1.Product A requires 5 machine hours per unit to be produced, Product B requires only 3
machine hours per unit, and the company's productive capacity is limited to 240,000 machine
hours. Product A sells for $16 per unit and has variable costs of $6 per unit. Product B sells for
$12 per unit and has variable costs of $5 per unit. Assuming the company can sell as many units
of either product as it produces, the company should:
2.Parker Plumbing has received a special one-time order for 1,500 faucets (units) at $5 per unit.
Parker currently produces and sells 7,500 units at $6.00 each. This level represents 75% of its
capacity. Production costs for these units are $4.50 per unit, which includes $3.00 variable cost
and $1.50 fixed cost. To produce the special order, a new machine needs to be purchased at a
cost of $1,000 with a zero salvage value. Management expects no other changes in costs as a
result of the additional production. Should the company accept the special order?
Yes, because incremental revenue exceeds incremental costs
3.The break-even time (BET) method is a variation of the:
Payback method.
4.After-tax net income divided by the annual average investment in an investment, is the:
Accounting rate of return
5.The following data concerns a proposed equipment purchase: Cost.....................$144,000
Salvage value..............$4,000 Estimated useful life....... 4years Annual net cash flows......$46,100
Depreciation method........straight-line Assuming that net cash flows are received evenly
throughout the year, the accounting rate of return is:
Annual depreciation expense = ($144,000 - $4,000)/4 = $35,000/yr.
After-tax unit income = $46,100 - $35,000 = $11,100
Accounting rate of return = $11,100 [($144,000 + $4,000)/2]=15%
6.The rate that yields a net present value of zero for an investment is the:
Internal rate of return.
7.Select cost information for Winfrey Enterprises is as follows: For 1000 units of output Total
Cost/unit Direct material $5,000 $5.00 Utilities expense $1,000 $1.00 Rent expense $4,000 $4.00
For 5,000 units of output Total Cost/unit Direct materials $25,000 $5.00 Utilities expense $3,750
$0.75 Rent expense $4,000 $0.80 Based on this information:
Utilities expense is a mixed cost and rent expense is a fixed cost.
8.The margin of safety is the excess of:
Expected sales over breakeven sales
9.Use the following information to determine the margin of safety in dollars:
Unit sales....................50,000 units
Dollar sales..................$500,000
fixed costs...................$204,000
Variable costs................$187,000
Contribution margin ratio = ($500,000 - $187,500)/$500,000 = 62.5%
Break-even sales = $204,000/0.625 = $326,400
Margin of safety in dollars = $500,000 - $326,400 = $173,600
10.Total contribution margin in dollars divided by pretax income is the:
Degree of operating leverage.
11.Brown Company's contribution margin ratio is 24%. Total fixed costs are $84,000. What is
Brown's break-even point in sales dollars?
Break-even point in dollars = $84,000/0.24 = $350,000
12.A company manufactures and sells a product for $120 per unit. The company's fixed costs are
$68,760, and its variable costs are $90 per unit. The company's break-even point in units is:
Break-even point = $68,760/($120 - $90) = 2,292 units
13.Yamaguchi Company's break even point in units is 1,000. The sales price per unit is $10 and
variable cost per unit is $7. If the company sells 2,500 units, what will net income be?
Net Income = Contribution Margin x Units sold in excess of break-even units
Net Income = ($10 - $7) x (2,500 - 1,000) = $4,500
14.A firm sells two products, A and B. For every unit of A the firm sells, two units of B are sold.
The firm's total fixed costs are $1,612,000. Selling prices and cost information for both products
follow: Product Unit sales price Veriable costs per Unit A... $20 $8 B... $24 $4 The contribution
margin per composite unit is:
15.Wayward Enterprises manufactures and sells three distinct styles of bicycles: the Youth
model sells for $300 and has a unit contribution margin of $105; the Adult model sells for $850
and has a unit contribution margin of $450; and the Recreational model sells for $1,000 and has a
unit contribution margin of $500. The company's sales mix includes: 5 Youth models; 9 Adult
models; and 6 Recreational models. If the firm's annual fixed costs total $6,500,000, calculate
the firm's break-even point in sales dollars.
16.The master budget includes:
All of these.
17.A plan that lists the types and amounts of operating expenses expected that are not included in
the selling expenses budget is a:
General and administrative expense budget.
18.A plan showing the units of goods to be sold and the revenue to be derived from sales, that is
the usual starting point in the budgeting process, is called the:
Sales budget.
19.Ecology Co. sells a biodegradable product called Dissol and has predicted the following sales
for the first four months of the current year:
Sales in units.... Jan.1,700; Feb.1,900; March 2,100; April1,600
Ending inventory for each month should be 20% of the next month's sales, and the December 31
inventory is consistent with that policy. How many units should be purchased in February?
20.A quantity of merchandise or materials over the minimum needed reduce the risk of running
short is called:
Safety stock.
21.A plan that shows the expected cash inflows and cash outflows during the budget period,
including receipts from loans needed to maintain a minimum cash balance and repayments of
such loans, is called a(n):
Cash budget.
22.Long-term liability data for the budgeted balance sheet is derived from:
The cash budget and capital expenditures budget.
23.The Palos Company expects sales for June, July, and August of $48,000, $54,000, and
$44,000, respectively. Experience suggests that 40% of sales are for cash and 60% are on credit.
The company collects 50% of its credit sales in the month following sale, 45% in the second
month following sale, and 5% are not collected. What are the company's expected cash receipts
for August from its current and past sales?
24.Which of the following budgets is part of the manufacturing budget?
Direct materials budget.
25.A process of examining the differences between actual and budgeted costs and describing
them in terms of the amounts that resulted from price and quantity differences is called:
Cost variance analysis.
26.A report based on predicted amounts of revenues and expenses corresponding to the actual
level of output is called a:
Flexible budget
27.Sales analysis is useful for:
Planning and control purposes.
28.Product A has a sales price of $10 per unit. Based on a 10,000-unit production level, the
variable costs are $6 per unit and the fixed costs are $3 per unit. Using a flexible budget for
12,500 units, what is the budgeted operating income from Product A?
29.A job was budgeted to require 3 hours of labor per unit at $8.00 per hour. The job consisted of
8,000 units and was completed in 22,000 hours at a total labor cost of $198,000. What is the total
labor cost variance?
30.A company has determined that its standard costs to produce a single unit of output is as
follows: Direct material 6 pounds at $0.90 per pound=$5.40 Direct labor 0.5 hour at $12.00 per
hour=$6.00 Manyfacturing overhead 0.5 hour at $4.80 per hour=$2.40 During the latest month,
the company purchased and used 58,000 pounds of direct materials at a price of $1.00 per pound
to produce 10,000 units of output. Direct labor costs for the month totaled $56,350 based on
4,900 direct labor hours worked. Variable manufacturing overhead costs incurred totaled
$15,000 and fixed manufacturing overhead incurred was $10,400. Based on this information, the
direct materials quantity variance for the month was
DM Quantity Variance = (Actual Quantity - Standard Quantity) x Standard Price
= [58,000 - (10,000 units x 6 pounds per unit)] x $0.90
= [58,000 - 60,000] x $0.90
= 2,000 x $.90
= $1,800 favorable
31.The difference between the total budgeted overhead cost and the overhead applied to
production using the predetermined overhead rate is the:
Volume variance
32. Regarding overhead costs, as volume increases:
Unit fixed cost decreases, unit variable cost remains constant