ember is presented below moothly operating income data for Cosmo Inc. for Nov s
ID: 2599837 • Letter: E
Question
ember is presented below moothly operating income data for Cosmo Inc. for Nov s operations follows the statement. 8. regarding Cosmo's Total Mall Store Town Store Sales 36,000 ariah$200,000 $80,000 $120,000 e spenses 48,000 84,000 Contribution margin.. Traceable ixed expenses (4,000) 28,000 24,000 margin Coninen nted rip pr. Cosmo allocates common fixed expenses to each store estimates that closing the Town Store would result in a 5% decrease in Mall Stores sales operating results for November are representative of all months. A decision by Cosmo Inc. to close the on the basis of sales dollars. Management . The Town Store would result in a monthly increase (decrease) in Cosmo's net operating income of: A. $4,000 B. $1,600 C. s(8,400) D. $(4,000) E. $2,600 9. A company produces three products with the following costs and selling prices: Product Name Selling Price Per Unit Variable Cost Per Unit Machine Hours Per Unit Round Square Triangls $24 $26 $20 $10 The company has a limit of 14,600 machine hours available per month. The company has a month $10 $12 2 fixed cost of $30,000. The demand for each of the products is 2,500 units per month. The goal is to maximize its profitability Suppose the company can rent a machine that will provide an additional 1,000 machine month. What is the maximum monthly rent the company would be willing to pay for this machin A. $2,400 B. $4,200 C. $2,000 D. $2,800 E. S1,200Explanation / Answer
Answer:
8) Increase in monthly net operating income of Cosmo’s after 5% decrease in Mall Store’s sale and after close of Town Store = $ 1,600
9) Maximum monthly rent for machine company would be willing to pay = $ 11,200
Working Notes:
8) Computation of monthly net operating income of Cosmo’s after 5% decrease in Mall Store’s sale and after close of Town Store
Particular
Total ($)
Mall Store ($)
Sale
76000
76,000
Variable Expense
30,400
30,400
Contribution Margin
45,600
45,600
Traceable Fixed Expense
20,000
20,000
Store Segment Margin
25,600
25,600
Common Fixed Expense
10,000
10,000
Net Operating Income
15,600
15,600
Net operating income of Cosmo Inc. in current situation = $ 14,000
Net operating income of Cosmo Inc. after closing of Town store = $ 15,600
Net Increase in Monthly operating income of Cosmo Inc. = $ 1,600
9) Calculation of monthly rent of machine company would be willing to pay:
Product Name
Round ($)
Square ($)
Triangle ($)
Selling Price Per Unit
24
26
20
Variable cost per unit
10
10
12
Contribution per unit (A)
14
16
8
Machine hour per unit (B)
2
4
4
Contribution per machine hour
7
4
2
(A/B)
Ranking as per contribution per machine hour
I
II
III
Demand per month (C)
2500
2500
2500
Total Hour required (B X C)
5000
10000
10000
Total Machine hour available = 14,600 hour
Total Machine hour required =25,000 hour
(5000+10000+10000)
Calculation of allocation of Machine hour
Product as per ranking
Unit (A)
Machine Hour per unit
Total Machine Hour
Contribution per unit ($) (B)
Total ($) (A X B)
Round
2500
2
5000
14
35,000
Square
2400
4
9600 (Balancing Figure)
16
38,400
Triangle
0
0
0
8
0
Total
14,600
73,400
Fixed Cost
30,000
Profit
43,400
If company rent additional Machine
Additional Machine Hour available = 1,000 Hour
Maximum monthly rent of machine company would be willing to pay:
Product
Balance Unit (A)
Machine Hour per unit
Total Machine Hour
Contribution per unit ($) (B)
Total ($) (A X B)
Square
100
4
400
16
6,400
Triangle
150
4
600
8
4,800
Total
1000
11,200
Maximum rent for machinery can be pay by company is $11,200 per month
Particular
Total ($)
Mall Store ($)
Sale
76000
76,000
Variable Expense
30,400
30,400
Contribution Margin
45,600
45,600
Traceable Fixed Expense
20,000
20,000
Store Segment Margin
25,600
25,600
Common Fixed Expense
10,000
10,000
Net Operating Income
15,600
15,600
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.