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# Production Cost and Supply Chain

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(TCO B)
Evergreen Corp. has provided the following data:
Sales per period 1,000 units
Selling price \$40 per unit
Variable manufacturing cost \$12 per unit
Selling expenses \$5,100 plus 5% of selling price
Administrative expenses \$3,000 plus 20% of selling price

The number of units needed to achieve a target net operating income of \$49,500 would be:
1,238 Units
2,750 Units
3,200 Units
2,057 Units

2. All other things the same, which of the following would be true of the contribution margin and variable expenses of a capital-intensive company with fixed costs and low variable costs as compared to a labor-intensive company with low fixed costs and high variable costs? (Points: 8)
Contribution Margin - Higher, Variable Costs - Higher
Contribution Margin - Lower, Variable Costs - Higher
Contribution Margin - Higher, Variable Costs - Lower
Contribution Margin - Lower, Variable Costs - Lower

3. (TCO B) Garth Company sells a single product. If the selling price per unit and the variable expense per unit both increase by 10% and fixed expenses do not change, then: (Points: 8)
Contribution Margin Per Unit - Increases, Contribution Margin Ratio - Increases, Break-Even in Units - Decreases
Contribution Margin Per Unit - No Change, Contribution Margin Ratio - No Change, Break-Even in Units - No Change
Contribution Margin Per Unit - No Change, Contribution Margin Ratio - Increases, Break-Even in Units - No Change
Contribution Margin Per Unit - Increases, Contribution Margin Ratio -No Change, Break-Even in Units - Decreases

4. (TCO B) Korn Company sells two products, as follows:
Selling price Variable expense
per unit per unit
Product Y \$120 \$ 70
Product Z 500 200
Fixed expenses total \$300,000 annually. The expected sales mix in units is 60% for product Y and 40% for product Z. How much is Korn's expected break-even sales in dollars?

\$300,000
\$420,000
\$475,000
\$544,0001. (TCO B)

#### Solution Preview

Hello!

Question 1 - Correct answer is D
Let's call X to the number of units sold. We get the following relationship:

Op. Inc. = (40 - 12)X - 5100 - 0.05*40X - 3000 - 0.20*40X
(as you can see, it's just Total Revenues minus Total Costs)

Since we want the Operating Income to be \$49,500, we simply solve the equation:

49500 = (40 - 12)X - 5100 - 0.05*40X - 3000 - 0.20*40X
49500 = 38X - 5100 - 2X - 3000 - 8X
49500 = 28X - 8100
X = 2,057.14...

Therefore, 2,057 units are needed.

Question 2 - Correct Answer is C
Clearly, variable costs are lower in a capital-intensive firm than in a labor-intensive firm, as a capital-intensive firm ...

#### Solution Summary

This solution contains step-by-step calculations to determine the variables of the production cost and supply chain scenarios using concepts of operating income, capital-intensive firm vs. labor-intensive firm, contribution margin, fixed expenses, and breakeven point.

\$2.19