UGC 111 Study Guide - Midterm Guide: Nok Culture
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Rent and insurance payments are examples of
A. | variable expenses. | |
B. | fixed expenses. | |
C. | long-term liabilities. | |
D. | short-term liabilities. |
Matthew is concerned about his ability to save money regularlyand has prepared a budget. Which of the following budgetclassifications would be most appropriate for Matthew'sbudget?
A. | Savings as a fixed expenditure | |
B. | Saving whatever may be left over | |
C. | Savings as a variable expenditure | |
Question 3
A successful financial plan includes
A. | explicitly stated financial goals. | |
B. | specified values that underlie the plan. | |
C. | all of these. | |
D. | logical and consistent financial strategies. |
Question 4
A cash-flow statement is also known as a(n) ____ statement.
A. | taxable income | |
B. | net worth | |
C. | income and expense | |
D. | asset-and-liability |
Question 5
A long-term goal is one that is projected to be acheived beyondhow much time?
A. | five year | |
B. | ten years | |
C. | six months | |
D. | one year |
Question 6
A balance sheet includes ____, ____, and ____.
A. | income; expenses; net worth | |
B. | assets; expenses; liabilities | |
C. | income; liabilities; net worth | |
D. | assets; liabilities; net worth |
Question 7
Disposable income is income
A. | after all employer withholding including taxes. | |
B. | minus fixed expenditures. | |
C. | before taxes. | |
D. | after all employer withholding except taxes. |
Question 8
Which of the following would be classified as a long-termliability?
A. | Education loan balance | |
B. | Credit card debt | |
C. | Bank card debt | |
D. | All of these |
Question 9
Stephen Scott's monthly pay stub indicates that his monthlygross income is $3,800. However, $800 is withheld for income andSocial Security taxes, $200 is withheld for his health anddisability insurance, and another $200 is contributed to hispension plan. How much is Stephen's disposable income?
A. | $2,800 | |
B. | $3,000 | |
C. | $2,600 | |
D. | $3,800 |
Question 10
Which of the following provides information about a person'sfinancial condition at a specific point in time?
A. | Federal tax return | |
B. | Balance sheet | |
C. | All of these | |
D. | Income and expense statement |
Question 11
The two most useful financial statements are ____ and____.
A. | federal tax returns; income and expense statements | |
B. | balance sheets; wills | |
C. | cash-flow statements; balance sheets | |
D. | wills; federal tax returns |
Question 12
Which of the following is the best example of awell-stated financial goal?
A. | Pay off your credit cards as soon as possible | |
B. | Purchase a three-bedroom home in five years | |
C. | Buy a $3,000 computer in 18 months | |
D. | Buy a $2,000 stereo |
Question 13
The first step in the budgeting process is
A. | setting financial goals. | |
B. | evaluating. | |
C. | organizing. | |
D. | decision making. |
Question 13
The first step in the budgeting process is
A. | setting financial goals. | |
B. | evaluating. | |
C. | organizing. | |
D. | decision making. |
Which of the following is a characteristic of a cash-flowstatement?
A. | It shows if you were able to live within your income for theperiod covered. | |
B. | All of these. | |
C. | It covers a period of time, usually one month or one year. | |
D. | The statement includes three sections: income, expenses, andsurplus (or deficit). |
Question 15
The formula for calculating net worth is
A. | income minus liabilities. | |
B. | assets minus expenses. | |
C. | income minus expenses. | |
D. | assets minus liabilities. |
Question 16
Food, clothing, and entertainment are examples of
A. | long-term liabilities. | |
B. | short-term liabilities. | |
C. | fixed expenses. | |
D. | variable expenses. |
Question 17
To construct a balance sheet, you need to compile dollar valuesfor your assets and liabilities. Good sources from which to beginare
A. | checkbook or savings account records. | |
B. | all of these. | |
C. | investments. | |
D. | receipts of various payments. |
Question 18
Discretionary income is used to pay for things like
A. | housing. | |
B. | vacations. | |
C. | utilities. | |
D. | food. |
Question 19
A short-term goal is one that is projected to be acheived withinhow much time?
A. | one month | |
B. | three months | |
C. | one year | |
D. | five years |
Question 20
The advantages of having organized financial records include
A. | helping you take advantage of all available tax deductions. | |
B. | all of these. | |
C. | enabling you to review the results of financialtransactions. | |
D. | helping you save money as well as make money. |
Peter Schultz IV, president of Schultz Quality Furniture, takespride in carrying on a tradition of manufacturing custom qualityfurniture, a skill that was started by his great-grandfather insouthern Germany almost 100 years ago. In the 1930, Peter'sgrandfather immigrated to the Unites States and settled inPennsylvania where he incorporated the furniture business.
Throughout its existence, the company has focused on the highend of the furniture line and remained relatively small. They werenot interested in getting into the mass production of lesserquality items. Their workmanship and quality of product haveattracted a loyal following of customers and clients who arewilling to pay a premium for Schultz furnishings.
Over the years, Schultz has changed their focus and emphasis tomeet changing consumer preferences and desires, however, some ofthe original designs are still being manufactured in certainpieces. While the core business has remained strong and fairlyconsistent, the company will sometimes venture off into some othermarkets and specialties.
Just two years ago, Peter Schultz IV purchased the controllinginterest in Garden Patios Deluxe. This is a small company whichspecialized in making high-end patio and outdoor garden typefurniture. The furniture is sturdy, rust resistant and uses qualitymaterials which resist weathering and fading for a number of years.Peter thought this line of furniture would be a good compliment tohis company since Garden Patios Deluxe concentrate on the superiorquality furniture, have a relatively small operation, and support aloyal customer base. Also, with the general trend of the populationnow entertaining more and enjoying the outdoors, there seemed to bea sustainable market for patio furniture of this type.
So far, the operation of Garden Patios Deluxe has been asuccess. The company is bringing in a profit, but it has been alittle harder to attract a market than Peter first imagined. Thenorthern climate can tend to limit the outdoor season, and itseemed that people did not want to pay a lot of money for patiofurniture that would have to be in storage for half the year.
As a matter of course, Peter likes to review the manufacturingprocess for the different furniture lines about every eighteenmonths. He was interested in getting a detailed breakdown on theproduction cost and methods used to make the patio tables andchairs.
The material is a specially developed compound of structurallysound polymers, which is molded and heat treated by a supplier. Thecompound comes in four basic colors of beige, forest green, grayand white. The furniture pieces are constructed at the GardenPatios plant and parts like the fabric seats, glass inlays, andother decorative features are assembled.
The plant used in this manufacturing capacity is operating atabout 90% of capacity, although there are some seasonalfluctuations. The busy season is from November through May prior tothe outdoor entertainment season. In the summer, much time is spentin redesign and testing of new models or experimenting onvariations in existing product lines.
One of the most popular pieces made by Garden Patios Deluxe is asimple armchair. The chair has a molded frame that comes in about 4pieces along with a contoured fabric seat. The chairs can beretailed in a set with a table or sold separately. They areextremely comfortable and lightweight.
Peter wanted to know the actual cost of manufacturing a singlechair. The following unit cost are identified. The total costs arebased on a normal annual volume of 40,000 chairs. The currentselling price of the chairs is $75 each.
Item | Costs/Unit | Costs/Unit | Total Costs |
Materials | |||
Main Frame | 9.00 | $360,000 | |
Chair Arm | 2 @ $1.75 = 3.50 | 140,000 | |
Stand | 4.50 | 180,000 | |
Fabric Seat and Back | 5.00 | 200,000 | |
Related Supplies | 2.00 | 80,000 | |
Total Materials | $24.00 | 960,000 | |
Labor | |||
Fabric Labor | 30 min @ $10 = 5.00 | 200,000 | |
Assembly Labor | 20 min @ $12 = 4.00 | 160,000 | |
Total Labor | 9.00 | 360,000 | |
Fixed Overhead | |||
Manufacturing | 150% of Labor = 13.50 | 540,000 | |
Administrative | 25% of Material = 6.00 | 240,000 | |
Total Fixed Overhead | 19.50 | 780,000 | |
Total Manufacturing Cost | $52.50 | $2,100,000 |
Required: (please show your work)
1. If Schultz QualityFurniture sells all 40,000 chairs, how much will the company makeon the chairs?
2. If the company is ableto produce and sell 44,000 chairs, how much will the company makeon the chairs?
3. What is the marginalcost of making one additional chair?
4. During the off season,a special order for 3,000 chairs has come in from an overseesgovernment agency. However, because of the currency exchange rate,this company is only willing to pay $50.00 per chair, but Schultzwill have to pay a shipping and tariff cost of $5 per chair. ShouldSchultz Quality Furniture accept this order? How much money willthe company make or lose on this order?
5. The supplier whoprovides the special polymer material for the chairs has introduceda proposal to ship the chairs to Schultz fully assembled for $50.00per chair, which is less than the current manufacturing cost toSchultz of $52.50. All Schultz would have to do is send the chairsout to their customers. Should Schultz accept the offer? How muchmoney will the company make or lose on this offer?
6. The marketing managerbelieves that the customer base for chairs is pretty strong andthat a price increase to $80 per chair would only reduce demand by2,000 chairs. Should Schultz implement a price increase? If theactual price per chair were increased to $80, how far could theannual demand for chairs decline before Schultz would beindifferent between the $75 price and the $80 price?
7. What nonfinancialissues should be considered before decisions are made regarding theproduction and sale of these chairs?