Rerun Manufacturing Company Is in the Process of Preparing Its

question 13

Multiple Choice

Rerun Manufacturing Company is in the process of preparing its 2020 budget and is anticipating the following changes:
30% increase in the number of units sold.
20% increase in the direct material unit cost.
15% increase in the direct labor cost per unit.
10% increase in the manufacturing overhead cost per unit.
14% increase in the sales price.
7% increase in the administrative expenses.
Rerun does not keep any units in inventory.
The composition of the cost of finished products during 2019 for materials, direct labor, and factory overhead, respectively, was in the ratio of 3:2:1. The condensed income statement for 2019 is as follows:
$\begin{array}{l}\text { Sales (30,000 units) } & \$ 450,000 \\\text { Less sales returns } & \underline{13,500} \\\text { Net sales } & 436,500 \\\text { Cost of goods sold } & \underline{ 306,000 }\\\text { Gross profit } &&\$130,500 \\\text { Selling expenses } & \$ 60,000 \\\text { Admin expenses } & \underline{ 30,000 }& \underline{90,000}\\\text { Net income }&& \underline{\$40,500}\end{array}$

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What is the estimated cost of goods sold for 2020 assuming the number of units sold does not change?

• A) $464,100
• B) $402,900
• C) $397,800
• D) $357,000

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Definitions:

Equally-Weighted Portfolio

An investment portfolio where each asset is allocated the same proportion of the total investment.

Securities

Assets indicating ownership in a company available on the stock market, indebtedness to either a corporate or government issuer, or entitlements to ownership through an option.

Two-Factor Economy

An economic model that considers two distinct factors or variables influencing outcomes, often used in finance to analyze returns or risks.

Expected Return

The average return an investor anticipates receiving on an investment if it is held for a specific period of time.