1. (TCO 7) Elliot’s Escargots sells commercial and home snail
extraction tools and serving pieces. Currently, the snail
extraction line of products takes up approximately 50 percent of
the company’s retail floor space. The CEO of Elliot’s wants to
decide if the company should continue offering snail extraction
tools or focus only on serving pieces. If the snail extraction
tools are dropped, salaries and other direct fixed costs can be
avoided and serving piece sales would increase by 13 percent.
Allocated fixed costs are assigned based on relative sales.
Snail Extraction Serving
Less cost of goods
Less direct fixed costs:
Less allocated fixed costs:
2. (TCO 4) Paschal’s Parasailing Enterprises has estimated that
fixed costs per month are $115,600 and variable cost per dollar of
sales is $0.38.
(a) What is the break-even point per month in sales?
(b) What level of sales is needed for a monthly profit of
(c) For the month of August, Paschal’s anticipates sales of
$585,000. What is the expected level of profit?
3. (TCO 6) Princess Cruise Lines has the following service
departments; concierge, valet, and maintenance. Expense for
these departments are allocated toMediterraneanand Trans-Atlantic
cruises. Expenses for the departments are totaled (both
variable and fixed components are combined) and as follows:
The sea miles logged are 6,000,000 for theMediterraneanand
18,000,000 for the Trans-
Based upon the sea miles logged, allocate the service department
4. (TCO 9) ThurmanMunster, the owner of Adams Family RVs, is
considering the addition of a service center his lot. The
building and equipment are estimated to cost $1,100,000 and both
the building and equipment will be depreciated over 10 years using
the straight-line method. The building and equipment have zero
estimated residual value at the end of 10 years.Munster’s required
rate of return for this project is 12 percent. Net income related
to each year of the investment is as follows:
(a) Determine the net present value of the investment in the
service center. ShouldMunsterinvest in the service center?
(b) Calculate the internal rate of return of the investment to
the nearest ½ percent.
(c) Calculate the payback period of the investment.
(d) Calculate the accounting rate of return.
5. (TCO 5) The following information relates to Vice Versa
Ventures for calendar year 20XX, the company’s first year of
Selling price per
Direct material per
Direct labor per
Variable manufacturing overhead per
Variable selling cost per
Annual fixed manufacturing
Annual fixed selling and administrative
(a) Prepare an income statement using full costing.
(b) Prepare an income statement using variable costing.
6. (TCO 8) Leekee Shipyards has a new barnacle removing
product for ocean going vessels. The company invests $1,200,000 in
operating assets and plans to produce and sell 400,000 units per
year. Leekee wants to make a return on investment of 20% each
year. Leekee needs to know what price to charge for
Use the absorption costing approach to determine the markup
necessary to make the desired return on investment based on the
Variable Selling and Administrative Expense $
Fixed Selling and Administrative