CONSIDERING ALL THE RELEVANT FACTORS, WHICH DEPARTMENT SHOULD BE LEASED AND WHY?

17 Jun CONSIDERING ALL THE RELEVANT FACTORS, WHICH DEPARTMENT SHOULD BE LEASED AND WHY?

Posted at 16:57h in 1Academic Level by Exams

For this week’s Application Assignment, you will analyze cost behaviors and decision-making scenarios using the linear profit model. In a Word document, complete the exercises below and submit your responses per the instructions that follow.

Darien Industries

Darien Industries operates a cafeteria for its employees. The operation of the cafeteria requires fixed costs of $4,700 per month and variable costs of 40 percent of sales. Cafeteria sales are currently averaging $12,000 per month.

Darien has an opportunity to replace the cafeteria with vending machines. Gross customer spending at the vending machines is estimated to be 40 percent greater than current sales because the machines are available at all hours. By replacing the cafeteria with vending machines, Darien would receive 16 percent of the gross customer spending and avoid all cafeteria costs. How much does monthly operating income change if Darien Industries replaces the cafeteria with vending machines?

Used by permission of McGraw-Hill.

Silky Smooth Lotions

Silky Smooth lotions come in three sizes: 4, 8, and 12 ounces. The following table summarizes the selling prices and variable costs per case of each lotion size.

Silky Smooth table

Fixed costs are $771,000. Current production and sales are 2,000 cases of 4-ounce bottles; 4,000 cases of 8-ounce bottles; and 1,000 cases of 12-ounce bottles, Silky Smooth typically sells the three lotion sizes in fixed proportions as represented by the preceding sales amounts.

Required:

How many cases of 4-, 8-, and 12-ounce lotion bottles must be produced and sold for Silky Smooth to break even, assuming that the three sizes are sold in fixed proportions?

Used by permission of McGraw-Hill.

J. P. Max Department Stores

J. P. Max is a department store carrying a large and varied stock of merchandise. Management is considering leasing part of its floor space for $72 per square foot per year to an outside jewelry company that would sell merchandise. Two areas currently in use are being considered: home appliances (1,000 square feet) and televisions (1,200 square feet). These departments had annual profits of $64,000 for appliances and $82,000 for televisions after allocated fixed occupancy costs of $7 per square foot were deducted. Allocated fixed occupancy costs include property taxes, mortgage interest, insurance, and exterior maintenance for the department store.