Managerial Accounting Exam 2

Units needed = 36,000 ; Dollar sales needed = 1,800,000 (unit sales needed to attain a target profit = target profit + fixed exps / CM per unit --> 195,000 + 345,000 / (50 x 30%) = 36,000 units dollar sales needed to attain a target profit = target profit + fixed exps / CM ratio --> 195,000 + 345,000 / 30% = 1,800,000)

Lindon Company is the exclusive distributor for an automotive product that sells for $50.00 per unit and has a CM ratio of 30%. The company's fixed expenses are $345,000 per year. The company plans to sell 27,200 units this year. What amount of unit sales and dollar sales is required to attain a target profit of $195,000?

$35.00 (Variable expenses: $50 x (100%-30%) = $35.00

Lindon Company is the exclusive distributor for an automotive product that sells for $50.00 per unit and has a CM ratio of 30%. The company's fixed expenses are $345,000 per year. The company plans to sell 27,200 units this year. What are the variable expenses per unit? (Round your "per unit" answer to 2 decimal places)

fixed expenses

What is usually plotted as a horizontal line on the CVP graph? a. fixed expenses b. variable costs c. sales revenue d. break-even volume

less than absorption costing net operating income

When the number of units produced is greater than the number of units sold, variable costing net operating income will be ____________. a. the same as absorption costing net operating income b. greater than absorption costing net operating income c. less than absorption costing net operating income

3.00 (Operating leverage = Contribution Margin (300,000) / Net Operating Income (100,000) = 3.00)

Winter Corporation's current sales are $500,000. The contribution margin is $300,000 and the net operating income is $100,000. What is the company's degree of operating leverage? a. 3.00 b. 0.60 c. 2.00 d. 1.67

product cost

using the variable costing approach, variable manufacturing overhead is a period cost of product cost?

period cost (also true with absorption costing)

using the variable costing approach, variable selling and administrative expenses is a period cost of product cost?

is less than

When the units produced exceed the units sold, the net operating income computed using the variable costing method is __________ the net operating income using the absorption costing method. a. is greater than b. is equal to c. is less than

variable and fixed cost distinctions

Absorption costing income statements ignore ___________. a. direct materials and direct labor costs b. direct and indirect cost distinctions c. product and period cost distinctions d. variable and fixed cost distinctions

$200 (Selling price per unit ($500) - Variable expenses per unit ($300) = $200)

Atlas Corporation sells 100 bicycles during a month at a price of $500 per unit. The variable expenses amount to $300 per bicycle. How much does profit increase if it sells one more bicycle?

$12,000 (100 units x $200 per unit = Contribution Margin of 20,000 --> 20,000 minus fixed expenses of 8,000 = $12,000 profit from selling 100 bicycles)

Atlas Corporation sells 100 bicycles during a month. The contribution margin per bicycle is $200. The monthly fixed expenses are $8,000. What is the profit from the sale of 100 bicycles? a. $12,000 b. $10,000 c. $20,000 d. $8,000

$400,000 (Traceable fixed costs of the mobile phone division = total traceable fixed costs of 500,000 - traceable fixed costs of the television division of 300,000 = 200,000 mobile phone segment margin = contribution margin of 600,000 - traceable fixed costs of 200,000 = 400,000)

Bovine Corp. has two divisions: televisions and mobile phones. The mobile phone division has a contribution margin of $600,000. The company's common fixed costs and total traceable fixed costs are $100,000 and $500,000 respectively. Assuming the traceable fixed costs of the television division are $300,000, what is the segment margin of the mobile phone division? a. $100,000 b. $200,000 c. $300,000 d. $400,000

total revenue equals total costs

Break-even point is the level of sales at which ________. a. total profit equals total costs b. total profits exceed total costs c. total revenue equals total costs d. total sales equal total projections

60% (CM ratio = 50 - 20 / 50 AKA Unit CM / Unit selling price)

Cartier Corporation currently sells its products for $50 per unit. The company's variable costs are $20 per unit. Fixed expenses amount to a total of $5,000 per month. What is the company's contribution margin ratio? a. 40% b. 60% c. 100% d. 20%

40% (Variable expense ration = Variable expense / Sales = 20 / 50 = 40%)

Cartier Corporation currently sells its products for $50 per unit. The company's variable costs are $20 per unit. Fixed expenses amount to a total of $5,000 per month. What is the company's variable cost ratio? a. 40% b. 60% c. 100% d. 20%

100 units (1st find CM per unit --> $80 - $30 = $50 2nd --> Break-even point in unit sales = Fixed expenses / CM per unit --> 5,000/50 = 100 units for break-even point)

Frank Corporation has a single product. Its selling price is $80 and the variable costs are $30. The company's fixed expenses are $5,000. What is the company's break-even point in unit sales? a. 63 units b. 167 units c. 50 units d. 100 units

$200,000 (Contribution margin = Sales of 500,000 x 60% contribution margin = 300,000 Segment margin = contribution margin of 300,000 - traceable fixed expenses of 100,000 = 200,000)

Max, Inc., has two divisions, South Division and North Division. South Division's sales, contribution margin ratio, and traceable fixed expenses are $500,000, 60%, and $100,000, respectively. What is the segment margin for the South Division? a. $100,000 b. $200,000 c. $300,000 d. $400,000

216,000 (the contribution margin would have to be at $216,000 because the contribution margin is equal to fixed expenses at the break-even point)

Menlo Company distributes a single product. The company's sales and expenses for last month follow: Sales --> In total: $450,000 ; Per unit: $30 Variable exps --> In total: 180,000 ; Per unit: 12 CM --> In total: 270,000 ; Per unit: 18 Fixed exps: 216,000 Net Operating income: 54,000 Without resorting to computations, what is the total contribution margin at the break-even point?

$31,936 (Refer to notes if confused)

Miller Company's contribution format income statement for the most recent month is shown below: 34,000 Units Sales --> In Total: $306,000 ; Per Unit = $9 Variable expenses --> In Total: 204,000 ; Per Unit = 6 Contribution margin --> In Total: 102,000 ; Per Unit = 3 Fixed expenses = 43,000 Net Operating Income = 59,000 What is revised net operating income if the selling price decreases by $1.10 per unit and the number of units sold increases by 16%?

unit contribution margin

Once the break-even point has been reached, net operation income will increase by the amount of the ________ for each additional unit sold. a. unit contribution margin b. unit selling price c. variable expense per unit d. fixed expense per unit

$55,000 (1st --> CM Ratio = CM / Sales (50,000/100,000=.5) 2nd --> Increase in CM by multiplying by percent (50,000x50%) = 25,000 3rd --> OG Net Income of 30,000 + Increase in CM of 25,000 = 55,000, New Net Operating Income)

Sales = $100,000 Variable expenses = 50,000 Contribution Margin = 50,000 Fixed Expenses = 20,000 Net operating income = $30,000 If sales were to increase by $50,000, what will be the net operating income for the company? a. $25,000 b. $55,000 c. $15,000 d. $50,000

$1 million, 20% (1. actual sales = unit sales (25,000) x Selling price per unit (200) = 5,000,000 2. CM Ratio = (Sales - Variable Expenses) / Sales = (200-150/200 = 25%) 3. Break-even in sales dollars = fixed expenses (1,000,000) / CM ratio (25%) = $4,000,000 4. Margin of Safety in dollars = actual sales - break-even sales --> 5,000,000 - 4,000,000 = 1,000,000 5. Margin of Safety in percentage = Margin of Safety in dollars (1,000,000) / Actual sales (5,000,000) = 20%)

Summarized data for Ralph Corporation: Selling price = $200 per unit Variable expenses = $150 per unit Fixed expenses = $1,000,000 per year Unit sales = 25,000 per year What is Ralph's Corporation's margin of safety in dollars AND percentage? Margin of safety in dollars: a. $4 million b. $5 million c. $1 million d. $2.2 million Margin of safety in percentage: a. 20% b. 100% c. 80% d. 50%

$400,000 (Sales dollars to attain target profit = Target profit + Fixed expenses / CM Ratio = 120,000 + 40,000 / 40% = 400,000)

Target Profit = $120,000 Unit contribution margin = $40 Fixed expenses = $40,000 Contribution margin ratio (CM ratio) = 0.40 Selling price = $100 What are the sales dollars required to attain a target profit of $120,000? a. $400,000 b. $300,000 c. $10,000 d. $60,000

4,000 units (Unit Sales to attain target profit = Target profit + Fixed expenses / CM per unit = 120,000 + 40,000 / 40 = 4,000)

Target Profit = $120,000 Unit contribution margin = $40 Fixed expenses = $40,000 Contribution margin ratio (CM ratio) = 0.40 Selling price = $100 What are the unit sales required to attain a target profit of $120,000? a. 400,000 units b. 400 units c. 1,600 units d. 4,000 units

$21,500 (1300 units 175 x 1300 = 227,500 Sales Rev 100 x 1300 = 130,000 Variable Exps CM = 97,500 New Fixed Exps = 96,000 - 20,000 = 76,000 New NOI = 97,500 - 76,000 = 21,500)

Taylor Company has current sales of 1,000 units, at a selling price of $190 per unit, variable costs per unit of $76, and fixed expenses of $96,000. The company believes sales will increase by 300 units, if the company introduces sales commissions as an incentive for the sales staff. The change will decrease the selling price to $175 per unit, increase variable cost per unit to $100, and decrease fixed expenses by $20,000. What is the net operating income after the changes? a. $21,500 b. $30,000 c. $24,500 d. $22,000

Increase of $14,200 (190,000/1000 = selling price of $190, 76,000/1000 = $76 for variable expenses. 190 x 1300 units = 247,000 76 x 1300 units = 98,800 NEW CM = 148,200 add increase advertising expense of 20,000 to previous fixed expense of 96,000 = 116,000 New OP INC = 32,200 CHANGE IN NET OPERATING INCOME AFTER CHANGES = 32,200 - 18,000 (18,000 is OG NOI) = 14,200 increase)

Taylor Company has current sales of 1,000 units, which generates sales revenue of $190,000, variable costs of $76,000, and fixed expenses of $96,000. The company believes sales will increase by 300 units, if advertising increase by $20,000. What is the change in net operating income after the changes? a. increase of $20,000 b. decrease of $20,000 c. increase of $14,200 d. decrease of $12,000

60% (Percentage change in net operating income = Degree of operating leverage (2) x Percentage change in sales (30%) = 60%)

The current sales of Trent, Inc. are $400,000, with a contribution margin of $200,000. The company's degree of operating leverage is 2. If the company anticipates a 30% increase in sales, what is the percentage change in net operating income for Trent, Inc.? a. 24% b. 30% c. 60% d. 25%

fixed overhead costs

The difference between absorption costing net operating income and variable costing net operating income can be explained by the way these two methods account for _____________. a. all overhead costs b. fixed overhead costs c. selling and administrative expenses d. variable overhead costs

Profit=Unit CM x Q - Fixed Exepenses

The profit graph is based on the following linear equation: a. Profit=Unit CM x Q - Fixed Expenses b. Sales=Unit CM - Unit Variable Cost c. Profit=Unit CM x Q + Fixed Expenses d. Profit=Selling Price x Q - Unit CM x Q

$300 (Selling price per unit = (Target Profit / # of units) + Variable cost per unit --> (4,000/40) + 200 = $300)

Walton Corporation is currently selling 104 units of its product. The company is deciding the price that it should charge for a bulk order of 40 units. the variable cost per unit is $200. this order will not involve any additional fixed costs and the company's current sales will not be affected. The company targets a profit of $4,000 on the bulk order. What selling price per unit should the company quote for the bulk order? (Round your answer to the nearest whole dollar).

unit volume

What is represented on the X axis of a cost-volume-profit (CVP) graph? a. sales revenue b. fixed cost c. unit volume d. variable cost

break-even point, loss area, profit margin

With regards to interpretation, what are the important areas that appear on a CVP graph? a. excess of variable costs over fixed costs b. break-even point, loss area, and profit area c. contribution margin d. year-to-year sales volumes and dollars

sales minus variable cost

contribution margin equals _______________. a. sales minus fixed cost b. fixed cost minus variable cost c. sales minus variable cost minus fixed cost d. sales minus variable cost

$52,000 (direct materials used in production + direct labor + variable manufacturing overhead = 40,000 + 10,000 + 2,000 = 52,000)

excerpt from Aerojet Corp. records for month of February: Selling price per unit: $200,000 Direct materials used in production: 40,000 direct labor: 10,000 variable manufacturing overhead: 2,000 fixed manufacturing overhead per month: 120,000 variable selling and administrative expenses per unit: 20,000 fixed selling and administrative expenses per month: 40,000 Assuming the variable costing method is used, what is the total manufacturing costs added to work in process during the month of February? a. $52,000 b. $80,000 c. $87,000 d. $122,000

operating leverage

the measure of how sensitive net operating income is to a given percentage change in volume sales is called __________. a. sensitivity leverage b. operating leverage c. risk leverage

product cost

using the variable costing approach, direct labor is a period cost of product cost?

period cost

using the variable costing approach, fixed manufacturing overhead is a period cost of product cost?

period cost (also true with absorption costing)

using the variable costing approach, fixed selling and administrative expenses is a period cost of product cost?

$83,700 (For eastern division: Sales --> 90,000 x 10% = 9,000 + 90,000 = 99,000 VE --> 27,000 x 10% = 2,700 + 27,000 = 29,700 CM = 99,000 - 29,700 = 69,300 total fixed costs --> traceable fixed exp for eastern region + common fixed exp = 46,800 + 72,000 = 118,800 Net operating income/loss --> CM - total fixed costs = 69,300 - 118,800 = (49,500) Decrease in net operating income = current net operating income/loss MINUS net operating income/loss after elimination --> 34,200 - (- 49,500) = 83,700

Chao, Incorporated, a service provider, has two divisions. The firm's most recent annual contribution format segmented income statement appears below. Eastern Division: Sales: 90,000 VE: 27,000 CM: 63,000 Traceable FE: 46,800 Division segment margin: 16,200 Western Division: Sales: 360,000 VE: 216,000 CM: 144,000 Traceable FE: 54,000 Division segment margin: 90,000 Total Company: Sales: 450,000 VE: 243,000 CM: 207,000 Traceable FE: 100,800 Division segment margin: 106,200 Common FE: 72,000 Net operating income: 34,200 If the company eliminates the Western Division and the Eastern Division sales increase by 10% as a result, how much will the company's net operating income decrease? a. $83,700 b. $88,380 c. $137,700 d. $144,000

$25,000 (Break-even point in sales dollars = Fixed expenses / CM Ratio --> CM Per Unit = 100 - 60 = 40, CM Ratio = 40 / 100 = 40% --> Fixed Expenses of 10,000 / CM ratio of 40% = 25,000)

Future Corporation has a single product; the product selling price is $100 and variable costs are $60. The company's fixed expenses are $10,000. What is the company's break-even point in sales dollars? a. $25,000 b. $2,500 c. $250 d. $16,667

Unit BE = 23,000 ; Dollar sales BE = 1,150,000 (Break-even point in units = fixed exps / CM per unit --> 345,000/(50 x 30%) = 23,000 Break-even point in dollar sales = break-even in units x selling price per unit --> 23,000 x 50 = 1,150,000)

Lindon Company is the exclusive distributor for an automotive product that sells for $50.00 per unit and has a CM ratio of 30%. The company's fixed expenses are $345,000 per year. The company plans to sell 27,200 units this year. What is the break-even point in unit sales and in dollar sales?

$1,350,000 (dollar sales to attain target profit = target profit + fixed expenses / CM ratio CM Ratio = Selling price per unit / CM price per unit --> 50 / 20 = 40%, 195,000 + 345,000 / 40% = 1,350,000)

Lindon Company is the exclusive distributor for an automotive product that sells for $50.00 per unit and has a CM ratio of 30%. The company's fixed expenses are $345,000 per year. The company plans to sell 27,200 units this year. Previous Variable expenses = $35.00 Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $5.00 per unit. What dollar sales is required to attain a target profit of $195,000?

New Unit BE = 17,250 ; New dollar sales BE = 862,500 (Break-even point in unit sales = fixed expenses / CM per unit, Reduce variable expenses by $5.00 --> $35 - $5 = New Variable expense of $30, New CM per unit = 50 - 30 = $20, Break-even point = 345,000 / 20 = 17,250 units Break-even point in dollar sales = break-even point in units x selling price per unit, 17,250 x $50 = 862,500)

Lindon Company is the exclusive distributor for an automotive product that sells for $50.00 per unit and has a CM ratio of 30%. The company's fixed expenses are $345,000 per year. The company plans to sell 27,200 units this year. Previous Variable expenses = $35.00 Assume that by using a more efficient shipper, the company is able to reduce its variable expenses by $5.00 per unit. What is the company's new break-even point in unit sales and in dollar sales?

$260,400 (Last years net operating income = 84,000, expected increase = 84,000 x 210% = 176,400, total expected net operating income = 84,000 + 176,400 = 260,400)

Magic Realm, Incorporated, has developed a new fantasy board game. The company sold 42,000 games last year at a selling price of $70 per game. Fixed expenses associated with the game total $756,000 per year, and variable expenses are $50 per game. Production of the game is entrusted to a printing contractor. Variable expenses consist mostly of payments to this contractor. Management is confident that the company can sell 50,820 games next year (an increase of 8,820 games, or 21%, over the last year). Given this assumption: What is the expected amount of net operating income for next year? (Hint: OG net income is 84,000, operating leverage is 10, & expected percentage increase in net operating income for next year is 210%)

210% (Expected increase in net operating income for the next year = increase in sales x operating leverage ( CM / Net Operating Income), Operating leverage = 840,000 / 84,000 = 10, 21% increase in sales x operating leverage of 10 = 210% increase of net operating income for the next year)

Magic Realm, Incorporated, has developed a new fantasy board game. The company sold 42,000 games last year at a selling price of $70 per game. Fixed expenses associated with the game total $756,000 per year, and variable expenses are $50 per game. Production of the game is entrusted to a printing contractor. Variable expenses consist mostly of payments to this contractor. Management is confident that the company can sell 50,820 games next year (an increase of 8,820 games, or 21%, over the last year). Given this assumption: What is the expected percentage increase in net operating income for next year? (Hint: Build a Contribution Income Statement to find you OG net operating income, and find your operating leverage)

$82,430 (Refer to notes if confused)

Miller Company's contribution format income statement for the most recent month is shown below: 34,000 Units Sales --> In Total: $306,000 ; Per Unit = $9 Variable expenses --> In Total: 204,000 ; Per Unit = 6 Contribution margin --> In Total: 102,000 ; Per Unit = 3 Fixed expenses = 43,000 Net Operating Income = 59,000 What is the revised net operating income if the selling price increases by $1.10 per unit, fixed expenses increase by $7,000, and the number of units sold decreases by 5%?

$88,580 (Refer to notes if confused)

Miller Company's contribution format income statement for the most recent month is shown below: 34,000 Units Sales --> In Total: $306,000 ; Per Unit = $9 Variable expenses --> In Total: 204,000 ; Per Unit = 6 Contribution margin --> In Total: 102,000 ; Per Unit = 3 Fixed expenses = 43,000 Net Operating Income = 59,000 What is the revised net operating income if the selling price per unit increases by 20%, variable expenses increase by 30 cents per unit, and the number of units sold decreases by 14%?

$78,380 (Refer to notes if confused)

Miller Company's contribution format income statement for the most recent month is shown below: 34,000 Units Sales --> In Total: $306,000 ; Per Unit = $9 Variable expenses --> In Total: 204,000 ; Per Unit = 6 Contribution margin --> In Total: 102,000 ; Per Unit = 3 Fixed expenses = 43,000 Net Operating Income = 59,000 What is the revised net operating income if unit sales increase by 19%?

is equal to

When the units produced are equal to the units sold, the net operating income computed using the variable costing method is __________ the net operating income using the absorption costing method. a. is greater than b. is equal to c. is less than

is greater than

When the units produced are less than the units sold, the net operating income computed using the variable costing method is __________ the net operating income using the absorption costing method. a. is greater than b. is equal to c. is less than

Variable

Which of the following costing approaches is best suited for cost-volume-profit analysis? a. absorption b. normal c. standard d. variable

$92,000 (direct materials used in production + direct labors + variable manufacturing overhead + (fixed manufacturing overhead / units produced), 40,000 + 10,000 + 2,000 + (120,000 / 3) = 92,000)

excerpt from Aerojet Corp. records for month of February: Selling price per unit: $200,000 Direct materials used in production: 40,000 direct labor: 10,000 variable manufacturing overhead: 2,000 fixed manufacturing overhead per month: 120,000 variable selling and administrative expenses per unit: 20,000 fixed selling and administrative expenses per month: 40,000 Beginning Inventory: 0 Units produced: 3 Units sold: 3 Ending inventory: 0 Assuming the absorption costing method is used, what is the total manufacturing costs per unit added to work in process during the month of February? a. $52,000 b. $92,000 c. $87,000 d. $122,000

$13,200

excerpt from Wallis Corp.: Selling price per unit: $100 Direct materials used in production: 30 direct labor: 20 variable manufacturing overhead: 10 variable selling and administrative expenses per unit: 7 fixed manufacturing overhead per month: 10,000 fixed selling and administrative expenses per month: 3,000 Beginning Inventory: 0 Units produced: 500 Units sold: 400 Ending inventory: 100 What is the company's contribution margin for January?

$32,000 (unit product absorption method: dm + dL + var. Man. OH + (fixed Man. OH / units produced), =30 + 20 + 10 = 60 + (10,000 / 500) = 60 + 20 = 80, COGS Beg. Inventory: units produced x absorption unit product cost, = 500 x 80 = 40,000, COGS End Inventory: units produced - units sold --> 500 - 400 = 100, 100 x absorption unit product cost (80) = 8,000, Beg. Inv. - End Inv. = COGS for month of January = 40,000 - 8,000 = 32,000)

excerpt from Wallis Corp.: Selling price per unit: $100 Direct materials used in production: 30 direct labor: 20 variable manufacturing overhead: 10 variable selling and administrative expenses per unit: 7 fixed manufacturing overhead per month: 10,000 fixed selling and administrative expenses per month: 3,000 Beginning Inventory: 0 Units produced: 500 Units sold: 400 Ending inventory: 100 What is the cost of goods sold for the month of January using the absorption costing method?