Managerial Accounting Exam CH 5-8
Turner Company's contribution margin ratio is 15%. If the degree of operating leverage is 12 at the $150,000 sales level, net operating income at the $150,000 sales level must equal
$1,875
McCaskey Corporation uses an activity-based costing system with the following three activity cost pools: Activity Cost Pool Total Activity Fabrication..............................40,000 Machine Hours Order Processing.....................500 Orders Other..........................................Not Applicable The Other activity cost pool is used to accumulate costs of idle capacity and organization-sustaining costs. The company has provided the following data concerning its costs: Wages and salaries.............$420,000 Deprecition.........................$100,000 Occupancy...........................$120,000 Total......................................$640,000 The distribution of resource consumption across activity cost pools is given below The activity rate for the Fabrication activity cost pool is closest to
$1.65 per machine-hour
Knoke Corporation's contribution margin ratio is 29% and its fixed monthly expenses are $17,000. If the company's sales for a month are $98,000, what is the best estimate of the company's net operating income? Assume that the fixed monthly expenses do not change
$11,420
The following information relates to Clyde Corporation which produced and sold 50,000 units last month. Sales.......$850,000 Manufacturing Cost: Fixed..............................$210,000 Variable..........................$140,000 Selling and administrative expenses: Fixed................................$300,000 Variable............................$45,000 There were no beginning or ending inventories. Production and sales next month are expected to be 40,000 units. The company's unit contribution margin next month should be
$13.30
Cindy, Inc. sells a product for $10 per unit. The variable expenses are $6 per unit, and the fixed expenses total $35,000 per period. By how much will net operating income change if sales are expected to increase by $40,000?
$16,000 increase
Mancuso Corporation has provided its contribution format income statement for January. The company produces and sells a single product Sales (2,900 units).....................$269,700 Variable Expense ......................$107,300 Contribution Margin....................162,400 Fixed Expenses..........................137,100 Net Operating Income.................$25,300 If the company sells 3,100 units, its total contribution margin should be closest to
$173,600
Gaudy Inc. produces and sells a single product. The company has provided its contribution format income statement for May Sales (4,5000 units)........ $427,500 Variable Expenses...........265,500 Contribution Margin........162,000 Fixed Expenses..............135,300 Net operating income.......$26,700
$19,500
Balonek Inc.'s contribution margin ratio is 57% and its fixed monthly expenses are $41,000. Assuming that the fixed monthly expenses do not change, what is the best estimate of the company's net operating income in a month when sales are $112,000?
$22,840
South Company sells a single product for $20 per unit. If variable expenses are 60% of sales and fixed expenses total $9,600, the break-even point will be
$24,000
James Company has a margin of safety percentage of 20% based on its actual sales. The break-even point is $200,000 and the variable expenses are 45% of sales. Given this information, the actual profit is
$27,500
Sensabaugh Inc., a company that produces and sells a single product, has provided its contribution format income statement for January Sales (1,800 units)......$91,800 Variable expense...........59,400 contribution Margin.......32,400 Fixed Expenes................27,000 Net operating income......5,400
$28,800
Pool Company's variable expenses are 36% of sales. Pool is contemplating an advertising campaign that will cost $20,000. If sales increase by $80,000, the company's net operating income should increase by:
$31,200
Dimitrov Corporation, a company that produces and sells a single product, has provided its contribution format income statement for July Sales (7,000 units)..............$315,000 Variable Expenses...............$175,000 Contribution Margin...............140,000 Fixed Expenses.......................103,500 Net operating Income...............36,500 If the company sells 6,900 units, its net operating income should be closest to:
$34,500
The contribution margin ratio is 30% for the Honeyville Company and the break-even point in sales is $150,000. If the company's target net operating income is $60,000, sales would have to be:
$350,000
Zee Corporation has provided the following data concerning its overhead costs for the coming year: The activity rate for the Assembly activity cost pool is closest to A. $2.70 per labor-hour B. $4.25 per labor-hour C. $4.05 per labor-hour D. $8.10 per labor-hour
$4.25 per labor-hour
Butteco Corporation has provided the following cost data for last year when 100,000 units were produced and sold: Raw Material---$200,000 Direct Labor----$100,000 Manufacturing Overhead------$200,000 Selling and administrative expense---$150,000 All costs are variable except for $100,000 of manufacturing overhead and $100,000 of selling and administrative expense. There are no beginning or ending inventories. If the selling price is $10 per unit, the net operating income from producing and selling 110,000 units would be
$405,000
The contribution margin ratio is 25% for Grain Company and the break-even point in sales is $200,000. To obtain a target net operating income of $60,000, sales would have to be
$440,000
Christiansen Corporation uses an activity-based costing system with the following three activity cost pools: Activity Cost Pool Total Activity Fabrication..............................70,000 Machine Hours Order Processing.....................500 Orders Other..........................................Not Applicable The Other activity cost pool is used to accumulate costs of idle capacity and organization-sustaining costs. The company has provided the following data concerning its costs: Wages and salaries.............$420,000 Deprecition.........................$160,000 Occupancy...........................$200,000 Total......................................$780,000 The distribution of resource consumption across activity cost pools is given below
$560 per order
Last year, Flynn Company reported a profit of $70,000 when sales totaled $520,000 and the contribution margin ratio was 40%. If fixed expenses increase by $10,000 next year, what amount of sales will be necessary in order for the company to earn a profit of $80,000?
$570,000
Menlove Company had the following income statement for the most recent year: Sales (17,000 units)...... $357,000 Variable Expenses...........$255,000 Contribution Margin...........102,000 Fixed Expenes...................68,000 Net operating income.........34,000 Given this data, the unit contribution margin was:
$6 per unit
Danneman Corporation's fixed monthly expenses are $13,000 and its contribution margin ratio is 56%. Assuming that the fixed monthly expenses do not change, what is the best estimate of the company's net operating income in a month when sales are $41,000?
$9,960
Which of the following formulas is used to calculate the contribution margin ratio?
(Sales - Variable expenses) Sales
The margin of safety percentage is computed as
(Total sales - Break-even sales) Total sales
With regard to the CVP graph, which of the following statements is not correct?
. The CVP graph assumes that variable costs go down as volume goes up.
An activity-based costing system that is designed for internal decision-making will not conform to generally accepted accounting principles because:
. all of the above are reasons why an activity-based costing system that is designed for internal decision-making will not conform to generally accepted accounting principles
Hirt Corporation sells its product for $12 per unit. Next year, fixed expenses are expected to be $400,000 and variable expenses are expected to be $8 per unit. How many units must the company sell to generate net operating income of $80,000?
120,000 units
Sinclair Company's single product has a selling price of $25 per unit. Last year the company reported a profit of $20,000 and variable expenses totaling $180,000. The product has a 40% contribution margin ratio. Because of competition, Sinclair Company will be forced in the current year to reduce its selling price by $2 per unit. How many units must be sold in the current year to earn the same profit as was earned last year?
15,000 units
Rothe Company manufactures and sells a single product that it sells for $90 per unit and has a contribution margin ratio of 35%. The company's fixed expenses are $46,800. If Rothe desires a monthly target net operating income equal to 15% of sales, the amount of sales in units will have to be (rounded):
2,600 units
Darth Company sells three products. Sales and contribution margin ratios for the three products follow Product X product Y Product Z Sales in dollars....................20,000 $40,000 $100,000 Contibution Margin ration.....45% 40% 15% Given these data, the contribution margin ratio for the company as a whole would be
25%
Patterson Company's variable expenses are 55% of sales. At a $400,000 sales level, the degree of operating leverage is 5. If sales increase by $30,000, the new degree of operating leverage will be (rounded)
3.91
A product sells for $20 per unit and has a contribution margin ratio of 40 percent. Fixed expenses total $240,000 annually. How many units of the product must be sold to yield a profit of $60,000?
37,500 units
Perona Corporation produces and sells a single product. Data concerning that product appear below: Selling price per unit..............$160.00 Variable Expense per unit $70.40 Fixed expense per month $385,280 The unit sales to attain the company's monthly target profit of $9,000 is closest to
4,400 units
A total of 30,000 units were sold last year. The contribution margin per unit was $2, and fixed expenses totaled $20,000 for the year. This year fixed expenses are expected to increase to $26,000, but the contribution margin per unit will remain unchanged at $2. How many units must be sold this year to earn the same profit as was earned last year?
43,000 units
The Herald Company manufactures and sells a single product which sells for $50 per unit and has a contribution margin ratio of 30%. The company's monthly fixed expenses are $25,000. If Herald desires a monthly target net operating income equal to 20% of sales dollars, sales in units will have to be (rounded)
5,000 units
Street Company's fixed expenses total $150,000, its variable expense ratio is 60% and its variable expenses are $4.50 per unit. Based on this information, the break-even point in units is
50,000 units
A duration driver is:
A measure of the amount of time required to perform an activity.
A transaction driver is
A simple count of the number of times an activity occurs.
East Company manufactures and sells a single product with a positive contribution margin. If the selling price and the variable expense per unit both increase 5% and fixed expenses do not change, what is the effect on the contribution margin per unit and the contribution margin ratio?
C. Option C (Increase-No Change)
Weinreich Corporation produces and sells a single product. Data concerning that product appear below Per Unit Percent of Sales Selling Price $180 100% Variable Expense 90 50% Contribution Margin 90 50% The company is currently selling 2,000 units per month. Fixed expenses are $131,000 per month. The marketing manager believes that an $18,000 increase in the monthly advertising budget would result in a 170 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change?
Decrease of $2,700
Ribb Corporation produces and sells a single product. Data concerning that product appear below: Per Unit Percent of Sales Selling Price $190 100% Variable Expense 57 30% Contribution Margin 133 70% Fixed expenses are $913,000 per month. The company is currently selling 9,000 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 400 units. What should be the overall effect on the company's monthly net operating income of this change?
Decrease of $3,200
Montgomery Corporation produces and sells a single product. Data concerning that product appear below Per Unit Percent of Sales Selling Price $240 100% Variable Expense 144 60% Contribution Margin 96 40% Fixed expenses are $239,000 per month. The company is currently selling 3,000 units per month. The marketing manager would like to cut the selling price by $12 and increase the advertising budget by $12,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 500 units. What should be the overall effect on the company's monthly net operating income of this change
Decrease of $6,000
If Q equals the level of output, P is the selling price per unit, V is the variable expense per unit, and F is the fixed expense, then the break-even point in units is
F (P-V). F divided by (p-v)
Activity-based costing is a costing method that is designed to provide managers with product cost information for external financial reports.
False
An activity-based costing system should include all of the activities carried out in an organization because any simplification will inevitably result in inaccuracy
False
If fixed expenses increase by $10,000 per year, then the level of sales needed to break even will also increase by $10,000.
False
If two companies produce the same product and have the same total sales and same total expenses, operating leverage will be lower in the company with a higher proportion of fixed expenses in its cost structure.
False
Mark Company currently sells a video recorder with a selling price of $300 per unit. The variable expense per unit is $175 and fixed expenses are $100,000. If the company reduces variable expenses by $20 per unit and increases the fixed expenses by $10,000, the break-even point will increase.
False
One difficulty with self-imposed budgets is that they are not subject to any type of review
False
Organization-sustaining activities are activities of the general organization that support specific products.
False
Reynold Enterprises sells a single product for $25. The variable expense per unit is $15 and the fixed expense per unit is $5 at the current level of sales. The company's net operating income will increase by $5 if one more unit is sold.
False
The break-even point in units can be obtained by dividing total fixed expenses by the contribution margin ratio.
False
The costs of a particular department should not be split up among activity cost pools in an activity-based costing system.
False
The production budget is typically prepared prior to the sales budget
False
To facilitate decision-making, fixed expenses should be expressed on a per-unit basis
False
Data concerning Runnells Corporation's single product appear below: Per Unit Percent of Sales Selling Price $160 100% Variable Expense 80 50% Contribution Margin 80 50 The company is currently selling 6,000 units per month. Fixed expenses are $424,000 per month. The marketing manager believes that a $7,000 increase in the monthly advertising budget would result in a 100 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change?
Increase of $1,000
Mowrer Corporation produces and sells a single product. Data concerning that product appear below Per Unit Percent of Sales Selling Price $120 100% Variable Expense 48 60% Contribution Margin 72 40% Fixed expenses are $567,000 per month. The company is currently selling 9,000 units per month. The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $11 per unit. In exchange, the sales staff would accept a decrease in their salaries of $84,000 per month. (This is the company's savings for the entire sales staff.) The marketing manager predicts that introducing this sales incentive would increase monthly sales by 600 units. What should be the overall effect on the company's monthly net operating income of this change?
Increase of $21,600
Data concerning Lancaster Corporation's single product appear below: Per Unit Percent of Sales Selling Price $200 100% Variable Expense 60 30% Contribution Margin 140 70 Fixed expenses are $105,000 per month. The company is currently selling 1,000 units per month. Management is considering using a new component that would increase the unit variable cost by $44. Since the new component would increase the features of the company's product, the marketing manager predicts that monthly sales would increase by 400 units. What should be the overall effect on the company's monthly net operating income of this change?
Increase of $5,600
Data concerning Moscowitz Corporation's single product appear below Per Unit Percent of Sales Selling Price $160 100% Variable Expense 96 60% Contribution Margin 64 40% Fixed expenses are $375,000 per month. The company is currently selling 8,000 units per month. The marketing manager would like to cut the selling price by $15 and increase the advertising budget by $23,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 3,100 units. What should be the overall effect on the company's monthly net operating income of this change?
Increase of $8,900
Data concerning Knipp Corporation's single product appear below: Per Unit Percent of Sales Selling Price $230 100% Variable Expense 46 20% Contribution Margin 184 80%
Increase of $9,800
Which of the following is not a limitation of activity-based costing
More accurate product costs may result in increasing the selling prices of some products.
Brasher Company manufactures and sells a single product that has a positive contribution margin. If the selling price and variable expenses both decrease by 5% and fixed expenses do not change, then what would be the effect on the contribution margin per unit and the contribution margin ratio?
Option B (decrease-no change)
All other things the same, which of the following would be true of the contribution margin and variable expenses of a company with high fixed costs and low variable costs as compared to a company with low fixed costs and high variable costs?
Option C (Higher-Lower)
Would the following activities at a manufacturer of canned soup be best classified as unit-level, batch-level, product-level, or organization-sustaining activities? Researching recipes Shipping orders to G. Stores unit unit batch batch Product unit product batch
Option D Product/batch
Personnel administration is an example of (an):
Organization-sustaining activity.
Property taxes are an example of a cost that would be considered to be
Organization-sustaining.
Designing a new product is an example of (an):
Product-level activity.
Which of the following activities would be classified as a batch-level activity?
Setting up equipment
The difference between total sales in dollars and total variable expenses is called
The contribution margin
A company with a degree of operating leverage of 4 would expect net operating income to increase by 200% if sales increased from $100,000 to $150,000
True
A shift in the sales mix from products with a low contribution margin ratio toward products with a high contribution margin ratio will lower the break-even point in the company as a whole
True
At the break-even point: Sales -less- Variable expenses = Fixed expenses.
True
Both planning and control are needed for an effective budgeting system
True
Costs classified as batch-level costs should depend on the number of batches processed rather than on the number of units produced, the number of units sold, or other measures of volume
True
Customer-level activities relate to specific customers and are not tied to any specific products
True
Even departmental overhead rates will not correctly assign overhead costs in situations where a company has a range of products that differ in volume, lot size, or complexity of production.
True
For a given level of sales, a low contribution margin ratio will produce less net operating income than a high contribution margin ratio
True
If the fixed expenses increase in a company, and all other factors remain unchanged, then one would expect the margin of safety to decrease.
True
If two companies have the same total sales and total expenses and make the same product, the volatility of net operating income with changes in sales will tend to be greater in the company with a higher proportion of fixed expenses in its cost structure.
True
In activity-based costing, some manufacturing costs may be excluded from product costs
True
In activity-based costing, there are a number of activity cost pools, each of which is allocated to products and other costing objects using its own unique measure of activity
True
In general, duration drivers are more accurate measures of the consumption of resources than transaction drivers.
True
Incremental analysis is an analytical approach that focuses only on those revenues and costs that will change as a result of a decision.
True
Managing and sustaining product diversity requires many more overhead resources such as production schedulers and product design engineers than managing and sustaining a single product. The costs of these resources can be accurately allocated to products on the basis of direct labor-hours.
True
On a CVP graph for a profitable company, the total expense line will be steeper than the line representing fixed costs.
True
On a CVP graph for a profitable company, the total revenue line will be steeper than the total expense line.
True
One benefit of budgeting is that it coordinates the activities of the entire organization
True
The impact on net operating income of a given dollar change in sales can be computed by applying the contribution margin ratio to the dollar change in sales.
True
The margin of safety percentage is equal to the margin of safety in dollars divided by total sales in dollars.
True
The practice of assigning the costs of idle capacity to products can result in unstable unit product costs.
True
The total volume in sales dollars that would be required to attain a given target profit is determined by dividing the sum of the fixed expenses and the target profit by the contribution margin ratio.
True
The variable expense per unit is $12 and the selling price per unit is $40. Then the contribution margin ratio is 70%.
True
Transaction drivers usually take more effort to record than duration drivers.
True
Unit-level activities are performed each time a unit is produced.
True
The degree of operating leverage can be calculated as:
contribution margin divided by net operating income
A company has provided the following data Sales----3,000 units Sales Price----- $70 per unit Variable Price -----$50 per unit Fixed Cost ------$25,000 If the sales volume decreases by 25%, the variable cost per unit increases by 15%, and all other factors remain the same, net operating income will:
decrease by $31,875.
The break-even point in unit sales increases when variable expenses
increase and the selling price remains unchanged
Loren Company's single product has a selling price of $15 per unit. Last year the company reported total variable expenses of $180,000, fixed expenses of $90,000, and a net operating income of $30,000. A study by the sales manager discloses that a 15% increase in the selling price would reduce unit sales by 10%. If her proposal is adopted, net operating income would
increase by $28,500
The amount by which a company's sales can decline before losses are incurred is called the
margin of safety
Break-even analysis assumes that:
the average variable expense per unit is constant
The break-even point in unit sales is found by dividing total fixed expenses by
the contribution margin per unit.
