Professional Documents
Culture Documents
Chapter 6
1. Within the relevant range, as the number of units produced increases:
A)
variable costs increase in total.
B)
the variable cost per unit remains the same.
C)
fixed costs in total remain the same.
D)
all of the above.
E)
none of the above
2. The high-low method is generally more accurate than the least-squares regression
method in analyzing cost behavior?
A)
B)
TRUE
FALSE
3. A is a fixed cost; B is a variable cost. During the current year the level of activity has
decreased but is still within the relevant range. We would expect that:
A)
The cost per unit of B to remain unchanged
B)
The cost per unit of A has decreased
C)
The cost per unit of A has remained unchanged
D)
The cost per unit of B has decreased
4. Utility costs at Service, Inc. are a mixture of fixed and variable components. Records
indicate that utility costs are an average of $0.33 per hour at an activity level of 6,620
machine hours and $0.25 per hour at an activity level of 14,770 machine hours.
Assuming that this activity is within the relevant range, what is the expected total utility
cost of the company works 10,000 machine hours?
A)
$2,784
B)
$2,809
C)
$2,950
D)
$2,712
E)
$2,810
5. Farah Corporation has provided the following information and total cost data for two
levels of monthly production volume. The company produces a single product.
Production volume (units)
Direct materials
Direct labor
Manufacturing overhead
1,600
$87,984
$23,440
$120,720
2,380
$130,876
$34,867
$136,050
The best estimate of the total cost to manufacture 1,920 units is closest to:
A)
$261,121
B)
$262,104
C)
$265,017
D)
$260,718
Chapter 7
6. Stewart Company sells a single product. The product has a selling price of $50 per
unit and variable expenses of 80% of sales. If the company's fixed expenses total
$150,000 per year, then it will have a break-even of:
a.
b.
c.
d.
$750,000
$187,500
$15,000
$3,750
7. The following is Carter Corporation's contribution format income statement for last
month:
Sales
$4,000,000
2,800,000
Contribution margin
1,200,000
720,000
Net income
$ 480,000
The company has no beginning or ending inventories. A total of 80,000 units were
produced and sold last month. What is the company's break-even in units?
a.
b.
c.
d.
0 units
48,000 units
72,000 units
80,000 units
8. Refer to the previous question. What is the company's margin of safety in dollars?
a.
b.
c.
d.
$480,000
$1,600,000
$2,400,000
$3,520,000
10. Foley Company produces two products which had the following information:
Sales
Variable Costs
Product A
$100,000
25,000
Product B
$50,000
5,000
Product A = $100,000
Product A = $ 50,000
Product A = $ 75,000
Product A = $ 62,250
Product B = $50,000
Product B = $25,000
Product B = $37,500
Product B = $62,250
11. Lyman Corporation has a single product selling for $140 with a variable cost of $91
per unit. The companys monthly fixed costs are $40,000. How much would the
company need to sell in total sales dollars in order to earn a target profit of $16,000?
a.
b.
c.
d.
$56,000
$100,000
$145,000
$160,000
Chapter 8
12. The Caston Corporation has 4,000 obsolete units of a product that are carried in
inventory at a manufacturing cost of 80,000. If the units are re-worked for $20,000, they
could be sold for $36,000. Alternatively, the units could be sold for scrap for $14,000.
Which alternative is more desirable and what are the total relevant costs for that
alternative?
a.
b.
c.
d.
Re-work; $20,000
Re-work; $100,000
Scrap; $66,000
Scrap; $80,000
13. The managers of a firm are in the process of deciding whether to accept or reject a
special offer for one of its products. A cost that is not relevant is their decision is the:
a.
b.
c.
d.
Common fixed overhead that will continue if the special order is accepted
Direct materials
Fixed overhead that will be avoided if the special order is accepted
Variable overhead
14. A study has been conducted to determine if one of the departments of Marigold
Company should be discontinued. The contribution margin in the department is $150,000
per year. Fixed expenses charged to the department are $195,000 per year. It is estimated
that $120,000 of these fixed expenses could be eliminated if the department is
discontinued. These data indicate that if the department is discontinued, the company's
overall net operating income would:
a.
b.
c.
d.
Decrease by $30,000
Increase by $30,000
Decrease by $75,000
Increase by $75,000
15. Baja Company produces 2,000 parts per year, which are used in the assembly of one
of its products. The unit product cost of these parts is:
Variable Manufacturing Cost
Fixed Manufacturing Cost
Total Unit Product Cost
$32
$18
$50
The part can be purchased from an outside supplier at $40 per unit. If the part is
purchased from the outside supplier, two thirds of the fixed manufacturing costs can be
eliminated. The annual impact on Brown's net operating income as a result of buying the
part from the outside supplier would be:
a.
b.
c.
d.
$4,000 increase
$4,000 decrease
$8,000 increase
$8,000 decrease
16. Cool Corporation manufactures coolers. The company can manufacture 1,200,000
coolers a year at a variable cost of $3,000,000 and a fixed cost of $1,800,000. Based on
management's predictions for next year, 960,000 coolers will be sold at the regular price
of $20.00 each. In addition, a special order was placed for 240,000 coolers to be sold at a
70% discount off the regular price. Total fixed costs would be unaffected by this order.
By what amount would the company's net operating income be increased as a result of
the special order?
a.
b.
c.
d.
$480,000
$600,000
$840,000
It will not increase
Chapter 9
17. North Star Company's sales are 50% in cash and 50% on credit. Seventy percent of
the credit sales are collected in the month of sale, 20% in the month following sale, and
5% in the second month following sale. The remainder is expected to be uncollectible.
The following are budgeted sales data:
Total Sales
January
$140,000
February
$120,000
March
$160,000
April
$200,000
May
$180,000
$ 56,000
$136,000
$151,500
$167,000
May
75,000
June
90,000
July
80,000
The company plans to carry an ending inventory amount equal to 10% of next months sales.
How many units would the company plan to budget for production in June?
a.
b.
c.
d.
90,000
89,000
90,500
98,000
19. Martin plans to sell 75,000 units of its product in May, and each unit requires four lbs.
of raw material. Pertinent data follows:
May 1 inventory
May 31 inventory
Final Product
12,000 units
15,000 units
Raw Material
24,000 lbs.
19,000 lbs.
$748,800
$691,200
$720,000
$672,000
21. The Beta Company makes and sells a single product. Selected budgeted cash receipts
information is as follows:
April
$ 44,000
$ 72,000
May
$ 48,000
$150,000
Assume sales price = $20 and all sales are collected in two months. What is budgeted
sales in units for May?
a. 9,900
b. 7,500
c. 12,500
d. 15,700
22. Which of the following would depict the logical order for preparing (1) a production
budget, (2) a cash budget, (3) a sales budget, and (4) a direct labor budget?
a.
b.
c.
d.
1-3-4-2
3-4-2-1
2-1-3-4
3-1-4-2
Solutions:
1. Answer is D
2. Answer is B
3. Answer is A
4. Total Cost High Point = 14,770 x $0.25 = $3,692.50
Total Cost Low Point = 6,620 x $ 0.33 = $2,184.60
VC Per unit = (3,692.50 2,184.60) / (14,770 6,620) = $.185
$3,692.50 = FC + (.185 x 14,770)
FC = $960
TC = $960 + (.185 x 10,000) = $2,810
5. DM cost = $87,984 / 1,600 = $54.99 var. cost per unit (same as for 2,380 units)
DL cost = $23,440 / 1,600 = $14.65 var. cost per unit (same as for 2,380 units)
MOH (use high low) = ($136,050 - $ 120,720) / (2,380 1,600) = $19.65 var.
cost per unit
MOH fixed cost $120,720 = FC + (19.65 x 1,600)
FC = $89,281
Cost at 1,920 units: TC = $89,281 + (*89.29 x 1,920) = $260,718
$40 x 2,000 =
$(80,000)
($32 + 12) x 2,000 = $ 88,000
=
8,000
90,000
8,000
-9,000
= Production required
89,000
(80,000 x 10%)
(90,000 x 10%)
= 307,000 lbs
22. Answer is D