For the current year ended March 31, Benatar Company expects fixed costs of $1,250,000, a unit variable cost of$140, and a unit selling price of $100. b. Compute the sales (units) required to realize income from operations of$150,000.

For a recent year, McDonald's company-owned restaurants had the following sales and expenses (in millions):

$$\begin{array}{lr} \text{Sales} & \$ 18,602.5 \\ \text{Food and packaging} & 6,318.2 \\ \text{Payroll} & 4,710.3 \\ \text{Occupancy (rent, depreciation, etc.)} & 4,195.2 \\ \text{General, selling, and administrative expenses} & 2,445.2 \\ & 17,668.9 \\ \text{Income from operations} & \$ 933.6 \\ \hline \end{array}$$

Assume that the variable costs consist of food and packaging, payroll, and 40% of the general, selling, and administrative expenses.

b. What is McDonald's contribution margin ratio? Round to one decimal place.

For a recent year, McDonald's company-owned restaurants had the following sales and expenses (in millions):

$$\begin{array}{lr} \text{Sales} & \$ 18,602.5 \\ \text{Food and packaging} & 6,318.2 \\ \text{Payroll} & 4,710.3 \\ \text{Occupancy (rent, depreciation, etc.)} & 4,195.2 \\ \text{General, selling, and administrative expenses} & 2,445.2 \\ & 17,668.9 \\ \text{Income from operations} & \$ 933.6 \\ \hline \end{array}$$

Assume that the variable costs consist of food and packaging, payroll, and 40% of the general, selling, and administrative expenses.

a. What is McDonald's contribution margin? Round to the nearest tenth of a million (one decimal place).

What does operating leverage measure, and how is it calculated?

Following is a list of various costs incurred in producing replacement automobile parts. With respect to the production and sale of these auto parts, classify each cost as either variable, fixed, or mixed.

1. Oil is used in manufacturing equipment
2. Plastic
3. Property taxes, $165,000 per year on factory building and equipment.
4. Salary of plant manager.
5. Cost of labor for hourly workers
6. Packaging
7. Factory cleaning costs,$6,000 per month
8. Metal
9. Rent on warehouse, $10,000 per month plus$25 per square foot of storage used
10. Property insurance premiums, $3,600 per month plus$0.01 for each dollar of property over $1,200,000
11. Straight-line depreciation on the production equipment
12. Hourly wages of machine operators.
13. Electricity cost,$0.20 per kilowatt-hour
14. Computer chip (purchases from a vendor)
15. Pension cost, $1.00 per employee hour on the job

The chief cost accountant for Fizzy Fruit Beverage Co. estimated that total factory overhead cost for the Blending Department for the coming fiscal year beginning April 1 would be $147,000, and total direct labor costs would be$105,000. During April, the actual direct labor cost totaled $12,000, and factory overhead cost incurred totaled$17,050. d. Does the balance in part (c) represent over- or underapplied factory overhead?

The chief cost accountant for Fizzy Fruit Beverage Co. estimated that total factory overhead cost for the Blending Department for the coming fiscal year beginning April 1 would be $147,000, and total direct labor costs would be$105,000. During April, the actual direct labor cost totaled $12,000, and factory overhead cost incurred totaled$17,050. a. What is the predetermined factory overhead rate based on direct labor cost?

The chief cost accountant for Fizzy Fruit Beverage Co. estimated that total factory overhead cost for the Blending Department for the coming fiscal year beginning April 1 would be $147,000, and total direct labor costs would be$105,000. During April, the actual direct labor cost totaled $12,000, and factory overhead cost incurred totaled$17,050. c. What is the April 30 balance of the account Factory Overhead – Blending Department?

The chief cost accountant for Fizzy Fruit Beverage Co. estimated that total factory overhead cost for the Blending Department for the coming fiscal year beginning April 1 would be $147,000, and total direct labor costs would be$105,000. During April, the actual direct labor cost totaled $12,000, and factory overhead cost incurred totaled$17,050. b. Journalize the entry to apply factory overhead to production for April.

Edward Seymour is a financial consultant to Cornish Inc., a real estate syndicate. Cornish Inc. finances and develops commercial real estate (office buildings). The completed projects are then sold as limited partnership interests to individual investors. The syndicate makes a profit on the sale of these partnership interests. Edward provides financial information for the offering prospectus, which is a document that provides the financial and legal details of the limited partnership offerings. In one of the projects, the bank has financed the construction of a commercial office building at a rate of 10% for the first four years, after which time the rate jumps to 15% for the remaining 20 years of the mortgage. The interest costs are one of the major ongoing costs of a real estate project. Edward has reported prominently in the prospectus that the break-even occupancy for the first four years is 65%. This is the amount of office space that must be leased to cover the interest and general upkeep costs over the first four years. The 65% break-even is very low and thus communicates a low risk to potential investors. Edward uses the 65% break-even rate as a major marketing tool in selling the limited partnership interests. Buried in the fine print of the prospectus is additional information that would allow an astute investor to determine that the break-even occupancy will jump to 95% after the fourth year because of the contracted increase in the mortgage interest rate. Edward believes prospective investors are adequately informed as to the risk of the investment.

Comment on the ethical considerations of this situation.

Domino Foods, Inc., manufactures a sugar product by a continuous process, involving three production departments—Refining, Sifting, and Packing. Assume that records indicate that direct materials, direct labor, and applied factory overhead for the first department, Refining, were $335,000,$127,000, and $91,200, respectively. Also, work in process in the Refining Department at the beginning of the period totaled$26,800, and work in process at the end of the period totaled $24,400.

Prepare the journal entries to record (b) the transfer of production costs to the second department, Sifting.

Seymour Clothing Co. manufactures a variety of clothing types for distribution to several major retail chains. The following costs are incurred in the production and sale of blue jeans:

• a. Shipping boxes used to ship orders
• b. Consulting fee of $200,000 paid to industry specialist for marketing advice
• c. Straight-line depreciation on sewing machines
• d. Salesperson’s salary,$10,000 plus 2% of the total sales
• e. Fabric
• f. Dye
• g. Thread
• h. Salary of designers
• i. Brass buttons
• j. Legal fees paid to attorneys in defense of the company in a patent infringement suit, $50,000 plus$87 per hour
• k. Insurance premiums on property, plant, and equipment, $70,000 per year plus$5 per $30,000 of insured value over$8,000,000
• l. Rental costs of warehouse, $5,000 per month plus$4 per square foot of storage used
• m. Supplies
• n. Leather for patches identifying the brand on individual pieces of apparel
• o. Rent on plant equipment, $50,000 per year
• p. Salary of production vice president
• q. Janitorial services,$2,200 per month
• r. Wages of machine operators
• s. Electricity costs of $0.10 per kilowatt-hour
• t. Property taxes on property, plant, and equipment

Classify the preceding costs as either fixed, variable, or mixed. Use the following tabular headings and place an X in the appropriate column. Identify each cost by letter in the cost column.

$$\begin{array}{ccc} \textbf{Cost}\hspace{20pt}&\textbf{Fixed Cost}\hspace{20pt}&\textbf{Variable Cost}\hspace{20pt}&\textbf{Mixed Cost}\\\hline \end{array}$$

Describe how total variable costs and unit variable costs behave with changes in the level of activity.

Cromwell Furniture Company manufactures sofas for distribution to several major retail chains. The following costs are incurred in the production and sale of sofas:

• a. Fabric for sofa coverings
• b. Wood for framing the sofas
• c. Legal fees paid to attorneys in defense of the company in a patent infringement suit, $25,000 plus$160 per hour
• d. Salary of production supervisor
• e. Cartons used to ship sofas
• f. Rent on experimental equipment, $50 for every sofa produced
• g. Straight-line depreciation on factory equipment
• h. Rental costs of warehouse,$30,000 per month
• i. Property taxes on property, plant, and equipment
• j. Insurance premiums on property, plant, and equipment, $25,000 per year plus$25 per $25,000 of insured value over$16,000,000
• k. Springs
• l. Consulting fee of $120,000 paid to efficiency specialists
• m. Electricity costs of$0.13 per kilowatt-hour
• n. Salesperson’s salary, $80,000 plus 4% of the selling price of each sofa sold
• o. Foam rubber for cushion fillings
• p. Janitorial supplies,$2,500 per month
• q. Employer’s FICA taxes on controller’s salary of $180,000
• r. Salary of designers
• s. Wages of sewing machine operators
• t. Sewing supplies

Classify the preceding costs as either fixed, variable, or mixed. Use the following tabular headings and place an X in the appropriate column. Identify each cost by letter in the cost column.

$$\begin{array}{ccc} \textbf{Cost}\hspace{20pt}&\textbf{Fixed Cost}\hspace{20pt}&\textbf{Variable Cost}\hspace{20pt}&\textbf{Mixed Cost}\\\hline \end{array}$$