accounting test #2

High-Low Method

$of high- $ of low / high-low

16. Watson Company has monthly fixed costs of $83,000 and a 40% contribution margin ratio. If the company has set a target monthly income of $15,000, what dollar amount of sales must be made to produce the target income? A) $245,000 B) $207,500 C) $37,300 D) $170,000 E) $39,200

A) $245,000

Kendall Company has sales of 1,000 units at $60 a unit. Variable expenses are 30% of the selling price. If total fixed expenses are $30,000, the degree of operating leverage is: A) 1.50 B) 5.00 C) 1.67 D) 3.50

D) 3.50

Total Cost (TC)

TC = FC + VC

production greater than sales means

absorption costing is greater than variable costing

Contribution Margin Ratio

contribution margin per unit / sales price per unit

day sales formula

ending raw material/ raw materials used x 365

Margin of Safety

expected sales - break even sales / expected sales

the unit sales to earn the target pretax income

fixed cost + pretax income / contribution margin per unit

the dollar sales to earn the target pretax income

fixed costs + pretax income / contribution ratio

break even point in units is

fixed costs / contribution margin per unit

break even point in dollar of sales

fixed costs / contribution margin ratio

raw material turnover

raw materials used / average raw materials (ending + beginning) / 2

contribution margin is

sells minus variable cost

variable cost

total amt remains constant, and unit doesn't change

fixed costs

total cost doesn't change, but unit changes

sales greater than production means

variable cost is greater than absorption costing

cost that vary in total in direct promotion to changes in the volume or level of activity is

variable costs

Flannigan Company manufactures and sells a single product that sells for $450 per unit; variable costs are $270. Annual fixed costs are $800,000. Current sales volume is $4,200,000. Compute the contribution margin ratio. A) 40% B) 66.7% C) 20.7% D) 50% E) 19.3%

A) 40%

A product sells for $200 per unit, and its variable costs per unit are $130. The fixed costs are $420,000. If the firm wants to earn $35,000 .pretax income, how many units must be sold? A) 6,500 B) 6,000 C) 500 D) 5,000 E) 5,500

A) 6,500

The contribution margin ratio: A) Is the percent of each sales dollar that remains after deducting total unit variable cost. B) Is the percent of each sales dollar that remains after deducting total unit fixed cost C) Is the percent of each sales dollar that remains to cover fixed costs and contribute to the managers' incomes D) Cannot be used in conjunction with other analytical tools E) Is the same as the unit contribution margin

A) Is the percent of each sales dollar that remains after deducting total unit variable cost.

In the area of cost-volume-profit analysis, the contribution margin ratio shows how much each dollar of sales contributes to: A. Covering the fixed costs of the business and providing operating income. B. Fixed expenses and variable expenses. C. Variable expenses and interest charges. D. Variable expenses when production is at normal capacity.

A. Covering the fixed costs of the business and providing operating income.

The costing method that can be used most easily with break-even analysis and other cost-volume-profit techniques is: A. variable costing. B. absorption costing. C. process costing. D. job-order costing

A. variable costing

Henderson Co. has fixed costs of $36,000 and a contribution margin ratio of 24%. If expected sales are $200,000, what is the margin of safety as a percent of sales? A) 6%. B) 25%. C) 33%. D) 50%. E) 75%

B) 25%.

Job order costing systems normally use: A) Periodic inventory systems. B) Perpetual inventory systems. C) Real inventory systems. D) General inventory systems. E) All of the above.

B) Perpetual inventory systems.

If the number of units produced exceeds the number of units sold, then net operating income under absorption costing will: A) be equal to the net operating income under variable costing. B) be greater than net operating income under variable costing. C) be equal to the net operating income under variable costing plus total fixed manufacturing costs. D) be equal to the net operating income under variable costing less total fixed manufacturing costs.

B) be greater than net operating income under variable costing

when the production exceeds sales, net operating income reported under variable costing generally will be: A) greater than net operating income reported under absorption costing B) less than net operating income reported under absorption costing C) equal to net operating income reported under absorption costing D) higher or lower because no generalization can be made

B) less than net operating income reported under absorption costing

Once the break-even point is reached: A) the total contribution margin changes from negative to positive B) net operating income will increase by the unit contribution margin for each additional item sold C) variable expenses will remain constant in total D) the contribution margin ratio begins to decrease

B) net operating income will increase by the unit contribution margin for each additional item sold

The principal difference between variable costing and absorption costing centers on: A) whether variable manufacturing costs should be included as product costs. B) whether fixed manufacturing costs should be included as product costs. C) whether fixed manufacturing costs and fixed selling and administrative costs should be included as product costs. D) none of these.

B) whether fixed manufacturing costs should be included as product costs.

A company's relevant range of production is: A. The production range from zero to 100% of plant capacity. B. The production range over which CVP assumptions are valid. C. The production range beyond the break-even point. D. The production range that covers fixed but not variable costs

B. The production range over which CVP assumptions are valid

Break-even analysis assumes that: A. Total revenue is constant. B. Unit variable expense is constant. C. Unit fixed expense is constant. D. Selling prices must fall in order to generate more revenue

B. Unit variable expense is constant.

Weber Company computes net operating income under both the absorption costing approach and the variable costing approach. For a given year the absorption costing net operating income was greater than the variable costing net operating income. This fact suggests that: A. variable manufacturing costs were less than fixed manufacturing costs. B. more units were produced during the year than were sold. C. more units were sold during the year than were produced. D. common costs were greater than variable costs for the year

B. more units were produced during the year than were sold.

Contribution margin is computed as sales revenue minus: A. fixed expenses B. variable expenses C. cost of goods sold D. cost of goods manufactured

B. variable expenses

McCoy Brothers manufactures and sells two products, A and Z in the ratio of 5:2. Product A sells for $75; Z sells for $95. Variable costs for product A are $35; for Z $40. Fixed costs are $418,500. Compute the break- even point in composite units. A) 2,092 B) 3,805 C) 1,350 D) 1,395 E) 1,550

C) 1,350

O.K. Company uses a job order cost accounting system and allocates its overhead on the basis of direct labor costs. O.K. expects to incur $800,000 of overhead during the next period, and expects to use 50,000 labor hours at a cost of $10.00 per hour. What is O.K. Company's overhead application rate? A) 6.25% B) 62.5% C) 160% D) 1600% E) 67%

C) 160%

The ratio (proportion) of the sales volumes for the various products sold by a company is called the: A) Current product mix. B) Relevant mix. C) Sales mix. D) Inventory cost ratio. E) Production ratio.

C) Sales mix.

In cost volume- profit analysis, the unit contribution margin is: A) Sales price per unit less cost of goods sold per unit. B) Sales price per unit less unit fixed cost per unit. C) Sales price per unit less total variable cost per unit. D) Sales price per unit less unit total cost per unit. E) The same as the contribution margin ratio.

C) Sales price per unit less total variable cost per unit.

4. If unit sales prices are $7 and variable costs are $5 per unit how many units would have to be sold to break-even if fixed costs equal $8,000? A. 2,000 B. 3,000 C. 4,000 D. 3,800

C. 4,000

A target income refers to: A. Income at the break-even point. B. Income from the most recent period. C. Income planned for a future period. D. Income only in a multiproduct environment. E. Income at the minimum contribution margin.

C. Income planned for a future period.

Target profit analysis is used to answer which of the following questions? A. What sales volume is needed to cover all expenses? B. What sales volume is needed to cover fixed expenses? C. What sales volume is needed to earn a specific amount of net operating income? D. What sales volume is needed to avoid a loss?

C. What sales volume is needed to earn a specific amount of net operating income?

The gross margin for a manufacturing company is the excess of sales over: A. cost of goods sold, excluding fixed manufacturing overhead. B. all variable costs, including variable selling and administrative expenses. C. cost of goods sold, including fixed manufacturing overhead. D. variable costs, excluding variable selling and administrative expenses.

C. cost of goods sold, including fixed manufacturing overhead.

Degree of operating leverage

Contribution margin ÷ Net operating income

A company manufactures and sells a product for $120 per unit. The company's fixed costs are $68,760, and its variable costs are $90 per unit. The company's break-even point in dollars is: A) $91,680. B) $68,760. C) $2,292. D) $275,040. E) $206,280

D) $275,040.

at anderson company's break-even point of 9,000 units, fixed costs are $180,000 and variable costs are $540,000 in total. The unit sales price is: A) $20 B) $40 C) $60 D) $80 E) $100

D) $80

11. A company's product sells at $12 per unit and has a $5 per unit variable cost. The company's total fixed costs are $98,000. The break-even point in units is: A) 5,158. B) 7,000. C) 8,167. D) 14,000. E) 19,600.

D) 14,000

a company manufactures and sells a product for $120 per unit. The company's fixed costs are $68,760, and its variable costs are $90 per unit. The company's break-even point in dollars is: A) 91,680 B) 68,760 C) 2,292 D) 275,040 E) 206,280

D) 275,040

The sales level at which a company neither earns a profit nor incurs a loss is the: A) Relevant range. B) Margin of safety. C) Step-wise variable level. D) Break-even point. E) Contribution margin.

D) Break-even point.

If the degree of operating leverage is 4, then a one percent change in quantity sold should result in a four percent change in: A) unit contribution margin B) revenue C) variable expense D) net operating income

D) net operating income

To obtain the break-even point in terms of dollar sales, total fixed expenses are divided by which of the following? A. Variable expense per unit. B. Variable expense per unit/Selling price per unit. C. Fixed expense per unit. D. (Selling price per unit - Variable expense per unit)/Selling price per unit.

D. (Selling price per unit - Variable expense per unit)/Selling price per unit.

On a cost-volume-profit graph, the break-even point is located: A. at the origin. B. where the total revenue line intersects the volume axis. C. where the total expenses line intersects the dollars axis. D. where the total revenue line intersects the total expenses line.

D. where the total revenue line intersects the total expenses line.

Mott Company's sales mix is 3 units of A, 2 units of B, and 1 unit of C. Selling prices for each product are $20, $30, and $40, respectively. Variable costs per unit are $12, $18, and $24, respectively. Fixed costs are $320,000. What is the break-even point in composite units? A) 1,111 composite units. B) 1,600 composite units. C) 2,666 composite units. D) 4,000 composite units. E) 5,000 composite units.

E) 5,000 composite units.

9. The margin of safety is the excess of: A) Break-even sales over expected sales. B) Expected sales over variable costs. C) Expected sales over fixed costs. D) Fixed costs over expected sales. E) Expected sales over break-even sales.

E) Expected sales over break-even sales.

A classification of costs that determines whether a cost is expensed to the income statement or capitalized to inventory is: A) Fixed versus variable. B) Direct versus indirect. C) Financial versus managerial. D) Service versus manufacturing. E) Product versus period.

E) Product versus period.