Question 1 (6 points)
Dodero Company produces a single product which sells for $100 per unit. Fixed expenses total $12,000 per month, and variable expenses are $60 per unit. The company’s sales average 500 units per month. Which of the following statements is correct?
The company’s break-even point is $12,000 per month.
The fixed expenses remain constant at $24 per unit for any activity level within the relevant range.
The company’s contribution margin ratio is 40%.
Responses A, B, and C are all correct.
————
Question 2 (6 points)
Cherry Street Market reported the following information for the sales of their only product, cherries sold by the pint:
Sales: Total = $31,500 (Per Unit = $4.50)
Variable expenses: Total = $9,450 (Per Unit = $1.35)
Contribution margin: Total = $22,050 (Per Unit = $3.15)
Total fixed expenses = $13,000
Net operating income = $9,050
————
Cherry Street would like to increase their selling price by 50 cents per unit, and feel that this will decrease sales volume by 10%. Should Cherry Street increase the price, and what will the effect be on net operating income?
Yes; $3,500 increase
Yes; $945 increase
No; no change
No; $945 decrease
Question 3 (6 points)
Hartl Corporation is a single product firm with the following selling price and cost structure for next year:
Selling price per unit = $1.80
Contribution margin ratio = 40%
Total fixed expenses for the year = $218,700
How many units will Hartl have to sell next year in order to break-even?
121,500
202,500
303,750
546,750
Question 4 (3 points)
In its first year of operations, Bronfren Corporation produced 800,000 sets and sold 780,000 sets of artificial tan lines. What would have happened to net operating income in this first year under the following costing methods if Bronfren had produced 20,000 fewer sets? (Assume that Bronfren has both variable and fixed production costs.)
Variable costing = Increase; Absorption costing = Increase
Variable costing = Decrease; Absorption costing = Increase
Variable costing = Decrease; Absorption costing = Decrease
Variable costing = No effect; Absorption costing = Decrease
Variable costing = No effect; Absorption costing = No effect
Question 5 (6 points)Save
A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:
Selling price = $123
Unit in beginning inventory = 0
Units produced = 1,000
Units sold = 900
Units in ending inventory = 100
Variable costs per unit:
Direct materials = $41; Direct labor = $26; VMOH = $4; Variable selling and administrative = $6
Fixed costs:
FMOH = $17,000; Fixed selling and administrative = $11,700
What is the net operating income for the month under variable costing?
$12,700
$5,600
$1,700
$14,400
Question 6 (5 points)Save
Swifton Company produces a single product. Last year, the company had net operating income of $40,000 using variable costing. Beginning and ending inventories were 22,000 and 27,000 units, respectively. If the fixed manufacturing overhead cost was $3.00 per unit, what was the income using absorption costing?
$15,000
$25,000
$40,000
$55,000
Question 7 (3 points)Save
Under the theory of constraints (TOC), which of the following is treated as a period cost?
Direct labor = Yes; Direct materials = Yes
Direct labor = Yes; Direct materials = No
Direct labor = No; Direct materials = Yes
Direct labor = No; Direct materials = No
Question 8 (6 points)Save
Gould Corporation uses the following activity rates from its activity-based costing to assign overhead costs to products:
Information is given as Activity Cost Pool; Amount; Activity Rate
Setting up batches; $59.06; per batch
Processing customer orders; $72.66; per customer order
Assembling products; $3.75; per assembly hour
Data concerning the two products is below:
Product K91B:
Number of batches = 84; number of customer orders = 32; number of assembly hours = 483
Product F650:
Number of batches = 50; number of customer orders = 43; number of assembly hours = 890
How much overhead cost would be assigned to Product K91B using the activity-based costing system?
$9,097.41
$81,146.53
$4,961.04
$135.47
Question 10 (4 points)Save
Betz Company’s sales budget shows the following projections for next year:
Sales in Units: 1st Quarter = 60,000; 2nd Quarter = 80,000; 3rd Quarter = 45,000; 4th Quarter = 55,000
Inventory at the beginning of the year was 18,000 units. The finished goods inventory at the end of each quarter is to equal 30% of the next quarter’s budgeted unit sales. How many units should be produced during the first quarter?
24,000
48,000
66,000
72,000
Question 11 (4 points)Save
The following are budgeted data:
Sales in Units: Month 1 = 15,000; Month 2 = 20,000; Month 3 = 18,000
Production in Units: Month 1 = 16,000; Month 2 = 22,000; Month 3 = 15,000
One pound of material is required for each finished unit. The inventory of materials at the end of each month should equal 20% of the following month’s production needs. At the beginning of Month 1, 3,200 lbs. of materials were on hand. Purchases of raw materials for Month 2 would be budgeted to be:
17,600 pounds
23,400 pounds
20,600 pounds
25,000 pounds
Question 12 (4 points)Save
The following information relates to Minorca Manufacturing Corporation for next quarter:
Expected sales (in units):
January = 440,000; February = 390,000; March = 400,000
Desired ending finished goods inventory (in units):
January = 28,000; February = 30,000; March = 35,000
How many units should Minorca plan on producing for the month of February?
360,000 units
388,000 units
392,000 units
420,000 units
Question 13 (5 points)Save
The budget for May called for production of 9,000 units. Actual output for the month was 8,500 units with total direct materials cost of $127,500 and total direct labor cost of $77,775. The direct labor standards call for 45 minutes of direct labor per unit at a cost of $12 per direct labor-hour. The direct materials standards call for one pound of direct materials per unit at a cost of $15 per pound. The actual direct labor-hours were 6,375. Variance analysis of the performance for the month of May would indicate:
$7,500 favorable materials quantity variance.
$1,275 favorable direct labor efficiency variance.
$1,275 unfavorable direct labor efficiency variance.
$1,275 unfavorable direct labor rate variance.
Question 14 (6 points)Save
Information on Rex Co.’s direct material costs for May follows:
Actual quantity of direct materials purchased and used = 30,000 pounds
Actual cost of direct materials = $84,000
Unfavorable direct materials quantity variance = $3,000
Standard quantity of direct materials allowed for May production = 29,000 pounds
For the month of May, what was Rex’s direct materials price variance?
$2,800 favorable
$2,800 unfavorable
$6,000 unfavorable
$6,000 favorable
Question 15 (4 points)Save
Matt Company uses a standard cost system. Information for raw materials for Product RBI for the month of October follows:
Standard price per pound of raw materials = $1.60
Actual purchase price per pound of raw materials = $1.55
Actual quantity of raw materials purchased = 2,000 pounds
Actual quantity of raw material used = 1,900 pounds
Standard quantity allowed for actual production = 1,800 pounds
What is the materials purchase price variance?
$90 favorable
$90 unfavorable
$100 favorable
$100 unfavorable
Question 16 (3 points)Save
Poorly trained workers could have an unfavorable effect on which of the following variances?
Labor rate variance = Yes; Materials quantity variance = Yes
Labor rate variance = Yes; Materials quantity variance = No
Labor rate variance = No; Materials quantity variance = Yes
Labor rate variance = No; Materials quantity variance = No
Question 17 (5 points)Save
Magno Cereal Corporation uses a standard cost system to collect costs related to the production of its “crunchy pickle” cereal. The pickle (materials) standards for each batch of cereal produced are 1.4 pounds of pickles at a standard cost of $3.00 per pound. During the month of August, Magno purchased 78,000 pounds of pounds at a total cost of $253,500. Magno used all of these pickles to produce 60,000 batches of cereal. What is Magno’s materials quantity variance for the month of August?
$1,500 unfavorable
$18,000 favorable
$19,500 unfavorable
$54,000 unfavorable
Question 18 (5 points)Save
Tub Co. uses a standard cost system. The following information pertains to direct labor for product B for the month of October:
Actual price paid = $8.40 per hour
Standard rate = $8.00 per hour
Standard hours allowed = 2,000 hours
Labor efficiency variance = $1,600 unfavorable
What were the actual hours worked during October?
1,800
1,810
2,190
2,200
Question 19 (3 points)Save
The impact on net operating income of short-run changes in sales for a segment can be most clearly predicted by analyzing:
the contribution margin ratio.
the segment margin.
the ratio of the segment margin to sales.
net sales less segment fixed costs.
Question 20 (3 points)Save
In a segmented contribution format income statement, what is the best measure of the long-run profitability of a segment?
it gross margin
it contribution margin
its segment margin
its segment margin minus an allocated portion of common fixed expenses
