MGT Test 2

Daphne's Planter Company produces and sells planters. The manager reported $6,200 in fixed expenses, operating income of $0 at the breakeven point, and a contribution ratio of 60%. What is the company's breakeven point in units using the shortcut approach?

($6,200 + 0) / .60 = 6,200 units ($5,400 + 0) / .50 = 10,800 units

Tara's Sewing Service sells designer afgans for $85 each. Unit variable expenses total $50. The breakeven sales in units are 2,500 and budgeted sales in units are 4,300. What is the margin of safety in dollars?

(4,300 - 2,500) × $85 = $153,000

Tara's Sewing Service sells yarn. Tara expects to sell 400 units of yarn this month. The manager forecasted the sale of 200 units of yarn to break even. What is the margin of safety in units?

200 units

The Heart Foundation is a charity that produces and sells two products, red hearts and purple hearts, to promote health in the community. The manager estimates clients will purchase 2,400 red hearts and 1,100 purple hearts by the end of the next period. The unit contribution margins for red hearts and purple hearts are $2.75 and $3.40. What is the weighted-average unit contribution margin?

2400x2.75=6600 1100x3.40=3740 6600+3740=10340 2400+1100=3500 10340/3500=2.95

What is the most likely change to total variable costs if a manager increases the production of a product by 25%?

25% increase

Cooke Corporation reports that at an activity level of 7,000 units, the total variable cost is $590,730, and the total fixed cost is $372,750. What would be the total cost, both fixed and variable, at an activity level of 7,100 units? Assume that this level of activity is within the relevant range.

$971,919

_______ is an example of a discretionary fixed cost expense.

advertising

Sandy's Manufacturing Service reported fixed manufacturing overhead of $3,800,000, and 3,900,000 total units. The variable manufacturing costs were $1.50 per unit. What is the cost per unit using absorption costing?

$.53

Josh's Manufacturing Company reported fixed manufacturing overhead of $2,500,000, and 2,600,000 total units. The variable manufacturing costs were $1.50 per unit. What is the cost per unit using absorption costing?

$.54

Sam's Appliance Outlet has variable expenses of 40% of sales. The manager reported monthly fixed expenses of $240,000. The monthly target operating income is $80,000. What is the monthly margin of safety in dollars if the manager at Sam's Appliance Outlet achieves the operating income goal?

$133,333

Violet Industries held an annual meeting and reported a new annual budget of $50,000 in total fixed expenses. The new selling price per unit is $58, and the new variable expense per unit is $30. If the manager can reduce fixed expenses by another $10,000, what is the effect on breakeven sales?

$357 decrease in breakeven units

The manager at TV Land Productions reported total sales revenue of $900,000. The variable expenses were $300,000, and there were $325,000 of total fixed expenses. Calculate the contribution margin ratio and use the contribution margin shortcut formula to predict the breakeven point in dollars.

$4,875

Terry's Frame & Art Shoppe produces and sells picture frames to clients at $8.00 per picture frame. The variable cost to produce each picture frame is $3.25. The fixed costs are $3,000 per month. What is the firm's contribution margin per picture frame?

$4.75

The Beach Sea Shop has variable expenses of 35% of sales. The manager reported monthly fixed expenses of $250,000. The monthly target operating income is $65,000. What is Beach Sea Shop's operating leverage factor at the target level of operating income?

$65,000 + $250,000 = $315,000 $315,000 / $65,000 = 4.846, rounded to 4.85.

MaryJane's Bakery manufactures and sells a variety of baked goods. The selling price per dozen of chocolate glazed dunuts is $8.00. The variable costs to produce the chocolate glazed donuts are $3.75, and total fixed costs are $3,800. What are the breakeven sales in dollars?

$7,160

Lisa's Custom Print Services produces and sells custom seashore prints. The manager reported $5,400 in fixed expenses, operating income of $0 at the breakeven point, and a contribution ratio of 50%. What is the firm's breakeven point in units using the shortcut approach?

5400/.10=10800

The Lampost Production Company has $6,000 of fixed expenses. The manager reported that the company's operating income wass $0, and the contribution margin was 40%. What are the company's sales in dollars using the shortcut approach to the contribution margin ratio?

6000+0/40%=15000

Rachel's Candelabra Shoppe sells candles to clients for $6.00 each. The variable cost to produce each candle is $2.25 per candle. The fixed costs are $2,800 per month. What is the firm's contribution margin ratio?

62.5%

How might a change in fixed costs affect the contribution margin?

A change in fixed costs does not affect the contribution margin.

an income statement that organizes costs by behaviour (variable costs or fixed costs) rather than by function.

A contribution margin income statement

Which of the following is TRUE about a relevant costs and information?

A manager focuses only on relevant costs and benefits, which include costs that differ amongst alternatives and impact the future

Which of the following statements is TRUE about sensitivity analysis?

A manager uses sensitivity analysis to determine the impact of changes to the sales price and volume.

Which of the following statements is NOT true about sensitivity analysis?

A manager will NOT use CVP analysis to conduct sensitivity analysis.

refers to how a company's operating income relates to changes in volume.

Operating leverage factor

Tim's Manufacturing manufactures and sells sofas and futons. The following data was reported by the managerial accountant. The company can manufacture 2 sofas per machine hour and 1 futon per machine hour. The company's production capacity is 700 machine hours per month. What is the contribution margin per machine hour for the sofas? Sofas Futons Sales price $750 $525 Variable costs $400 $225

The contribution margin per machine hour for the sofas is $700. $750 - $400 = $350 contribution margin per sofa Sofas per hour = 2 × $350 = $700

Which of the following choices represents the computation of contribution margin per unit of a constraint?

Contribution margin per unit × Units per constraint

________ starts with the product's total costs and adds a desired profit to determine a cost-plus price.

Cost-plus pricing

Mike's Bike Shop rents mopeds to tourists at the beach. The old manager charged $20 per day plus $0.05 per mile. The new manager wants to change the marketing strategy and charge $15 per day and exclude the extra $0.05 per mile. What type of costs are most important to consider when the new manager plans to lower the charges to customers?

Fixed costs

Under variable costing, a unit of a product includes ________.

direct materials, direct labor, and variable overhead costs

A unit of product under absorption costing includes ________.

direct materials, direct labor, variable overhead, and fixed overhead costs

a result of an annual management decision. Companies have more control over discretionary fixed costs. such as advertising expense

discretionary fixed cost

The horizontal y-axis on the CVP graph represents ________.

dollars

y = f, when v - zero

fixed cost equation

When sales exceed production, the net operating income reported under variable costing is ________.

greater than the net operating income reported under absorption costing

a method to determine cost behaviour that is based on two historical data points: the highest and lowest volumes of activity

high-low method

Product cost under absorption costing is ________.

higher than variable costing

Unavoidable fixed costs ________.

include fixed costs that continue to be incurred even if the product line is discontinued

The weighted-average contribution margin ________.

is computed as the total contribution margin divided by total sales

Relevant information ________.

is expected future data and differs amongst the alternatives

The contribution margin ________.

is the excess of sales revenue over variable expenses

An advantage of account analysis is ________.

its simplicity

Step 5 of the CVP graph represents

operating income and the operating loss areas.

A special order should be rejected when ________.

the price of the special order is NOT more than variable costs of the order

the estimated or predetermined cost a manager normally uses to compare to an actual cost.

the standard cost

Step 3 of the CVP graph represents

the total expense line.

The vertical axis (y-axis) on a graph plots ________.

total fixed costs

________ costing understates inventory on the balance sheet.

variable

y = vx, when f = zero.

variable cost equation

Contribution margin is also known as ________.

variable profit

Total variable costs ________.

vary in direct proportion to changes in volume

Daphne's Floral Service has a monthly target operating income of $30,000. Variable expenses are 15% of sales. The manager reported fixed expenses of $20,000. What is Daphne Floral's operating leverage factor at the target level of operating income?

$30,000 + 20,000 = $50,000 $50,000 / $30,000 = 1.66, rounded to 1.67.

Blake's Manufacturing sells unfinished wood pieces for $150 each. The manager reported 280 defective wood pieces in inventory, which cost $20 to refabricate. The manager can sell the defective pieces for $30 each, or process the wood further for $10 each, and then sell them for the standard sales price. What is the total incremental income from further processing?

$30,800

Blake's Repair Services has 2,000 damaged radios that cost $40,000. The radios could be sold as is for $20,000, or repaired for $30,000 and then sold for $65,000. Compute the opportunity cost of selling the radios without the repairs.

$35,000

How can a manger forecast operating income?

(sales revenue × contribution margin ratio) - fixed costs

Marla's Antique Shoppe reported total cost to produce authentic antiques of $10,500,000. The managerial accountant needs a gross profit of $50,000 to meet monthly expenses. What is the cost-plus price?

10,500,000+50,000=$10,550,000

Brandy's Balloon Service currently sells 1,000 balloon bundles per month. The competition in the balloon industry continues to soar within a thirty-mile vicinity of the service location. Brandy was considering reducing the sales price of balloon bundles to $10 per bundle. If the variable expenses remain at $2.00 per balloon bundle and fixed expenses remain at $5,000, how many balloon bundles will Brandy need to sell to break even?

10-2=8 5000/8=625

Sam's Appliance Outlet has variable expenses of 40% of sales. The manager reported monthly fixed expenses of $270,000. The monthly target operating income is $75,000. What is the monthly margin of safety in dollars if the manager at Sam's Appliance Outlet achieves the operating income goal?

125000

MaryJane's Bakery manufactures and sells a variety of baked goods. The selling price per dozen of chocolate glazed donuts is $8.00. The variable costs to produce the chocolate glazed donuts are $3.75, and total fixed costs are $3,800. How many dozen chocolate glazed donuts must the manager sell to break even?

8.00-3.75=4.25 3800/4.25=894.1 Answer" 895

The Coffee Factory sells two products, supreme and mild. The supreme sells for $120 per case (unit) with variable costs of $90 per unit. The mild sells for $90 per unit with variable costs of $10 per unit. The manager reported $42,600 total fixed costs. The Coffee Factory usually sells three supreme brands for each two mild brands. What is the breakeven point in total units?

852 units

The Landscape Company produces and sells large and medium landscaping tiles. The large landscaping tiles sell for $90 per unit with variable costs of $30 per unit. The medium landscaping tiles sell for $60 per unit with variable costs of $30 per unit. The total fixed costs for the company is $42,000. The Landscape Company usually sells three large tiles for every two medium tiles. What is the breakeven point in units?

875 units

Which of the following is a TRUE statement about a special order?

A special order occurs when a customer requests a one-time order at a reduction in the sales price.

Which of the following is a TRUE concept about what a manager should consider when a customer requests a one-time special order?

Available capacity

________ costs include costs that may be eliminated as a result of discontinuing the product

Avoidable fixed

___________expresses the relationships amongst costs, volume, and organizational profits.

CVP analysis

Which of the following refers to the excess of sales revenue over variable expenses?

Contribution margin

Which of these is an argument against the use of variable costing?

Fixed factory overhead is necessary to produce a product.

Which of the following is a TRUE statement about the graphing of variable costs?

Graphs of variable costs begin at the point that represents zero volume and zero cost.

Which of the following is NOT considered when determining whether to sell or process further?

How much revenue will be earned on all other product lines.

Which of the following is NOT relevant in the thought process to make a "Sell as Is" or "Process Further" decision?

Identifying all costs except the cost of extra revenue from processing further

Which of the following is TRUE about constraints?

Identifying all costs except the cost of extra revenue from processing further

refers to the point at which a manager would be indifferent between two options since they would both result in the same total cost.

Indifference point

Which of the following is NOT true about the breakeven point?

It is the sales level at which operating income is never zero.

Which of the following is NOT a characteristic of a price-taker?

Less competition

Which of the following is NOT a potential drawback of outsourcing?

Outsourcing is a lower cost alternative.

Mike's Auto Service reported information about the cost associated to sell as is or process further. The managerial accountant recorded $150,000 of extra revenue from selling parts. State whether the managerial accountant should "Process Further" or "Do Not Process" based on the Decision Rule.

Process further because the extra revenue from processing further is more than extra cost of processing further.

a statistical procedure to determine the line that best fits the data by using all of the historical data points, not just the high and low data points.

Regression analysis

The R-square statistic is often referred to as a "goodness of fit" statistic because it describes the _______.

Regression line fits the data

Page Incorporated manufactures automotive parts that sell for $80 each. The manager reported 280 defective parts in inventory, which cost $50 to reproduce. The manager can sell the defective parts for $20 each, or process the parts further for $30 each, and then sell them for the standard sales price. Which of the following should the managerial accountant recommend for action?

Repair the defective parts for an $8,400 net increase in operating income.

Sandy's Sewing Service has 500 damaged silk remnants that cost $25,000. The damaged silk remnants could be sold as is for $10,000, or repaired for $15,000 and then sold for $55,000. Compute the opportunity cost of selling the damaged silk remnants without the repairs.

Sale price after repair costs = $55,000 - $15,000 =40,000

the excess of actual or expected sales over breakeven sales.

The margin of safety

Which of these is a FALSE statement about a scatterplot?

The scatterplot is a graph of the historical cost data on the x-axis and volume data on the y-axis.

How to find estimate total monthly fixed manufacturing cost.

Total MOH Unit x MOH per unit.. .do that for both sides then Variable element of manufacturing overhead = Change in cost / Change in activity.. then multiply by higher MOH Unit

_______________ is the excess of the selling price per unit over the variable cost per unit.

Unit contribution margin

______________ the ratio of contribution margin to sales revenue.

Unit contribution margin ratio

________ are treated as product costs under the variable costing method.

Variable production cost

Which of the following is NOT an approach to compute the breakeven point?

Zero income approach

Account analysis is ________.

a method to determine cost behavior that is based on a manager's judgment in classifying each general ledger account as a variable, fixed, or a mixed cost

Step 4 of the CVP graph represents the ________.

breakeven point

A fixed cost expense that management has little or no control over in the short run is a ________.

committed fixed cost

Offshoring ________.

refers to a company having work performed overseas

The operating leverage ________.

refers to a company's amount of relative fixed and variable costs

Segment margin income ________.

refers to the result of operating income or loss for each individual product line

On a per-unit basis, variable costs ________.

remain constant

When using a variable costing system, the contribution margin (CM) is calculated as the excess of ________.

revenues over variable costs

The ________ is the combination of products that make up total sales.

sales mix

The ________ contain(s) NO allocation of common fixed costs.

segment margin income statement

Total fixed costs ________.

stay constant over a wide range of volume

________ are fixed over a small range of activity and then jump up to a new fixed level with moderately small changes in volume.

step costs

A(n) ________ cost includes costs that have been incurred in the past and cannot be changed.

sunk

a cost that occurred in the past and cannot be recovered. A sunk cost is usually not pertinent in a manager's decision-making process. previous

sunk cost

A managerial accountant needs to make a sell or continue to process decision about a product. The managerial accountant should continue manufacturing the product instead of selling the product if ________.

the extra revenue is greater than the extra cost to continue manufacturing a product

Step 2 of the CVP graph represents

the fixed expense line

Rochelle Corporation makes reservations for vacation homes. Rochelle Corporation provides complimentary coffee packets at a cost of $2 per guest who stay at the mountain resort. The general manager reported a total cost of $5,000 for coffee during the previous quarter. The historical number of guests at the mountain resort is 10,000 guests during the year. The manager uses the formula to compute the total variable cost (y) = Variable cost per unit of activity (v) × Volume of activity (x). The manager expects 500 guests in December. Which of the following is the correct cost equation to compute y in the cost equation for 500 guests?

y = $2 × 500

The following data pertains to activity and maintenance cost for two recent periods: Activity level (units) 5,000 4,000 Maintenance cost $16,750 $15,000 Maintenance cost is a mixed cost with both fixed and variable components. The cost formula for maintenance using the high-low method is ________.

y = $8,000 + $1.75x

Which of the following equations best expresses the straight line equation for a variable cost equation when f is zero?

y = vx