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A Base Company produced and sold 60,000 backbacks during the year just ended at an average price of $20 per unit. Variable manufacturing costs were $8 per unit, and variable marketing costs were $4 per unit sold. Fixed costs amounted to $180,000 for manufacturing and $72,000 for marketing. There was no year end WIP inventory. No income taxes.

1. Compute Base company s break even point in sales dollars for the year.

2. Compute the number of sales units required to earn a net income of $180,000 during the year.

3. Base Company s variable manufacturing costs are expected to increase by 10% in the coming year. Compute the firm s break even point in sales dollars for the coming year.

4. If Base Company s variable manufacturing costs do increase by 10%, compute the selling price that would yield the same contribution margin ratio in the coming year.

Pryor Corporation issued a 100% stock dividend of its common stock which had a par value of $10 before and after the dividend.

1.Pryor Corporation issued a 100% stock dividend of its common stock which had a par value of $10 before and after the dividend. At what amount should retained earnings be capitalized for the additional shares issued? There should be no capitalization of retained earnings. Par value Market value on the declaration date Market value on the payment date

2. Noncumulative preferred dividends in arrears (Points: 4) are not paid or disclosed. must be paid before any other cash dividends can be distributed. are disclosed as a liability until paid. are paid to preferred stockholders if sufficient funds remain after payment of the current preferred dividend.

The stockholders equity section of Milroy Corporation as of December 31, 2003, was as follows:

Common stock, par value $2; authorized 20,000 shares; issued and outstanding 10,000 shares $20,000

Paid in capital in excess of par 30,000 Retained earnings $90,000 Total $140,000

On March 1, 2004, the board of directors declared a 10% stock dividend, and accordingly 1,000 additional shares were issued. On March 1, 2004, the fair market value of the stock was $6 per share. For the two months ended February 28, 2004, Milroy sustained a net loss of $10,000.

What amount should Milroy report as retained earnings as of March 1, 2004?

Gonzalez Company has 350,000 shares of $10 par value common stock outstanding. During the year, Gonzalez declared a 10% stock dividend when the market price of the stock was $30 per share. Four months later Gonzalez declared a $.50 per share cash dividend. As a result of the dividends declared during the year, retained earnings decreased by how much?

Ignore income taxes. Europa Publications Inc., specializes in reference books that keep abreast of the rapidly changing political and economical issues in Europe. The results of the company s operations during the prior year are given in the following table. All units produced during the year were sold.

Sales Revenue $2,000,000 Manufacturer Costs Fixed $500,000 Variable $1,000,000 Selling Costs Fixed $50,000 Variable $100,000 Administrative Costs Fixed $120,000 Variable $30,000

1. Show a traditional income statement and a contribution income statement for the company.

2. What is the firms operating leverage for the sales volume generated during the prior year?

3. Suppose sales revenues increase by 10%. What will be the percentage increase in net income?

4. Which income statement would an operating manager use to answer question 3? Why?