Acct 202: Managerial Accounting Final Exam (Chapter 1&2)

The following information was drawn from the records of Calico Company Income Statement Sales Revenue (250 @ $600 per unit) $ 150,000 Cost of Goods Sold: Variable (250 @ $300 per unit) (75,000) Fixed (8,000) Gross Margin 67,000 Sales Commissions (250 @ $20) (5,000) Depreciation (1,000) Net Income $ 61,000 Based on this information the magnitude of operating leverage is approximately (round to nearest hundredth): 1.22. 1.09. 0.87. 1.15.

1.15.

Tutor, Inc. (TI) provides instructional services to its customers. TI charges $200 per student. The Company expects to serve 500 students during the coming year. All of the Company's expenses are fixed. Total annual fixed cost are projected to be $60,000. If the estimated number of students increase by 10%, net income will increase by: 20%. 25%. 10%. 30%.

25%.

At a sales level of $270,000, the magnitude of operating leverage for Donuts Unlimited is 2.8. If number of units sold increase by 15%, profits will increase by: 2.8% 42% 15% 18.67%

42%

Which of the following statement is true? Operating leverage may help a company increase its profitability but it cannot decrease profitability. Operating leverage refers to a company's ability to increase its sales volume while decreasing its total fixed cost. To benefit from operating leverage a company must have both fixed and variable costs. A company that has only variable cost cannot benefit from operating leverage.

A company that has only variable cost cannot benefit from operating leverage

A key component of total quality management (TQM) is continuous improvement. zero defects. customer satisfaction. All of the answers represent components of TQM.

All of the answers represent components of TQM.

Fran Company is currently operating profitably. The company has a fixed cost structure. Based on this information which of the following statements is true? If volume increases by 20%, profitability will increase by less than 20%. If volume increases by 20%, profitability will increase by more than 20%. If volume increases by 20%, profitability will increase by 20%. If volume increases by 20%, profitability will decrease by 20%.

If volume increases by 20%, profitability will increase by more than 20%.

Which of the following is not a cost associated with holding inventory? The cost of warehouse space. The cost of theft. The cost of customizing products. The cost of obsolescence.

The cost of customizing products.

Which of the following is an example of a non value-added activity for a restaurant business? Cooking food. Mixing ingredients. Waiting for ovens to preheat. Delivering food to customers.

Waiting for ovens to preheat.

The cost of manufacturing a product includes all of the following except materials. labor. advertising. overhead

advertising

Just-in-time inventory systems are designed to minimize the cost of waste. opportunity cost. the cost of storage space. all costs identified in the choices provided in this problem.

all costs identified in the choices provided in this problem.

Benchmarking involves establishing standards used to evaluate management performance. copying or mimicking the practices used by highly successful competitors. identifying and avoiding the practices that motivate fraud. preventing bottlenecks in value added activities.

copying or mimicking the practices used by highly successful competitors

Tutor, Inc. (TI) provides instructional services to its customers. TI charges $200 per student. The Company expects to serve 500 students during the coming year. All of the Company's expenses are fixed. Total annual fixed cost are projected to be $60,000. If the estimated number of students decreases by 10%, net income will increase by 25%. increase by 10%. decrease by 25%. decrease by 10%.

decrease by 25%.

Many companies determine the price they charge for their products by adding an amount of desired profit to the cost of making or buying the product. Frequently, it is inappropriate to use the actual cost of the product when implementing such a cost-plus pricing model. This statement is true. false.

false

Within the context of a just-in-time inventory system, the cost of missing a sale because of an insufficient amount of inventory is commonly called waste. This statement is true. false.

false.

Operating leverage is caused by. variable cost. product cost. fixed cost. period cost.

fixed cost.

As compared to companies with low operating leverage, companies with high operating leverage have The answer cannot be determined from the information provided. more opportunity and less risk. less risk and less opportunity. more opportunity and more risk.

more opportunity and more risk

The three features of the fraud triangle are opportunity, internal controls and rationalization. rationalization, incentive and manipulation. opportunity, incentive and rationalization. internal controls, manipulation and opportunity.

opportunity, incentive and rationalization.

Companies that start a just-in-time inventory system are seeking to reduce the size of the inventory they carry. increase the size of the inventory they carry. maintain their normal inventory levels. avoid the need to provide customized products.

reduce the size of the inventory they carry.

Omega Company has sales of $300,000 and cost of goods sold of $200,000. The cost of goods sold is a variable cost. The Company incurred $20,000 of fixed operating expenses and $40,000 of variable operating expenses. Based on this information the company's gross margin is $60,000, while its contribution margin is $100,000. net income is $100,000 under the gross margin format and $40,000 under the contribution margin format. net income is $40,000 under the gross margin format and $100,000 under the contribution margin format. the company's gross margin is $100,000, while its contribution margin is $60,000.

the company's gross margin is $100,000, while its contribution margin is $60,000.

The primary objective of internal controls is to reduce the opportunity for fraud. the capacity for rationalization. the incentive to engage in fraud.

the opportunity for fraud.

A list of the activities required to provide products to customers is called a value chain. This statement is true. false.

true

The amount of net income determined for an accounting period will be the same regardless of whether the income statement is prepared under a contribution margin format used in managerial accounting or the product costing format use in financial accounting. This statement is true. false.

true

Activity-based management begins with the assumption that management cannot control costs. This statement is true. false.

true.

The contribution margin is determined by subtracting variable product and fixed product costs from sales. variable product and variable period cost from sales. fixed product cost from sales. variable product and fixed period cost from sales.

variable product and variable period cost from sales.

Brock Company makes candy. During the most recent accounting period Brock paid $3,000 for raw materials, $4,000 for labor, and $2,000 for overhead costs that were incurred to make candy. Brock started and completed 10,000 units of candy of which 8,000 were sold. Based on this information the balance in the inventory account on Brock's balance sheet would be $1,800. $2,000. $9,000. None of the above.

$1,800.

Handy Hiking produces backpacks. In the previous year, its highest and lowest production levels occurred in July and January, respectively. In July, it produced 4,000 backpacks at a total cost of $110,000. In January, it produced 2,500 backpacks at a total cost of $87,500. Using the high/low method, the average variable cost per of producing a backpack was: $31.25 $30.38 $15.00 $27.50

$15.00

Calgary Manufacturing company makes chairs and desks. The following costs were incurred in making its products during its first year of operation. 1.Chairs 2. Desks 3. Total Direct Materials 1.$ 4,000 2. $ 6,000 3. $ 10,000 Direct Labor 1. 12,000 2. 8,000 3. 20,000 Also the company incurred $14,000 of employee benefits cost. Since these overhead costs are driven by the use of labor they are allocated to the products based on the direct labor dollars. Based on this information alone the total cost of making chairs is. $16,000. $30,000. $24,400. None of the answers is correct.

$24,400.

Professional Exam Prep(PEP) uses a cost-plus model to determine the price it charges students. Specifically, the Company charges cost plus 25% of cost. Fixed cost including facility rental and instructor compensation amount to $6,000 per month. PEP incurs variable costs for books and supplies that amount to $50 per student. Monthly, enrollment tends to fluctuate. The following data represent the Company's expectations for the first three months of the current year. Based on this information which of the following amounts represents the average price PEP should charge per student for the month of January. $437.50 $287.50 $350.00 $230.00

$287.50

Handy Hiking produces backpacks. In 2005, its highest and lowest production levels occurred in July and January, respectively. In July, it produced 4,000 backpacks at a total cost of $110,000. In January, it produced 2,500 backpacks at a total cost of $87,500. Using the high/low method, the total estimated fixed cost was $110,000. $60,000. $50,000. None of the answers is correct.

$50,000.

Omega Company has sales of $300,000 and cost of goods sold of $200,000. The cost of goods sold is a variable cost. The Company incurred $20,000 of fixed operating expenses and $40,000 of variable operating expenses. Based on this information a 10% increase in revenue will produce a 20.0 % change in net income. 15.0 % change in net income. 10.0 % change in net income. 11.5 % change in net income.

15.0 % change in net income.

Which of the following statements is true? The risk of volatile changes in net income is not affected by a company's cost structure (fixed or variable). A mixed cost structure (part fixed and part variable) has the least risk of volatile changes in net income. A fixed cost structure has less risk of volatile changes in net income than a company with a variable cost structure. A fixed cost structure has more risk of volatile changes in net income than a company with a variable cost structure.

A fixed cost structure has more risk of volatile changes in net income than a company with a variable cost structure.

Owens sells computers. He purchases the computers $400 each and incurs $3,000 in fixed operating expenses each month. The average cost per unit is $430 if Owens makes and sells 100 units of product. $460 if Owens makes and sells 50 units of product. $520 if Owens makes and sells 25 units of product. All of the answers are correct.

All of the answers are correct.

Which of the following is a requirement of the Sarbanes-Oxley Act? The establishment of a strong set of internal controls. The establishment of a code of ethics. The establishment of a hotline for whistle blowers. All of the choices are requirements included in the Sarbanes-Oxley Act.

All of the choices are requirements included in the Sarbanes-Oxley Act.

The cost of a small amount of glue used to manufacture a product may be called an overhead cost. a product cost. an indirect cost. All of the choices are terms that may be used describe small quantities of materials consumed in the process of making products

All of the choices are terms that may be used describe small quantities of materials consumed in the process of making products.

The magnitude of operating leverage can be determined by which of the following formulas? Net income ÷ Gross margin. Gross margin ÷ Net income Net income ÷ Contribution margin Contribution margin ÷ Net income

Contribution margin ÷ Net income

Elegant Dogs and Dazzling Dogs are competing canine grooming salons. Each company currently serves 4,500 customers per year. Both companies charge $35 to groom a dog. Elegant Dogs pays its dog groomers fixed salaries. Salary expense totals $45,000 per year. Dazzling Dogs pays its groomers $10 per dog groomed. Elegant Dogs lures 2,000 customers from Dazzling Dogs by lowering its grooming price to $25. Dazzling Dogs maintains its $35 price. Which of the following is true? Profits at both companies will decrease. Dazzling Dogs' profits will decrease by more than Elegant Dogs' profits will increase. Dazzling Dogs will suffer a net loss. Elegant Dogs' profits will increase by more than Dazzling Dogs' profits will decrease

Dazzling Dogs' profits will decrease by more than Elegant Dogs' profits will increase.

Which of the following describes the flow of product costs in a manufacturing company? Product costs are first accumulated in an asset account (Inventory) and then transferred to an expense account (Cost of Goods Sold) when the products are sold. Product cost are first accumulated in an expense account (Cost of Goods Sold) and then transferred to an asset account (Inventory) When the goods are sold. Product costs are recorded in an expense account (Cost of Goods Sold) as the goods are being manufactured. Product costs are never expensed.

Product costs are first accumulated in an asset account (Inventory) and then transferred to an expense account (Cost of Goods Sold) when the products are sold.

Assume that a company incurs a mixture of fixed and variable product costs; and that all of its operating expenses are fixed. Finally, assume that the company earns a profit by making and selling 1,000 units of product. Under these conditions the contribution margin will be greater than the gross margin. the contribution margin will be lower than the gross margin. the contribution margin will be equal to the gross margin. The answer cannot be determined from the information provided.

the contribution margin will be greater than the gross margin.

Net income will be overstated if a significant selling and administrative expense is classified as a product cost and the number of products made is less than the number of products sold. the number of products made is more than the number of products sold. the number of products made is equal to the number of products sold.

the number of products made is more than the number of products sold