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Identify the letter of the choice that best completes the statement or answers the question.
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Bexley Company produces retractable pens. November budgeted production costs are given below: Pens to be produced |
100,000 |
30,000 |
$50,000 |
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$1.54 |
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$1.72 |
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$1.85 |
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$1.93
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Use the cost information in (1) above. In October, the actual direct labor costs were $46,000 and Bexley produced and sold 90,000 pens. The direct material performance variance (difference) is: |
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$5,000 unfavorable. |
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$5,000 favorable. |
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$1,000 unfavorable. |
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$1,000 favorable. |
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A typical use of managerial accounting is to: |
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Help investors and creditors to assess the financial position of the company. |
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Help management get a clean audit report. |
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Help the SEC decide whether management is in compliance with its policies. |
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Help the marketing manager decide which product promotion to implement.
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| A manufacturing company produces 80,000 units of product A at a total cost of $2.4 million. |
Total fixed costs |
| $ |
30. |
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$31.54 |
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$37.10 |
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$38.50 |
Use the following to answer questions 5-6:
RNO Company’s market for the Model 55 has changed significantly, and RNO has had to drop the price per unit from $285 to
200
. There are some units in the work in process inventory that have costs of $280 per unit associated with them. RNO could sell these units in their current state for $160 each. It will cost RNO $35 per unit to complete these units so that they can be sold for
$200
each.
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A new employee looks at the analysis and exclaims, “We’ll lose money with either of these alternatives! Let’s just throw these units in the trash!” Suppose the alternative to trashing is choosing the more profitable of the two alternatives (that the new employee looked at and did not like). What effect will the trashing option (that the new employee wants) have on net income? |
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Net income |
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Net income will decrease by $115 per unit for each unit discarded. |
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It will have no effect on net income. |
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Net income will decrease by $165 per unit for each unit discarded. |
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When the incremental revenues and expenses are analyzed, the company is better off by |
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$5 per unit if they complete the units. |
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$15 per unit if they sell the units in their current state. |
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$25 per unit if they sell the units in their current state. |
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$35 per unit if they complete the units. |
| A company using activity based pricing marks up the direct cost of goods by 39% plus charges customers for indirect costs based on the activities utilized by the customer. Indirect costs are charged as follows: $6.00 per order placed; $3.00 per separate item ordered; $ |
28. |
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$3,000 |
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$4,292 |
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$5,330 |
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$5,755 |
| Manufacturing overhead is allocated to products based on the number of machine hours required. In a year when 20,000 machine hours were anticipated, costs were budgeted at $ |
125,000 |
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$41,667 |
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$43,750 |
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$1,120 |
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Use the following information to answer questions 9-10:
The Sunrise Hotel has 200 rooms. Each room rents at $160 per night and variable costs total $35 per room per night of occupancy. Fixed costs total $80,000 per month.
| If the hotel spends an additional $10,000 in the month of |
February |
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Total fixed costs will increase by $10,500. |
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Net income will increase by $50,000. |
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| Net income will increase by $26,3 |
20. |
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Total fixed costs will remain the same. |
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10. |
If 70% of the rooms are occupied each night in the month of February (28 days) what will total costs be for the month? |
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$118,560. |
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$173,600. |
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$217,200. |
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$155,680. |
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11. |
A company believes it can sell 6,000,000 of its proposed optical mouse for $14 each. There will be $7,500,000 in fixed costs associated with the mouse. If the company desires to make a profit of $3,000,000 on the mouse, what is the target variable cost per mouse? |
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$10.60 |
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$11.00 |
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$12.25 |
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$9.00 |
12. Below is a performance report that compares budgeted and actual profit of Boyles Beer
for the month of
April
:
|
Budget |
Actual |
Difference |
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Sales |
$200,000 |
$202,000 |
$2,000 |
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Less: |
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Cost of ingredients |
$162,000 |
$166,000 |
$4,000 |
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Salaries |
$31,000 |
$31,200 |
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Controllable Profit |
$47,000 |
$44,800 |
-$2,200 |
In evaluating the department in terms of its increase in sales and expenses, what will be
most important to investigate?
A) Sales
B) Cost of ingredients
C) Salaries
D) All three components have equal importance.
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13. |
K-Henry’s Dull Diner has a contribution margin ratio of 16%. If fixed costs are $148,952, how many dollars of revenue must K-Henry’s generate in order to reach the break-even point? |
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$930,950 |
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$1,060,800 |
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$208,476 |
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$1,105,000 |
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14. |
A company has a total cost of $50.00 per unit at a volume of 100,000 units. The variable cost per unit is $20.00. What would the price be if the company expected a volume of 120,000 units and used a markup of 50%? |
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$75.00 |
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$62.50 |
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There is not enough information in the problem to answer |
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$67.50 |
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15. |
Max’s Pizza produced and sold 1,000 pizzas last month and had total variable ingredients that cost $4,575. If production and sales are expected to increase by 17% next month, which of the following statements is true? |
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Total variable materials costs are expected to be $4,779.50 |
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Variable material cost per unit is expected to be $4.99. |
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Total variable materials costs are expected to be $4,345 |
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Total variable materials costs are expected to be $5,352.75 |
16. FarnsworthCompany’s break-even point is 14,377. Each unit generates variable costs
Of $3.2, and is sold for $4.90. What are the fixed costs?
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$26,845. |
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$59,780. |
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$24,441. |
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$32,940. |
17. One Small Grill Company is a start up with the following profile:
Unit selling price = $
230
; Variable cost per unit = $130; Fixed Costs =
$36,000
;
Tax rate = 40%. How many units should Small Grill sell to achieve an after-tax target
income of $6,000?
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460 |
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300 |
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18. |
Western Apparel Company owns two stores and management is considering eliminating the East store due to declining sales. Segmented contribution income statements are as follows and common fixed costs are allocated on the basis of sales. WestEastTotalSales$500,50090,000$590,500 Variable costs262,50045,000307,500 Direct fixed costs62,50025,00087,500 Segment margin175,50020,000195,500 Allocated fixed costs137,50035,000172,500 Net Income |
$38,000 |
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decline by $90,000. |
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decline by $62,000. |
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| decline by $85,6 |
25. |
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decline by $55,700. |
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19. |
JungleGym, a best-selling toy has a selling price of $15. If the contribution margin ratio is 40% and if the fixed costs are $60,000, how many JungleGyms must the company sell to realize a profit of $450,000? |
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34,000 |
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85,000 |
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After a good year in 2012, JungleGym decides it needs to increase sales by 12% in 2013. Which of the following is most likely to stay the same in 2013? |
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Total sales revenue. |
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Total variable costs |
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Total contribution margin |
Information for Questions 21-22
Anderson Manufacturing makes a single product. Budget information regarding the current period is given below:
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Revenue (100,000 units at $8.00) |
$ |
800,000 |
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Direct materials |
150,000 |
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Direct labor |
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Variable manufacturing overhead |
235,000 |
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Fixed manufacturing overhead |
110,000 |
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$180,000 |
Dye Company approaches Anderson with a special order for 15,000 units at a price of $7.50 per unit. Variable costs will be the same as the current production and accepting the special order will not have any impact on the rest of the company’s orders. However, Anderson is operating at capacity and will incur an additional $50,000 in fixed manufacturing overhead if the order is accepted.
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21. |
What is the incremental income (loss) associated with accepting the special order? |
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($14,000) |
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($23,500) |
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$27,000 |
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22. |
What is the incremental revenue associated with accepting the special order? |
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$170,000 |
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$112,500 |
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$70,000 |
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$120,000 |
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23. |
On July 26, 2012, radio Shack announced disappointing 2nd quarter earnings that caused the stock to fall 29% to all time lows. Although sales were up 1.2% to $953.2 million gross profit fell 16.6% to $360.3 million. Assuming Radio Shack’s store count and fixed costs were the same in the 2nd quarter of 2011 and 2012, which of the following statements is the best explanation for the decrease in the firm’s profitability? |
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Opportunity costs decreased. |
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Margin of safety decreased. |
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Contribution margin decreased. |
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Selling price decreased. |
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24. |
Innovations, Inc is looking to achieve a net income of 15 percent of sales. Unit sales price is $10; variable cost per unit is $6; total fixed costs are $50,000 what is the level of sales (in units) required to achieve a net income of 15 percent of sales? |
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12,000 units. |
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21,000 units. |
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16,000 units. |
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20,000 units. |
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Anthony’s Bakery sold 2,000 muffins last month and had fixed costs of $6,000. If production and sales are expected to increase by 10% next month, which of the following statements is true? |
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Total fixed costs will decrease. |
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Fixed cost per unit will decrease. |
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Total fixed costs will increase. |
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Fixed cost per unit will increase. |
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26. |
The Dynamaco Company uses cost-plus pricing with a 50% mark-up. The company is currently selling 100,000 units at $12 per unit. Each unit has a variable cost of $6. In addition, the company incurs $200,000 in fixed costs annually. If demand falls to 80,000 units and the company wants to continue to earn a 50% return, what price should the company charge? |
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$12.75 |
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$14.55 |
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$13.50 |
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$10.95 |
27. An auto executive is considering how to price a 2014 hybrid in order to maximize profits for
the company. Manufacturing each hybrid involves $9,500 of materials, $12,500 of labor,
$3,800 of shipping and $4,000 of other supplies. The facility where the car is manufactured
has $12.5 million of fixed costs. The marketing department says that adding a Bose sound
system would boost demand, but it would add an additional $750 per car.
The quantity demanded at each unit price is as follows:
|
Price |
Quantity Demanded (No Bose) |
Quantity Demanded (with Bose) |
|
8,960 |
10,752 |
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$32,000 |
7,168 |
8,602 |
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$33,000 |
5,734 |
6,881 |
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$34,000 |
4,588 |
5,505 |
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$35,000 |
3,670 |
4,404 |
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2,936 |
3,523 |
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$37,000 |
2,349 |
2,819 |
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1,879 |
2,255 |
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$39,000 |
1,503 |
1,804 |
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What profit maximizing price should the executive choose? |
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$34,000 without Bose sound system. |
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$39,000 with Bose sound system. |
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$36,000 without Bose sound system. |
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$35,000 with Bose sound system |
Use the following to answer question 28:
The Wall Street Journal has the following monthly data for newspapers sold and total cost.
|
Month |
Issues Sold |
Total Cost |
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January |
1,000,000 |
$20,000,000 |
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950,000 |
$19,100,000 |
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March |
1,050,000 |
$2 |
1,060,000 |
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1,200,000 |
$23,000,000 |
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May |
$21,075,000 |
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June |
$18,000,000 |
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Using the high-low method, what is the total cost that the Wall Street Journal will incur if it is expecting to sell 750,000 newspapers in July? |
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$17,625,000 |
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$17,500,000 |
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$17,375,000 |
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$17,250,000 |
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29. |
During 2011, Bonzai Corporation reported revenues of $891,640 and profits of $91,486. Fixed costs were $332,043 and 44,582 units were sold. If costs and prices are expected to stay the same in 2012, and Bonzai expects to sell 45,000 units, what will be the company’s budgeted profit? |
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$95,457 |
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$142,957 |
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$525,000 |
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$667,957 |
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Visit finance.yahoo.com and determine which of the following statements is incorrect: |
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The market cap of Microsoft is more than double that of Google. |
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Revenues of Microsoft for 2011 were more than double revenues of Google. |
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The Price per share of Google is more than ten times that of Microsoft. |
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Assets of Microsoft at the end of 2011 were more than that of Google. |
