Author:
Joyce Buda

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

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

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?

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