Managerial Accounting

If the discount rate increases:

C. The present value of future cash flows will decrease, if other things remain unchanged

A GAAP income statement combines which of the following costs?

Controllable costs with non-controllable costs. Fixed costs with variable costs.

Which of the following will least likely be a variable cost for Pizza Hut?

Cooking ovens.

Which of the following inventory equations produces the Cost of Goods Sold?

Cost of beginning inventory + cost of goods purchased during period - cost of ending inventor

Which of the following statements are false? 1) If a company can estimate the salvage value of an asset when acquiring it, it should include it in present value calculation. 2) The net present value of an investment is the total present value of all its cash flows. 3) An investment is attractive if its IRR is smaller than a company's cost of capital. 4) The higher the discount rates, the lower the NPV of a cash flow, if everything else is constant.

D. 3 only

Which of the following statements is true?

D. None of the above Explanation A capital budget links strategic and operating Operating budgets are short-term plans that aim for the maximum possible contribution from available capacity resources. Strategic plans span many years and flesh out how the firm's overall mission and core competencies will influence operations.

The annual depreciation tax shield is computed as:

Depreciation deduction for the year x tax rate.

In a make-or-buy decision relevant costs would include all of the following except:

Depreciation expense on the plant equipment currently used to make the part Correct! The depreciation expenses are fixed costs for the plant and are not relevant in the decision making process. TRUE Direct labor costs of the employees in that department which makes the part Direct material costs of the part The cost of buying the part from an outside company

The Interest Coverage ratio is

EBITDA divided by interest expense

A decision maker's control over costs and benefits decreases as the time horizon increases.

False

Breakeven volume = Unit Fixed costs ÷ Total contribution margin.

False Breakeven volume = Fixed costs ÷ Unit contribution margin.

Contribution margin is not an appropriate measure for evaluating short-term decisions.

False Contribution margin is an appropriate measure for evaluating short-term decisions.

The Criders Company has 12,000 units of obsolete inventory. The units originally cost $6,000. The company can either sell them for scrap at $.20 per unit or they can invest $2,000 to be able to sell them at a price of $.60 per unit. With regard to this decision, relevant costs or benefits include:

$.20 per unit, $.60 per unit, and $2,000.

Kam Department Store reported the following information for 2013: October November December Budgeted sales $1,240,000 $1,160,000 $1,440,000 All sales are on credit. Customer amounts on account are collected 50% in the month of sale and 50% in the following month. How much cash will Kam receive in November?

$1,200,000

Redbird Corporation provides the following data: Cash inflows $100,000 Cash outflows $50,000 Net income $40,000 Depreciation deduction $5,000 Accumulated depreciation $10,000 Tax rate 30% What is Redbird's tax shield?

$1,500 Explanation: Depreciation tax shield = Tax rate * depreciation deduction in a year = $5,000*0.3=$1,500

Given the following data, calculate total profit variance. Master Budget Actual Results Revenue $73,000 $75,000 Variable costs $23,000 $20,000 Contribution margin $50,000 $55,000 Fixed costs $15,000 $10,000 Profit before taxes $35,000 $45,000

$10,000 Favorable.

The Pleasantville Company makes 20,000 units per year of a part used in production. The unit product cost is as follows: Direct materials $6.20 Direct labor 2.30 Variable Manufacturing Overhead 1.20 Fixed Manufacturing Overhead .80 Unit product cost $10.50 An outside supplier has offered to sell the company the same part at a cost of $9.00 per unit. If the company purchases the part only half of the fixed overhead would be avoided. How much of the unit product cost is relevant in making this decision?

$10.10

Grand Rapids Rafting Company recorded the following data for the month of October: Cost of beginning inventory $46,000 Cost of ending inventory $32,000 Cost of goods sold $122,000 Inventory purchases for the month of October total:

$108,000

Augusta Company manufactures stereo components. One of its most popular products is the LoudBoom Speaker. Data concerning this product are given below: Normal Selling Price $50.00 Direct materials $12.20 Direct labor $3.60 Variable Manufacturing Overhead $1.80 Fixed Manufacturing Overhead $2.00 Variable Selling Expense $1.90 Fixed Selling & Administrative Expense $.80 The above per unit data are based on annual production of 3,000 units of the component. The company has received a special, one-time-only order for 200 units of the speaker. There would be no selling expenses on this special order and the total fixed manufacturing overhead and fixed selling and administrative expenses of the company would not be affected by the order. Assuming that Augusta Company has excess capacity and can fill the order without any production disruptions, what is the minimum price per unit on the special order the company should charge?

$17.60

Tad's Tackle Shop has a potential investment of $750,000 which generated a depreciation tax shield of $35,000 and a tax rate of 20% for 2016. How much depreciation expense did Tad's Tackle Shop record during 2016?

$175,000 Explanation: $35,000 / 20% = $175,000

Joe Dirt Co. reported the following budgeted and actual results based on sales of 100 units of product: Master Budget Actual Results Direct Labor $900 $750 Direct Materials $300 $550 Overhead $400 $100 The company's total input quantity variance is:

$200 favorable Direct Labor: $900 > $750 = favorable $150 Direct Materials: $300 < $550 = unfavorable $250 Overhead: $400 > $100 = favorable $300 $150 - $250 + $300 = $200 favorable

Cordet's Café has a potential investment of $920,000 which generated a depreciation tax shield of $50,000 and a tax rate of 25% for 2009. How much depreciation expense did Cordet's Café record during 2009?

$200,000 Explanation: $50,000 / 25% = $200,000

The Owens Company budgeted sales of 20,000 printers at $90 per unit last year. Variable manufacturing costs were budgeted at $46 per unit, and fixed manufacturing costs at $12 per unit. A special order for 1,000 printers at $72 each was received by Owens in April. There is enough plant capacity to meet these additional units without incurring any additional fixed manufacturing costs; however, the production would have to be done on an overtime basis at an estimated additional cost of $5 per printer. Acceptance of the special order would not affect Owens' normal sales and no selling expenses would be incurred. What would be increase to net operating income if the special order were accepted?

$21,000

Smith & Sons Company provided the following information for the month of May: Beginning raw materials $5,000 Ending raw materials $3,000 Purchases of raw materials $2,000 Beginning work-in-process $10,000 Ending work-in-process $6,000 Direct labor $8,000 Manufacturing overhead $5,000 The company's cost of goods manufactured for May is:

$21,000 Step 1: Beg. raw materials $5,000 + Purchases of raw materials $2,000 - End. raw materials $3,000 = Cost of materials used $4,000 Step 2: Beg. work-in-process $10,000 + Cost of materials used $4,000 + Direct labor $8,000 + Manufacturing overhead $5,000 - End. work-in-process $6,000 = Cost of goods manufactured $21,000

Harms Shoe Company applies manufacturing overhead based on direct labor hours as the allocation volume. Information concerning manufacturing overhead and labor for July follows: Estimated direct labor 6,100 hours and $14.20 Estimated manufacturing overhead $277,184 How much overhead will be allocated during July to products with a direct labor of 5 hours?

$227.20

The Clarke Company provided the following information for the month of December: Beginning work-in-process $12,000 Ending work-in-process $9,000 Direct labor/materials used $14,000 Manufacturing overhead $7,000 The company's cost of goods manufactured for December is:

$24,000

Cordet's Café has a potential investment of $900,000, which generated a depreciation tax shield of $60,000 and a tax rate of 25% for 2009. How much depreciation expense did Cordet's Café record during 2009?

$240,000 Explanation: Depreciation expense= depreciation tax shield/tax rate=60,000/0.25=$240,000

Brand X Computers makes and sells computers. Each computer sells for $400. The following cost data per computer are based on a full capacity of 10,000 computers each period: Direct materials $150 Direct labor $100 Variable manufacturing overhead $38 Unavoidable fixed overhead $12 Brand X is considering a special order for a sale of 2,500 computers to an overseas customer. The only selling costs that would be incurred for the order would be shipping charges of $15 per computer. Brand X is currently selling 7,500 computers through its regular orders. What should be the minimum selling price per computer in negotiating a price for the special order.

$303

The following credit sales are budgeted by Terra Co.: January $204,000 February 300,000 March 420,000 April 360,000 The company's past experience indicates that 70% of the accounts receivable are collected in the month of sale, 20% in the month following the sale, and 8% in the second month following the sale. The anticipated cash inflow for the month of April is

$360,000.

Consider the following information regarding the purchase of a piece of machinery: Initial cost $98,000 Estimated life 7 years Annual net cash inflows $13,000 Income tax rate 35% Cost of Capital 11% Assuming the company uses straight-line depreciation, the depreciation tax shield in year 1 would amount to:

$4,900 Explanation: $98,000/7 years = $14,000 $14,000*35% = $4,900

Gann Enterprises sells one product for $125. Unit variable cost is $85 and unit fixed cost is $20. Net income increases by what amount if one more unit is sold?

$40

The Peterson Company incurred the following costs in the month of May: Direct materials purchased $12,000 Commissions paid to salespeople $5,000 Direct labor paid $9,000 Manufacturing plant utility costs $19,000 Advertising costs $2,000 The company's product costs total:

$40,000

Bill's Tires produces specialty tires for the lawn mower industry. Bill is trying to evaluate his current month's profit for his 6-inch tire. The tire's unit selling price is $5.00, the variable cost per unit is $3, sales volume is 260 units, and fixed costs are $120 for the period. Which of the following is the amount of profit before taxes on the 6-inch tire product line?

$400

A company's past experience indicates that 60% of its credit sales are collected in the month of sale, 30% in the next month, and 5% in the second month after the sale; the remainder is never collected. Budgeted credit sales were: January $360,000 February 216,000 March 540,000 The cash inflow in the month of March is expected to be

$406,800.

Petal Co. reported the following information for 2013: October November December Budgeted sales $930,000 $870,000 $1,080,000 All sales are on credit. Customer amounts on account are collected 50% in the month of sale and 50% in the following month. What amount of the budgeted accounts receivable at the end of November is from November sales?

$435,000

Consider the following information regarding the purchase of a piece of equipment: Initial cost $68,000 Estimated life 5 years Annual net cash inflows $21,000 Income tax rate 40% Cost of Capital 12% Assuming the company uses straight-line depreciation, the depreciation tax shield in year 1 would amount to:

$5,440

The Gail Company incurred the following costs in the month of April: Direct materials purchased $18,000 Commissions paid to salespeople $9,000 Direct labor paid $7,000 Manufacturing plant utility costs $25,000 Advertising costs $4,000 The company's product costs total:

$50,000 Explanation: Product cost= Direct materials purchased $18,000 + Direct labor paid $7,000 + Manufacturing plant utility costs $25,000 = $50,000

In June, Ace Manufacturing Plant produced 100 units of propane canisters for sale. The total variable costs were $5,000 and the fixed costs for the plant amounted to $3,000. How much is the unit variable cost for canisters if 120 canisters are produced?

$50.00

Old Co. has budgeted its activity for March according to the following information: Sales at $850,000, all for cash. Budgeted depreciation for March is $10,000. The cash balance at March 1 was $17,000. Selling and administrative expenses are budgeted at $45,000 for March and are paid for in cash. The planned merchandise inventory on March 31 and March 1 is $14,000. The invoice cost for merchandise purchases represents 65% of the sales price. All purchases are paid in cash. How much are the budgeted cash disbursements for March?

$597,500 $850,000*.65 = $552,500 $552,500 + $45,000 = $597,500

The following material budgets have been developed for the Criders Company: Price per pound $6.50 Pounds per unit 1 Purchase price variance: $3,200 unfavorable If the company purchased 16,000 units, the actual price per pound of material purchased must have been:

$6.70 Explanation: Budgeted material purchasing cost=16,000*1*6.5=$104,000 Actual material purchasing cost=104,000+3,200=$107,200 Actual price per pound of material purchased=107,200/16,000=$6.7

Assume University T-Shirt Shop has a selling price of $25 and unit variable cost of $10 for its long-sleeve cotton shirts. Fixed costs total $1,000. University believes increasing its price to $27 will not cause a reduction in the number of shirts it will sell. If University's sales volume for the month is 300 shirts, how will net profit be affected by the change in selling price?

$600 increase.

Harms Shoe Company applies manufacturing overhead based on the number of units as the cost driver. Information concerning costs for July follows: Direct labor costs 800 hours and $14 PER HOUR Manufacturing overhead $8,000 Direct materials $45,000 How much is the unit product cost if 1,000 units are produced?

$64.20

A company has budgeted direct materials purchases of $300,000 in July and $480,000 in August. Past experience indicates that the company pays for 70% of its purchases in the month of purchase and the remaining 30% in the next month. During August, the following items were budgeted: Wages Expense $150,000 Purchase of office equipment 72,000 Selling and Administrative Expenses 48,000 Depreciation Expense 36,000 The budgeted cash disbursements for August are

$696,000.

If fixed costs are $15,000, profit before income taxes is $55,000, revenues are $160,000, variable costs are $90,000, contribution margin is:

$70,000 Reasoning: Contribution Margin = Revenues - Variable Costs Contribution Margin = $160,000 - $90,000 Contribution Margin = $70,000

The following material budgets have been developed for Jimmy P's Company. Price per pound $9.00 Pounds per unit 1 Purchase price variance $11,500 favorable If the company purchased 27,000 units, the actual price per pound of material purchased must have been:

$8.57 27,000 units*$9.00 = $243,000 $243,000 - $11,500 favorable = $231,500 $231,500/ 27,000 units = $8.57

Thurston Company had total assets of $850,000, equity of $310,000, what is Thurston's debt-to-asset ratio?

0.64

The Stockton Company reported the following for their most recent year Beginning Assets = 800 Beginning Liabilities = 400 Beginning Owners' Equity = 400 Beginning Retained Earnings = 100 Revenue = 600 Expense = 550 Net Income = 50 Return on Equity is

12.5%

The Visalia Company reported the following for their most recent year Beginning Assets = 5,000 Beginning Liabilities = 2,500 Revenue = 8,500 Expense = 8,100 Return on Equity is

16.0%

Haft Construction Company determines that 54,000 pounds of direct materials are needed for production in July. There are 3,200 pounds of direct materials on hand at July 1 and the desired ending inventory is 2,800 pounds. If the cost per unit of direct materials is $3, what is the budgeted total cost of direct materials purchases?

160,800

The Jackson Company produces 2 different products, each of which has unlimited demand. If there are 4,000 total available labor hours, and the company desires to maximize its contribution margin, how many units of each product should be produced? Product X Z Selling price per unit $8 $16 Variable cost per unit $4 $9 Labor hours per unit 2 4

2,000 units of Product X and 0 units of Product Z

The Sacramento Company reported the following for their most recent year Beginning Assets = 1,000 Beginning Liabilities = 700 Beginning Owners' Equity = 300 Beginning Retained Earnings = 150 Revenue = 500 Expense = 425 Net Income = 75 Return on Equity is

25.0%

The direct materials budget shows: Units to be produced 3,000 Total pounds needed for production 9,000 Total materials required 9,900 What are the direct materials per unit?

3.0 pounds

The Lodi Company reported the following for their most recent year Beginning Assets = 2,000 Beginning Liabilities = 1500 Revenue = 2,500 Expense = 2,350 Return on Equity is

30.0%

Lion Industries required production for June is 132,000 units. To make one unit of finished product, three pounds of direct material Z are required. Actual beginning and desired ending inventories of direct material Z are 300,000 and 330,000 pounds, respectively. How many pounds of direct material Z must be purchased?

426,000

The Huffman Tire Company has 3,000 tires in its inventory which are considered obsolete. Each unit originally cost the company $35. Management is considering options to reduce these inventory levels. Units can be sold directly to car dealerships for $30 per tire as opposed to the normal selling price of $45 per tire. The other option is to offer their current customers a $10 per tire rebate on their purchase. In addition to the $10 rebate, the program would cost the company approximately $24,000 to manage. They predict that either option will rid them completely of their excess inventory. The decision to sell directly to the car dealerships over offering the rebate will result in:

A $9,000 increase in profits.

When capacity is limited, which of the following are alternative courses of action to consider?

A and B only. A. Produce the items with the largest contribution margin per unit of capacity. B. Purchase some components from outside suppliers. C. Produce the items with the largest selling price to maximize revenue.

Which of the following statements is not true? A. Overhead costs are direct and, as such, are traceable to each product. B. The overhead allocated to an individual unit or product line is the number of driver units contained in that unit or product line times the overhead rate per driver unit.

A is not true Overhead costs are indirect and, as such, are not traceable to each product.

Regression analysis is:

A statistical method for estimating fixed and variable costs.

To judge whether an investment is worthwhile:

A, B and C. a. We need to estimate the benefits over its life. b. We need to estimate the costs over its life. c. We must decide whether the investment is the best use of available funds.

Which of the following topics are discussed in the Unit 13? A. Explain how companies use budgets for performance evaluation. B. Compute leverage ratio and analyze this ratio from a creditor's perspective. C. Compute return on equity and analyze this ratio from an investor's perspective. D. Compute debt to tangible net assets and analyze this ratio from a creditor's perspective. E. Compute interest coverage ratio and analyze this ratio from a creditor's perspective.

A, B, C, D, and E

Variances could arise:

A, B, and C. A. during the normal course of operations because a machine unexpectedly breaks down. B. because of a permanent change in the firm's operating environment such as a competitor introduces a new product. C. because budgets or standards are either too tight or too loose.

Scatter plots help us:

A, B, and C. a. Determine the appropriate technique to use to estimate fixed and variable costs. b. Obtain a visual confirmation of the relation between the chosen activity and the cost. c. Uncover data points that do not appear to conform to the general pattern emerging from other data points.

The computation of EBITDA includes

Adding tax expense to Net Income

Which of the following statements is correct?

All of the above Small variances probably indicate random factors at work It is possible that the cost variances occurred because of fluctuating input prices large variances could signal a permanent change in the operating environment

Which of the following statements is true?

All statememts are true A. We calculate cost variances as the budgeted amount less the actual result. B. We calculate sales, contribution margin, and profit variances as the actual result less the budgeted amount. C. If budgeted labor costs exceed actual labor cost, the variance is favorable and positive.

Which of the following statements is true? A. The initial outlay for an asset does not include the cost of installation and training charges. B. The salvage of an asset is the residual value from disposing of the asset at the end of its useful life. C. Setting an estimated life expectancy of an asset too low understates the profitability of the investment and could result in the firm rejecting profitable opportunities.

B & C are true explanation: A is not true: The initial outlay includes all costs incurred to ready the asset for its intended use. both B and C are true

Which of the following statements is not true? A. Budgets are statements of management's plans stated in financial terms. B. A critical factor in budgeting for a service firm is to determine the amount of products to purchase. C. A budget can be used as a basis for evaluating performance.

B is not true

Fred's Construction Co. has an opportunity cost of capital of 5.5%. Which of the following is the most acceptable investment for Fred's Construction Co.?

B. An investment with an NPV of $7 Explanation: The IRR of 5.0% is below the cost of capital, so we cannot deem this as an acceptable investment. Since the investment with the NPV of $7 is the only positive NPV option, we can deem this as the most acceptable investment for this company.

Which of the following statements is true?

Both A and B is true A. The hurdle rate reflects the minimum expected rate of return of the management from any project. B. Ignoring future benefits because they are hard to quantify can lead to lost opportunities. C. Some firms accept low rates of return to compensate for the risk from taking on long-lived capital investments.

Which of the following costs are added to work-in-process during the period?

Both A and B. A. Raw materials. B. Labor C. Administrative costs.

The Interest Coverage ratio helps lenders such as a bank to determine if a borrower is likely to

Generate enough cash flow to be able to repay a loan

A passive investor

Has access to the company's financial statements information, but must rely on the public financial statements' information

Variability deals with:

How activities influence costs and benefits.

Which of the following statements is not true?

If budgeted cost is greater than actual cost, the result is an unfavorable variance.

The controller of Simpson Enterprises estimates that the installation and training for a new computer system will cost around $125,000. In which element of the project cash flow elements will this cost be included?

Initial outlay.

Variance analysis is an important tool because:

It helps management determine why actual profits varied from budgeted profits

The SurferDude Company manufactures long and short surfboards. The company incurred manufacturing overhead costs of $210,000 in March. They have decided to allocate these costs based on units produced. In March the company produced 8,000 longboards and 6,000 shortboards. The amount of overhead allocated to each product, respectively, would be:

Longboards Shortboards $120,000 $90,000

The primary role of accounting is to:

Measure the costs and benefits of decision options.

What is the effect on NPV of an asset if the salvage value is ignored?

NPV would be understated.

Gecko Company is evaluating the use of a supplier versus making the wheels for its skateboards internally. The currently manufactured wheels have a variable unit cost of $2. Fixed costs are $16,000 per month, however, 25% can be eliminated if wheels are no longer produced. A supplier has offered to produce this part for $3 per wheel and can produce the 3,200 wheels for the 800 skateboards needed monthly. Should Gecko outsource wheels or make them internally?

Outsource because the incremental cost savings is $800.

A practical shortcut for the denominator in the Return on Equity ratio is

Owners' Equity at the beginning of the period

From a bank's perspective, they would feel more comfortable with an outstanding loan if the borrower's most recent financial statements indicated that

Return on Equity and Interest Coverage Ratio had increased relative to the prior period and Liabilities to Tangible Net Worth and Leverage Ratio had decreased relative to the prior period

Which of the following would NOT be a good benchmark for evaluating the Return on Equity of the Ford Motor Company for their most recent year

Return on Equity for Microsoft for the current year

Which of the following short-term decisions deal with excess capacity?

Special order.

Which part of the four step framework for making decisions is linked directly to the formulation of the decision maker's goals?

Step 1: Specify the decision problem.

The Total Liabilities to Total Assets ratio helps lenders such as a bank to monitor a loan to prevent the borrower from

Taking out more loans and increasing their total liabilities

Conceptually, the denominator in the Return on Equity ratio is

The average Owners' Equity throughout the period

If a company's revenue is $530,000, profit before taxes is $98,000, and product costs are $390,000 then:

The company's gross margin totals $140,000 $530,000 - $390,000 = $140,000

Which one of the following correctly describes the relationship between the NPV and discount rate?

The higher the discount rate, the lower the NPV of a cash flow.

The minimum expected rate of return of the management from any project is referred to as the:

The hurdle rate.

Money is a productive asset. Its opportunity cost is:

The time value of money.

The opportunity cost of any decision option is:

The value to the decision maker of the next best option.

Which of the following statements is true when describing a make-or-buy decision?

The variable costs assigned to the item when made and the cost to buy are both relevant.

Which of the following is not a use of the CVP relation?

To evaluate the time value of money on a business decision.

An investor may sometimes compute Return on Equity with "Adjusted Net Income" in the numerator because he or she

To remove nonrecurring revenues or expenses from Net Income

The Liabilities to Tangible Net Worth ratio is

Total Liabilities divided by (Tangible Assets minus Total Liabilities)

Contribution margin equals revenues less variable costs.

True

In addition to planning profits, the CVP relation helps organizations make short-term decisions.

True

A cost that is proportional to the volume of activity is a:

Variable cost.

A company can achieve an increase in contribution margin (given no other changes) if:

Variable costs decrease.

The direct materials budget details 1.the quantity of direct materials to be purchased. 2.the cost of direct materials to be purchased.

both 1 and 2.

The allocation rate is $4; the cost object is boats; and the number of boats is the cost driver. The cost pool is $40. There are 4 red boats and 6 blue boats produced. How much cost is allocated to red boats?

$16

Billings Company's plant manager is trying to better understand his plant's inventory workflow. He determined that $10 million was spent on raw materials, $2 million on direct labor and $3 million on manufacturing overhead. If raw materials beginning and ending inventories are $2 million and $1 million, respectively, and work-in-process beginning and ending inventories are $6 million and $4 million respectively, how much is cost of goods manufactured?

$18 million.

The following information is taken from the production budget for the first quarter: Beginning inventory in units 1,200 Sales budgeted for the quarter 426,000 Capacity in units of production facility 472,000 How many finished goods units should be produced during the quarter if the company desires 3,200 units available to start the next quarter?

428,000

The following information is taken from the production budget for the first quarter: Beginning inventory in units 1,200 Sales budgeted for the quarter 456,000 Production capacity in units 472,000 How many finished goods units should be produced during the quarter if the company desires 3,200 units available to start the next quarter?

458,000

If there were 60,000 pounds of raw materials on hand on January 1, 120,000 pounds are desired for inventory at January 31, and 410,000 pounds are required for January production, how many pounds of raw materials should be purchased in January?

470,000

Doe Manufacturing plans to sell 6,000 purple lawn chairs during May, 5,700 in June, and 6,000 during July. The company keeps 15% of the next month's sales as ending inventory. How many units should Doe produce during June?

5,745

Little Toy Company makes and sells miniature doll houses. Little produces two kinds of houses: Standard and Deluxe. The demand for doll houses is highest in November and December. Expecting this trend to continue, Little is interested in how to best utilize available capacity. Given the following information, what combination of doll houses should Little produce? Standard Deluxe Demand 8,000 3,000 Unit Price $60 $80 Unit variable cost $25 $35 Unit contribution margin $35 $45 Production rate (units per hour) 2 1 Available production hours 5,000 hrs Total fixed costs $40,000

8,000 Standard; 1,000 Deluxe.

Which of the following is a drawback of using regression analysis?

It makes a number of assumptions about the data, and accounting data sometimes do not satisfy these assumptions. True. For example, the regression analysis may make an assumption that the relationship between the sales volume and profit is linear. But in the reality, it might not be case.

Which one of the following is not a benefit of budgeting?

It provides assurance that the company will achieve its objectives.

Which of the following is a short-term decision that is a reaction to excess demand?

Management makes the decision to buy parts rather than make them after calculating a positive opportunity cost for capacity.

The production budget shows expected unit sales are 100,000. The required production units are 104,000. What are the beginning and desired ending finished goods units, respectively? Beginning Units Ending Units A. 10,000 6,000 B. 6,000 10,000 C. 4,000 10,000 D. 10,000 4,000

B Beginning of finished goods + Production - Sales = Ending of finished goods 6,000 + 104,000 - 100,000 = 10,000

Which of the following statements is not true except:

D. Depreciation offers a tax shield that reduces the cash outflow associated with tax payments. The cost of capital is measured as the rate of return that providers of capital expect from their investment

At January 1, 2013, Deer Corp. has beginning inventory of 2,000 surfboards. Deer estimates it will sell 10,000 units during the first quarter of 2013 with a 12% increase in sales each quarter. Deer's policy is to maintain an ending inventory equal to 25% of the next quarter's sales. Each surfboard costs $100 and is sold for $150. How much is budgeted sales revenue for the third quarter of 2013?

$1,881,600

The following information is available for the Downtown Furniture Company which produces two types of tables. Oak Cherry Total Sales volume (units) 500 300 800 Revenue $80,000 $78,000 $158,000 Variable Costs Direct materials $5,000 $8,000 $13,000 Direct labor $17,000 $21,000 $38,000 Contribution Margin $58,000 $49,000 $107,000 Fixed Costs Manufacturing $40,000 Administrative $33,000 Profit before Tax $34,000 Management feels that the fixed manufacturing costs should be allocated based on direct labor costs. The rate at which fixed manufacturing costs which should be allocated, and the manufacturing cost allocated to oak tables produced are: (rounded)

$1.05 per direct labor dollar and $17,894.74 Rate at which fixed manufacturing costs allocated: Manufacturing 40,000/ Direct labor costs 38,000=1.05 per direct labor dollar For oak tables, the manufacturing costs allocated = 1.05 * 17,000=$17,894.74

Tiff's Corporation manufactures travel clocks and watches. Overhead costs are currently allocated using direct labor hours. Clocks Watches Total Direct labor hours (unit) 35,000 105,000 140,000 #Units Shipped 75,000 45,000 120,000 Total Overhead Cost $210,000 What is the OH allocation rate if the total OH cost is allocated based on labor hours?

$1.50 OH Rate: $210,000 Total OH / 140,000 Total Direct Labor Hours = $1.50/hour

Dart, Inc. makes and sells umbrellas. The company is in the process of preparing its Selling and Administrative Expense Budget for the last half of the year. The following budget data are available: Variable Cost Per Unit Sold Monthly Fixed Cost Sales commissions 0.60 6,000 Shippinp 1.20 Advertising 0.30 Executive salaries 40,000 Depreciation on office equipment 8,000 Other 0.35 28,000 Expenses are paid in the month incurred. If the company has budgeted to sell 8,000 umbrellas in October, how much is the total budgeted selling and administrative expenses (including variable and fixed) for October?

$101,600 (0.6+1.2+0.3+0.35)*8000+6000+40000+8000+28000=$101,600

A company has an opportunity cost of capital of 9.5%. Which of the following is the most acceptable investment for this company?

An investment with an NPV of $5.

Dart, Inc. makes and sells umbrellas. The company is in the process of preparing its Selling and Administrative Expense Budget for the last half of the year. The following budget data are available: Variable Cost Per Unit Sold Monthly Fixed Cost Sales commissions $0.60 $6,000 Shipping 1.20 Advertising 0.30 Executive salaries 40,000 Depreciation on office equipment 8,000 Other 0.35 28,000 Expenses are paid in the month incurred. If the company has budgeted to sell 8,000 umbrellas in October, how much is the total budgeted variable selling and administrative expenses for October?

$19,600

Strand Company is planning to sell 400 buckets and produce 380 buckets during March. Each bucket requires 500 grams of plastic and one-half hour of direct labor. Plastic costs $10 per 500 grams and employees of the company are paid $15.00 per hour. Manufacturing overhead is applied at a rate of 110% of direct labor costs. Strand has 300 kilos of plastic in beginning inventory and wants to have 200 kilos in ending inventory. How much is the total amount of budgeted direct labor for March?

$2,850

Garnett Co. expects to purchase $180,000 of materials in July and $210,000 of materials in August. Three-fourths of all purchases are paid for in the month of purchase, and the other one-fourth are paid for in the month following the month of purchase. How much will August's cash disbursements for materials purchases be?

$202,500

ABS Co. has budgeted its activity for April according to the following information: Sales at $500,000, 60% by cash, and rest on account. Budgeted depreciation for April is $10,000. The cash balance at April 1 was $12,000. Selling and administrative expenses are budgeted at $45,000 for April and are paid full in cash in May. The invoice cost for merchandise purchases represents 50% of the sales price. All purchases are paid in cash. How much are the budgeted cash disbursements for April?

$250,000 Cash disbursement: The invoice cost for merchandise purchases =50%*500,000=$250,000

Bass Boss Manufacturing Company manufactures two types of bass boats. Bass Boss provides the following data, pertinent to allocating its annual overhead cost of $435,000: Bass Boss Product Boss Boss Hog Bear Units per year 15,000 20,000 Machine hours/unit 3.0 5.0 Materials cost/unit $1,500 $2,000 Labor cost/unit $ 800 $1,000 Determine the allocation rate for assuming the cost driver is machine hours/unit.

$3 per machine hour

Assume University T-Shirt Shop has a selling price of $25 and unit variable cost of $10 for its long-sleeve cotton shirts. Fixed costs total $1,000. University believes increasing its price to $27 will cause its sales volume to drop by 5 percent. If University's sales volume for the month was estimated to be 300 shirts before the price increase, how will net profit be affected by the change in selling price?

$345 increase.

Spikes Company manufactures 5,000 high-end racing bicycles each period. Spikes has been making all the components for the bikes, but a supplier has approached Spikes with an offer to sell her bicycle seats at a price of $40. The cost per unit of manufacturing one bicycle seat is computed as follows: Direct Material $10 Direct Labor $18 Manufacturing overhead (100% fixed) $10 If the bicycle seats are purchased from the outside supplier, $1 per unit of the fixed manufacturing overhead costs can be avoided. If Spikes purchases the seats, the facility used to manufacture the seats would be rented for $20,000 per period. If Spikes chooses to purchase the bicycle seats, then the change in annual net operating income is an:

$35,000 decrease.

Young Co. has budgeted its activity for December according to the following information: Sales at $600,000, all for cash. Budgeted depreciation for December is $15,000. The cash balance at December 1 was $15,000. Selling and administrative expenses are budgeted at $60,000 for December and are paid for in cash. The planned merchandise inventory on December 31 and December 1 is $18,000. The invoice cost for merchandise purchases represents 75% of the sales price. All purchases are paid in cash. How much are the budgeted cash disbursements for December?

$510,000 $600,000*.75 = $450,000 $450,000 + $60,000 = $510,000

Hobbs Electronics makes and sells portable DVD players. Each DVD player has a selling price of $100. The following cost data per DVD player is based on a capacity of 5,000 DVD players per period. Direct Material $30 Direct Labor $20 Manufacturing Overhead (70% variable; 30% fixed) $10 Hobbs receives a special order for 100 DVD players. The only additional costs Hobbs will incur is $2 shipping charges per item. Hobbs has sufficient idle capacity to produce the additional DVD players. What is Hobbs' breakeven selling price per DVD player for the special order?

$59

Spudz Toys estimated production of 2,000 stuffed dogs each with a selling price of $8.00. If the variable cost per stuffed dog is $2.00 and fixed costs are $5,000, what is estimated profit?

$7,000

Beach Surf Boards is making a decision on whether to add long boards as a new product line to complement its short boards. A recent analysis determined that the average long board can be sold for $300.00 with unit variable costs of $225. Fixed costs are currently $51,000 per month but would be increased to $69,000 if long boards are added. How much is incremental profit or (loss) if long boards are added and its sales volume is expected to be 250 units?

$750 $300*250 = $75,000 Revenue $225*250 = $56,250 Variable Costs $69,000 - $51,000 = $18,000 incremental fixed cost $75,000 - $56,250 - $18,000 = $750 profit

Bill and Ted recently opened a plumbing business. The business currently has $500 monthly depreciation for its two trucks as its only fixed costs. During the first month, the company had 10 service calls each earning $99 revenue per call and variable costs amounting to $20 per call for plumbing supplies and gas. How much is Bill and Ted's contribution margin for its first month?

$790

Tomba Civil Engineers' manager is attempting to calculate its cost of providing services to clients. Its profit before taxes for January is $4,000, and it's selling and administration costs are $8,000, service revenue is $20,000. How much is its cost of providing service?

$8,000

Off-Line Co. has 9,000 units in beginning finished goods. The sales budget shows expected sales to be 36,000 units. If the production budget shows that 42,000 units are required for production, what was the desired ending finished goods?

15,000

Handi-Tool Company manufactures and sells lawn and garden tools. Handi manufactures three kinds of pruning shears: Snip-It, Deluxe Clipper, and Limb-Away. The demand for the pruning shears is highest in April. Expecting this trend to continue, Handi is interested in how to best utilize available capacity. Given the following information, what combination of pruning shears should Handi-Tool produce? Snip-It Deluxe Clipper Limb-Away Demand 200,000 100,000 60,000 Unit Price $20 $30 $50 Unit variable cost $10 $15 $20 Unit contribution margin $10 $15 $30 Production rate (units per hour) 50 25 15 Available production hours 8,000 hrs Total fixed costs $400,000

200,000 Snip-It; 60,000 Limb-Away; 0 Deluxe Clipper.

A company budgeted unit sales of 204,000 units for January, 2013 and 240,000 units for February, 2013. The company has a policy of having an inventory of units on hand at the end of each month equal to 30% of next month's budgeted unit sales. If there were 61,200 units of inventory on hand on December 31, 2012, how many units should be produced in January, 2013 in order for the company to meet its goals?

214,800 units

Teller Co. is planning to sell 900 boxes of ceramic tile, with production estimated at 870 boxes during May. Each box of tile requires 44 pounds of clay mix and a quarter hour of direct labor. Clay mix costs $0.40 per pound and employees of the company are paid $12.00 per hour. Manufacturing overhead is applied at a rate of 110% of direct labor costs. Teller has 3,900 pounds of clay mix in beginning inventory and wants to have 4,500 pounds in ending inventory. What is the total amount to be budgeted in pounds for direct materials to be purchased for the month?

38,880

If selling price is $25, unit contribution margin equals $15 and fixed costs are $12,000, then breakeven volume is:If selling price is $25, unit contribution margin equals $15 and fixed costs are $12,000, then breakeven volume is:

800 units.

A sunk cost is:

A past expenditure that cannot be changed.

Which of the following is a factor that gives capital budgeting an advantage over cost allocations in making long-term capacity resource decisions?

C. Capital budgeting considers the magnitude and timing of all cash inflows and outflows associated with the resource Capital budgeting is a tool that explicitly incorporates the time value of money in decisions involving significant long-term investments. Unlike cost allocations, capital budgeting explicitly considers this time value by discounting future cash inflows and outflows to their current or present value.

which of the following statements is correct?

Cardboard packaging for the product is product cost

The income statement for a service firm distinguishes between which of the following costs?

Cost of providing service and selling and administrative costs.

Which one of the following items would never appear on a cash budget?

Depreciation expense

If only a portion of the cost or revenue pertains to a particular decision option, then it is referred to as a traceable cost or traceable revenue.

False

Step costs change in direct proportion to the volume of activity.

False Step costs stay at the same level for a certain activity range, but jump to a higher amount if the volume of activity increases beyond the range.

When demand is high and a scarce resource is in short supply, a company should decide how much of each product to produce by ranking products by the contribution margin per unit of the product.

False When demand is high and a resource is in short supply, a company should decide how much of each product to produce by ranking products by the contribution margin per unit of the resource

Even when there are no sales, total costs include only variable costs.

False When there are no sales, revenues are zero and total costs equal fixed costs.

Which one of the following correctly indicates how to calculate breakeven volume?

Fixed costs divided by unit contribution margin.

Quantifying the longer-term implications of short-term actions is difficult. Consequently:

Frequently, only qualitative assessments are possible.

Shickman Company makes the widgets it uses in one of its products at a cost of $8 per unit. This cost includes $2 of fixed overhead. The company needs 10,000 of these plugs annually, and Orlando Company has offered to sell them at $5 per unit. If Shickman Company purchases the plugs, the company would:

Increase profits by $10,000.

Acme Manufacturing Company's controller was classifying costs for the most recent financial statement period. Which of the following should be excluded from the calculation of gross margin?

Marketing brochure for the company's new product.

Which of the following statement is not true?

Period costs contain controllable, but not non-controllable costs. TRUE Period costs are all costs that are not product costs. Service firms are distinguished from other firms in that the products service firms offer are not tangible or storable. The GAAP income statement combines controllable with non-controllable costs and fixed costs with variable costs. The cost of providing services might include depreciation on equipment.

The Southeast Company makes three products in one manufacturing facility. Data regarding these products are as follows: A B C Direct Materials $5.70 $6.20 $8.90 Direct Labor 2.05 1.90 2.20 Variable Overhead .70 .80 .90 Fixed Overhead 1.10 1.40 1.60 Unit Product Cost $9.55 $10.30 $13.60 Machine Hours Per Unit .5 1 .25 Selling Price per Unit $16.00 $18.00 $20.00 Demand (units) 1,200 1,400 800 If there are only 2,000 machine hours available, the production of which product will result in the most income per machine hour?

Product C

Which of the following equations highlights the cost-volume-profit relation?

Profit before taxes = [(Price - Unit variable cost) x Sales volume in units] - Fixed costs.

Which of the following is not a part of the initial outlay for a capital expenditure?

Salvage value. TRUE Shipping costs. Taxes. Installation costs. Training charges.

Which of the following is not one of the four steps in the decision making process?

Separate routine decision problems from non-routine decision problems. TRUE Specify the decision problem, including the decision maker's goals. Identify options. Measure benefits and costs to determine the value of each option. Make the decision, choosing the option with the highest value.

What is the first step in the decision-making process?

Specify the problem and goals.

When there is a production constraint, the company should first produce the product with:

The highest contribution margin per unit of the constrained resource

It is important to keep the time horizon in mind when making decisions because:

The horizon affects whether a cost or benefit is controllable for the decision.

Which of the following statements is correct?

The matching principle in GAAP requires that we separate product costs and period costs.

A fixed cost does not change as the volume of activity changes.

True

In the short-run, organizations often are not able to substantially alter their abilities to deliver products or services, making levels of capacity resources non-controllable.

True

Over the short-term, fixed costs do not change with the number of units sold.

True

When all other factors remain the same, if a firm decides to decrease the selling price of its product, its unit contribution margin also decreases.

True