Accounting II

Philadelphia Swim Club is planning for the coming year. Investors would like to earn a 10% return on the company's $30 million of assets. The company primarily incurs fixed costs to maintain the swimming pools. Fixed costs are projected to be $12,500,000 for the year. About $500,000 members are expected to swim each year. Variable costs are about $10 per swimmer. Philadelphia Swim Club is a price - taker and won't be able to charge more than its competitors who charge $37.00 for a membership. What profit will it earn in terms of dollars?

$1,000,000

Which of the following budgets would ordinarily NOT be prepared by a service company?

Production budget

Technology has made it easier for managers to perform all of the following tasks EXCEPT

removing slack from the budget.

Target total cost is defined as

revenue at market price less desired profit.

Hickory Point Amusement Park sells admission tickets for $50 per person for one visit. Variable costs are $15 per visitor and fixed costs are $60,000,000 per month. The company's relevant range extends to 2,000,000 visitors per month. What is Hickory Point's projected operating income if 1,750,000 visitors come to the park during the month?

$1,250,000

Sander Enterprises prepared the following sales budget: Month - Budgeted Sales March - $8,000 April - $13,000 May - $12,000 June - $14,000 The expected gross profit rate is 40% and the inventory at the end of February was $10,000. Desired inventory levels at the end of the month are 20% of the next month's cost of goods sold. What is the desired ending inventory on May 31?

$1,680

Sally's Fries sell three large fries for every two small ones. A small fry sells for $2 with a variable cost of $1. A large fry sells for $3 with a variable cost of $1.25. What is the weighted - average contribution margin?

$1.45

Warshaw Company budgets payroll at $3,600 per month plus a percentage of monthly sales. The June operating expense budget includes total payroll of $13,200 with budgeted sales of $160,000. Sales for July are budgeted at $180,000 while purchases of inventory for July are budgeted at $95,000. Depreciation and insurance for July are estimated at $1,000 and $600, respectively. Office and administrative expenses related to purchasing inventory are budgeted at 10% of purchases for the month. The purchase of $2,500 in equipment and $1,500 in furniture is expected in July. If the percentage of monthly sales used in budgeting payroll increases 25%, what would the total payroll budgeted for July be?

$17,100

Brigg's Breakfast Appliances manufactures two products: Waffle Makers and Coffee Makers. The following data are available: Waffle Makers Sales price - $120 Variable cost - $45 Coffee Makers Sales price - $215 Variable cost - $150 The company can manufacture two waffle makers per machine hour and three coffee makers per machine hour. The company's production capacity is 1,200 machine hours per month. What is the contribution margin per machine hour for coffee makers?

$195

Goliath Company prepared the following purchases budget: Month - Budgeted Purchases June - $35,600 July - $42,500 August - $39,600 September - $45,800 October - $49,400 All purchases are paid as follows: 30% in the month of purchase, 45% in the following month, and 25% two months after purchase. What are the cash disbursements in October for September purchases?

$20,610

Piatt Company expects cash sales for July of $15,000, and a 26% monthly increase during August and September. Credit sales of $12,000 in July should be followed by 30% increases during August and September. What are budgeted cash sales and budgeted credit sales for September respectively?

$23,814 and $20,280

Sam's Toys budgeted sales of $300,000 for the month of November and cost of goods sold equal to 80% of sales. Beginning inventory for November was $50,000 and ending inventory for November is estimated at $55,000. How much are the budgeted purchases for November?

$245,000

Roman Company is preparing its cash budget for the upcoming month. The budgeted beginning cash balance is expected to be $40,000. Budgeted cash receipts are $101,000, while budgeted cash disbursements are $123,000. Roman Company wants to have an ending cash balance of $45,000. How much would Roman Company need to borrow to achieve its desired ending cash balance?

$27,000

Sharon Corporation collects 15% in the second month following sale, 45% in the month following sale and 35% of a month's sales in the month of sale. The company has found that 5% of their sales are uncollectible. Budgeted sales for the upcoming four months are: August budgeted sales - $300,000 September budgeted sales - $280,000 October budgeted sales - $330,000 November budgeted sales - $260,000 The amount of cash that will be collected in November is budgeted to be

$281,500.

Barkley Company sells two products, red cups and black mugs. Barkley predicts that it will sell 2,500 red cups and 1,000 black mugs in the next period. The unit contribution margins for red cups and black mugs are $2.80 and $3.50, respectively. What is the weighted - average unit contribution margin?

$3.00

The Settler's Chuck Wagon sells tickets for dinner and a show for $50 each. The cost of providing dinner is $23 per ticket and the fixed cost of operating the theater is $115,000 per month. The company can accommodate 13,500 patrons each month. What is the projected monthly income if 5,500 patrons visit the theater each month?

$33,500

Philadelphia Swim Club is planning for the coming year. Investors would like to earn a 10% return on the company's $30 million of assets. The company primarily incurs fixed costs to maintain the swimming pools. Fixed costs are projected to be $12,500,000 for the year. About $500,000 members are expected to swim each year. Variable costs are about $10 per swimmer. The Philadelphia Swim Club has a favorable reputation in the area and therefore, has some control over the membership price. Using a cost - plus approach, what price should Philadelphia Swim Club charge for a membership?

$41.00

Willard's Department Store has budgeted cost of goods sold of $42,000 for its men's shorts in March. Management also wants to have $7,600 of men's shorts in inventory at the end of March to prepare for the summer season. Beginning inventory of men's shorts for March is expected to be $5,500. What dollar amount of men's shorts should be purchased in March?

$44,100

Goliath Company prepared the following purchases budget: Month - Budgeted Purchases June - $35,600 July - $42,500 August - $39,600 September - $45,800 October - $49,400 All purchases are paid as follows: 30% in the month of purchase, 45% in the following month, and 25% two months after purchase. What are the total cash disbursements in October for the purchase of merchandise?

$45,330

Brockman Company is preparing its cash budget for the upcoming month. The budgeted beginning cash balance is expected to be $35,000. Budgeted cash disbursements are $123,000, while budgeted cash receipts are $130,000. Brockman Company wants to have an ending cash balance of $48,000. How much would Brockman Company need to borrow to achieve its desired ending cash balance?

$6,000

Lough Company prepared the following purchases budget: Month - Budgeted Purchases June - $40,000 July - $43,000 August - $39,600 September - $46,000 October - $49,100 All purchases are paid for as follows: 20% two months after purchase, 55% in the following month, and 25% in the month of purchase. What are the cash disbursements in August for June purchases?

$8,000

Fosnight Enterprises prepared the following sales budget: Month - Budgeted Sales March - $6,000 April - $13,000 May - $12,000 June - $14,000 The expected gross profit rate is 30% and the inventory at the end of February was $10,000. Desired inventory levels at the end of the month are 20% of the next month's cost of goods sold. What are the total purchases budgeted for April?

$8,960

How is the unit sales volume necessary to reach a target profit calculated?

(fixed expenses + target profit) / unit contribution margin

The number of units to be sold to reach a certain target profit is calculated as

(fixed expenses + target profit) / unit contribution margin.

If the selling price per unit is $65, the variable expense per unit is $45, and total fixed expenses are $250,000, what will the breakeven sales in units be?

12,500

If the selling price per unit is $70, variable expenses per unit are $45, target operating income is $38,000, and total fixed expenses are $22,000, how many units must be sold to reach the target operating income?

2,400

Brigg's Breakfast Appliances manufactures two products: Waffle Makers and Coffee Makers. The following data are available: Waffle Makers Sales price - $120 Variable cost - $45 Coffee Makers Sales price - $215 Variable cost - $150 The company can manufacture two waffle makers per machine hour and three coffee makers per machine hour. The company's production capacity is 1,200 machine hours per month. To maximize profits, what product and how many units should the company produce in a month?

3,600 Coffee Makers and 0 Waffle Makers

Given breakeven sales in units of 34,000 and a unit contribution margin of $5, how many units must be sold to reach a target operating income of $8,000?

35,600

Washington Bottling Company provides the following information about its single product. Targeted operating income $659,930 Selling price per unit $7.55 Variable cost per unit $5.55 Total fixed cost $112,200 How many units must be sold to earn the targeted operating income?

386,065

Electric Jet Skis operates a jet ski rental business. Assume the jet skis rent for $55 per 6 hours. The variable costs are $33 per 6 hours rental, and its fixed costs are $80,000 each month. What is the contribution margin ratio?

40%

Wallace Industrial sells two products, large forklifts and small forklifts. A large forklift sells for $50,000 per unit with variable costs of $26,000 per unit. Small forklifts sell for $30,000 per unit with variable costs of $12,000 per unit. Total fixed costs for the company are $1,600,000. Wallace Industrial typically sells one large forklifts for every two smalls. What is the breakeven point in total units?

80 units

"Capital expenditures budget" is best described by which of the following?

A company's plan for purchases of property, plant and equipment, and other long - term assets

When pricing a product or service, managers must consider which of the following?

All costs

Amazon.com expects to receive which of the following benefits when it uses its budgeting process?

All of the above

Assuming no other changes in the cost - volume - profit relationship, which of the following will decrease the breakeven point in units?

An increase in the selling price per unit

Which of the following items would be shown on a cash payments budget?

Cash dividends

Westfall Watches has two product lines: Luxury watches and Sporty watches. Income statement data for the most recent year follow: Total Sales revenue - $490,000 Variable expenses - 355,000 Contribution margin - 135,000 Fixed expenses - 76,000 Operating income (loss) - $59,000 Luxury Sales revenue - $360,000 Variable expenses - 235,000 Contribution Margin - 125,000 Fixed expenses - 38,000 Operating income (loss) - $87,000 Sporty Sales revenue - $130,000 Variable expenses - 120,000 Contribution margin - 10,000 Fixed expenses - 38,000 Operating income (loss) - $(28,000) Assuming fixed costs remain unchanged, how would discontinuing the Sporty line affect operating income?

Decrease in total operating income of $10,000

Which of the following expenses would NOT appear in a cash budget?

Depreciation expense

A "relevant cost" is best described by which of the following?

Expected future costs that differ among alternatives

A merchandising company will have a production budget.

False

Contribution margin on an income statement is equal to sales revenue minus fixed expenses.

False

The contribution margin ratio is the unit contribution margin divided by the variable cost per unit.

False

When a company is a price - setter, it emphasizes a target costing approach to pricing.

False

Westfall Watches has two product lines: Luxury watches and Sporty watches. Income statement data for the most recent year follow: Total Sales revenue - $490,000 Variable expenses - 355,000 Contribution margin - 135,000 Fixed expenses - 76,000 Operating income (loss) - $59,000 Luxury Sales revenue - $360,000 Variable expenses - 235,000 Contribution Margin - 125,000 Fixed expenses - 38,000 Operating income (loss) - $87,000 Sporty Sales revenue - $130,000 Variable expenses - 120,000 Contribution margin - 10,000 Fixed expenses - 38,000 Operating income (loss) - $(28,000) If $20,000 of fixed costs will be eliminated by discontinuing the Sporty line, how will operating income be affected?

Increase $10,000

Sky High Seats manufactures seats for airplanes. The company has the capacity to produce 100,000 seats per year, but is currently producing and selling 75,000 seats per year. The following information relates to current production: Sales price per unit $400 Variable cost per unit: Manufacturing $220 Marketing and administrative $50 Total fixed costs: Manufacturing $750,000 Marketing and administrative $200,000 If a special sales order is accepted for 2,500 seats at a price of $320 per unit, fixed costs increase by $5,000, and variable marketing and administrative costs for that order are $25 per unit, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.)

Increase by $182,500

Sky High Seats manufactures seats for airplanes. The company has the capacity to produce 100,000 seats per year, but is currently producing and selling 75,000 seats per year. The following information relates to current production: Sales price per unit $400 Variable cost per unit: Manufacturing $200 Marketing and administrative $50 Total fixed costs: Manufacturing $750,000 Marketing and administrative $200,000 If a special sales order is accepted for 3,000 seats at a price of $300 per unit, and fixed costs increase by $10,000, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.)

Increase by $80,000

Mockingbird Company expects to sell 5,200 bird perches in January and 9,500 in February for $3 each. What will be the total sales revenue reflected in the sales budget for those months?

January $15,600; February $28,500

Which of the following is the starting place for budgeting

Last year's budget Zero Last year's actual amounts Any of the above

Which of the following is a potential disadvantage of participative budgeting?

Managers may build slack into budget.

To the left of the breakeven point on a CVP graph, the area between the total expense line and the sales revenue line representing which of the following?

Operating loss

For a merchandising company, the Cost of Goods Sold, Inventory, and Purchases budget replaces all of the following budgets EXCEPT the

Sales budget

Which of the following costs are irrelevant to business decisions?

Sunk costs

If the sales price of a product increases while everything else remains the same, what happens to the breakeven point?

The breakeven point will decrease.

Which of the following is relevant to Amazon.com's decision to accept a special order at a lower sale price from a large customer in China?

The cost of shipping the order to the customer

When deciding whether to sell as is or process a product further, managers should ignore which of the following?

The costs of processing the product thus far

What is the margin of safety?

The excess of expected sales over breakeven sales

Which of the following is the starting point for the master budget?

The sales budget

A hotel would be an example of a company with high operating leverage.

True

A price - setter company emphasizes a cost - plus approach to pricing.

True

A product's contribution margin per unit is the excess of the selling price per unit over the variable cost of obtaining and selling each unit.

True

Budgeting includes planning for ending inventory.

True

CVP assumes that inventory levels will not change.

True

If a unit sells for $12.50 and has a variable cost of $3.25, its contribution margin per unit is $9.25.

True

If the expected increase in revenues from a special order is greater than the expected increase in variable and fixed costs, then the special order should be accepted.

True

Managers should consider the potential effect of a special order on long - run profits and operations.

True

On a CVP graph, the vertical distance between the total expense line and the total fixed cost line equals the variable expenses.

True

One cost that is irrelevant in decision making is a sunk cost

True

Sensitivity analysis is a "what if" technique that asks what a result will be if an underlying assumption changes.

True

The capital expenditures budget is not part of the operating budget.

True

The margin of safety is the "cushion," or drop in sales, a company can absorb without incurring a loss.

True

The margin of safety is the excess of expected sales over breakeven sales.

True

The master budget includes both the operating budgets and the financial budgets.

True

When using a target costing approach, the company starts with revenue at market price, and then subtracts its desired profit, to the total cost.

True

When using a target costing approach, the company starts with revenue at market price, and then subtracts its desired profit, to yield the target total cost.

True

The ______ budget is part of the financial budgets.

budgeted balance sheet

The following budgets are all financial budgets EXCEPT for the

budgeted income statement.

Target profit analysis is used to calculate the sales volume that is needed to

earn a specific amount of net operating income.

When making decisions, managers should

consider revenues that differ between alternatives.

The contribution margin ratio explains the percentage of each sales dollar that

contributes towards fixed costs and generating a profit.

In deciding which product lines to emphasize, Amazon.com should focus on the product line that has the highest

contribution margin per unit of the constraining factor.

Companies with production constraints and irrelevant fixed costs will be more profitable when they maximize production of the product with the highest

contribution margin per unit of the constraint

The format of the "cost of goods sold, inventory, and purchases" budget is as follows

cost of goods sold + desired ending inventory - beginning inventory.

All of the following are considered when preparing the cash budget EXCEPT

depreciation expense

To find the number of units that need to be sold to breakeven, the formula used could be

fixed expenses + contribution margin per unit.

Budgets are

future oriented.

A shift in the sales mix from a product with a high contribution margin ratio toward a product with a low contribution margin ratio will cause the breakeven point to

increase.

CVP analysis assumes all of the following EXCEPT

inventory levels will increase.

Unavoidable fixed costs are

irrelevant to the decision of whether to discontinue a product line because they will NOT differ between alternatives.

Common fixed costs that are allocated between departments are generally

irrelevant to the decision of whether to discontinue the department.

Fixed costs that do NOT differ between two alternatives are

irrelevant to the decision.

When a company is operating at its breakeven point

its total revenues will be equal to its total expenses.

If the degree of operating leverage is 3, then 2% change in the number of units sold should result in a 6% change in

operating income.

If the degree of operating leverage is 3, then a 2% change in the number of units sold should result in a 6% change in

operating income.

Most companies use ______ when developing the budgets each year.

participative budgeting

The usual starting point for a direct labor budget for a manufacturer is the

production budget.

All of the following are shown on the combined cash budget EXCEPT

projected cash collections and cash payments. projected cash balance at the end of the month. projected borrowings and repayments. All of the above are shown on the combined cash budget.

Managers can quickly forecast the total contribution margin by multiplying the

projected sales revenue by the contribution margin ratio.

Budgets are used for all of the following, EXCEPT

recording actual results.

In making short-term special decisions, you should

separate variable from fixed costs.

When companies are price-setters, their products and services

tend to be unique

In deciding whether to drop its electronics product line, Amazon.com would consider

the costs it could save by discontinuing the product line. the revenues it would lose from discontinuing the product line. how discontinuing the electronics product line would affect sales of its other products, such as mp3s.

The breakeven point on a CVP graph is

the intersection of the sales revenue line and the total expense line.

The income statement is part of which element of a company's master budget?

the operating budgets

The breakeven point on a CVP graph is the intersection of

the sales revenue line and the total expense line.

If a company sells one unit above its breakeven sales volume, then its operating income would be equal to

the unit contribution margin.

When making outsourcing decisions

the variable cost of producing the product in-house is relevant.

Big - box retailers such as Lowe's are considered price - takers because

their products are not unique.

Managers may intentionally build slack into the budget

to have the resources they need in the event of budget cuts.

The line that begins at the origin on a CVP graph represents

total sales revenues.

To find the breakeven point using the shortcut formulas, you use

zero for the operating income.