Accounting Exam 3

The following data are available for product number CK74, manufactured and sold by Ruby Corporation: Maximum capacity with present facilities12,000units Total fixed cost (per period)$ 1,047,800 Variable cost per unit$ 126.00 Sales price per unit$ 188.00 The number of units of CK74 that Ruby must sell to break- even is:

$1,047,800 ÷ $62.00 = 16,900

If unit sales prices are $14 and variable costs are $10 per unit, how many units would have to be sold to break-even if fixed costs equal $13,000?

$13,000 ÷ ($14 − $10) = 3,250 units

A company with monthly revenue of $156,000, variable costs of $59,000, and fixed costs of $43,600 has a contribution margin of:

$156,000 − $59,000 = $97,000

The following data are available for product number CK74, manufactured and sold by Ruby Corporation: Maximum capacity with present facilities4,500units Total fixed cost (per period)$ 646,800 Variable cost per unit$ 121.00 Sales price per unit$ 187.00 The contribution margin per unit for product number CK74 is:

$187.00 − $121.00 = $66.00

Burns Industries currently manufactures and sells 19,000 power saws per month, although it has the capacity to produce 34,000 units per month. At the 19,000-unit-per-month level of production, the per-unit cost is $63, consisting of $39 in variable costs and $24 in fixed costs. Burns sells its saws to retail stores for $79 each. Allen Distributors has offered to purchase 4,900 saws per month at a reduced price. Burns can manufacture these additional units with no change in its present level of fixed manufacturing costs. Burns decides to accept the special order for 4,900 units from Allen at a unit sales price that will add $98,000 per month to its operating income. The unit price Burns is charging Allen is:

$191,100 + $98,000 = $289,100 ÷ 4,900 = $59

If monthly fixed costs are $21,000 and the contribution margin ratio is 42%, the monthly sales volume required to break even is:

$21,000 ÷ 0.42 = $50,000

Alton Company produces metal belts. During the current month, the company incurred the following product costs: Raw materials $88,000; Direct labor $54,000; Electricity used in the Factory $24,000; Factory foreperson salary $3,700; and Maintenance of factory machinery $2,200. Alton Company's indirect product costs totaled:

$24,000 + $3,700 + $2,200 = $29,900

A company with monthly fixed costs of $270,000 expects to earn monthly operating income of $75,000 by selling 11,500 units per month. What is the company's expected unit contribution margin?

$270,000 + $75,000 = 11,500 × CM; CM = $30

If monthly fixed costs are $28,000 and the contribution margin ratio is 40%, the monthly sales volume required to break even is:

$28,000 ÷ 0.40 = $70,000

Accents Associates sells only one product, with a current selling price of $30 per unit. Variable costs are 30% of this selling price, and fixed costs are $28,000 per month. Management has decided to reduce the selling price to $25 per unit in an effort to increase sales. Assume that the cost of the product and fixed operating expenses are not changed by this reduction in selling price. At the current selling price of $30 per unit, the dollar volume of sales per month necessary for Accents to break-even is:

$28,000 ÷ 0.7 = $40,000

The following data are available for product number CK74, manufactured and sold by Ruby Corporation: Maximum capacity with present facilities7,000units Total fixed cost (per period)$ 390,600 Variable cost per unit$ 147.00 Sales price per unit$ 178.00 The number of units of CK74 that Ruby must sell to break- even is:

$390,600 ÷ $31.00 = 12,600

Burns Industries currently manufactures and sells 20,000 power saws per month, although it has the capacity to produce 35,000 units per month. At the 20,000-unit-per-month level of production, the per-unit cost is $65, consisting of $40 in variable costs and $25 in fixed costs. Burns sells its saws to retail stores for $80 each. Allen Distributors has offered to purchase 5,000 saws per month at a reduced price. Burns can manufacture these additional units with no change in its present level of fixed manufacturing costs. Using an incremental analysis approach, Burns should consider accepting this special order only if the price per unit offered by Allen is at least:

$40 will cover the variable costs of production.

If unit sales prices are $7 and variable costs are $5 per unit, how many units would have to be sold to break-even if fixed costs equal $8,000?

$8,000 ÷ ($7.00 − $5.00) = 4,000 units

Summit Products, Incorporated is interested in producing and selling an improved widget. Market research indicates that customers would be willing to pay $96 for such a widget and that 56,000 units could be sold each year at this price. The current cost to produce the widget is estimated to be $58. Summit has learned that a competitor plans to introduce a similar widget at a price of $86. In response, Summit may reduce its selling price to $86. If Summit requires a 25% return on sales, what is the target cost for the new widget?

$86 − ($86 × 0.25) = $64.50

Alton Company produces metal belts. During the current month, the company incurred the following product costs: Raw materials $92,000; Direct labor $56,000; Electricity used in the Factory $20,500; Factory foreperson salary $4,300; and Maintenance of factory machinery $1,950. Alton Company's total product costs:

$92,000 + $56,000 + $20,500 + $4,300 + $1,950 = $174,750

Grand Gimmicks Company produces a single product with a current selling price of $170. Variable costs are $130 per unit, and fixed costs per month average $6,240. Management is considering increasing the selling price to $190 per unit. Assume that the variable cost per unit of the product and monthly fixed expenses will not change as a result of the proposed increase in selling price. At the current selling price of $170 per unit, the contribution margin ratio is approximately:

($170 − $130) ÷ $170 = 23.5%

If the unit sales price is $18, variable costs are $9 per unit and fixed costs are $23,000 what is the contribution margin ratio per unit?

($18 − $9) ÷ $18 = 50%

If the unit sales price is $40, variable costs are $32 per unit and fixed costs are $28,000, how many units must be sold to earn an income of $400,000? (Round the answer up to the next whole number.)

($28,000 + $400,000) ÷ $8 = 53,500 units

Accents Associates sells only one product, with a current selling price of $40 per unit. Variable costs are 20% of this selling price, and fixed costs are $20,000 per month. Management has decided to reduce the selling price to $35 per unit in an effort to increase sales. Assume that the cost of the product and fixed operating expenses are not changed by this reduction in selling price. At the current selling price of $40 per unit, the contribution margin ratio is:

($40 − $8) ÷ $40 = 80%

Accents Associates sells only one product, with a current selling price of $200 per unit. Variable costs are 20% of this selling price, and fixed costs are $50,000 per month. Management has decided to reduce the selling price to $195 per unit in an effort to increase sales. Assume that the cost of the product and fixed operating expenses are not changed by this reduction in selling price. At the current selling price of $200 per unit, what dollar volume of sales per month is required for Accents to earn a monthly operating income of $10,000?

($50,000 + $10,000) ÷ 0.8 = $75,000

The management of Trylon Farms is considering the purchase of equipment costing $320,000. The equipment has a useful life of eight years, with $20,000 residual value. The use of this equipment will produce positive annual cash flow of $60,000 for eight years, as well as $20,000 from sale of the equipment at the end of the eighth year. What is the net present value of this investment, discounted at an annual rate of 10%? (Note: The present value of $1 due in eight years, discounted at 10%, is 0.467; present value of $1 received annually for eight years, discounted at 10% is 5.335.)

($60,000 × 5.335) + ($20,000 × 0.467) = $329,440 $329,440 − $320,000 = $9,440

Mitchell Corporation manufactures a single product. The selling price is $85 per unit, and variable costs amount to $68 per unit. The fixed costs are $16,500 per month.What will be the monthly margin of safety (in dollars) if 1,800 units are sold each month?

(1,800 × $85) − $82,500 = $70,500

Which of the following is not a characteristic of the total quality approach to setting budgetary targets?

A perception that the budget is fair

Which element of a master budget would normally be prepared first?

A sales forecast

The cost of the employee who computes total manufacturing costs would be considered:

Administrative costs.

Until the related goods are sold, product costs are viewed as:

Assets.

In comparison with a financial statement prepared in conformity with generally accepted accounting principles, a managerial accounting report is more likely to:

Be tailored to the specific needs of an individual decision maker.

Which of the following is not considered an operating budget?

Capital expenditures budget

Which of the following activities performed by a manufacturer of roller blades is a value-added activity?

Clear and truthful marketing

Fancy Furniture produced a batch of 2,000 coffee tables at a cost of $355,000. It was discovered that the entire batch was finished improperly. Fancy can sell the tables as seconds for $305,000 or spend an additional $315,000 to refinish them and sell them for $605,000. In deciding whether to rework the tables or sell them as is, management should:

Compare the $315,000 cost to refinish the tables with the incremental revenue of $300,000 if the tables are refinished.

In an aircraft factory, the inventory of direct materials would not include:

Completed aircraft, available for sale.

Which of the following is not one of the basic procedures related to activity-based costing?

Compute internal failure costs

The just-in-time manufacturing system:

Contrasts with the supply push systems.

Just-in-time manufacturing systems are also known as:

Demand-pull manufacturing.

Which of the following is a period cost?

Depreciation on a sales showroom.

Four categories of costs associated with product quality are:

External failure, internal failure, prevention, and appraisal.

The completion of a computer by First Wireless, Incorporated would require a debit to which of the following accounts?

Finished Goods Inventory.

In comparison with a financial statement prepared in conformity with generally accepted accounting principles, a managerial accounting report is less likely to:

Focus upon the entire organization as the accounting entity.

Joseph Company is considering replacing an existing piece of machinery with newer technology. In deciding whether to replace the existing machinery, management should consider which costs as relevant?

Future costs which will be different under the two alternatives.

Which is an example of joint products?

Granulated charcoal and methyl alcohol

Which of the following types of cost are always relevant to a decision?

Incremental costs

Which of the following is not a characteristic of managerial accounting?

Information must be developed in conformity with generally accepted accounting principles or with income tax regulations.

The principal difference between managerial accounting and financial accounting is that managerial accounting information is:

Intended primarily for use by decision makers inside the business organization.

The production schedule in units:

Is dependent upon the sales forecast for the period.

JCN Industries normally produces and sells 5,000 keyboards for personal computers each month. Variable manufacturing costs amount to $25 per unit, and fixed costs are $146,000 per month. The regular sales price of the keyboards is $86 per unit. JCN has been approached by a foreign company that wants to purchase an additional 1,000 keyboards per month at a reduced price. Filling this special order would not affect JCN 's regular sales volume or fixed manufacturing costs. On the basis of the above information only, which of the following is not true?

It would not be profitable for JCN to consider the special order at a price less than $49 per unit.

All of the following are components of the value chain except:

Maintaining large inventory levels so that orders can be filled promptly.

When using the net present value method for evaluating an investment, an increase in the required rate of return will:

Make it more difficult to accept the investment.

Which of the following is not commonly used to measure product quality in a just-in-time system?

Manufacturing efficiency ratio

Herb Company manufactured more product than it was able to sell during the current year. If the salaries of the sales staff of Herb Company are improperly recorded as a product cost, what will be the likely effect on net income of the period in which the error occurs?

Net income will be overstated.

Costs that have not yet been incurred and that may vary among different courses of action are called:

Out-of-pocket costs.

Techniques to manage costs in the value chain include all of the following except:

Process costing.

During cycle time, value is added only during:

Processing time

Cycle time includes:

Processing time, storage and waiting time, movement time, and inspection time.

The management of Ortega Manufacturing has three different proposals under consideration. The Accounting Department has prepared the following information: Which of the above proposals generates the greatest annual cash flow?

Proposal A Proposal A $3,100,000 ÷ 4.2 = $738,095 Proposal B $2,450,000 ÷ 4.4 = $556,818 Proposal C $2,055,000 ÷ 4 = $513,750

The management of Ortega Manufacturing has three different proposals under consideration. The Accounting Department has prepared the following information: Based on the above data, which of the following is false?

Proposal C is the best alternative because it has the shortest payback period, which is the most meaningful of the capital budgeting statistics.

The placing of direct materials into the production process is recorded by an entry crediting:

Raw Materials Inventory.

Manufacturing companies normally have three types of inventory:

Raw materials, work in process, and finished goods.

The suppliers and production component of the value chain would include all of the following costs except:

Salaries for sales personnel.

Which of the following costs would not be considered part of the manufacturing overhead of a chemical plant?

Salaries of employees who operate distilling equipment used in the production process.

]Which of the following is typically a variable cost?

Sales commission expense

Manufacturing costs do not include:

Selling expenses related to goods manufactured during the period.

Capital expenditures budgets are typically prepared for a period of:

Several years.

Which cost is not relevant in making financial decisions?

Sunk costs

Which of the following is a value-added activity by a manufacturer of chocolate candies?

The addition of chocolate syrup into the candy mix.

Which factor is not relevant in deciding whether or not to accept a special order?

The average cost of production if the special order is accepted

The Magic Microbrewery has a limited amount of vat capacity available in which it can ferment beer. In deciding which beers to brew, Magic management should consider:

The contribution margin per unit of vat capacity of the individual beers.

Which of the following would be an example of a sunk cost?

The cost of an old inefficient oil burner that will be replaced by a more modern and efficient one

Perfect Plumbing Corporation currently manufactures a valve for use in water pumps that it produces for sale. The company is considering purchasing the valves from an outside supplier rather than manufacturing them. Which of the following costs is not relevant to the decision?

The cost of the machinery owned by Perfect Plumbing used exclusively to manufacture this valve.

Which of the following costs would not be considered part of the manufacturing overhead of a furniture manufacturer?

The cost of wood used in furniture construction.

Target costing is directed toward:

The creation and design of products that will provide adequate profits.

Which of the following is considered an operating budget?

The customer service budget

The master budget may be comprised of:

The production budget.

Which of the following is not a product cost?

The real estate tax of the showroom.

The accountant for Eric's Plumbing Equipment Company recently made a journal entry consisting of a debit to Work in Process and a credit to Raw Materials Inventory. This entry recorded:

The use of raw materials in the production process.

The primary objective of activity-based management is:

To reduce and eliminate non-value-added activities.

The following are all characteristics of target costing except:

Understanding the pricing process in order to increase selling prices.

The manufacturing efficiency ratio equals:

Value-added time divided by cycle time.

Burns Industries currently manufactures and sells 20,000 power saws per month, although it has the capacity to produce 35,000 units per month. At the 20,000-unit-per-month level of production, the per-unit cost is $65, consisting of $40 in variable costs and $25 in fixed costs. Burns sells its saws to retail stores for $80 each. Allen Distributors has offered to purchase 5,000 saws per month at a reduced price. Burns can manufacture these additional units with no change in its present level of fixed manufacturing costs. Which of the following is not a relevant factor in Burns' decision concerning whether to accept the special order from Allen?

Where and at what price Allen intends to sell the saws.

When direct materials are used:

Work in Process Inventory is debited.

Which of the following is not a product cost?

advertising costs

Which of the following is a period cost?

advertising expense

An effective just-in-time system will include:

an efficient plant layout

A semivariable cost:

changes in response to a change in volume, but not proportionately.

In order to calculate break-even sales units, fixed costs are divided by the:

contribution margin per unit.

When volume increases, fixed cost per unit:

decreases

The cost of the employee who installs the leather on the seats of a new automobile would be considered:

direct labor

The cost of draining sap out of a maple tree to manufacture maple syrup and maple sugar is an example of:

joint costs

Direct labor costs in a paint factory would include wages of employees who:

operate paint mixing machines

The contribution margin ratio is expressed as:

percentage of revenue

The costs of purchasing or manufacturing inventory are called:

product cost

Within the relevant range, fixed costs:

remain steady when sales volume changes.

External failure costs include:

repairs

A budget that adds a new month when the current month ends is called a:

rolling budget

The contribution margin ratio is computed as:

sales minus variable costs, divided by sales.

A cost that has already been incurred and cannot be changed is called a(n):

sunk cost

Which of the following is not an example of the cost of quality?

target costing

A product cost is deducted from revenue in the period in which:

the related finished goods are sold

The set of linked activities and resources needed to create and deliver a product or service to the customer is referred to as:

the value chain

Which of the following is not a prevention cost?

warranty costs

In deciding whether or not to accept a special order, what is the opportunity cost of using machinery for which the firm has sufficient excess capacity to accept the order?

zero