Accounting Test 3

The contribution margin per unit equals .

selling price − variable costs per unit

Hartley's Meat Pies is considering replacing its existing delivery van with a new one. The new van can offer considerable savings in operating costs. Information about the existing van and the new van​ follow: Existing van Original cost $50,000 Annual operating cost $17,500 Accumulated depreciation$32,000 Current salvage value of the existing van $23,500 Remaining life 10 years Salvage value in 10 years $ 0 Annual depreciation $1,800 New van Original cost ​$93,000 Annual operating cost $11,000 Accumulated depreciation — Current salvage value of the existing van — Remaining life 10 years Salvage value in 10 years ​$ 0 Annual depreciation ​$9,300 Relevant costs for this decision include​ ________.

the annual operating cost

The breakeven point is .

where contribution margin equals fixed costs

Rubium Micro Devices currently manufactures a subassembly for its main product. The costs per unit are as​ follows: Direct materials $51.00 Direct labor 43.00 Variable overhead 38.00 Fixed overhead 33.00 Total costs $165.00 Crayola Technologies Inc. has contacted Rubium with an offer to sell​ 10,000 of the subassemblies for​ $138.00 each. Rubium will eliminate​ $89,000 of fixed overhead if it accepts the proposal. What are the relevant costs for​ Rubium?

$1,409,000

Which of the following is true of an opportunity​ cost?

It is the income foregone by not using a resource in an alternative way.

One of the first steps to take when using CVP analysis to help make decisions is​ ________.

identifying the variable and fixed costs

Hartley's Meat Pies is considering replacing its existing delivery van with a new one. The new van can offer considerable savings in operating costs. Information about the existing van and the new van​ follow: Existing van Original cost $56,000 Annual operating cost $22,500 Accumulated depreciation$33,000 Current salvage value of the existing van $27,500 Remaining life 10 years Salvage value in 10 years $ 0 Annual depreciation $2,300 New van Original cost ​$95,000 Annual operating cost $15,000 Accumulated depreciation — Current salvage value of the existing van — Remaining life 10 years Salvage value in 10 years ​$ 0 Annual depreciation ​$9,500 If​ Hartley's Meat Pies replaces the existing delivery van with the new​ one, over the next 10 years operating income will​ ________.

increase by​ $75,000

Crandle Manufacturers Inc. is approached by a potential customer to fulfill a one−time−only special order for a product similar to one offered to domestic customers. The company has excess capacity. The following per unit data apply for sales to regular​ customers: Variable​ costs: Direct materials $130 Direct labor 60 Manufacturing support 105 Marketing costs 95 Fixed​ costs: Manufacturing support 175 Marketing costs 65 Total costs 630 Markup​ (50%) 315 Targeted selling price $945 What is the change in operating profits if the one−time−only special order for​ 1,030 units is accepted for​ $550 a unit by​ Crandle?

$164,800 increase in operating profits

Assuming a constant mix of 3 units of X for every 1 unit of Y. X Total Sales $29 VC 18 Y Total Sales $45 VC 25 Total fixed costs $81,000 The breakeven point in units would be​ ________.

4,584 units of X and​ 1,528 units of Y

Bell Company sells several products. Information of average revenue and costs is as​ follows: Selling price per unit $33.00 Variable costs per​ unit: Direct material $6.00 Direct manufacturing labor $1.50 Manufacturing overhead $0.30 Selling costs $2.25 Annual fixed costs $113,000 The company sells​ 10,000 units. The contribution margin per unit is​ ________.

$22.95

A segment has the following​ data: Sales $650,000 Variable costs 386,000 Fixed costs 365,500 What will be the incremental effect on net income if this segment is​ eliminated, assuming the fixed costs will be allocated to profitable​ segments?

$264,000 decrease

Fixed costs equal​ $16,000, unit contribution margin equals​ $35, and the number of units sold equal​ 1,300. Operating income is​ ________.

$29,500

Altec Services Corporation has relevant costs of​ $46 per unit to manufacture​ 1,050 units of Part A. A current supplier offers to make Part A for​ $33 per unit.​ Alternatively, the company can rent out the capacity for​ $30,000. If capacity is​ constrained, the opportunity cost of buying Part A from the supplier is ​ ________.

$30,000

Planet Design​ Services, Inc., is considering replacing a machine. The following data are​ available: Old Machine Original cost $640,000 Useful life in years 8 Current age in years 4 Book value $350,000 Disposal value now $162,000 Disposal value in 4 years $0 Annual cash operating costs $98,000 Replacement Machine Original cost $530,000 Useful life in years 4 Current age in years 0 Book value — Disposal value now — Disposal value in 4 years $0 Annual cash operating costs $66,000 For the decision to keep the old​ machine, the relevant costs of keeping the old machine is​ ______

$392,000

Crandle Manufacturers Inc. is approached by a potential customer to fulfill a one−time−only special order for a product similar to one offered to domestic customers. The company has excess capacity. The following per unit data apply for sales to regular​ customers: Variable​ costs: Direct materials $140 Direct labor 100 Manufacturing support 105 Marketing costs 55 Fixed​ costs: Manufacturing support 175 Marketing costs 65 Total costs 640 Markup​ (50%) 320 Targeted selling price $960 For Crandle Manufacturers​ Inc., what is the minimum acceptable price of this special​ order?

$400

Quality​ Stores, Inc., sells several products. Information of average revenue and costs is as​ follows: Selling price per unit $23 Variable costs per​ unit: Direct material $6 Direct manufacturing labor $1.90 Manufacturing overhead $0.40 Selling costs ​$2 Annual fixed costs $96,000 The revenues that the company must earn annually to make a profit of​ $144,000 are​ ________. (Round the final answer to the nearest​ dollar.)

$434,646

Katrina's Bridal Shoppe sells wedding dresses. The average selling price of each dress is​ $1,200, variable costs are​ $400, and fixed costs are​ $110,000. What is​ Katrina's operating income when 200 dresses are​ sold?

$50,000

Zirconia Fantasy sells only necklaces.​ 11,000 units were sold resulting in​ $270,000 of sales​ revenue, $80,000 of variable​ costs, and​ $40,000 of fixed costs. The breakeven point in total sales dollars is​ ________.

$56,843

Tally Corp. sells software during the recruiting seasons. During the current​ year, 10,000 software packages were sold resulting in​ $470,000 of sales​ revenue, $130,000 of variable​ costs, and​ $48,000 of fixed costs. If sales increase by​ $80,000, operating income will increase by​ ________. (Round interim calculations to two decimal places and the final answer to the nearest whole​ dollar.)

$57,872

Family Furniture sells a table for​ $950. Its fixed costs are​ $2,500, while its variable costs are​ $500 per table. It currently plans to sell 180 tables this month. What is the budgeted operating income for the month assuming that Family Furniture sells 180​ tables?

$78,500

Sparkle Jewelry sells 500 units resulting in​ $10,000 of sales​ revenue, $4,000 of variable​ costs, and​ $1,500 of fixed costs. Calculate the variable cost per unit.​ (Round the final answer to the nearest​ cent.)

$8.00

W.T. Ginsburg Engine Company manufactures part ACT30107 used in several of its engine models. Monthly production costs for​ 1,090 units are as​ follows: Direct materials $46,000 Direct labor 10,500 Variable overhead costs 32,500 Fixed overhead costs 22.000 Total costs $111,000 It is estimated that​ 6% of the fixed overhead costs assigned to ACT30107 will no longer be incurred if the company purchases ACT30107 from the outside supplier. W.T Ginsburg Engine Company has the option of purchasing the part from an outside supplier at​ $94.75 per unit. If the company accepts the offer from the outside​ supplier, the monthly avoidable costs​ (costs that will no longer be​ incurred) total​ ________.

$90,320

The following information is for Alex​ Corp: Product​ X: Revenue $12.00 Variable Cost $4.50 Product​ Y: Revenue $25.00 Variable Cost $10.00 Total fixed costs $40,500 What is the operating​ income, assuming actual sales total​ 120,000 units, and the sales mix is two units of Product X and one unit of Product​ Y?

1,159,500

Lights Manufacturing produces a single product that sells for​ $130. Variable costs per unit equal​ $55. The company expects total fixed costs to be​ $100,000 for the next month at the projected sales level of​ 1,300 units. What is the current breakeven point in terms of number of​ units?

1,334 units

Burgandy Manufacturing produces a single product that sells for​ $80. Variable costs per unit equal​ $35. The company expects total fixed costs to be​ $90,000 for the next month at the projected sales level of​ 2,500 units. In an attempt to improve​ performance, management is considering a number of alternative actions. Each situation is to be evaluated separately. What is the current breakeven point in terms of number of​ units?

2,000 units

Quality​ Stores, Inc., sells several products. Information of average revenue and costs is as​ follows: Selling price per unit $20 Variable costs per​ unit: Direct material $4 Direct manufacturing labor $1.80 Manufacturing overhead $0.40 Selling costs $3 Annual fixed costs $96,000 What is the contribution margin​ percentage? (Round your answer to the nearest whole​ percent.)

54%

SaleCo sells​ 8,400 units resulting in​ $120,000 of sales​ revenue, $35,000 of variable​ costs, and​ $45,000 of fixed costs. The contribution margin percentage is​ ________.

70.83%

The following information is for High​ Corp: Selling price $60 per unit Variable costs $40 per unit Total fixed costs $135,000 The number of units that High Corp must sell to reach targeted operating income of​ $25,000 is​ ________. (Round up to the nearest​ unit.)

8,000 units

John's 8−year−old Chevrolet Trail Blazer requires repairs estimated at​ $7,000 to make it road worthy again. His​ wife, Sherry, suggested that he should buy a 5−year−old used Jeep Grand Cherokee instead for​ $7,000 cash. Sherry estimated the following costs for the two​ cars: Trail Blazer Acquisition cost $30,000 Repairs $7,000 Annual operating costs ​ (Gas, maintenance,​ insurance) ​$2,580 Grand Cherokee Acquisition cost $7,000 Repairs — Annual operating costs ​ (Gas, maintenance,​ insurance) ​$1,700 What should John​ do? What are his savings in the first​ year?

Buy the Grand​ Cherokee; $880

Sunk Costs

are ignored when evaluating alternatives

Craylon Manufacturing produces a single product that sells for​ $140. Variable costs per unit equal​ $35. The company expects total fixed costs to be​ $60,000 for the next month at the projected sales level of​ 1,500 units. In an attempt to improve​ performance, management is considering a number of alternative actions. Each situation is to be evaluated separately. One alternative is to increase advertsing expenses by​ $11,000. What is the effect on operating income with the increase of advertising​ expenses?

Operating income will decrease by​ $11,000.

An incremental cost is

an additional total cost for an activity

The contribution margin income statement​ ________.

can be used to predict operating income at different levels of activity

State Road Fabricators Inc. is considering eliminating Model A02777 because of losses over the past quarter. The past three months of information for Model A02777 are summarized​ below: Sales​ (1,100 units) $370,000 Manufacturing​ costs: Direct materials 160,000 Direct labor​ ($15 per​ hour) 80,000 Overhead 50,000 Operating loss ​($20,000) Overhead costs are​ 75% variable and the remaining​ 25% is depreciation of special equipment for model A02777 that has no resale value. If Model A02777 is dropped from the product​ line, operating income will​ ________.

decrease by​ $17,500

Orion Company sells several products. Information of average revenue and costs is as​ follows: Selling price per unit $23 Variable costs per​ unit: Direct material $4 Direct manufacturing labor $1.70 Manufacturing overhead $0.40 Selling costs $2 Annual fixed costs ​$100,000 The company sells​ 12,000 units at the end of the year. If direct labor and direct material costs increase by​ $1 each, contribution margin​ ________

decreases by​ $24,000

When deciding to accept a one−time−only special order from a​ wholesaler, management should​ ________.

determine whether excess capacity is available

Breakeven point in units is​ ________.

fixed costs divided by contribution margin per unit

In the manufacturing​ sector, ________.

fixed overhead costs are subtracted to determine gross margin

McMurphy Corporation produces a part that is used in the manufacture of one of its products. The costs associated with the production of​ 12,000 units of this part are as​ follows: Direct materials $86,000 Direct labor 126,000 Variable factory overhead 58,000 Fixed factory overhead 138,000 Total costs $408,000 Of the fixed factory overhead​ costs, $55,000 is avoidable. Conners Company has offered to sell​ 12,000 units of the same part to McMurphy Corporation for​ $41 per unit. Assuming there is no other use for the​ facilities, Schmidt should​ ________.

make the​ part, as this would save​ $14 per unit

If a company is planning to reduce the selling​ price, they must believe that​ ______.

more units will be sold

When using the five−step decision​ process, which one of the following steps should be done​ first?

obtain information

Assume only the specified parameters change in a cost−volume−profit analysis. If the contribution margin increases by​ $6 per​ unit, then​ ________.

operating income increases by​ $6 per unit

In multiproduct​ situations, when sales mix shifts toward the product with the lowest contribution margin then​ ________.

operating income will decrease

In a make−or−buy decision, which of the following would not be​ relevant?

property taxes on the plant that will still be necessary even if the product is outsourced

All else being​ equal, an increase in advertising expenditures will​ ________.

reduce operating income

Planet Design​ Services, Inc., is considering replacing a machine. The following data are​ available: Old Machine Original cost $630,000 Useful life in years 12 Current age in years 6 Book value $350,000 Disposal value now $122,000 Disposal value in 6 years $0 Annual cash operating costs $102,000 Replacement Machine Original cost ​$510,000 Useful life in years 6 Current age in years 0 Book value — Disposal value now — Disposal value in 6 years ​$0 Annual cash operating costs ​$59,000 Which of the data provided in the table is a sunk​ cost?

the original cost of the old machine

A company decided to replace an old machine with a new machine. Which of the following is considered a relevant​ cost?

the setup cost of the new equipment

The breakeven point decreases if​ ________.

the total fixed costs decrease

Frazer Corp sells several products. Information of average revenue and costs is as​ follows: Selling price per unit ​$28.50 Variable costs per​ unit: Direct material $6.00 Direct manufacturing labor $1.45 Manufacturing overhead $0.85 Selling costs $2.60 Annual fixed costs $125,000 What is the operating income earned if the company sells​ 20,000 units?

​$227,000

Blistre Company operates on a contribution margin of​ 30% and currently has fixed costs of​ $550,000. Next​ year, sales are projected to be​ $3,100,000. An advertising campaign is being evaluated that costs an additional​ $120,000. How much would sales have to increase to justify the additional​ expenditure?

​$400,000

Sparkle Jewelry sells 800 units resulting in​ $9,000 of sales​ revenue, $3,000 of variable​ costs, and​ $1,500 of fixed costs. Contribution margin per unit is​ ________. (Round the final answer to the nearest​ cent.)

​$7.50