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    2. Elite Industries is a division of Nifco, a diversified manufacturer whose divisions are profit centers. Elite makes a single product, X47, in its plant, which has a capacity of 18,000 units/month. At the normal volume of 10,000 units/month, X47 has a unit cost of $750, consisting of: direct materials, $260; direct labor, $180; overhead, $310. Manufacturing overhead has both fixed and variable components. Fixed overhead is applied at a rate of 150% of direct labor cost. Fixed selling and administrative costs are $620,000/month. Several other companies also make an equivalent product. The market price is normally $900/unit.

    a. Prepare a monthly income statement for Elite Industries at a sales volume of 10,000 units, using the contribution format. Note that there is no interest or income tax expense, because Elite is simply a division of the corporation.

    b. What is the breakeven level of sales in units per month (round to the nearest whole unit)?

    c. The marketing department has proposed an ad campaign for next year that will cost $400,000. How many additional units must be sold at the regular price in order for this campaign to yield an incremental profit of $150,000 (round to the nearest whole unit)?

    d. Windsor Division of Nifco is developing a new product for which X47 would be an input. What factors would influence the managers of Elite and Windsor as they negotiate a transfer price?

    3. Boppie's is a large, locally-owned general retail business operating out of a single location. A condensed version of their most recent annual segmented income statement is given below (all amounts in thousands of dollars).

    Company Dept A Dept B Depts C-F
    Sales $3,450 $ 345 $690 $2,415
    COGS 1,538 179 345 1,014
    Gross Margin 1,912 166 345 1,401
    Sales Salaries 737 88 153 496
    Dept Manager 236 35 48 153
    Advertising 50 5 10 35
    Occupancy 120 14 16 90
    Gen'l & Admin. 290 29 58 203
    Net Income $ 479 $ (5) $ 60 $ 424

    Because Department A has been running a loss for several years, the store manager is thinking of eliminating the department. She believes that there is limited additional demand for the products carried in adjacent Department B. If A were closed, B would expand into half of its floor space, with the rest being walled off and left vacant. Sales of Department B would be expected to increase 30%, with the same sales mix. A 20% increase in sales staff in this department would be necessary; these positions could be filled by existing staff from A, with the rest being laid off. Because Department A currently attracts some customers to the store, it is expected that sales of Departments C-F would decline 3%. Occupancy costs include such costs as property taxes, insurance, and utilities, and are allocated on the basis of square footage. The proposal to leave some space vacant would save $2,000/year in utility costs. All advertising is general for the entire store, and the cost is allocated to departments based on sales. General and administrative costs include general store management and support personnel, and are also allocated based on sales.

    Advise the store manager as to her plan to close Department A. Include any necessary calculations.

    Part II.

    4. Waldorf Company has a cash balance on January 1 of $123,219. Given the following data, compute Waldorf's budgeted cash balance on March 31. Round all amounts to the nearest dollar.

    Past and budgeted future activity, in $000:
    Sales Operating expense

    November 1,625 525
    December 1,790 460
    January 1,428 448
    February 1,295 395
    March 1,306 421
    April 1,422 404

    Waldorf has a gross profit of 40%, and has a policy of maintaining an inventory of 150% of expected next-month sales. Operating expenses are paid 75% in the current month, and 25% in the following month. Purchases of merchandise are paid for 50% in the current month, and 50% in the following month. All sales are on credit. Normal pattern of collections is: 40% in month of sale, 44% in following month, 11% in next following month, 5% uncollectible.

    5. Answer both parts (5 points each).

    a. The Phoenix plant of Zipp Chemical processes alphazine into betazine and gammazine. A batch consists of 20,000 gallons of alphazine, costing $11,000. Processing costs are $52,000, and results in 14,000 gallons of betazine and 6,000 gallons of gammazine. Raw material and processing costs are allocated to the two products based on number of gallons. Betazine can be sold for $15/gallon. Gammazine can be sold for $9/gallon, or it can be processed into deltazine. Deltazine can be sold for $12/gallon. Additional processing costs for a batch of deltazine are $15,500. Should Zipp sell gammazine or deltazine? Explain.

    b. Letham Company produces two products, X and Y, with unit data as follows:
    X Y
    Selling price $140 $200
    Prime costs 60 85
    Overhead (70% fixed) 40 50

    Machine hours 2 3

    Letham currently has insufficient machine hours to meet demand for its products. Which product, X or Y, should receive priority in production, and why?

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