Question

5.Fame Company manufactures engines. Fame produces all the parts necessary for its engines, except for one electronic component, which is purchased from two local suppliers: Hydra International and Parable Company. Both suppliers are reliable and rarely deliver late. Hydra sells the component for $12.00 per unit, while Parable sells the same component for $10.00. Fame purchases 80% of its components from Parable because of the lower price it offers. The total annual demand is 95,000 units. I. Activity Data Activity Cost Inspecting components (sampling only) $ 210,000 Reworking products (due to failed component) $2,454,000 Warranty work (due to failed component) $1,923,000 II. Supplier Data Hydra Parable International Company Unit purchase price $12.00 $10.00 Units purchased 19,000 76,000 Sampling hours 60 2,600 Rework hours 150 3,800 Warranty hours 550 7,000 Calculate the activity rate for reworking products based on rework hours. (Note: Round answer to the nearest dollar.) a. $622 per hour b. $602 per hour c. $621 per hour d. $605 per hour e. $595 per hour

6.

John Wilson, a sole proprietor, has the following projected figures for next year:

Selling price per unit	$ 200.00
Contribution margin per unit	50.00
Total fixed costs	700,000

What is the contribution margin ratio? (Note: Round answer to three decimal places.)

a.1.429

b.3.333

c.0.250

d.0.700

e.0.429

7.

Fame Company manufactures engines. Fame produces all the parts necessary for its engines, except for one electronic component, which is purchased from two local suppliers: Hydra International and Parable Company. Both suppliers are reliable and rarely deliver late. Hydra sells the component for $12.00 per unit, while Parable sells the same component for $10.00. Fame purchases 80% of its components from Parable because of the lower price it offers. The total annual demand is 95,000 units.

I. Activity Data
	Activity Cost
Inspecting components (sampling only)	$ 210,000
Reworking products (due to failed component)	$2,454,000
Warranty work (due to failed component)	$1,923,000

II. Supplier Data
	Hydra	Parable
	International	Company
Unit purchase price	$12.00	$10.00
Units purchased	19,000	76,000
Sampling hours	60	2,600
Rework hours	150	3,800
Warranty hours	550	7,000

Calculate the activity rate for inspecting components based on sampling hours. (Note: Round answer to the nearest dollar.)

a.$75 per hour

b.$72 per hour

c.$79 per hour

d.$80 per hour

e.$77 per hour

8.

Total variable cost divided by price is

a.variable cost ratio.

b.sales ratio.

c.contribution ratio.

d.revenue ratio.

e.degree of operating leverage.

Answer 1

5
Activity rate for reworking	Activity costs/Rework hours
Activity rate for reworking	2454000/(150+3800)
Activity rate for reworking	$621	per hour
6
Contribution margin ratio	Contribution margin per unit /Sales per unit
Contribution margin ratio	50/200
Contribution margin ratio	0.250
7
Activity rate for inspecting	Activity costs/Sampling hours
Activity rate for inspecting	210000/(60+2600)
Activity rate for inspecting	$79	per hour
8
Total variable cost to sales is the variable cost ratio
This is used to calculate the proporation of variable costs in relation to sales.
Therefore option (a) is correct