ACCT 251 Exam 2

Q 7.19: Giant Inc. is thinking about eliminating one of its unprofitable product lines. When conducting incremental analysis related to this decision, Giant should determine what __ __ ____ costs associated with the discontinued product line would remain.

% of fixed

Q 5.19: Duck Manufacturing sells rubber rain boots for $50 per pair. In the coming year, the firm expects to have fixed costs of $312,000 and variable costs of $24 per pair. If Duck wants to earn net income of $364,000 in the year ahead, what are the firm's required sales in dollars?

1300000

Q 5.16: Livingston Co. has fixed costs of $60,000 and a contribution margin ratio of 30%. To break even, Livingston Co. needs ________ in dollar sales.

200,000

Lagerfeld Company had actual sales of $800,000 when break-even sales were $600,000. The margin of safety ratio is

25%

Q 5.20: Gulph Company reported the following results for May: sales $200,000, variable costs $120,000 and fixed costs $60,000. What amount of sales are required in June to achieve $50,000 of net income?

275,000

Q 5.3: Daniel is planning to rent a car for an upcoming four-day business trip. The car rental agency charges a flat fee of $29, plus $0.12 per mile driven. Daniel plans to drive 140 miles on Day 1 of his trip, 15 miles on Day 2, 15 miles on Day 3, and 140 miles on Day 4. What are Daniel's fixed costs for the car rental?

29

Q 5.18: In 2018 Duck Inc. sold rain boots for $50 per pair and the firm had fixed costs of $312,000, variable costs of $24 per pair, and total sales of $925,000. What is the margin of safety for 2018?

325,000

Q 5.2: Daniel is planning to rent a car for an upcoming four-day business trip. The car rental agency charges a flat fee of $29 plus $0.12 per mile driven. Daniel plans to drive 140 miles on Day 1 of his trip, 15 miles on Day 2, 15 miles on Day 3, and 140 miles on Day 4. What are Daniel's total variable costs for the car rental?

37.20

Q 9.6: The Crawford Company has 3,000 units in beginning finished goods. The sales budget shows expected sales to be 12,000 units. If the production budget shows that 14,000 units are required for production, what was the desired ending finished goods?

5,000

Q 5.11: Liberty Bicycles sells bikes for $340 each. The firm has a unit variable cost of $160. Given these figures, what is Liberty's contribution margin ratio?

52.9%

Q 7.3: Oliver Industries is evaluating the manufacturing process for one of its products. Oliver has determined that the process has yearly maintenance costs of $29,000, yearly operating costs of $22,000, and yearly revenues of $97,000. Two years ago, the firm spent $6,000 upgrading the equipment used to make this product, and it expects to spend $5,000 on additional upgrades three years from now. In this scenario, Oliver has sunk costs of ______________?

6,000

Q 9.5: The Burlington Company has 12,000 units in beginning finished goods. If sales are expected to be 60,000 units for the year and Burlington desires ending finished goods of 15,000 units, how many units must Burlington produce?

63,000

Q 5.8: The Dugger Company produces shovels. If the company produces zero shovels, total cost is $1,000. If the company produces 2,000 shovels, total cost is $15,000. What is the variable cost per shovel?

7

Q 5.13: If ________, then the contribution margin ratio will increase. A fixed costs decrease B variable costs as a percentage of sales decrease C variable costs as a percentage of sales increase D fixed costs increase

B

Q 5.9: ________ is an underlying assumption of cost-volume-profit analysis. A All units produced are either sold or in ending inventory B All costs can be classified as either variable or fixed with reasonable accuracy C Changes in activity and other factors affect costs D The behavior of both costs and revenues is curvilinear throughout the entire range of the activity index

B

A company is considering eliminating a product line. The fixed costs currently allocated to the product line will be allocated to other product lines upon discontinuance. If the product line is discontinued: a. total net income will increase by the amount of the product line's fixed cost b. total net income will decrease by the amount of the product line's fixed costs c. The CM of the product line will indicate the net income increase or decrease d. The company's total fixed costs will decrease

C.

The amount of revenue remaining after deducting variable costs.

Contribution Margin

Q 5.4: Peak Industries saw a 20% increase in activity levels over the fourth quarter. Which of the following changes would the firm expect to see in relation to this increase? A A 20% increase in fixed costs. B A 20% increase in total costs. C A 20% decrease in variable costs per unit. D A 20% increase in total variable costs.

D

Q 7.5: Aurora Enterprises incurs costs of $38 per unit ($27 variable and $11 fixed) to make a product that normally sells for $56. A wholesaler offers to buy 3,500 units for $36 each. This special order will result in additional shipping costs of $1.15 per unit. Assuming Aurora has adequate manufacturing capacity, it should A reject the offer because it would generate an incremental net loss of $7,000. B accept the offer because it would generate incremental net income of $31,500. C reject the offer because it would generate an incremental net loss of $11,025. D accept the offer because it would generate incremental net income of $27,475.

D

Q 5.15: Which of the following is the formula for break-even point in sales dollars?

FC / CM Ratio

Formula for Break-Even point in Units

Fixed Cost / contribution margin per unit

Costs that remain the same in total regardless of changes in the activity level.

Fixed Costs

An unrealistic budget is more likely to result when it:

Has been developed in a top down fashion

In order to assure better management acceptance, the flow of input data for budgeting should begin with the _____________?

Lower levels of management

_______________ is the difference between actual or expected sales and sales at the break-even point.

Margin of Safety

A purchases budget is used instead of a production budget by

Merchandising Companies

Order for Production budget

budgeted sales, desired ending inventory, total inventory required, beginning inventory, budgeted production

Incremental analysis would be approporiate for: a. acceptance of an order at a special price b. a retain or replace equipment decesion c. a sell or process further decesion d. all of the above

d

Q 5.10: If a product's variable cost per unit increases but its unit selling price remains constant, then the product's unit contribution margin will ____________.

decrease

Q 7.20: A firm has just saved $36,000 in fixed costs by eliminating one of its unprofitable product lines. By dropping the product line, the firm has also seen its total company-wide contribution margin drop by $50,000. These data indicate that the firm has seen its net income would ______by ________ due to the product discontinuation.

decrease 14,000

An overly optimistic sales budget may result in

excessive inventories

Formula for Break-Even point in Dollars

fixed costs / contribution margin ratio

If the activity level increases 10%, total variable costs will

increase 10%

Actual (Expected) Sales - Break Even Sales =

margin of safety in dollars

The graph of variable costs that behave in a curvilinear fashion will apporximate a _______________ within the relevant range.

straight-line

In an equipment replacement decision, the cost of the old equipment is a(n)

sunk cost

: Franklin Company currently produces and sells 40,000 printers per month, which is 80% of plant capacity. Variable manufacturing costs are $80 per unit, and fixed manufacturing costs are $1,200,000, or $30 per unit. The printers are normally sold directly to retailers for $150 each. Franklin has an offer from a foreign wholesaler to sell an additional 4,000 printers at $100 per unit. Acceptance of the offer would not affect normal sales of the product, and the additional units can be manufactured without increasing plant capacity. What is the incremental net income (loss) for the special order?

80,000

Q 7.10: Precision Paper Products produces both paper towels and paper napkins. The production process begins with the receipt and pulping of raw timber. Once the timber is pulped, it is screened, rolled, and dried into large rolls of paper. At this point, half the paper is cut and folded into napkins, while the other half is cut, perforated, and rolled into towels. Based on this description, which of the costs listed below would NOT be classified as a joint cost? A The maintenance costs associated with the napkin folding machine. B The materials costs for the various chemicals involved in the pulping process. C The administrative costs associated with tracking and processing incoming timber shipments. D The direct labor costs associated with the operation of the screening machine.

A

Q 7.14: Five years ago, Miller Manufacturing spent $150,000 on a new piece of industrial machinery. Six months ago, the firm spent $32,000 on upgrades to the machinery. Currently, Miller is considering whether to replace the existing machine with newer machinery with a purchase price of $180,000. When conducting the incremental analysis related to this decision, Miller should consider all of the following factors EXCEPT A the cost of the upgrades to the old machinery. B any proceeds received from the sale of the old machinery. C the cost of the new machinery. D any differences in the variable operating costs associated with each piece of machinery.

A

Q 7.15: Widgets Inc. is thinking about replacing a piece of manufacturing equipment with a remaining useful life of three years and a $0 estimated salvage value. The book value of the equipment is $25,000, and the machine could be sold in its current condition for $7,000. The new machine would cost $83,000 and would have no salvage value at the end of its three-year useful life. With the new machine, Widgets' variable operating costs would drop from $189,500 to $169,900 per year. If Widgets opts to buy the new machine, A its total variable operating costs for the next three years would be $58,800 lower than with the current machine. B its total net income for the next three years would be $58,800 higher than with the current machine. C its total net income for the next three years would be $17,200 higher than with the current machine. D its total net income for the next three years would be $31,200 lower than with the current machine.

A

Q 7.17: What happens if an UNPROFITABLE segment is discontinued? A Variable expenses of the discontinued segment would be eliminated. B Revenue from the discontinued segment is absorbed by the remaining segments. C It is impossible for company-wide net income to increase. D It is impossible for company-wide net income to decrease.

A

Q 9.16: Which line items of the budgeted balance sheet are calculated based on operating budgets? A Finished goods inventory, raw materials inventory, and retained earnings. B Finished goods inventory, raw materials inventory, buildings and equipment, and retained earnings. C Cash, accounts receivable, accounts payable, and buildings and equipment. D Accounts receivable, accounts payable, retained earnings, and accumulated depreciation.

A

Q 7.11: Designer Dollhouses manufactures dollhouse kits that are meant to be assembled by customers. Each kit sells for $60 and has $12 in fixed production costs and $10 in variable production costs. Rather than selling these kits, the firm is thinking about selling the dollhouses fully assembled for $95 each. The variable costs for assembling one dollhouse are expected to be $14. Given these figures, which of the following statements is accurate? A Designer should sell dollhouse kits rather than assembled dollhouses because its net income per unit would be $14 higher. B Designer should sell assembled dollhouses rather than dollhouse kits because its net income per unit would be $21 higher. C Designer should sell assembled dollhouses rather than dollhouse kits because its net income per unit would be $43 higher. D Designer should sell dollhouse kits rather than assembled dollhouses because its net income per unit would be $8 higher.

B

Q 7.2: Which of the following is a qualitative factor that could affect a decision involving incremental analysis? A Rent expense. B Lost morale among employees when a line of business is eliminated. C Increased direct labor costs. D The opportunity to use productive capacity in some other manner.

B

Q 7.6: Oakleaf Manufacturing incurs costs of $75 ($67 variable and $8 fixed) to make a product that normally sells for $120. A customer offers to buy 4,200 units for $70 each. Assuming Oakleaf has adequate manufacturing capacity, it should A accept the offer because it would generate incremental net income of $21,000. B accept the offer because it would generate incremental net income of $12,600. C reject the offer because it would generate an incremental net loss of $12,600. D reject the offer because it would generate an incremental net loss of $21,000.

B

Q 9.1: Which of the following represents the flow of budget data under participative budgeting? A Vice President of Production to Plant Manager to Department Manager B Department Manager to Plant Manager to Vice President of Production C Department Manager to Vice President of Production to Plant Manager D President to Plant Manager to Department Manager

B

Q 9.4: Which of the following is a characteristic of long-range planning? A More detail is presented than in a budget. B It is used to review progress rather than as a basis for control. C It focuses on achieving goals such as meeting annual profit objectives. D It is prepared for periods not exceeding one year.

B

Which of the following statements is correct? A The budgets of service companies are approved by voters. B In the budget process for not-for-profit organizations, the emphasis is on cash flow rather than on revenue and expenses. C Service companies prepare budget data using an expected input approach while manufacturers prepare budget data using an expected output approach. D The production budget is derived from the direct materials and direct labor budget.

B

Coordinating the preparation of the budget is the responsibility assigned to the ______________.

Budget Committee

Order for Materials Budget

Budgeted production, raw materials in ft. per unit, ft. needed for purchases, desired ending inventory, total inventory RM required, Beginning RM inventory, Budgeted purchase in units, cost per foot, Budget RM purchases in $

Q 7.12: Each day, Tasty Tortilla Company incurs total costs of $8,000 to process flour into tortillas. The company can sell the tortillas as is for daily revenue of $22,500. Alternatively, Tasty could fold and fry the tortillas to make hard taco shells. The additional costs for making the taco shells would be $4,200 per day, and the daily revenue from the finished shells would be $26,700. Given these data, A the firm would generate an additional $14,500 of net income per day if it sells taco shells instead of tortillas. B the firm would generate an additional $8,000 of net income per day if it sells tortillas instead of taco shells. C the firm's daily net income would be the same if it sells tortillas or taco shells. D the firm would generate an additional $4,200 of net income per day if it sells taco shells instead of tortillas.

C

Q 7.13: Phaeton Inc. is trying to decide whether it should replace a five-year-old piece of manufacturing equipment with a new machine. When conducting the incremental analysis related to this decision, Phaeton should consider all of the following EXCEPT A the cost of the new machine. B the variable operating costs associated with the old machine. C the book value of the old equipment. D any amount received from the sale of the old machine.

C

Q 7.1: Which of the following types of decisions do not involve incremental analysis? A Sell-or-process-further. B Make-or-buy. C Process costing versus job-order costing. D Retain-or-replace.

C

Q 7.4: Liberty Bicycles manufactures 3,500 bicycles each month. Unit variable manufacturing costs are $45, and monthly fixed manufacturing costs are $52,500. Liberty normally sells its bicycles directly to retailers for $160 each. Liberty just received an offer from a new retailer that wants to purchase 1,200 bicycles at $150 each. In this scenario, Liberty should reject the offer A only if the firm cannot reduce its monthly fixed costs by $18,000. B unless the retailer is willing to pay $160 per bicycle. C only if the firm does not have adequate manufacturing capacity. D unless it can reduce its variable costs by $10 per unit.

C

Which of the following is NOT an underlying assumption of CVP analysis? a. Changes in activity are the only factors that affect costs b. Cost classifications are reasonably accurate c. BI is larger than EI d. Sales mix is correct

C

Q 5.5: Which best describes what happens to the variable cost per unit if it is within the relevant range?

Remains constant at each activity level

Oportunity cost must be considered in decisions involving:

Resources that have alternative uses

Sales - VC - FC = ?

Target Net Income

Contribution Margin / Total # Units Sold

Unit contribution Margin

A cost that remains the same per unit at every level of activity.

Variable Costs

Costs that vary in total directly and proportionately with changes in the activity level.

Variable Costs

Q 5.1: Which best describes costs that vary in total directly and proportionately with changes in the activity level?

Variable Costs

Q 5.14: When unit selling price remains the same and ________, then the unit contribution margin decreases.

Variable costs per unit increase

Miley, Inc. has excess capacity. Under what situations should the company accept a special order for less than the current selling price?

When incremental revenues exceed incremental costs

Which of the following budgets would be prepared for a manufacturer but not for a merchandiser? a. Direct Labor Budget b. Cash budget c. Sales budget d. Budgeted income statement

a