ACC 406 Study Guide - Midterm Guide: Gross Margin, Contribution Margin, The Buffet
19 Nov 2012
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This test consists of 6 questions (12 pages). All questions must be answered on this paper in the spaces following the questions. Pages are not to be separated and all pages must be submitted without exception. Do not use red pen on any of these pages. Nike and reebok both plan to introduce a new sports shoe using a revolutionary new leather product. Nike plans to use a heavily automated production process to produce its shoes while reebok plans to use a labour-intensive production process. The following revenue and cost relationships are provided: $ 40 (2) net income = (unit sales x unit contribution margin) fixed costs: Net income (8,800 x ) ,000 (8,800 x ) ,000. ,000 ,000 (3) the lower the fixed costs, the more stable will be net income. Reebok has approximately half the fixed costs of nike, its earnings should be more stable. Note also that reebok"s unit contribution margin is considerably less than nike"s.
