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Question: Magic Realm, Inc., has developed a new


Magic Realm, Inc., has developed a new fantasy board game. The company sold 15,000 games last year at a selling price of $20 per game. Fixed costs associated with the game total $182,000 per year, and variable costs are $6 per game. Production of the game is entrusted to a printing contractor.
Variable costs consist mostly of payments to this contractor.
Required:
1. Prepare a contribution format income statement for the game last year and compute the degree of operating leverage.
2. Management is confident that the company can sell 18,000 games next year (an increase of 3,000 games, or 20%, over last year). Compute:
a. The expected percentage increase in net operating income for next year.
b. The expected total dollar net operating income for next year. (Do not prepare an income statement; use the degree of operating leverage to compute your answer.)



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> MediSecure, Inc., produces clear plastic containers for pharmacies in a process that starts in the Molding Department. Data concerning that department’s operations in the most recent period appear below: Required: MediSecure uses the F

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> Refer to the data for Provost Industries in Case 4–19. Assume that the company uses the FIFO method in its process costing system. Required: 1. Prepare a report for the Finishing Department for April showing how much cost should have been assigned to the

> The questions in this exercise are based on Dell, Inc. To answer the questions, you will need to download Dell’s 2005 Form 10-K by going to www.sec.gov/edgar/searchedgar/companysearch.html. Input CIK code 826083 and hit enter. In the gray box on the righ

> The Hartford Symphony Guild is planning its annual dinner-dance. The dinner-dance committee has assembled the following expected costs for the event: The committee members would like to charge $35 per person for the evening’s activities

> Define the following: (a) Direct materials, (b) Indirect materials, (c) Direct labour, (d) Indirect labour, and (e) Manufacturing overhead.

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> Describe the three major activities of a manager.

> Define the following terms: differential cost, opportunity cost, and sunk cost.

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> Why are product costs sometimes called inventoriable costs? Describe the flow of such costs in a manufacturing company from the point of incurrence until they finally become expenses on the income statement.

> Describe the schedule of cost of goods manufactured. How does it tie into the income statement?

> Describe how the income statement of a manufacturing company differs from the income statement of a merchandising company.

> Explain the difference between a product cost and a period cost.

> Outback Outfitters sells recreational equipment. One of the company’s products, a small camp stove, sells for $50 per unit. Variable expenses are $32 per stove, and fixed expenses associated with the stove total $108,000 per month. Required: 1. Compute t

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> Wollogong Group Ltd. of New South Wales, Australia, acquired its factory building about 10 years ago. For several years, the company has rented out a small annex attached to the rear of the building. The company has received a rental income of $30,000 pe

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> Lin Corporation has a single product whose selling price is $120 and whose variable expense is $80 per unit. The company’s monthly fixed expense is $50,000. Required: 1. Using the equation method, solve for the unit sales that are required to earn a targ

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> Selected account balances for the year ended December 31 are provided below for Superior Company: Inventory balances at the beginning and end of the year were as follows: The total manufacturing costs for the year were $683,000; the goods available for

> Staci Valek began dabbling in pottery several years ago as a hobby. Her work is quite creative, and it has been so popular with friends and others that she has decided to quit her job with an aerospace company and manufacture pottery full time. The salar

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> “I was sure that when our battery hit the market it would be an instant success,” said Roger Strong, founder and president of Solar Technology, Inc. “But just look at the gusher of red ink for the fir

> Fill in the missing amounts in each of the eight case situations below. Each case is independent of the others. ( Hint: One way to find the missing amounts would be to prepare a contribution format income statement for each case, enter the known data, an

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> Hector P. Wastrel, a careless employee, left some combustible materials near an open flame in Salter Company’s plant. The resulting explosion and fi re destroyed the entire plant and administrative offices. Justin Quick, the company’s controller, and Con

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> Hoi Chong Transport, Ltd., operates a fleet of delivery trucks in Singapore. The company has determined that if a truck is driven 105,000 kilometers during a year, the average operating cost is 11.4 cents per kilometer. If a truck is driven only 70,000 k

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> Last month when Holiday Creations, Inc., sold 50,000 units, total sales were $200,000, total variable expenses were $120,000, and fixed expenses were $65,000. Required: 1. What is the company’s contribution margin (CM) ratio? 2. Estimate the change in th

> Several days ago you took your TV set into a shop to have some repair work done. When you later picked up the set, the bill showed a $75 charge for labour. This charge represented two hours of service time—$30 for the first hour and $45 for the second. W

> A number of activities that are a part of a company’s quality control system are listed below: Required: 1. Classify the costs associated with each of these activities into one of the following categories: prevention cost, appraisal co

> Lindon Company is the exclusive distributor for an automotive product that sells for $40 per unit and has a CM ratio of 30%. The company’s fixed expenses are $180,000 per year. The company plans to sell 16,000 units this year. Required: 1. What are the v

> Mark Hansen is employed by Eastern Products and works on the company’s assembly line. Mark’s basic wage rate is $20 per hour. The company’s union contract states that employees are to be paid time and a half (i.e., $30 per hour) for any work in excess of

> The questions in this problem are based on Blue Nile, Inc. To answer the questions, you will need to download Blue Nile’s 2004 Form 10-K at www.sec.gov/edgar/searchedgar/company search.html. Once at this website, input CIK code 1091171

> Define the following terms: ( a ) Cost behaviour and ( b ) Relevant range.

> Distinguish between ( a ) A variable cost, ( b ) A fixed cost, and ( c ) A mixed cost.

> What is the difference between a contribution approach income statement and a traditional approach income statement?

> Distinguish between discretionary fixed costs and committed fixed costs.

> Distinguish between ( a ) A variable cost, ( b ) A mixed cost, and ( c ) A step-variable cost. Plot the three costs on a graph, with activity plotted horizontally and cost plotted vertically.

> Morrisey & Brown, Ltd., of Sydney is a merchandising company that is the sole distributor of a product that is increasing in popularity among Australian consumers. The company’s income statements for the three most recent months fol

> Jaffre Enterprises distributes a single product whose selling price is $16 and whose variable expense is $11 per unit. The company’s fixed expense is $16,000 per month. Required: 1. Prepare a profit graph for the company up to a sales level of 4,000 unit

> Marwick’s Pianos, Inc., purchases pianos from a large manufacturer and sells them at the retail level. The pianos cost, on the average, $2,450 each from the manufacturer. Marwick’s Pianos, Inc., sells the pianos to its

> The following data relating to units shipped and total shipping expense have been assembled by Archer Company, a wholesaler of large, custom-built air-conditioning units for commercial buildings: Required: 1. Using the high-low method, estimate a cost f

> Nova Company’s total overhead cost at various levels of activity are presented below: Assume that the total overhead cost above consists of utilities, supervisory salaries, and maintenance. The breakdown of these costs at the 60,000 ma

> Amfac Company manufactures a single product. The company keeps careful records of manufacturing activities from which the following information has been extracted: The company’s manufacturing overhead cost consists of both variable and

> Sawaya Co., Ltd., of Japan is a manufacturing company whose total factory overhead costs fluctuate considerably from year to year according to increases and decreases in the number of direct labour-hours worked in the factory. Total factory overhead cost

> Pleasant View Hospital of British Columbia has just hired a new chief administrator who is anxious to employ sound management and planning techniques in the business affairs of the hospital. Accordingly, she has directed her assistant to summarize the co

> The Cheyenne Hotel in Big Sky, Montana, has accumulated records of the total electrical costs of the hotel and the number of occupancy-days over the last year. An occupancy-day represents a room rented out for one day. The hotel’s busin

> Oki Products, Ltd., has observed the following processing costs at various levels of activity over the last 15 months: Required: 1. Prepare a scatter graph using the above data. Plot cost on the vertical axis and activity on the horizontal axis. Fit a l

> Espresso Express operates a number of espresso coffee stands in busy suburban malls. The fixed weekly expense of a coffee stand is $1,200 and the variable cost per cup of coffee served is $0.22. Required: 1. Fill in the following table with your estimate

> The Alpine House, Inc., is a large retailer of winter sports equipment. An income statement for the company’s Ski Department for a recent quarter is presented below: Skis sell, on the average, for $750 per pair. Variable selling expens

> Angora Wraps of Pendleton, Oregon, makes fi ne sweaters out of pure angora wool. The business is seasonal, with the largest demand during the fall, the winter, and Christmas holidays. The company must increase production each summer to meet estimated dem

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> St. Mark’s Hospital contains 450 beds. The average occupancy rate is 80% per month. In other words, on average, 80% of the hospital’s beds are occupied by patients. At this level of occupancy, the hospital’s operating costs are $32 per occupied bed per d

> 1. Referring to the data for Blue Nile in Research and Application 5–20 and the data on net sales available on the company’s website, estimate the variable and fixed components of the company’s quarterly selling, general, and administrative expense. Expr

> Professor John Morton has just been appointed chairperson of the Finance Department at Westland University. In reviewing the department’s cost records, Professor Morton has found the following total cost associated with Finance 101 over

> Refer to the data for Pleasant View Hospital in Problem 5–14. Data from Problem 5–14. Required: 1. Using the least-squares regression method, estimate a cost formula for utilities. (Round the variable cost to the neare

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> George Caloz & Frères, located in Grenchen, Switzerland, makes prestige high-end custom watches in small lots. One of the company’s products, a platinum diving watch, goes through an etching process. The company has obse

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