) Margin = Net operating profit / sale

= 1903800 / 33400000 = 5.70%

b) Retun on investment = Net Income/Operating Assets

= 1903800/8350000

= 22.80%

In the above formula,
   A = Department's net operating income;
   B = Minimum required return on assets; and
   C = Average operating assets of the department

= 1903800 - (12% * 8350000)

= 901800

Revenue from product (185 pu) 943500 Less: Veriable cost (137 pu) 698700 Less: Fixed Cost (avoidable) 102000 Profit (Total) 142800 Less: Opportunity Cost 20200 Net Benefit from product 122600

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