Business Analysis Multiple Choice Questions

Business Analysis Multiple Choice Questions. See attached file for full problem description.

Acorn Products sells small boats for $360. It has costs currently assigned to it of $280. A competitor is bringing a new small boat to market that will sell for #300 to compete in the market for small boats. Marketing forecasts that the new price will cause sales to increase by 10 percent, even with the new competitor in the market. Acorn's sales are currently 100,000 boats per year.

1. What is the target cost if the company wants to maintain the same income level and Marketing is correct?

2. What is the change in operating income if marketing is correct and only the sales price is changed?

3. Omark Corpporation currently manufactures a subassembly for its main product. The costs per unit are as attached.

Reliance Corp. has contacted Omark with an offer to sell them 5,000 of the subassemblies for $44 each. Omark will eliminate $50,000 of fixed overhead if it accepts the proposal.

Should Omark make or buy the subassemblies? What is the difference between the two alternatives.

4. Bush Corp. manufactures two models of pens, a standard and a deluxe model. Three activities have been identified as cost drivers, and the related overhead costs ($60,000)

What is the total amount of overhead costs assigned to the deluxe model, assuming activity-based costing is used?

5. Pershing Company budgeted the following (attached) costs for the production of its one and only product, razor blades, for the next fiscal year:

Perishing has a target profit of $150,000. The target rate of return for setting prices as a percentage of prime costs would be

6. Bernie Company used regression analysis to predict the annual cost of indirect materials. The coefficient of determination is?

7. Brandorf Company has two sources of funds - long term debt with a market book value of $9 million issued at an interest rate of 10 percent, and equity capital that has a market value of $6 million (book value of $2 million). Brandorf Company has profit centres in the following locations with the following data (attached). The cost of equity capital is 15 percent, while the tax rate is 30 percent.

What is EVA for St. johns?

8. Satellite Inc. is in the process of evaluating its new products. one new signal receiver has two production runs each year. Setup costs are $20,000 per setup. The new receiver incurred $60,000 in development costs and is expected to be produced for three years. Direct costs of producing the receivers are $80,000 per run of 5,000 receivers. Indirect manufacturing costs charged to each run are $90,000. Destination charges for each receiver average $2, and customer service expenses average $0.40. The receivers are going to sell for $50 the first year, and the prices will increase by $6 each year thereafter. Sales units equal production units each year.

What is the operating income for the first year?

(see attached for full problem description)

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