# Production Cost and Supply Chain

(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)

https://brainmass.com/business/accounting/production-cost-and-supply-chain-93628

#### Solution Preview

Hello!

Here are your answers.

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.