Accounting Test 2

If a product has a cost of $195 and a markup percentage of 70% what is the selling margin of the product? A) $58.50 B) $136.50 C) $220 D) Not enough information to calculate

B) $136.50

If a product has a selling price of $325 and a markup percentage of 80% what is its cost? A) $144 B) $181 C) $260 D) Not enough information to calculate

B) $181

Harold's Shoe Emporium economic order quantity is 800 units. Demand for the year is 96,000 units. There are five days between the time an order is placed and the day it is received. Harold's Shoe Emporium operates 360 days per year. The reorder point is: A) 1,335 units B) 267 units C) 1,602 units D) Not enough data to determine. Feedback: Daily demand = 96,000/360 = 266.67 → 267 units Reorder Point = 267 daily demand × 5 day lead time = 1,335

A) 1,335 units

Which of the following statements is true? A) JIT is a pull system. B) JIT is a short-run model. C) The JIT philosophy is based on maintaining the status quo. D) JIT requires a company to control its suppliers.

A) JIT is a pull system.

Direct material is an example of a: A) unit-related cost. B) batch-related cost. C) facility-sustaining cost D) product-sustaining cost.

A) unit-related cost.

Which of the following is not a factor in the EOQ inventory model? A) Annual demand for the inventory in units B) Cost of the inventory item C) Cost to place one additional order D) Cost to carry one additional unit in inventory

B) Cost of the inventory item

Which of the following describes the practice of setting the initial price low in an attempt to get a share of the market? A) Dumping B) Predatory Pricing C) Price Skimming D) Penetrating Pricing

D) Penetrating Pricing

Which of the following is not part of expenditure process planning? A) Direct labor and overhead budget B) Direct materials purchases budget C) Cash disbursements schedule D) Production budget

D) Production budget

The term for the difference between the selling price and variable costs is: A) markup B) net income C) gross margin D) contribution margin

D) contribution margin

Stay Dry, Inc. sells umbrellas for $8.00 each. The variable cost per umbrella is $5.25. Total fixed costs are $3,800. The contribution margin ratio is: A) .34 B) .48 C) .17 D) Cannot be determined Hint: The contribution margin ratio is ($8 - $5.25)/ $8.

A) .34

Stay Dry, Inc. sells umbrellas at a selling price of $8 each. The variable cost per umbrella is $5.25. Total fixed costs are $3,800. The breakeven point in units is: A) 1,382 B) 724 C) 439 D) 518 Hint: The contribution margin is $2.75 ($8.00 - $5.25). The fixed costs ($3,800) divided by the contribution margin ($2.75) results in the breakeven point of 1,382 units.

A) 1,382

If fixed costs decrease, how will this affect the contribution margin, profit and breakeven point? A) CM: no effect; P: Increase; BP: Decrease B) CM: no effect; P: Decrease; BP: Decrease C) CM: Decrease; P: Decrease; BP: Increase D) CM: Increase: P: no effect; BP: Decrease

A) CM: no effect; P: Increase; BP: Decrease

The dollar amount of cash received from sales would be considered when preparing the: A) Cash receipts schedule B) Sales budget C) Marketing and distribution budget D) Accounts receivables budget

A) Cash receipts schedule

Which of the following is not a short-term operating decision? A) Decision to buy a new plant in the next month. B) Decision to buy a component rather than make it ourselves. C) Decision to stop producing a particular product for the next six months D) Decision to reduce the normal price to get a large order from one customer

A) Decision to buy a new plant in the next month.

The balanced scorecard approach is successful in reducing budgetary slack because: A) It uses several different measures to assess how successful a department performed. B) It uses actual results rather than estimated budgeted figures to measure performance. C) It uses only those measures that balance the budgeted figures with the actual figures. D) It uses those measures that make the assets balance with the liabilities and owners' equity.

A) It uses several different measures to assess how successful a department performed.

The type of environment in which there are many companies whose products/services are similar but not identical is referred to as: A) Monopolistic competition B) Oligopolistic competition C) Price competition D) Pure competition

A) Monopolistic competition

The breakeven point is the point at which: A) total contribution margin equals total fixed costs B) total fixed costs equal total variable costs C) the total revenue line intersects the Y axis D) the total cost line intersects the X axis

A) total contribution margin equals total fixed costs

An advantage of a mandatory budget is: A) Employees input is mandated and therefore the quality of the budget is improved. B) Management has a better view of the long-term company goals and can build a budget that has a better chance of achieving these goals. C) Management does not have to waste time listening to employees views. D) Management can reduce employee morale by not having them worry about working on the budget.

B) Management has a better view of the long-term company goals and can build a budget that has a better chance of achieving these goals.

Hawaii On My Mind produces flowered shirts which normally sell for $24 each. The total cost to manufacture each shirt is $17, which consists of $9 of variable costs and $8 of fixed costs. A hotel chain has approached Hawaii On My Mind with a special order for 3,000 shirts at $15 each. Assuming Hawaii On My Mind has sufficient excess capacity to fill this special order without affecting sales to current customers, it should: A) reject the offer since income will decrease by $6,000 B) accept the offer since income will increase by $18,000 C) reject the offer since income will decrease by $18,000 D) accept the offer since income will increase by $6,000 Hint: The $15 sale price - $9 variable cost will generate incremental revenue of $6 per unit for each of the 3,000 units sold. This means that income will increase $18,000 as a result of this transaction.

B) accept the offer since income will increase by $18,000

Smith's Protective Gear manufactures gloves. It produces 100 pairs of gloves at a time. When 100 pairs are completed, an inspector examines 5% of the gloves before they are shipped to retailers. The inspectors salary is an example of a/an A) unit-related cost. B) batch-related cost. C) facility-sustaining cost D) product-sustaining cost.

B) batch-related cost.

A compensation method whereby employees are paid according to the amount they produce in a given time-period is known as: A) commission-based compensation B) piece-rate compensation C) deferred compensation D) bonus compensation

B) piece-rate compensation

The pricing strategy where a company determines the selling price and then decides whether to enter the market is called: A) price skimming B) target pricing C) life-cycle pricing D) penetration pricing

B) target pricing

The Shady Acres Company sells a "one size fits all" broad-brim hat for $7.75. Variable costs per unit are $1.48, while total fixed costs amount to $207,000. The corporate tax rate is 20% and the company wants to earn an after-tax profit of $200,000. What is the dollar value of sales that Shady Acres must generate to achieve their goal? A) $384,034 B) $1,491,965 C) $564,895 D) $371,545 Hint: First the pretax income must be determined: $200,000/(1-Tax Rate) = 200,000/.8 = 250,000 Second the contribution margin ratio is calculated: ($7.75 - $1.48)/$7.75 = .8090 Finally, the sales necessary to achieve the desired income is calculated: ($207,000 + $250,000)/.8090 = $564,894.93; Rounded = $564,895

C) $564,895

Complexions Corporation manufactures one product, Smooth-All, which moisturizes dry skin. The unit contribution margin for Smooth-All is $6.15, while total fixed costs amount to $341,000. Given a selling price of $12.80 per unit and a target profit of $175,000, Complexions must sell: A) 40,313 units B) 77,594 units C) 83,903 units D) 26,992 units Hint: To achieve the target profit Complexions must sell 83,903 units. The calculation is ($341,000 + $175,000)/ $6.15.

C) 83,903 units

Which of the following is true about budgetary slack? A) Budgetary slack is created when there is a difference between actual and budgeted amounts. B) Budgetary slack is created when a company uses normal rather than ideal standards when building their budget. C) Budgetary slack is created when a deliberate and unrealistic bias is introduced into the budgeting process. D) When budgeted amounts are the result of management's inability to be clairvoyant.

C) Budgetary slack is created when a deliberate and unrealistic bias is introduced into the budgeting process.

Normal standards used in the budgeting process - A) Does not factor in operating inefficiencies in the budgeting process B) Allows budgetary slack into the budgeting process. C) Is based on ideal working conditions but allows for normal operating inefficiencies. D) Requires that deviations between actual and budgeted results be minimized.

C) Is based on ideal working conditions but allows for normal operating inefficiencies

Which of the following is not true about safety stock: A) Keeping safety stock increases the carrying cost a company incurs. B) Is kept to prevent losses created by a stockout C) Is designed to prevent people from ordering too little inventory and creating a stockout. D) The amount of safety stock depends on the potential time the company could be out of inventory.

C) Is designed to prevent people from ordering too little inventory and creating a stockout.

A card is used to identify a reorder point in which of the following systems. A) JIT B) EOQ C) Kanban D) Kansas

C) Kanban

The seller of a product is a price maker in which of the following environment? A) Monopolistic competition B) Pure Competition C) Monopoly D) Oligopoly

C) Monopoly

The budgeting process impacts all of the following except? A) Resource allocation B) Communication and coordination among the departments of the business. C) Relationships with competitors D) The evaluation and control of actual performance

C) Relationships with competitors

Conversion process planning consists of all the following except: A) scheduling labor B) scheduling production C) budgeting cash payments for materials used in production D) planning manufacturing overhead

C) budgeting cash payments for materials used in production

The strategy whereby a company uses the current period's budget as a starting point and input from the lower levels of the organization in preparing next period's budget is referred to as: A) incremental and mandated budgeting B) zero-based and participatory budgeting C) incremental and participatory budgeting D) zero-based and mandated budgeting

C) incremental and participatory budgeting

Prescription Drug Research (PDR) has discovered a new cancer medicine and has just received FDA approval to market the product. It costs PDR $.50 per pill to produce the new drug. PDR plans to take advantage of the demand for the product and has priced the pills at $20 per pill. This is an example of which pricing strategy? A) penetration pricing B) life-cycle pricing C) price skimming D) pioneer price

C) price skimming

A product line should not be temporarily discontinued if A) it is operating at a loss. B) it is failing to produce the desired profit. C) the relevant costs saved are less than the relevant revenue lost D) dropping the product line will adversely affect remaining workers.

C) the relevant costs saved are less than the relevant revenue lost

Spaulding Brothers' sales for January, 2010, were $1,900,000. Spaulding Brothers projects an 8% increase in sales every month through December. The sales for March, 2011, are estimated at: A) $2,052,000 B) $2,584,929 C) $2,393,453 D) $2,216,160

D) $2,216,160

Harkens Ltd. currently produces all it's product components. Another firm has offered to supply the components at $12 each. Harkens' total cost per component is as follows: Direct Material 7.00 Direct Labor 1.40 Variable Overhead 3.80 Fixed Overhead 3.20 The fixed overhead is based on production of 3,000 casings, and none of it would be eliminated if Harkens accepted the offer. By how much would profit change if Harkens accepts this offer and purchases 3,000 components? A) $15,000 decrease B) $10,200 increase C) $10,800 decrease D) $600 increase Hint: The relevant cost for this decision are the Direct Material $7, the Direct Labor $1.40 and the Variable Overhead $3.80 total of these cost Is $12.20 or $.20 more than the cost of buying the component. Therefore, Harkens would gain $.20 per unit or $600 (3,000 units x $.20 = $600) if it would accept the offer?

D) $600 increase

Which of the following is part of expenditure process planning? A) Sales budget B) Cash receipts budget C) Production budget D) Administrative Budget

D) Administrative Budget

Hoops! is a manufacturer of basketball backboards. It has been approached by a large European retailer about the possibility of producing a special order of backboards at a price 10% under the going rate. Under which of the following conditions should Hoops! accept this offer? A) The firm has the capacity to produce the special order. B) The firm has the capacity to produce the special order and the special-order price exceeds the fixed cost related to the special order. C) The firm has the capacity to produce the special order and the special-order price exceeds the total variable cost of the special order. D) The firm has the capacity to produce the special order and the special-order price exceeds the incremental cost of the special order.

D) The firm has the capacity to produce the special order and the special-order price exceeds the incremental cost of the special order.

Life insurance on the product-line managers is an example of a/an A) unit-related cost. B) batch-related cost. C) facility-sustaining cost D) product-sustaining cost.

D) product-sustaining cost.

Which of the following is not one of the four primary influences on selling price? A) Customers B) Competition C) Legal and social issues D) Costs E) All of the above influence the determination of selling prices.

E) All of the above influence the determination of selling prices.