Accounting Exam 2 Ch 17, 18 and 20

What sometimes makes implementation of activity-based costing difficult in service industries is

that a larger proportion of overhead costs are company-wide costs.

Relevant costs are always

avoidable costs.

Fixed costs are $600,000 and the variable costs are 75% of the unit selling price. What is the break-even point in dollars? FORMULAS: selling price - Variable Costs = CM Fixed Costs/Contribution Margin = Break Even

$2,400,000

Cunningham, Inc. sells MP3 players for $60 each. Variable costs are $40 per unit, and fixed costs total $90,000. What sales are needed by Cunningham to break even? A) $120,000. B) $225,000. C) $270,000. D) $360,000.

$270,000.

At the high level of activity in November, 7,000 machine hours were run and power costs were $16,000. In April, a month of low activity, 2,000 machine hours were run and power costs amounted to $8,000. Using the high-low method, the estimated fixed cost element of power costs is

$4,800.

Farmers' Industries has fixed costs of $400,000 and variable costs are 60% of sales. How much will Farmers report as sales when its net income equals $40,000? A) $1,100,000 B) $733,333 C) $1,040,000 D) $264,000

A) $1,100,000

Pascal, Inc. is planning to sell 800,000 units for $1.50 per unit. The contribution margin ratio is 20%. If Pascal will break even at this level of sales, what are the fixed costs? A) $240,000. B) $560,000. C) $800,000. D) $960,000

A) $240,000.

Montoya Manufacturing has fixed costs of $2,500,000 and variable costs are 40% of sales. What are the required sales if Montoya desires net income of $250,000? A) $4,583,333 B) $4,166,667 C) $6,875,000 D) $6,250,000

A) $4,583,333

Variable costs for Abbey, Inc. are 25% of sales. Its selling price is $80 per unit. If Abbey sells one unit more than break-even units, how much will profit increase? A) $60 B) $20 C) $25 D) $320

A) $60

Danny's Lawn Equipment has actual sales of $800,000 and a break-even point of $600,000. How much is its margin of safety ratio? A) 25% B) 33% C) 67% D) 75%

A) 25%

Weatherspoon Company has a product with a selling price per unit of $200, the unit variable cost is $90, and the total monthly fixed costs are $300,000. How much is Weatherspoon's contribution margin ratio? A) 55% B) 45% C) 150% D) 222%

A) 55%

Which of the following is not a benefit of just-in-time processing? A) Control of significant inventory balances B) Enhanced product quality C) Reduction of rework costs D) Production cost savings

A) Control of significant inventory balances

Which of the following is not a fixed cost? A) Direct materials B) Depreciation C) Lease charge D) Property taxes

A) Direct materials

Non-value-added activities A) should be minimized or eliminated. B) involve those activities that are essential to a company's operations. C) increase both the cost and perceived value of a product. D) cannot be differentiated from value-added activities.

A) should be minimized or eliminated.

The following monthly data are available for Lumberyard Company. which produces only one product: Selling price per unit, $42; Unit variable expenses, $14; Total fixed expenses, $84,000; Actual sales for the month of June, 4,000 units. How much is the margin of safety for the company for June? A) $84,000 B) $42,000 C) $126,000 D) $1,000

B) $42,000

Chung, Inc. sells 100,000 wrenches for $18 per unit. Fixed costs are $525,000 and net income is $375,000. What should be reported as variable expenses in the CVP income statement? A) $810,000 B) $900,000 C) $1,425,000 D) $1,275,000

B) $900,000

Boswell company reported the following information for the current year: Sales (50,000 units) $1,000,000, direct materials and direct labor $500,000, other variable costs $50,000, and fixed costs $270,000. What is Boswell's break-even point in units? FORMULAS: selling price - Variable Costs = CM Fixed Costs/Contribution Margine = Break Even A) 24,546. B) 30,000. C) 38,334. D) 42,188.

B) 30,000

Which one of the following is not an assumption of CVP analysis? A) All units produced are sold. B) All costs are variable costs. C) Sales mix remains constant. D) The behavior of costs and revenues are linear within the relevant range.

B) All costs are variable costs.

Which of the following would not be an acceptable way to express contribution margin? A) Sales minus variable costs B) Sales minus unit costs C) Unit selling price minus unit variable costs D) Contribution margin per unit divided by unit selling price

B) Sales minus unit costs

A revenue that differs between alternatives and makes a difference in decision-making is called a(n) A) sales revenue. B) incremental revenue. C) unavoidable revenue. D) irrelevant revenue.

B) incremental revenue.

How much sales are required to earn a target net income of $160,000 if total fixed costs are $200,000 and the contribution margin ratio is 40%? A) $500,000 B) $810,000 C) $900,000 D) $400,000

C) $900,000

Which would be a cost driver for a facility-level activity? A) Number of setups B) Number of product designs C) Square footage D) Number of purchase orders

C) Square footage

Which of the following is not a plausible explanation of why variable costs often behave in A) Labor specialization B) Overtime wages C) Total variable costs are constant within the relevant range D) Availability of quantity discounts

C) Total variable costs are constant within the relevant range

The focus of a sell or process further decision is A) incremental revenue. B) incremental cost. C) both incremental revenue and incremental cost. D) neither incremental revenue nor incremental cost.

C) both incremental revenue and incremental cost.

Why is identification of a relevant range important?

Cost behavior outside of the relevant range is not linear, which distorts CVP analysis.

Baden Company manufactures a product with a unit variable cost of $100 and a unit sales price of $176. Fixed manufacturing costs were $480,000 when 10,000 units were produced and sold. The company has a one-time opportunity to sell an additional 1,000 units at $140 each in a foreign market which would not affect its present sales. If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect net income as follows: A) Income would decrease by $8,000. B) Income would increase by $8,000. C) Income would increase by $140,000. D) Income would increase by $40,000

D) Income would increase by $40,000

It costs Lannon Fields $28 of variable costs and $12 of allocated fixed costs to produce an industrial trash can that sells for $60. A buyer in Mexico offers to purchase 3,000 units at $36 each. Lannon Fields has excess capacity and can handle the additional production. What effect will acceptance of the offer have on net income? A) Decrease $12,000 B) Increase $12,000 C) Increase $108,000 D) Increase $24,000

D) Increase $24,000

Which of the following is not an example of an activity cost pool? A) Setting up machines B) Machining C) Inspecting D) Machine hours

D) Machine hours

Pratt Company has old inventory on hand that cost $15,000. Its scrap value is $20,000. The inventory could be sold for $50,000 if manufactured further at an additional cost of $15,000. What should Pratt do? A) Sell the inventory for $20,000 scrap value B) Dispose of the inventory to avoid any further decline in value C) Hold the inventory at its $15,000 cost D) Manufacture further and sell it for $50,000

D) Manufacture further and sell it for $50,000

Which one of the following is a name for the range over which a company expects to operate? A) Mixed range B) Fixed range C) Variable range D) Relevant range

D) Relevant range

Just-in-time processing A) results in the opposite of a just-in-case philosophy. B) results in a pull approach. C) minimizes inventory storage and waiting time. D) all of the above.

D) all of the above.

A non-value-added activity in a service enterprise is A) taking appointments. B) traveling. C) advertising. D) all of these.

D) all of these.

The presence of any of the following factors would suggest a switch to ABC except when A) product lines differ greatly in volume. B) overhead costs constitute a major portion of total costs. C) the manufacturing process has changed significantly. D) production managers are using data provided by the existing system.

D) production managers are using data provided by the existing system.

If Qualls Quality Airline cuts its domestic fares by 30%,

a profit can be earned either by increasing the number of passengers or by decreasing variable costs.

Contribution margin is

available to cover fixed costs and contribute to income for the company.

The break-even point is where

contribution margin equals total fixed costs.

Advances in computerized systems, technological innovation, global competition, and automation have changed the manufacturing environment drastically by

decreasing direct labor costs and increasing overhead costs.

An important element of just-in-time processing is

dependable suppliers who are willing to deliver on short notice.

The costs that are easiest to trace directly to products are

direct materials and direct labor.

The CVP income statement

discloses contribution margin in the body of the statement.

Activities required to support or sustain an entire production process are called

facility-level activities.

CVP analysis does not consider

fixed cost per unit.

Required sales in dollars to meet a target net income is computed by dividing

fixed costs plus target net income by contribution margin ratio.

Value-added activities

involve those activities that are essential to a company's operations.

The amount by which actual or expected sales exceeds break-even sales is referred to as

margin of safety.

Use of activity-based costing will result in the development of

multiple activity-based overhead rates.

A fixed cost is a cost which

remains constant in total with changes in the level of activity.

Book value of old equipment is considered to be a

sunk cost

A cost which remains constant per unit at various levels of activity is a

variable cost.