ACTG 211 Exam 2 Review
Homeyer Corporation has provided the following data for its two most recent years of operation: Selling price per unit$ 71Manufacturing costs: Variable manufacturing cost per unit produced: Direct materials$ 12Direct labor$ 6Variable manufacturing overhead$ 3Fixed manufacturing overhead per year$264,000Selling and administrative expenses: Variable selling and administrative expense per unit sold$ 4Fixed selling and administrative expense per year$ 74,000 Year 1Year 2Units in beginning inventory03,000Units produced during the year11,00012,000Units sold during the year8,00014,000Units in ending inventory3,0001,000 The net operating income (loss) under absorption costing in Year 1 is closest to:
$102,000 Explanation Absorption costing unit product cost: Year 1Direct materials$ 12Direct labor6Variable manufacturing overhead3Fixed manufacturing overhead($264,000 ÷ 11,000 units produced)24Absorption costing unit product cost$ 45 Absorption costing income statement: Year 1Sales [(8,000 units sold × $71 per unit)]$ 568,000Cost of goods sold [(8,000 units sold × $45 per unit)]360,000Gross margin208,000Selling and administrative expenses[((8,000 units sold × $4 per unit) + $74,000)]106,000Net operating income (loss)$ 102,000
Janos Corporation, which has only one product, has provided the following data concerning its most recent month of operations: Selling price$ 111Units in beginning inventory300Units produced2,000Units sold2,200Units in ending inventory100 Variable costs per unit: Direct materials$ 29Direct labor$ 30Variable manufacturing overhead$ 4Variable selling and administrative expense$ 9Fixed costs: Fixed manufacturing overhead$34,000Fixed selling and administrative expense$39,600 The company produces the same number of units every month, although the sales in units vary from month to month. The company's variable costs per unit and total fixed costs have been constant from month to month. What is the net operating income for the month under variable costing?
$12,200 Explanation Direct materials$29Direct labor30Variable manufacturing overhead4Variable costing unit product cost$63 Sales ($111 per unit × 2,200 units) $244,200Variable expenses: Variable cost of goods sold($63 per unit × 2,200 units)$138,600 Variable selling and administrative($9 per unit × 2,200 units)19,800158,400Contribution margin 85,800Fixed expenses: Fixed manufacturing overhead34,000 Fixed selling and administrative expense39,60073,600Net operating income $ 12,200
Truo Corporation produces a single product. Last year, the company had net operating income of $100,000 using variable costing. Beginning and ending inventories were 13,000 units and 18,000 units, respectively. If the fixed manufacturing overhead cost was $4 per unit both last year and this year, what would have been the net operating income using absorption costing?
$120,000 Explanation Manufacturing overhead deferred in (released from) inventory = Fixed manufacturing overhead in ending inventory − Fixed manufacturing overhead in beginning inventory = ($4 per unit × 18,000 units) − ($4 per unit × 13,000 units) = $20,000
Buckson Framing's cost formula for its supplies cost is $1,350 per month plus $18 per frame. For the month of June, the company planned for activity of 716 frames, but the actual level of activity was 713 frames. The actual supplies cost for the month was $14,820. The supplies cost in the flexible budget for June would be closest to:
$14,184 Explanation Cost = Fixed cost + (Variable cost per unit × q) = $1,350 + ($18 × 713) = $14,184
Herrod Catering uses two measures of activity, jobs and meals, in the cost formulas in its budgets and performance reports. The cost formula for catering supplies is $590 per month plus $108 per job plus $24 per meal. A typical job involves serving a number of meals to guests at a corporate function or at a host's home. The company expected its activity in December to be 16 jobs and 125 meals, but the actual activity was 11 jobs and 130 meals. The actual cost for catering supplies in December was $4,750. The spending variance for catering supplies in December would be closest to:
$148 F Explanation Actual results$4,750Flexible budget [$590 + ($108 × 11) + ($24 × 130)]4,898Spending variance$ 148 Since the actual expense is Less than the flexible budget, the variance is favorable (F).
Stockmaster Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. Sales (8,000 units)$ 320,000 Variable expenses 192,000 Contribution margin 128,000 Fixed expenses 121,600 Net operating income$ 6,400 The margin of safety in dollars is closest to:
$16,000 Explanation Contribution margin ratio = Contribution margin ÷ Sales = $128,000 ÷ $320,000 = 40% Dollar sales to break even = Fixed expenses ÷ Contribution margin ratio = $121,600 ÷ 40% = $304,000 Margin of safety in dollars = Total budgeted (or actual) sales − Break-even sales = $320,000 − $304,000 = $16,000
Caruso Incorporated, which produces a single product, has provided the following data for its most recent month of operations: Number of units produced4,000Variable costs per unit: Direct materials$ 39Direct labor$ 71Variable manufacturing overhead$ 5Variable selling and administrative expense$ 8Fixed costs: Fixed manufacturing overhead$220,000Fixed selling and administrative expense$308,000 There were no beginning or ending inventories. The unit product cost under absorption costing was:
$170 per unit Explanation Direct materials$ 39Direct labor71Variable manufacturing overhead5Fixed manufacturing overhead cost($220,000 ÷ 4,000 units produced)55Absorption costing unit product cost$170
Ploeger Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. Sales (4,000 units) $ 240,000 Variable expenses 156,000 Contribution margin 84,000 Fixed expenses 81,900 Net operating income $ 2,100 The break-even point in dollar sales is closest to:
$234,000 Explanation: Contribution margin ratio = Contribution margin ÷ Sales = $84,000 ÷ $240,000 = 35% Dollar sales to break even = Fixed expenses ÷ Contribution margin ratio = $81,900 ÷ 35% = $234,000
Kirnon Catering uses two measures of activity, jobs and meals, in the cost formulas in its budgets and performance reports. The cost formula for catering supplies is $300 per month plus $114 per job plus $16 per meal. A typical job involves serving a number of meals to guests at a corporate function or at a host's home. The company expected its activity in October to be 27 jobs and 224 meals, but the actual activity was 29 jobs and 227 meals. The actual cost for catering supplies in October was $7,500. The activity variance for catering supplies in October would be closest to:
$276 U Explanation Flexible budget [$300 + ($114 × 29) + ($16 × 227)]$7,238Planning budget [$300 + ($114 × 27) + ($16 × 224)]6,962Activity variance$ 276 Because the flexible budget is greater than the planning budget, the variance is unfavorable (U).
Taussig Snow Removal's cost formula for its vehicle operating cost is $1,880 per month plus $394 per snow-day. For the month of February, the company planned for activity of 13 snow-days, but the actual level of activity was 14 snow-days. The actual vehicle operating cost for the month was $7,250. The activity variance for vehicle operating cost in February would be closest to:
$394 U Explanation Flexible budget [$1,880 + ($394 × 14)]$7,396Planning budget [$1,880 + ($394 × 13)]7,002Activity variance$ 394 Because the flexible budget is greater than the planning budget, the variance is unfavorable (U).
Bustillo Incorporated is working on its cash budget for March. The budgeted beginning cash balance is $35,000. Budgeted cash receipts total $142,000 and budgeted cash disbursements total $151,000. The desired ending cash balance is $30,000. To attain its desired ending cash balance for March, the company needs to borrow:
$4,000 Explanation Beginning cash balance$ 35,000Add cash receipts (all sales are for cash)142,000Total cash available177,000Less cash disbursements151,000Excess (deficiency) of cash available over disbursements26,000Financing ($30,000 − $26,000)4,000Ending cash balance$ 30,000
Ekholm Corporation is a shipping container refurbishment company that measures its output by the number of containers refurbished. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes. Fixed Element per MonthVariable Element per Container RefurbishedRevenue $4,400Employee salaries and wages$44,900$1,000Refurbishing materials $ 700Other expenses$30,800 When the company prepared its planning budget at the beginning of December, it assumed that 30 containers would have been refurbished. However, 35 containers were actually refurbished during December. The activity variance for "Employee salaries and wages" for December would have been closest to:
$5,000 U Explanation Flexible BudgetPlanning BudgetActivity VariancesContainers refurbished (q)3530 Employee salaries and wages ($44,900 + $1,000q)$79,900$74,900$5,000U
All of Gaylord Corporation's sales are on account. Thirty-five percent of the sales on account are collected in the month of sale, 45% in the month following sale, and the remainder are collected in the second month following sale. The following are budgeted sales data for the company: January February March April Total sales $50,000 $60,000 $40,000 $30,000 What is the amount of cash that should be collected in March?
$51,000 Explanation March sales collected in March ($40,000 × 35%)$ 14,000February sales collected in March ($60,000 × 45%)$ 27,000January sales collected in March ($50,000 × 20%)$ 10,000Total cash collections in March$ 51,000
Aultz Tile Installation Corporation measures its activity in terms of square feet of tile installed. Last month, the budgeted level of activity was 1,180 square feet and the actual level of activity was 1,270 square feet. The company's owner budgets for supply costs, a variable cost, at $3.50 per square foot. The actual supply cost last month was $4,980. In the company's flexible budget performance report for last month, what would have been the spending variance for supply costs?
$535 U Explanation Actual results$4,980Flexible budget ($3.50 × 1,270)4,445Spending variance$ 535 Because the actual expense is greater than the flexible budget, the variance is unfavorable (U).
Pabon Corporation makes one product. Budgeted unit sales for August and September are 11,100 and 12,600 units, respectively. The ending finished goods inventory equals 40% of the following month's sales. The direct labor wage rate is $19.00 per hour. Each unit of finished goods requires 2.5 direct labor-hours. The estimated direct labor cost for August is closest to:
$555,750 Explanation The budgeted required production for August is computed as follows: Budgeted sales in units11,100Add desired ending inventory*5,040Total needs16,140Less beginning inventory**4,440Required production11,700 *September sales of 12,600 units × 40% = 5,040 units ** August sales of 11,100 units × 40% = 4,440 units The estimated direct labor cost for August is computed as follows: Required production in units11,700Direct labor hours per unit2.5Total direct labor-hours needed (a)29,250Direct labor cost per hour (b)$ 19.00Total direct labor cost (a) × (b)$ 555,750 PrevQuestion 27 of 38 Total27 of 38Visit question mapNext
Kray Incorporated, which produces a single product, has provided the following data for its most recent month of operations: Number of units produced5,800Variable costs per unit: Direct materials$ 34Direct labor$ 20Variable manufacturing overhead$ 9Variable selling and administrative expense$ 4Fixed costs: Fixed manufacturing overhead$481,400Fixed selling and administrative expense$464,000 There were no beginning or ending inventories. The variable costing unit product cost was:
$63 per unit Direct materials$ 34Direct labor20Variable manufacturing overhead9Variable costing unit product cost$ 63
Nocum Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. Sales (3,000 units)$ 120,000 Variable expenses 90,000 Contribution margin 30,000 Fixed expenses 21,000 Net operating income $ 9,000 If sales volumes decline to 2,900 units, the net operating income would be closest to:
$8,000 explain: Selling price per unit ($120,000 ÷ 3,000 units) $ 40 Variable cost per unit ($90,000 ÷ 3,000 units) 30 Unit contribution margin$ 10 Unit contribution margin (a)$ 10 per unit Unit sales (b)2,900 units Contribution margin (a) × (b)$ 29,000 Fixed expenses21,000 Net operating income$ 8,000
Bugos Corporation is a service company that measures its output by the number of customers served. The company has provided the following fixed and variable cost estimates that it uses for budgeting purposes. Fixed Element per MonthVariable Element per Customer ServedRevenue $4,200Employee salaries and wages$58,800$ 900Travel expenses $ 700Other expenses$33,300 When the company prepared its planning budget at the beginning of March, it assumed that 40 customers would have been served. The amount shown for "Employee salaries and wages" in the planning budget for March would have been closest to:
$94,800 Explanation Planning Budget Customers served (q) 40 Employee salaries and wages ($58,800 + $900q) $94,800
Lightsey Natural Dying Corporation measures its activity in terms of skeins of yarn dyed. Last month, the budgeted level of activity was 14,800 skeins and the actual level of activity was 15,100 skeins. The company's owner budgets for dye costs, a variable cost, at $0.51 per skein. The actual dye cost last month was $8,660. In the company's flexible budget performance report for last month, what would have been the spending variance for dye costs?
$959 U Explanation Actual results$8,660Flexible budget ($0.51 × 15,100)7,701Spending variance$ 959 Because the actual expense is greater than the flexible budget, the variance is unfavorable (U).
Jannusch Corporation makes one product. Budgeted unit sales for July, August, September, and October are 10,000, 11,600, 13,300, and 12,700 units, respectively. The ending finished goods inventory should equal 20% of the following month's sales. The budgeted required production for August is closest to:
11,940 units Explanation The budgeted required production for August is computed as follows: Budgeted sales in units11,600Add desired ending inventory*2,660Total needs14,260Less beginning inventory**2,320Required production11,940 *September sales of 13,300 units × 20% = 2,660 units ** August sales of 11,600 units × 20% = 2,320 units
Mio Canoe Livery rents canoes and transports canoes and customers to and from their canoe trip on a local river. The trip is priced at $20 per person and has a CM ratio of 30%. Mio's fixed expenses are $84,000. Last year, sales were $400,000 and profit was $36,000. How many units need to be sold to break-even, and how many need to be sold to earn a profit of $42,000?
14,000 and 21,000 Explanation Dollar sales to break even = Fixed expenses ÷ Contribution margin ratio = $84,000 ÷ 0.30 = $280,000 Unit sales to break even = $280,000 ÷ $20 per person = 14,000 persons Dollar sales to attain a target profit = (Target profit + Fixed expenses) ÷ Contribution margin ratio = ($42,000 + $84,000) ÷ 0.30 = $420,000 Unit sales to attain a target profit = $420,000 ÷ $20 per person = 21,000 persons
The February contribution format income statement of Mcabier Corporation appears below: Sales$ 211,200Variable expenses96,000Contribution margin115,200Fixed expenses84,100Net operating income$ 31,100 The degree of operating leverage is closest to:
3.70 Explanation Degree of operating leverage = Contribution margin ÷ Net operating income = $115,200 ÷ $31,100 = 3.70
Bear Publishing sells a nature guide. The following information was reported for a typical month: TotalPer UnitSales$ 17,600$ 16.00Variable expenses9,680 Contribution margin7,920 Fixed expenses3,600 Net operating income$ 4,320 What is Bear's current break-even point in unit and dollars? (Round your intermediate calculations to 2 decimal places.)
500 units and $8,000Correct Explanation Contribution margin ratio = Contribution margin ÷ Sales = $7,920 ÷ $17,600 = 0.45 Dollar sales to break even = Fixed expenses ÷ Contribution margin ratio = $3,600 ÷ 0.45 = $8,000 Unit sales to break even = $8,000 ÷ $16.00 per unit = 500 units
Hedman Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. Sales (9,000 units)$ 270,000Variable expenses202,500Contribution margin67,500Fixed expenses63,750Net operating income$ 3,750 The margin of safety percentage is closest to:
6% Explanation Contribution margin ratio = Contribution margin ÷ Sales = $67,500 ÷ $270,000 = 25% Dollar sales to break even = Fixed expenses ÷ Contribution margin ratio = $63,750 ÷ 25% = $255,000 Margin of safety in dollars = Total budgeted (or actual) sales − Break-even sales = $270,000 − $255,000 = $15,000 Margin of safety percentage = Margin of safety in dollars ÷ Total budgeted (or actual) sales = $15,000 ÷ $270,000 = 6%
Mishoe Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. Sales (1,000 units) $ 50,000 Variable expenses 32,500 Contribution margin 17,500 Fixed expenses 12,250 Net operating income $ 5,250 The break-even point in unit sales is closest to: (Round your intermediate calculations to 2 decimal places.)
700 units
Dustman Manufacturing Corporation's most recent production budget indicates the following required production: JanuaryFebruaryMarchAprilRequired production (units)4,0006,0005,5005,000 Each unit of finished product requires 3 feet of raw materials. The company maintains raw materials inventory equal to 2,000 feet plus 10% of the next month's expected production needs. The raw material used in Dustman Manufacturing Corporation's product costs $4.50 per foot. What is the value of raw material that Dustman Manufacturing should plan on purchasing for the month of February?
Explanation Direct Materials Budget FebruaryRequired production in units6,000Raw materials required per unit3Raw materials needed to meet the production18,000Add desired ending raw materials inventory[2,000 feet + (5,500 units × 3 feet per unit × 10%)]3,650Total raw materials needs21,650Less beginning raw materials inventory[2,000 feet + (6,000 units × 3 feet per unit × 10%)]3,800Raw materials to be purchased17,850Cost of raw materials per unit$ 4.50Cost of raw materials to be purchased$ 80,325
T/F: The break-even point can be determined by simply adding together all of the expenses from the income statement.
False
Cassius Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. Sales (7,000 units)$ 210,000 Variable expenses136,500 Contribution margin73,500 Fixed expenses67,200 Net operating income$ 6,300 The number of units that must be sold to achieve a target profit of $31,500 is closest to:
Selling price per unit ($210,000 ÷ 7,000 units)$ 30.00 Variable cost per unit ($136,500 ÷ 7,000 units)19.50 Unit contribution margin$ 10.50 Unit sales to attain a target profit = (Target profit + Fixed expenses) ÷ Unit contribution margin = ($31,500 + $67,200) ÷ $10.50 per unit = $98,700 ÷ $10.50 per unit = 9,400 units
In a flexible budget, what will happen to fixed costs as the activity level increases?
The fixed cost per unit will decrease.
T/F: Segment margin is sales less variable expenses less traceable fixed expenses.
True
T/F: The break-even point in units can be obtained by dividing total fixed expenses by the unit contribution margin.
True
Data concerning Kardas Corporation's single product appear below: Per Unit Percent of Sales Selling price $ 140 100% Variable expenses 28 20% Contribution margin$ 112 80% The company is currently selling 8,000 units per month. Fixed expenses are $719,000 per month. The marketing manager believes that a $20,000 increase in the monthly advertising budget would result in a 180 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change?
increase of $160 Contribution Income Statement 8,000 units8,180 unitsSales (at $140 per unit)$ 1,120,000$ 1,145,200Variable expenses (at $28 per unit)224,000229,040Contribution margin896,000916,160Fixed expenses ($20,000 increase)719,000739,000Net operating income$ 177,000$ 177,160 Net operating income would increase by $160.
Chovanec Corporation produces and sells a single product. Data concerning that product appear below: Per Unit Percent of Sales Selling price $ 170 100% Variable expenses 68 40% Contribution margin $ 102 60% Fixed expenses are $521,000 per month. The company is currently selling 7,000 units per month. Management is considering using a new component that would increase the unit variable cost by $6. Since the new component would increase the features of the company's product, the marketing manager predicts that monthly sales would increase by 500 units. What should be the overall effect on the company's monthly net operating income of this change?
increase of $6,000C ontribution Income Statement 7,000 units7,500 unitsSales ($170 per unit)$ 1,190,000$ 1,275,000Variable expenses (at $68 per unit and $74 per unit)476,000555,000Contribution margin714,000720,000Fixed expenses521,000521,000Net operating income$ 193,000$ 199,000 Net operating income increases by $6,000
Which of the following would not affect the break-even point?
number of units sold
When preparing a direct materials budget, the required purchases of raw materials in units equals:
raw materials needed to meet the production schedule + desired ending inventory of raw materials − beginning inventory of raw materials.
The usual starting point for a master budget is:
the sales forecast or sales budget.
Assuming that direct labor is a variable cost, the primary difference between the absorption and variable costing is that:
variable costing treats only direct materials, direct labor, and the variable portion of manufacturing overhead as product costs while absorption costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs.
The costing method that treats all fixed costs as period costs is:
variable costing.