ACC 221 - Midterm 2

A company has a single product called a Yak. The company normally produces and sells 60,000 Yaks each year at a selling price of $32 per unit. The company's unit costs at this level of activity are given below: Direct materials $10.00 Direct labor 4.50 Variable manufacturing overhead 2.30 Fixed manufacturing overhead 5.00 ($300,000 total) Variable selling expenses 1.20 Fixed selling expenses 3.50 ($210,000 total) Total cost per unit $ 26.50 Assume that the company has sufficient capacity to produce 90,000 Yaks each year without any increase in fixed manufacturing overhead costs. The company could increase its unit sales by 25% above the present 60,000 units each year if it were willing to increase the fixed selling expenses by $80,000. What is the financial advantage (disadvantage) of investing an additional $80,000 in fixed selling expenses? a. $130,000 advantage b. $130,000 disadvantage c. $148,000 advantage d. $148,000 disadvantage

a. $130,000 advantage Sales(32)(60,000)=1,920,000 -VCs$18 (10+4.5+2.3+1.2)(60,000)=(1,080,000)CM840,000 CMratio=840,000/1,920,000=.4375 Salesup25% (.25*1,920,000)=480,000*.4375=210,000(newCM)-FCsof80,000=$130,000adv

A company is a wholesale distributor of premium European chocolates. The company's balance sheet as of April 30 is given below: Company Balance Sheet April 30 Assets Cash $9,000 Accounts receivable 54,000 Inventory 30,000 Buildings and equipment, net of depreciation 207,000 Total assets $300,000 Liabilities and Stockholders' Equity Accounts payable $63,000 Note payable 14,500 Common stock 180,000 Retained earnings 42,500 Total liabilities and stockholders' equity $300,000 The company is preparing a budget for May with the following data: 1. Sales are budgeted at $200,000 for May. Of these sales, $60,000 will be for cash; the remainder will be credit sales. One-half of a month's credit sales are collected in the month the sales are made, and the remainder is collected in the following month. All of the April 30 accounts receivable will be collected in May. 2. Purchases of inventory are expected to total $120,000 during May. These purchases will all be on account. Forty percent of all purchases are paid for in the month of purchase; the remainder are paid in the following month. All of the April 30 accounts payable to suppliers will be paid during May. 3. The May 31 inventory balance is budgeted at $40,000. What are expected May cash collections? a. $184,000 b. $111,000 c. $140,000 d. $114,000

a. $184,000 May Cash Sales = $60,000 May Credit Sales = $140,000 Cash Collected in May = April AR balance + May Cash Sales + 50% of May Credit Sales = 54,000 + 60,000 + (140,000 x .5) = 184,000

Taylor Company has current sales of 1,000 units, at a selling price of $190 per unit, variable costs per unit of$76, and fixed expenses of $96,000. The company believes sales will increase by 300 units, if the companyintroduces sales commissions as an incentive for the sales staff. The change will decrease the selling price to$175 per unit, increase variable cost per unit to $100, and decrease fixed expenses by $20,000. What is the netoperating income after the changes? a. $21,500 b. $30,000 c. $24,500 d. $22,000

a. $21,500 New contribution margin per unit = $175 − $100 = $75 New contribution margin = $75 × 1,300 units = $97,500 New fixed cost = $96,000 − 20,000 = $76,000 New net operating income = $97,500 − 76,000 = $21,500

A company makes a product that is very popular as a Mother's Day gift. Thus, peak sales occur in May of each year, as shown in the company's sales budget for the second quarter given below: April May June Total Credit sales $300,000 $500,000 $200,000 $1,000,000 From experience, the company has learned that 20% of a month's sales are collected in the month of sale, another 70% are collected in the month following sale, and the remaining 10% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $230,000, and March sales totaled $260,000. What is June 30 accounts receivable? a. $210,000 b. $160,000 c. $420,000 d. $350,000

a. $210,000 Remaining to be collected: June: 200,000 x .8 = 160,000May: 500,000 x .1 = 50,000 AR = 160,000 + 50,000 = 210,000

The direct labor budget of a corporation for the upcoming fiscal year contains the following details concerning budgeted direct labor-hours: 1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Direct labor-hours 8,000 8,200 8,500 7,800 The company uses direct labor-hours as its overhead allocation base. The variable portion of its predetermined manufacturing overhead rate is $3.25 per direct labor-hour and its total fixed manufacturing overhead is $48,000 per quarter. The only noncash item included in fixed manufacturing overhead is depreciation, which is $16,000 per quarter. What are budgeted manufacturing overhead cash disbursements for the year? a. $233,625 b. $297,625 c. $105,625 d. $64,000

a. $233,625 VMOH = 32,500 DLHrs x $3.25/DLHr = $105,625 Cash FMOH = (48,000 - 16,000) x = 128,000 Total Cash MOH = $105,625 + 128,000 = $233,625

Future Corporation has a single product; the product selling price is $100 and variable costs are $60. The company's fixed expenses are $10,000. What is the company's break-even point in sales dollars? a. $25,000 b. $2,500 c. $250 d. $16,667

a. $25,000 CM ratio = (Sales − Variable expenses) ÷ Sales = ($100 − $60) ÷ $100 = $40 ÷ $100 = 40% or 0.40Dollar sales to break-even = Fixed expenses ÷ CM Ratio = $10,000 ÷ 0.40 = $25,000

A company makes a product that is very popular as a Mother's Day gift. Thus, peak sales occur in May of each year, as shown in the company's sales budget for the second quarter given below: April May June Total Credit sales $300,000 $500,000 $200,000 $1,000,000 From experience, the company has learned that 20% of a month's sales are collected in the month of sale, another 70% are collected in the month following sale, and the remaining 10% are collected in the second month following sale. Bad debts are negligible and can be ignored. February sales totaled $230,000, and March sales totaled $260,000. What are cash collections for April? a. $265,000 b. $336,000 c. $420,000 d. $242,000

a. $265,000 Cash collected in April = (300,000 x .2) + (260,000 x .7) + (230,000 x .1) = 60,000 + 182,000 + 23,000 = 265,000

A County Senior Services is a nonprofit organization devoted to providing essential services to seniors who live in their own homes within the County area. Three services are provided for seniors—home nursing, Meals On Wheels, and housekeeping. Data on revenue and expenses for the past year follow: Total Home Meals House- Nursing On Wheels keeping Revenues $900,000 $260,000 $400,000 $240,000 Variable expenses 490,000 120,000 210,000 160,000 Contribution margin 410,000 140,000 190,000 80,000 Fixed expenses: Depreciation 68,000 8,000 40,000 20,000 Liability insurance 42,000 20,000 7,000 15,000 Program administrators' salaries 115,000 40,000 38,000 37,000 General administrative overhead* 180,000 52,000 80,000 48,000 Total fixed expenses 405,000 120,000 165,000 120,000 Net operating income (loss) $5,000 $20,000 $25,000 $(40,000) *Allocated on the basis of program revenues. The head administrator of the County Senior Services, Judith Miyama, considers last year's net operating income of $5,000 to be unsatisfactory; therefore, she is considering the possibility of discontinuing the housekeeping program. The depreciation in housekeeping is for a small van that is used to carry the housekeepers and their equipment from job to job. If the program were discontinued, the van would be donated to a charitable organization. None of the general administrative overhead would be avoided if the housekeeping program were dropped, but the liability insurance and the salary of the program administrator would be avoided. What is the financial advantage (disadvantage) of discontinuing the Housekeeping program? a. $28,000 disadvantage b. $28,000 advantage c. $76,000 disadvantage d. $76,000 advantage

a. $28,000 disadvantage

Use this information for the following three questions: The following is a schedule of the projected unit sales of Western Company, which manufactures casual... Each unit sells for $25. The company began the period with a beginning accounts receivable balance of $10,000. Choose the correct answer from the options provided. Quarter First Second Third Fourth Year Budgeted unit sales 1,500 1,300 1,400 1,300 5,500 Percentage of sales collected in the quarter of the sale 75% Percentage of sales collected in the quarter after the sale 25% What is the amount of budgeted sales revenue for the fourth quarter? a. $32,500 b. $33,750 c. $35,000 d. $37,500

a. $32,500 Budgeted sales revenue for the fourth quarter = 1,300 units × $25 = $32,500

A corporation makes products A and B in a joint process from a single input, R. During a typical production run, 50,000 units of R yield 20,000 units of A and 30,000 units of B at the split-off point. Joint production costs total $90,000 per production run. The unit selling price for A is $4.00 and for B is $3.80 at the split-off point. However, B can be processed further at a total cost of $60,000 and then sold for $7.00 per unit. If product B is processed beyond the split-off point, the financial advantage (disadvantage) as compared to selling B at the split-off point would be: a. $36,000 per production run b. $96,000 per production run c. ($42,000) per production run d. ($10,000) per production run

a. $36,000 per production run B's Change in Sales = 7.00 - 3.80 = 3.20 x 30,000 units = $96,000 B's Additional Cost = $60,000 Financial Advantage = $96,000 - 60,000 = $36,000

The following information is extracted from the records of Johnson Corporation: Target profit $ 120,000 Unit contribution margin $ 40 Fixed expenses $ 40,000 Contribution margin ratio (CM ratio) 0.40 Selling price $ 100 What are the sales dollars required to attain a target profit of $120,000? a. $400,000 b. $300,000 c. $10,000 d. $60,000

a. $400,000 Dollar sales to attain the target profit = (Target profit + Fixed expenses) ÷ CM ratioDollar sales to achieve the target profit = ($120,000 + $40,000) ÷ 0.40 = $400,000

A company manufactures and sells a single product called a Net. Operating at capacity, the company can produce and sell 30,000 Nets per year. Costs associated with this level of production and sales are given below: Unit Total Direct materials $15 $450,000 Direct labor 8 240,000 Variable manufacturing overhead 3 90,000 Fixed manufacturing overhead 9 270,000 Variable selling expense 4 120,000 Fixed selling expense 6 180,000 Total cost $45 $1,350,000 The Nets normally sell for $50 each. Fixed manufacturing overhead is $270,000 per year within the range of 25,000 through 30,000 Nets per year. Assume that due to a recession, the company expects to sell only 25,000 Nets through regular channels next year. A large retail chain has offered to purchase 5,000 Nets if the company is willing to accept a 16% discount off the regular price. There would be no sales commissions on this order; thus, variable selling expenses would be slashed by 75%. However, the company would have to purchase a special machine to engrave the retail chain's name on the 5,000 units. This machine would cost $10,000. The company has no assurance that the retail chain will purchase additional units in the future. What is the financial advantage (disadvantage) of accepting the special order? a. $65,000 advantage b. $54,000 advantage c. $46,000 disadvantage d. $65,000 disadvantage

a. $65,000 advantage

Last month a company had a $60,000 profit on sales of $300,000. Fixed costs are $120,000 a month. How much do sales have to increase for the company to earn a $100,000 profit? a. $66,667 b. $83,333 c. $220,000 d. $400,000

a. $66,667 Contribution margin ratio is ($120,000 + $60,000)/$300,000 = 60%. Target sales is ($120,000 + $100,000)/0.60 = $366,667. Sales must increase by $66,667 to earn a $100,000 profit. ($366,667 - $300,000 = $66,667)

Awtis Corporation has a margin of safety percentage of 25% based on its actual sales. The break-even point is $390,000 and the variable expenses are 45% of sales. Given this information, the actual profit is: a. $71,500 b. $19,500 c. $53,625 d. $104,000

a. $71,500 MOS=Sales-BrkEven .25(sales)=sales-390,000 .75(sales)=390,000 Sales=$520,000 MOS=.25(sales) Brkeven=FCs/CMratio 390,000=FCs/.55 FCs=$214,500 Sales*CMratio=CM 520,000*.55=286,000CM -214,500FCs =$71,500NOI

A company is a wholesale distributor of premium European chocolates. The company's balance sheet as of April 30 is given below: Minden Company Balance Sheet April 30 Assets Cash $9,000 Accounts receivable 54,000 Inventory 30,000 Buildings and equipment, net of depreciation 207,000 Total assets $300,000 Liabilities and Stockholders' Equity Accounts payable $63,000 Note payable 14,500 Common stock 180,000 Retained earnings 42,500 Total liabilities and stockholders' equity $300,000 The company is preparing a budget for May with the following data: 1. Sales are budgeted at $200,000 for May. Of these sales, $60,000 will be for cash; the remainder will be credit sales. One-half of a month's credit sales are collected in the month the sales are made, and the remainder is collected in the following month. All of the April 30 accounts receivable will be collected in May. 2. Purchases of inventory are expected to total $120,000 during May. These purchases will all be on account. Forty percent of all purchases are paid for in the month of purchase; the remainder are paid in the following month. All of the April 30 accounts payable to suppliers will be paid during May. 3. The May 31 inventory balance is budgeted at $40,000. What are expected May 31 accounts payable? a. $72,000 b. $63,000 c. $120,000 d. $145,000

a. $72,000 May AP = May purchases x .6 = 120,000 x .6 = 72,000

A company has a selling price of $45 and variable costs of $30 per unit. When 10,000 units are sold, profits equaled $25,000. What is the margin of safety? a. $75,000 b. $25,000 c. $80,000 d. $150,000

a. $75,000 Fixed costs are ($45 - $30) × 10,000 - $25,000 = $125,000. Contribution margin ratio is ($45 - $30)/$45 = 33%. Break-even sales is $125,000/0.33 = $375,000. Actual sales is $45 × 10,000 = $450,000. Margin of safety is $450,000 - $375,000 = $75,000.

Harrti Corporation has budgeted for the following sales: July $ 448,200 August $583,200 September $ 616,600 October $ 891,600 November $ 746,000 December $706,000 Sales are collected as follows: 20% in the month of sale; 55% in the month following the sale; and the remaining 25% in the second month following the sale. In Harrti's budgeted balance sheet at December 31, at what amount will accounts receivable be shown? a. $751,300 b. $564,800 c. $706,000 d. $186,500

a. $751,300

How much will a company's net operating income change if it undertakes an advertising campaign given the following data: Cost of advertising campaign $ 25,000 Variable expense as a percentage of sales 42% Increase in sales $ 60,000 a. $9,800 increase b. $25,200 increase c. $15,000 increase d. $200 increase

a. $9,800 increase CMRatop=58% *60,000(increaseinsales) =34,8005incCM) -25,000 =$9,800NOI(increase)

Hodge Inc. has some material that originally cost $74,600. The material has a scrap value of $57,400 as is, but if reworked at a cost of $1,500, it could be sold for $54,400. What would be the financial advantage (disadvantage) of reworking and selling the material rather than selling it as is as scrap? a. ($4,500) b. $52,900 c. ($79,100) d. ($21,700)

a. ($4,500)

Bristo Corporation has sales of 2,500 units at $50 per unit. Variable expenses are 20% of the selling price. If total fixed expenses are $90,000, the degree of operating leverage is: a. 10.00 b. 2.50 c. 12.50 d. 2.67

a. 10.00

Summarized data for Ralph Corporation: Selling price $ 200 per unit Variable expenses $ 150 per unit Fixed expenses $ 1,000,000 per year Unit sales 25,000 per year What is Ralph Corporation's margin of safety in percentage? a. 20% b. 100% c. 80% d. 50%

a. 20% Margin of safety in dollars = Total budgeted (or actual) sales − Break-even salesTotal budgeted (or actual sales) = $200 per unit × 25,000 units = $5,000,000CM Ratio = (Sales − Variable expenses) ÷ Sales = ($200 − $150) ÷ $200 = $50 ÷ $200 = 25% or 0.25Break-even sales = Fixed expenses ÷ CM ratio = $1,000,000 ÷ 0.25 = $4,000,000Margin of safety Percentage = Margin of safety in dollars ÷ Total budgeted (or actual) sales in dollars =($5,000,000 − $4,000,000) ÷ $5,000,000 = 20%

Winter Corporation's current sales are $500,000. The contribution margin is $300,000 and the net operating income is $100,000. What is the company's degree of operating leverage? a. 3.00 b. 0.60 c. 2.00 d. 1.67

a. 3.00 Degree of operating leverage = Contribution margin ÷ Net operating income Degree of operating leverage = $300,000 ÷ $100,000 = 3.00

Cartier Corporation currently sells its products for $50 per unit. The company's variable costs are $20 per unit. Fixed expenses amount to a total of $5,000 per month. What is the company's variable cost ratio? a. 40% b. 60% c. 100% d. 20%

a. 40% Variable expense ratio = Variable expense ÷ Sales = $20 ÷ $50 = 40%

Which of the following statements about using different approaches to analyze alternatives is NOT true? a. Considering only the relevant costs gives results a different answer than that obtained when all costs are considered. b. Differential analysis focuses on the future costs and benefits that differ between any two alternatives. c. Mixing irrelevant costs with relevant costs may cause confusion and distract attention from the information that is critical. d. Costs and revenues that do not differ between alternatives are irrelevant to decision making.

a. Considering only the relevant costs gives results a different answer than that obtained when all costs are considered. One approach considers only the relevant costs, while the other approach considers all costs, both those that were relevant and those that were not. We obtain the same answer using both the approaches. Mixing irrelevant costs with relevant costs might cause confusion and distract attention from critical information; as a result, considering only relevant costs is the better approach.

An automated turning machine is the current constraint at Jordison Corporation. Three products use this constrained resource. Data concerning those products appear below: LN JQ RQ Selling price per unit $165.88 $ 313.11 $494.52 Variable cost per unit $ 118.30 $239.61 $ 381.42 Minutes on the constraint 2.60 4.90 7.80 Rank the products in order of their current profitability from most profitable to least profitable. In other words, rank the products in the order in which they should be emphasized. (Round your intermediate calculations to two decimal places.) a. LN, JQ, RQ b. RQ, JQ, LN c. RQ, LN, JQ d. JQ, RQ, LN

a. LN, JQ, RQ

Which of the following is not one of the reasons that organizations use budgets? a. The budgeting process enables managers to uncover bottlenecks as they occur. b. Budgets communicate financial goals throughout the organization. c. Budgets evaluate and reward employees.

a. The budgeting process enables managers to uncover bottlenecks as they occur. Organizations use budgets to uncover potential bottlenecks before (rather than as) they occur.

In a budgeted income statement, _________ is subtracted from sales to arrive at gross margin. a. cost of goods sold b. interest expense c. selling and administrative expense d. depreciation expense

a. cost of goods sold Sales minus cost of goods sold equals the gross margin.

A shift in the sales mix from high-margin items to low-margin items can cause total profit to ________. a. decrease b. increase c. remain the same

a. decrease Shifting sales mix from high-margin items to low margin items can cause total profits to decrease.

Which of the following would not affect the break-even point? a. number of units sold b. variable expense per unit c. total fixed expense d. selling price per unit

a. number of units sold

Costs that have been incurred and cannot be eliminated regardless of the alternative chosen are ________. a. sunk costs b. unavoidable costs c. relevant costs d. irrelevant costs

a. sunk costs A sunk cost is a cost that has already been incurred and does not affect the decision.

Film Studio, Incorporated has beginning retained earnings of $80,000 and expects to earn net income of$70,000 during the budget period. What would be the budgeted ending balance in retained earnings if the company declares and pays dividends of $50,000? a. $80,000 b. $100,000 c. $150,000 $200,000

b. $100,000 Ending retained earnings = Beginning retained earnings + Net income − Dividends; Ending retained earnings = $80,000 + $70,000 − $50,000 = $100,000

Nakatomi Corporation produces 10,000 units of Product A at a cost of $20 per unit. A detailed breakdown of the cost is below. Per Unit Variable costs $ 12 Allocated manufacturing overhead costs 3 Allocated general administrative costs 5 $ 20 Outside supplier's offer $ 17 What are the total relevant cost of producing the units internally? a. $150,000 b. $120,000 c. $200,000 d. $170,000

b. $120,000 Total relevant cost of producing the units internally will be the costs that can be avoided by opting to purchase the products externally. Nakatomi can avoid the variable costs of $12 per unit ($120,000 for 10,000 units).

Hopi Corporation expects the following operating results for next year: Sales $ 400,000 Margin of safety $ 100,000 Contribution margin ratio 75% Degree of operating leverage 4 What is Hopi expecting total fixed expenses to be next year? a. $75,000 b. $225,000 c. $100,000 d. $200,000

b. $225,000

Striker Company estimates its expected cash receipts for the period to be $80,000 and its expected cash disbursements to be $70,000. The beginning cash balance for the period was $5,000. The management wants to maintain a minimum cash balance of $40,000. How much cash will the company need to borrow? a. $15,000 b. $25,000 c. $30,000 d. $40,000

b. $25,000 Excess (deficiency) of cash available over disbursements = Beginning cash balance + Cash receipts - Cash disbursements Excess (deficiency) of cash available over disbursements = $5,000 + $80,000 − $70,000 = $15,000 Amount to be borrowed = Minimum cash balance − Excess (deficiency) of cash available over disbursements Amount to be borrowed = $40,000 − $15,000 = $25,000

Product A Product B Selling price per unit $20 $15 Variable cost per unit 12 9 CM per unit $8 $6 Labor time 4 minutes 2 minutes Roberto, Incorporated manufactures products A and B. Both products have a contribution margin ratio of 40%.What is the contribution margin per unit of the constrained resource for product B, if labor time is the constrained resource? a. $2 per minute b. $3 per minute c. $6 per minute d. $8 per minute

b. $3 per minute The contribution margin per unit of product B is $6 and the total labor time required to produce each unit is 2minutes. Therefore, the contribution margin per unit of constrained resource for product B is $3 per minute (or $6÷ 2 minutes).

Superware, Incorporated produces multiple products out of a common input. Geratin is one such product, which has a sales value of $15,000 at the split-off point. Joint costs allocated to Geratin are $12,000. Sales value of Geratin increases to $25,000 after further processing, and this processing will cost $7,000. What is the net profit or loss if Superware processes the product further? a. ($3,000) loss b. $3,000 profit c. $20,000 profit d. $18,000 profit

b. $3,000 profit Incremental revenues = Sales value after further processing of $25,000 − Sales value at split-off point of$15,000 = $10,000 Net profit if the product is processed further = Incremental revenues of $10,000 − Incremental costs of $7,000 =$3,000

Prairie, Incorporated produces a single product. It has an annual capacity of 10,000 units, but currently uses only 80% of it. Each unit is sold for $50 and requires direct material worth $30 and direct labor worth $5.Manufacturing overhead cost is $10 per unit of which 70% is variable. What is Prairie's total incremental cost incurred to produce each unit? a. $30 b. $42 c. $35 d. $45

b. $42 Total incremental cost = $42 = $30 + $5 + ($10 × 70%)

Income Statement of Base Corporation Sales Volume Present Sales $ 100,000 Variable expenses 50,000 Contribution margin 50,000 Fixed expenses 20,000 Net Operating income $ 30,000 If sales increase by $50,000, what will be the net operating income for the company? a. $25,000 b. $55,000 c. $15,000 d. $50,000

b. $55,000 CM ratio = Total CM ÷ Total sales = $50,000 ÷ $100,000 = 50% Profit = (CM ratio × Sales) − Fixed Expenses = (50% × $150,000) − $20,000= $55,000

Wallen Corporation is considering eliminating a department that has an annual contribution margin of $80,000 and $160,000 in annual fixed costs. Of the fixed costs, $90,000 cannot be avoided. The annual financial advantage (disadvantage) for the company of eliminating this department would be: a. ($80,000) b. ($10,000) c. $10,000 d. $80,000

b. ($10,000)

Rebelo Corporation is presently making part E07 that is used in one of its products. A total of 17,000 units of this part are produced and used every year. The company's Accounting Department reports the following costs of producing the part at this level of activity: Per Unit Direct materials $ 3.80 Direct labor $ 3.80 Variable manufacturing overhead $ 1.10 Supervisor's salary $ 2.50 Depreciation of special equipment $ 1.40 Allocated general overhead $ 8.60 An outside supplier has offered to make and sell the part to the company for $20.80 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company, none of which would be avoided if the part were purchased instead of produced internally. If management decides to buy part E07 from the outside supplier rather than to continue making the part, what would be the annual impact on the company's overall net operating income? a. $163,200 b. ($163,200) c. $6,800 d. ($6,800)

b. ($163,200)

A company currently sells 15,000 units a month for $50 each, has variable costs of $20 per unit, and fixed costs of $300,000. The company is considering increasing the price of its units to $60 per unit. If the price is changed, how many units will the company need to sell for profit to remain the same as before the price change? a.10,000 b. 11,250 c. 12,000 d. 12,500

b. 11,250 Profit is currently 15,000 × ($50 - $20) - $300,000 = $150,000. Target units = ($300,000 + $150,000)/($60 - $20) = 11,250. (Managers would then know that demand could decrease by up to 25% ((15,000 - 11,250)/15,000) and the company would still earn additional profit.)

The Draper Corporation is considering dropping its Doombug toy due to continuing losses. Data on the toy for the past year follow: Sales of 15,000 units $ 150,000 Variable expenses 120,000 Contribution margin 30,000 Fixed expenses 40,000 Net operating loss $ (10,000) If the toy were discontinued, Draper could avoid $8,000 per year in fixed costs. The remainder of the fixed costs are not avoidable. Assuming all other conditions stay the same, at what level of annual sales of Doombugs (in units) should Draper be indifferent between discontinuing Doombugs or continuing the production and sale of Doombugs? a. 18,000 units b. 4,000 units c. 20,000 units d. 6,000 units

b. 4,000 units $10/unit(sell) $8/unit(varexp) $2/unit(CM) LostCM(30,000) AvoidFCs8,000 =Disadvtg=(22,000) $8,000AvoidFCs/$2CM=4,000units(break-evenpoint)

Which of the following types of decisions involves deciding whether to accept or reject an order that is outside the scope of normal sales? a. Make or buy b. Special order c. Sell or process further d. Keep or drop

b. Special order A special order decision involves deciding whether to accept or reject an order that is outside the scope of normal sales.

When a company cannot fully satisfy demand because of a constraint, which of the following describes an action that should NOT be taken? a. Relaxing the constraint b. Tightening the constraint c. Investing to improve the capacity of the bottleneck d. Reducing the number of defective units produced through the bottleneck

b. Tightening the constraint When a manager increases the capacity of the bottleneck, it is called relaxing (or elevating) the constraint. The capacity of a bottleneck can be effectively increased in a number of ways, including, but not limited to, the following: investing to improve the capacity of the bottleneck and reducing the number of defective units produced through the bottleneck.

Kuzio Corporation produces and sells a single product. Data concerning that product appear below: Per Unit Percent of Sales Selling price $ 150 100% Variable expenses 90 60% Contribution margin $60 40% The company is currently selling 7,100 units per month. Fixed expenses are $185,000 per month. The marketing manager believes that a $5,900 increase in the monthly advertising budget would result in a 150 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change? a. decrease of $5,900 b. increase of $3,100 c. decrease of $3,100 d. increase of $9,000

b. increase of $3,100 150*$60=$9,000CMincrease-5,900FCinc=$3,100NOIincrease

The measure of how sensitive net operating income is to a given percentage change in volume sales is called_______. a. sensitivity leverage b. operating leverage c. risk leverage

b. operating leverage Operating leverage of a company is a measure of how sensitive net operating income is to a given percentage change in dollar sales.

The involvement by a company in more than one of the activities in the entire value chain from development through production, distribution, sales, and after-sales service is called ________. a. opportunity cost b. vertical integration c. relevant cost d. avoidable cost

b. vertical integration The involvement by a company in more than one of the activities in the entire value chain from development through production, distribution, sales, and after-sales service is called vertical integration.

When a company does not have enough capacity to produce all of the products and sales volume demanded by their customers, this leads to ________. a. keep or drop decisions b. volume trade-off decisions c. sell or process further decisions d. make or buy decisions

b. volume trade-off decisions When a company does not have enough capacity to produce all of the products and sales volume demanded by their customers, it is called volume trade-off decisions.

Which of the following would be relevant in the decision to sell or throw out obsolete inventory? a. Direct material cost Fixed overhead cost assigned to the inventory assigned to the inventory Yes Yes b. Direct material cost Fixed overhead cost assigned to the inventory assigned to the inventory Yes No c. Direct material cost Fixed overhead cost assigned to the inventory assigned to the inventory No Yes d. Direct material cost Fixed overhead cost assigned to the inventory assigned to the inventory No No

c. Direct material cost Fixed overhead cost assigned to the inventory assigned to the inventory No Yes

Summarized data for Ralph Corporation: Selling price $ 200 per unit Variable expenses $ 150 per unit Fixed expenses $ 1,000,000 per year Unit sales 25,000 per year What is Ralph Corporation's margin of safety in dollars? a. $4 million b. $5 million c. $1 million d. $2.2 million

c. $1 million Margin of safety in dollars = Total budgeted (or actual) sales − Break-even salesTotal budgeted (or actual sales) = $200 per unit × 25,000 units = $5,000,000CM Ratio = (Sales − Variable expenses) ÷ Sales = ($200 − $150) ÷ $200 = $50 ÷ $200 = 25% or 0.25Break-even sales = Fixed expenses ÷ CM ratio = $1,000,000 ÷ 0.25 = $4,000,000Margin of safety in dollars = $5,000,000 − $4,000,000 = $1,000,000

Dock Corporation makes two products from a common input. Joint processing costs up to the split-off point total $33,600 a year. The company allocates these costs to the joint products on the basis of their total sales values at the split-off point. Each product may be sold at the split-off point or processed further. Data concerning these products appear below: Product X Product Y Total Allocated joint processing costs 16,800 16,800 33,600 Sales value at split-off point $24,000 $24,000 $48,000 Costs of further processing $ 15,000 $ 18,700 $ 33,700 Sales value after further processing $35,500 $ 45,100 $80,600 What is the minimum amount the company should accept for Product X if it is to be sold at the split-off point? a. $16,800 b. $31,800 c. $20,500 d. $35,500

c. $20,500

Atlas Corporation sells 100 bicycles during a month at a price of $500 per unit. The variable expenses amount to$300 per bicycle. How much does profit increase if it sells one more bicycle? a. $500 b. $300 c. $200 d. $20,200

c. $200 Unit Contribution Margin = Selling price per unit of $500 − Variable expenses per unit of $300 = $200.

Cybil Baunt just inherited a 1958 Chevy Impala from her late Aunt Joop. Aunt Joop purchased the car 40 years ago for $8,000. Cybil is either going to sell the car for $10,000 or have it restored and then sell it for $22,000. The restoration will cost $9,000. Cybil would be financially better off by: a. $9,000 to have the vehicle restored b. $11,000 to have the vehicle restored c. $3,000 to have the vehicle restored d. $6,000 to have the vehicle restored

c. $3,000 to have the vehicle restored

What is the total amount of expected cash collections for the third quarter? a. $33,125 b. $33,750 c. $34,375 d. $38,125

c. $34,375 Second quarter sales = 1,300 units × $25 per unit = $32,500 Third quarter sales = 1,400 units × $25 per unit = $35,000 Total expected cash collections during the third quarter = Amount collected from second quarter sales of $8,125(or $32,500 × 25%) + Amount collected from third quarter sales of $26,250 (or $35,000 × 75%) = $34,375

Rovinsky Corporation, a company that produces and sells a single product, has provided its contribution format income statement for November. Sales (7,500 units) $ 375,000 Variable expenses 225,000 Contribution margin 150,000 Fixed expenses 103,500 Net operating income $46,500 If the company sells 7,400 units, its net operating income should be closest to: (Do not round intermediate calculations.) a. $45,979 b. $42,000 c. $44,500 d. $46,500

c. $44,500

Smarton Company is in the process of preparing its budgeted income statement. It has determined its estimated gross margin to be $90,000. The company also expects to incur selling and administrative expenses of $30,000and interest expense of $12,000. What is Smarton's budgeted net income? a. $18,000 b. $30,000 c. $48,000 d. $60,000

c. $48,000 Budgeted net income = Gross margin − Selling and administrative expenses − Interest expense Budgeted net income = $90,000 − $30,000 − $12,000 = $48,000

A company has a contribution margin ratio of 45%. This month, sales revenue was $200,000, and profit was $40,000. How much are the company's fixed costs? a. $18,000 b. $45,000 c. $50,000 d. $90,000

c. $50,000 Contribution margin is $90,000. ($200,000 × 45% = $90,000) Fixed costs are $50,000. ($90,000 − $40,000 = $50,000)

A company. sells units for $100 each. Variable costs are $75 per unit, and fixed costs are $200,000. If Plymouth leases a new machine, production will be more efficient, saving $5 per unit. If the company plans to sell 12,000 units, at what lease cost will the company be indifferent between leasing and not leasing the new machine? a. $10,000 b. $40,000 c. $60,000 d. $80,000

c. $60,000 The lease will increase the FC, the company will be indifferent when its profit under both scenarios is equal. [($100 - $75) × 12,000] - $200,000 = [($100 - $70) × 12,000] - (200,000 + L) 25 x 12,000 - 200,000 = 30 x 12,000 - 200,000 - L 300,000 - 200,000 = 360,000 - 200,000 - L L = 160,000 - 100,000 = 60,000

What is the amount of cash that is expected to be collected during the second quarter as a result of sales made during the first quarter? a. $8,125 b. $8,750 c. $9,375 d. $28,125

c. $9,375 First quarter sales = 1,500 units × $25 per unit = $37,500 Amount of cash expected to be collected during the second quarter from sales made during the first quarter =First quarter sales of $37,500 × 25% = $9,375

Mcdale Inc. produces and sells two products. Data concerning those products for the most recent month appear below: Product I49V Product Z50U Sales $32,000 $37,000 Variable expenses $12,000 $27,330 The fixed expenses of the entire company were $39,140. The break-even point for the entire company is closest to: a. $46,260 b. $78,470 c. $91,023 d. $39,140

c. $91,023

Norgaard Corporation makes 8,000 units of part G25 each year. This part is used in one of the company's products. The company's Accounting Department reports the following costs of producing the part at this level of activity: Per Unit Direct materials $ 6.70 Direct labor $ 8.10 Variable manufacturing overhead $ 1.10 Supervisor's salary $ 2.00 Depreciation of special equipment $ 4.20 Allocated general overhead $ 2.10 An outside supplier has offered to make and sell the part to the company for $21.20 each. If this offer is accepted, the supervisor's salary and all of the variable costs, including direct labor, can be avoided. The special equipment used to make the part was purchased many years ago and has no salvage value or other use. The allocated general overhead represents fixed costs of the entire company. If the outside supplier's offer were accepted, only $2,000 of these allocated general overhead costs would be avoided. In addition, the space used to produce part G25 would be used to make more of one of the company's other products, generating an additional segment margin of $16,000 per year for that product. The annual financial advantage (disadvantage) for the company as a result of buying part G25 from the outside supplier should be: a. $16,000 b. ($40,000) c. ($8,400) d. ($8,000)

c. ($8,400)

Ferkil Corporation manufacturers a single product that has a selling price of $100 per unit. Fixed expenses total $225,000 per year, and the company must sell 5,000 units to break even. If the company has a target profit of $67,500, sales in units must be: a. 5,750 units b. 7,925 units c. 6,500 units d. 6,000 units

c. 6,500 units

A company. has a contribution margin of $450,000 and profit of $150,000. If sales increase 20%, by how much will profits increase? a. 20% b. 30% c. 60% d. 90%

c. 60% Contribution margin is ($50 − $20) × 15,000 = $450,000. Profit is $450,000 − $300,000 = $150,000. Degree of operating leverage is $450,000/$150,000 = 3. 20% × 3 = 60%.

The current sales of Trent, Incorporated, are $400,000, with a contribution margin of $200,000. The company's degree of operating leverage is 2. If the company anticipates a 30% increase in sales, what is the percentage change in net operating income for Trent, Incorporated? a. 24% b . 30% c. 60% d. 25%

c. 60% Percentage change in net operating income = Degree of operating leverage × Percentage change in sales = 2 ×30% = 60%.

Which of the following scenarios demonstrates the leverage effect on net operating income due to the existence of fixed costs? a. A 25% increase in sales resulting in a 30% decrease in net operating income. b. A 15% increase in sales resulting in a 15% increase in cost of goods sold. c. A 25% increase in sales resulting in a 30% increase in net operating income. d. A 25% increase in sales resulting in a 30% increase in fixed costs.

c. A 25% increase in sales resulting in a 30% increase in net operating income. Because fixed costs do not change with the level of activity, they cause a leverage effect. In other words, a 25increase in sales would be expected to increase the net operating income by more than 25%.

Taylor Company has current sales of 1,000 units, which generates sales revenue of $190,000, variable costs of$76,000, and fixed expenses of $96,000. The company believes sales will increase by 300 units, if advertising increases by $20,000. What is the change in net operating income after the changes? a. Increase of $20,000 b. Decrease of $20,000 c. Increase of $14,200 d. Decrease of $12,000

c. Increase of $14,200 Contribution margin per unit = ($190,000 − $76,000)/1,000 units = $114 per unit Increase in total contribution margin ($ 114 per unit × 300 units) $ 34,200 Less increase in fixed costs −20,000 Change in net operating income $ 14,200

Which of the following is not a benefit of self-imposed budgets? a. A manager who is not able to meet a budget that has been imposed from above can always say that the budget was unrealistic and impossible to meet. b. Budget estimates prepared by front-line managers are often more accurate and reliable. c. Lower-level managers are encouraged to create budgetary slack since they are more knowledgeable of day-to-day operations. d. Motivation is generally higher.

c. Lower-level managers are encouraged to create budgetary slack since they are more knowledgeable of day-to-day operations. One of the limitations of self-imposed budgeting is that it may allow lower-level managers to create too much budgetary slack. Because the manager who creates the budget will be held accountable for actual results that deviate from the budget, the manager will have a natural tendency to submit a budget that is easy to attain (i.e., the manager will build slack into the budget).

Which of the following is true regarding the contribution margin ratio of a company that produces only a single product? a. The contribution margin ratio will decline as unit sales decline. b. As fixed expenses decrease, the contribution margin ratio increases. c. The contribution margin ratio multiplied by the selling price per unit equals the contribution margin per unit. d. The contribution margin ratio equals the selling price per unit less the variable expense ratio.

c. The contribution margin ratio multiplied by the selling price per unit equals the contribution margin per unit.

What of the following forms the basis for a financial advantage when making a business decision? a. Whether opportunity costs are present b. Whether irrelevant costs and benefits arise c. Whether the differential benefits exceed the differential costs d. Whether alternatives exist

c. Whether the differential benefits exceed the differential costs In business decisions, a financial advantage exists if pursuing an alternative passes the cost/benefit test. The financial advantage exists if the differential benefits (future cash inflows) exceed its differential costs (its future cash outflows).

Costs that can be eliminated in whole or in part if a particular business segment is discontinued are called: a. sunk costs b. opportunity costs c. avoidable costs d. irrelevant costs

c. avoidable costs

A company has three product lines, one of which reflects the following results: Sales $ 215,000 Variable expenses 125,000 Contribution margin 90,000 Fixed expenses 140,000 Net loss $ (50,000) If this product line is eliminated, 60% of the fixed expenses are traceable fixed expenses, which can be eliminated, and the other 40% are common fixed expenses that cannot be avoided. If management decides to eliminate this product line, the company's net income will ________. a. increase by $50,000 b. decrease by $90,000 c. decrease by $6,000 d. increase by $6,000

c. decrease by $6,000 Since 60% of the fixed expenses are traceable, the company will avoid $84,000 (or $140,000 × 0.60) of fixed expenses while losing $90,000 of contribution margin, which decreases the company's net income by $6,000 (or$84,000 − $90,000).

All of the following are relevant to the sell or process further decision except _______. a. costs incurred beyond the split-off point b. revenues at the split-off point c. joint costs incurred before the split-off point d. revenues beyond the split-off point

c. joint costs incurred before the split-off point Joint costs already incurred up to the split-off point are always irrelevant in decisions concerning what to do from the split-off point forward. This is because once the split-off point is reached, the joint costs have already been incurred and nothing can be done to avoid them.

Flesch Corporation produces and sells two products. In the most recent month, Product C90B had sales of $30,380 and variable expenses of $7,595. Product Y45E had sales of $26,390 and variable expenses of $14,514. The fixed expenses of the entire company were $18,200. If the sales mix were to shift toward Product C90B with total dollar sales remaining constant, the overall break-even point for the entire company: a. would increase b. could increase or decrease c. would decrease d. would not change

c. would decrease

A company sells two products--J and K. The sales mix is expected to be $3 of sales of Product K for every $1 of sales of Product J. Product J has a contribution margin ratio of 40% whereas Product K has a contribution margin ratio of 50%. Annual fixed expenses are expected to be $120,000. The overall break-even point for the company in dollar sales is expected to be closest to: a. $196,000 b. $263,420 c. $200,000 d. $252,632

d. $252,632 Salesmixquestion:WeightedCM(.4)(1/4)+(.5)(3/4)=.1+.375=.475 Fixedexpenses/CMratio 120,000/.475=$252.632

The Melville Corporation produces a single product called a Pong. Melville has the capacity to produce 60,000 Pongs each year. If Melville produces at capacity, the per unit costs to produce and sell one Pong are as follows: Direct materials $15 Direct labor $12 Variable manufacturing overhead $ 8 Fixed manufacturing overhead $ 9 Variable selling expense $ 8 Fixed selling expense $ 3 The regular selling price for one Pong is $80. A special order has been received by Melville from Mowen Corporation to purchase 6,000 Pongs next year. If this special order is accepted, the variable selling expense will be reduced by 75%. However, Melville will have to purchase a specialized machine to engrave the Mowen name on each Pong in the special order. This machine will cost $9,000 and it will have no use after the special order is filled. The total fixed manufacturing overhead and selling expenses would be unaffected by this special order. Assume that direct labor is a variable cost. Assume Melville anticipates selling only 50,000 units of Pong to regular customers next year. At what selling price for the 6,000 special order units would Melville be financially indifferent between accepting or rejecting the special order from Mowen? a. $37.00 per unit b. $49.00 per unit c. $51.50 per unit d. $38.50 per unit

d. $38.50 per unit $8x25%=2(75%reductioninVarExpifSpecialOrder) $9,000/6,000=$1.50/unit(noothervaluethanfulfillingorderso$9,000dividedbynumberofunitsfromspecialorder) 15+12+8+2+1.5=$38.50(includesperunitfixedmachinecost)

For the budget period ending December 31 of the current year, Aaron Corporation estimates its ending balances for cash as $4,000, accounts receivable as $16,000, finished goods inventory as $12,000, and raw materials inventory as $8,000. Invoices relating to raw materials in the amount of $14,000 are expected to be unpaid as of December 31. What is the amount of total current assets that will be reported on the budgeted balance sheet? a. $20,000 b. $26,000 c. $32,000 d. $40,000

d. $40,000 Total current assets = Cash + Accounts receivable + Finished goods inventory + Raw materials inventory Total current assets = $4,000 + $16,000 + $12,000 + $8,000 = $40,000

Frank Corporation has a single product. Its selling price is $80 and the variable costs are $30. The company's fixed expenses are $5,000. What is the company's break-even point in unit sales? a. 63 units b. 167 units c. 50 units d. 100 units

d. 100 units Unit CM = Selling price of $80 − Variable expense of $30 = $50Unit sales to break-even = Fixed expenses of $5,000 ÷ Unit CM of $50 = 100 units.

The following information is extracted from the records of Johnson Corporation: Target profit $ 120,000 Unit contribution margin $ 40 Fixed expenses $ 40,000 Contribution margin ratio (CM ratio) 0.40 Selling price $ 100 What are the unit sales required to attain a target profit of $120,000? a. 400,000 units b. 400 units c. 1,600 units d. 4,000 units

d. 4,000 units Unit sales to attain the target profit = (Target profit + Fixed Expenses) ÷ Unit CMUnit sales to achieve the target profit = ($120,000 + $40,000) ÷ $40 = 4,000 units.

The manufacturing overhead budget at Franklyn Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 3,000 direct labor-hours will be required in January. The variable overhead rate is $5 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $43,140 per month, which includes depreciation of $3,620. All other fixed manufacturing overhead costs represent current cash flows. The January cash disbursements for manufacturing overhead on the manufacturing overhead budget should be: a. $39,520 b. $15,000 c. $58,140 d. 54,520

d. 54,520

Roberto, Incorporated manufactures products A and B. Both products have a contribution of 40%. Information about both products follows. Product A Product B Selling price per unit $20 $15 Variable cost per unit 12 9 CM per unit $8 $6 Labor time 4 minutes 2 minutes Assume that labor time is the constrained resource and only a total of 3,000 minutes is available. Product A has a total demand of 500 units and product B has a total demand for 600 units. Considering the constraint, how many units of product B should be produced to maximize profits? a. 500 units b. 450 units c. 550 units d. 600 units

d. 600 units Labor time is the constrained resource. The contribution margin per unit of constrained resource for product B is$3 per minute (or $6 ÷ 2 minutes). Similarly, the contribution margin per unit of constrained resource for product A is $2 per minute (or $8 ÷ 4 minutes). Since product B has a higher contribution margin per unit of constrained resource than product A, the company should produce all the units it can sell of product B before producing units of product A. Since the company has 3,000 minutes of labor time available, the first 1,200 minutes (or the demand for product B of 600 units × 2 minutes per unit) should be used to produce product B. Note: The remaining 1,800 minutes (or 3,000 available minutes − the 1,200 minutes used to produce product B)can then be used to produce 450 units of product A (or 1,800 minutes ÷ 4 minutes per unit).

Which of the following statements is correct about the difference between contribution margin and gross margin? a. Contribution margin and gross margin are equivalent. b. Contribution margin is the difference between sales revenue and cost of goods sold. c. Gross margin is the difference between sales revenue and variable costs. d. Gross margin is used for external reporting, while contribution margin is used for internal reporting.

d. Gross margin is used for external reporting, while contribution margin is used for internal reporting. Contribution margin and gross margin are not the same. Contribution margin is the difference between sales revenue and variable costs; gross margin is the difference between sales revenue and cost of goods sold. Gross margin is used for external reporting, while contribution margin is used for internal reporting.

Thornbrough Corporation produces and sells a single product with the following characteristics: Per Unit Percent of Sales Selling price $ 220 100% Variable expenses 44 20% Contribution margin $ 176 80% The company is currently selling 7,000 units per month. Fixed expenses are $901,000 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 $65,000 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 300 units. What should be the overall effect on the company's monthly net operating income of this change? a. increase of $1,269,500 b. decrease of $92,500 c. increase of $61,700 d. increase of $37,500

d. increase of $37,500 Currrent CM176*7,000=$1,232,000(CMin$) -FCSpg901,000=NOI331,000 Withchange176-11=165 *7,300=1,204,500CM -(901,000-65,000=836,000)=368,500 $37,500increasechange Salesstaffsalariesisafixedexpense

If sales volume increases and all other factors remain constant, then the: a. break-even point will decrease b. net operating income will decrease c. contribution margin ratio will increase d. margin of safety will increase

d. margin of safety will increase

The potential benefit that is given up when one alternative is selected over another is called ________. a. relevant cost b. avoidable cost c. differential cost d. opportunity cost

d. opportunity cost

The budgeting process begins with the preparation of the ______ budget. a. cash b. direct materials c. production d. sales

d. sales The budgeting process begins with the preparation of the sales budget, which is a detailed schedule showing the expected sales for the budget period.

Walton Corporation is currently selling 104 units of its product. The company is deciding the price that it should charge for a bulk order of 40 units. The variable cost per unit is $200. This order will not involve any additional fixed costs and the company's current sales will not be affected. The company targets a profit of $4,000 on the bulk order. What selling price per unit should the company quote for the bulk order? (Round your answer to the nearest whole dollar.)

$300 Required profit per unit = Target profit of $4,000 ÷ 40 units = $100Selling price per unit = Required profit per unit of $100 + Variable cost per unit of $200 = $300

Use for the following five questions: A company with various segments (referred to as "divisions") is considering whether to drop its Orange County division. For each of the costs described below, indicate whether the cost is avoidable or unavoidable by choosing the related drop-down menu item. 1. Wages paid to the Orange County division employees who work directly for this division and will be discharged if the division is dropped. 2. General administrative expenses allocated to the Orange County division on the basis sales dollars. 3. Depreciation expense on previously purchased machinery that is used in the Orange County division; the machinery will have no other use or resale value if the division is dropped. 4. Rent paid for the building that houses only the Orange County division. 5. The amount of rent paid to lease a private jet for use by the company's management that is allocated to the Orange County division.

1. Avoidable Because the division's employees will be discharged, the wages paid to them is an avoidable cost if the division is dropped 2. Unavoidable The general administrative expenses that are allocated to the division cannot be avoided if the division is dropped. 3. Unavoidable The depreciation expense on previously purchased machinery that has no other use or resale value is a sunk cost that cannot be avoided regardless of the decision made. 4. Avoidable Rent paid for the building that houses only the division can be avoided if the division is dropped. 5. Unavoidable The rent paid to lease the private jet cannot be avoided if the division is dropped.

Problems associated with budgeting include: a. Cognitive biases including the confirmation bias and motivated reasoning b. Disincentives such as budgetary slack c. Measurement errors in that budgets may measure the wrong things d. All of the above e. None of the above

d. All of the above

Mossfeet Shoe Corporation is a single product firm. The company is predicting that a price increase next year will not cause unit sales to decrease. What effect would this price increase have on the following items for next year? a. Contribution Break-even Margin Ratio Point Increase Decrease b. Contribution Break-even Margin Ratio Point Decrease Decrease c. Contribution Break-even Margin Ratio Point Increase No effect d. Contribution Break-even Margin Ratio Point Decrease No effect

a. Contribution Break-even Margin Ratio Point Increase Decrease

Contribution margin equals ________. a. sales minus fixed cost b. fixed cost minus variable cost c. sales minus variable cost minus fixed cost d. sales minus variable cost

d. sales minus variable cost Contribution margin is the amount remaining from sales revenue after variable expenses are deducted.

A company has a single product called a Yak. The company normally produces and sells 60,000 Yaks each year at a selling price of $32 per unit. The company's unit costs at this level of activity are given below: Direct materials $10.00 Direct labor 4.50 Variable manufacturing overhead 2.30 Fixed manufacturing overhead 5.00 ($300,000 total) Variable selling expenses 1.20 Fixed selling expenses 3.50 ($210,000 total) Total cost per unit $26.50 The company has 1,000 Yaks on hand that have some irregularities and are therefore considered to be "seconds." Due to the irregularities, it will be impossible to sell these units at the normal price through regular distribution channels. What is the unit cost figure that is relevant for setting a minimum selling price? a. $1.20 per unit b. $16.80 per unit c. $21.80 per unit d. $2.30 per unit

a. $1.20 per unit

The constraint at Rauchwerger Corporation is time on a particular machine. The company makes three products that use this machine. Data concerning those products appear below: WX KD FS Selling price per unit $192.00 $542.66 $222.84 Variable cost per unit $ 158.72 $420.54 $ 167.76 Minutes on the constraint 3.20 8.60 3.60 Assume that sufficient time is available on the constrained machine to satisfy demand for all but the least profitable product. Up to how much should the company be willing to pay to acquire more of the constrained resource? (Round your intermediate calculations to two decimal places.) a. $10.40 per minute b. $15.30 per minute c. $33.28 per unit d. $122.12 per unit

a. $10.40 per minute

Atlas Corporation sells 100 bicycles during a month. The contribution margin per bicycle is $200. The monthly fixed expenses are $8,000. What is the profit from the sale of 100 bicycles? a. $12,000 b. $10,000 c. $20,000 d. $8,000

a. $12,000 Net operating income = Contribution margin of $20,000 (or 100 units × Unit contribution margin of $200 per unit)− Fixed expenses of $8,000 = $12,000.

A company sells lumber and general building supplies to building contractors in a medium-sized town in North Carolina. Data regarding the store's operations follow: · Sales are budgeted at $350,000 for November, $320,000 for December, and $300,000 for January. · Collections are expected to be 90% in the month of sale and 10% in the month following the sale. · The cost of goods sold is 75% of sales. · The company desires to have an ending merchandise inventory equal to 60% of the following month's cost of goods sold. Payment for merchandise is made in the month following the purchase. · Other monthly expenses to be paid in cash are $24,700. · Monthly depreciation is $16,000. Ignore taxes. Balance Sheet October 31 Assets Cash $19,000 Accounts receivable 77,000 Inventory 157,500 Property, plant and equipment, net of $502,000 accumulated Depreciation 1,002,000 Total assets $1,255,500 Liabilities and Stockholders' Equity Accounts payable $272,000 Common stock 780,000 Retained earnings 203,500 Total liabilities and stockholders' equity $1,255,500 Retained earnings at the end of December would be: a. $289,600 b. $296,000 c. $236,400 d. $203,500

a. $289,600 Sales $350,000 $320,000 Cost of goods sold 262,500 240,000 Gross margin 87,500 80,000 Other monthly expenses 24,700 24,700 Depreciation 16,000 16,000 Net income $46,800 $39,300 Beginning balance, retained earnings $203,500 November net income 46,800 December net income 39,300 Ending balance, retained earnings $289,600

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? a. $51,000 b. $37,000 c. $24,000 d. $41,000

a. $51,000

Once the break-even point has been reached, net operating income will increase by the amount of the _____ foreach additional unit sold. a. unit contribution margin b. unit selling price c. variable expense per unit d. fixed expense per unit

a. unit contribution margin Once the break-even point has been reached, net operating income will increase by the amount of the unitcontribution margin for each additional unit sold.

Last year Easton Corporation reported sales of $740,000, a contribution margin ratio of 20% and a net loss of $26,000. Based on this information, the break-even point was: a. $766,000 b. $870,000 c. $610,000 d. $1,000,000

b. $870,000

Cartier Corporation currently sells its products for $50 per unit. The company's variable costs are $20 per unit. Fixed expenses amount to a total of $5,000 per month. What is the company's contribution margin ratio? a. 40% b. 60% c. 100% d. 20%

b. 60% CM ratio = Unit CM ÷ Unit selling price = ($50 − $20) ÷ $50 = 60%

High Roller Incorporated is trying to decide whether to buy a private jet or to lease one. The finder's fee is incurred only if the private jet is bought. The finder's fee is what type of cost for this decision? a. sunk cost b. unavoidable cost c. relevant cost d. irrelevant cost

c. relevant cost The finder's fee is incurred only if the private jet is bought. Because this cost varies between the alternatives, it is a relevant cost.

Which of the following budgets do not provide information needed for the budgeted balance sheet? a. materials purchases budget b. production budget c. selling and administrative expense budget d. cash budget

c. selling and administrative expense budget The selling and administrative expense budget includes only expenses, which would not affect the balance sheet.

Break-even point is the level of sales at which ______. a. total profits equals total costs b. total profits exceed total costs c. total revenue equals total costs d. total sales equal total projections

c. total revenue equals total costs Break-even point is the level of sales at which total revenue equals total costs and the profit is zero.

Grace Food Company Income Statement for October Corn Flakes Frosted Flakes Total Sales $2,000,000 100% $500,000 100% $2,500,00 100% Variable expenses 800,000 40% 250,000 50% 1,050,000 42% Contribution margin $1,200,000 60% $250,000 50% 1,450,000 58% Fixed expenses 870,000 Net operating income $580,000 a. $1.2 million b. $2.2 million c. $2.0 million d. $1.5 million

d. $1.5 million Sales mix percentages: Corn Flakes = $2,000,000 ÷ $2,500,000 = 0.80Frosted Flakes = $500,000 ÷ $2,500,000 = 0.20 Overall CM ratio = (60% × 0.80) + (50% × 0.20) = 58% Break-even point = Total fixed expenses ÷ Overall CM ratio = $870,000 ÷ 0.58 = $1.5 million

A company has a contribution margin ratio of 45%. This month, profit was $40,000 and fixed costs were $50,000. How much was Laredo's sales revenue? a. $40,500 b. $90,000 c. $111,111 d. $200,000

d. $200,000 Profit $40,000 = Contribution margin − Fixed costs $50,000, so contribution margin = $90,000. $90,000 = 45% × Sales Revenue, so sales revenue = $200,000. ($90,000/45% = $200,000

A company has prepared the following budgets for March. In March, budgeted production is 1,000 units, budgeted sales is 1,200 units, and direct materials inventory and unit costs will stay constant. Direct materials $8,000 Direct labor $14,400 Manufacturing overhead $20,000 Selling and administrative expense $16,000 What is budgeted cost of goods sold for March? a. $40,734 b. $42,400 c. $48,880 d. $50,880

d. $50,880 Budgeted COGS = DM + DL + MOH = ($8,000 + $14,400 + $20,000) / 1,000 = $42.40 per unit; $42.40 × 1,200 = $50,880

Advantages of participative budgeting include: a. Motivation is generally higher when individuals participate in setting their own goals than when the goals are imposed from above. b. Makes people feel good - people take ownership. c. Eliminates (or at least mitigates) the excuse of the budgeting being unrealistic. d. All of the above

d. All of the above