accounting

Practice Problem Set

1. You have decided to set up a popsicle stand for the summer. To rent a refrigerated stand with umbrella costs $500 per month, including electricity and water and supplies for clean-up. Your vendor's license costs $400. You purchase the frozen yummies from Eskimo Pie (a Richmond, VA company) at a cost of 25 cents per popsicle. A box of 400 napkins costs $10.00. You decide to purchase 10 boxes. If you project summer sales (3 months) of 2000 pops, determine your variable costs and fixed costs. What should your selling price be to break even? Should you have purchased all ten boxes up front?

2. For Dr. Spindle’s coffee kiosk for 5000 cups, determine fixed and variable costs and break even costs.

3. Virginia Biotechnologies has gross revenues of $2 million dollars. Their expenses include supplies and materials at $250,000, labor costs of $250,000, state and local business licenses $10,000, and 10% of gross income in overhead costs. If the federal corporate tax rate is 35%, what is the adjusted gross income for Virginia Biotechnologies and what is the after tax income?

4. Virginia Biotechnologies is considering the purchase of an auto-sampler and auto-analyzer attachment for one of its instruments for $150,000. They forecast that this can increase revenues by $30,000, $60,000, and $90,000 over the first three years. If the discount rate is 8% should they make this investment? What about if the discount rate is 10%?