exam 2

Using the formula method, if fixed expenses are $5,000 and the contribution margin per item sold is $90, how many items need to be sold to break-even? -There is not enough information to calculate the break-even point. -56 items -100 items.

56 items

If Mike's Bikes would like a 50% contribution margin ratio on each bike they sell, what price would they need to sell their bikes for if the variable costs per bike are $88? -$132 -$176 -We don't have enough information.

$176

Laser Products plans to sell 5000 printers this year at a price of $100 each. Fixed expenses of $100,000 and variable expenses of $28 per printer have been calculated. Laser Products will show a net income (profit) of $________ if they meet their sales number. -$399,972 -$260,000 -$40,000

$260,000

Mike's Bikes planned to sell 500 bikes at $100 each with variable costs per bike of $50 and fixed costs of $21,000. If they sell 600 bikes, what would the contribution margin be for each additional bike? -$50 -$15 -$6.67

$50

James is the manager at the local pizza store. He has been tasked with figuring out how much profit the store will show if he can sell 100 pizzas per day. He has calculated his selling price per pizza at $15, with variable costs of $4 and fixed costs of $600 per day. James will show a profit per day of $________. -$1,100 -$500 -$900

$500

Using the equation method, calculate the sales amount in dollars needed for Mike's Bikes to break even with the following information: Selling price per bike =$125. Contribution margin per bike= $76. Fixed costs= $5000 per month. -$5,076 in sales -$12,755 in sales -$8,224 in sales

$8,224 in sales

When using the profit equation we always need what 3 things to calculate net profit

-Selling price -variable expenses -fixed expenses

Tippy Canoe Company sells 500 canoes at $300/each per year and has a contribution margin of $100 per canoe and currently has a net operating income of $49,000 per year. What is their degree of operating leverage? -1.02 -3.06 -2.04

1.02

Using the equation method, calculate how many bikes Mike needs to sell to break even with the following information. Selling Price=$150. Variable costs per bike=$75. Fixed costs=$7,500. -100 bikes -50 bikes -We don't have enough information to calculate the break-even point.

100 bikes

Using the FIFO method of calculating the equivalent units of production for process 3 on your production line, you are provided with the following information: 1000 units- beginning inventory at 50% complete500 units- started and finished during the period1000 units- 25% complete at the end of the period.What is the equivalent units of production for this department? -1250 -2500 -1750

1250

Using the weighted average method, you are provided the following information: Beginning WIP 500 needing 25% yet to completeUnits started and completed and moved to the next process- 1000 unitsEnding WIP of 500 units that are 50% complete. -1375 -1750 -1625

1750

Shannon is trying to figure out her contribution margin ratio on each loaf of bread her company sells. She checked in with purchasing, and found out that the variable costs per loaf total $5 and they are currently being sold for $6.50. -30% -23% -77%

23%

If you have 700 units completed, and transferred to process 2, with 500 units remaining in process 1, 50% complete, what is the equivalent units of production for process 1 using the weighted average method? -1200 -950 - 450

950

The units in the beginning WIP inventory are: -Added at 100% to the equivalent units of production using the FIFO method. -Added at 100% to the equivalent units of production using the weighted average method -Are added at the percentage needing to be completed yet to the equivalent units of production using the weighted average method.

Added at 100% to the equivalent units of production using the weighted average method

If the human resources department provides services to the custodial staff by preparing their payroll and hiring staff, using the step-down method of allocation the human resources costs would be: -Allocated directly to the operating departments. -Allocated based on square footage, since that is an easier method. -Allocated first to the custodial department, and the remaining costs to the operating departments

Allocated first to the custodial department, and the remaining costs to the operating departments

Logan's Bike Shop is putting together cost information to build 25 new bicycles. The variable costs would include: -Bicycle tires -Depreciation on the air pump - Manager's wages

Bicycle tires

To calculate the margin of safety we need to know: Selling price, variable costs and contribution margin -Contribution margin, fixed costs and current sales -Current sales in dollars, variable costs and selling price.

Contribution margin, fixed costs and current sales

The wood that goes into a skateboard would be classified as: -Indirect materials -Factory overhead -Direct materials

Direct materials

A factory makes two kayaks. One is made from fiberglass and the other is wood. The fiberglass and wood are: -Indirect materials -Direct material for the kayak they are used on, and indirect materials for the other kayak -Direct materials for each kayak

Direct materials for each kayak

The manager of a print shop manages the entire plant. Her wages would most likely be considered: -direct labor -Either indirect labor or factory overhead -Administrative salaries

Either indirect labor or factory overhead

Mike's Bikes only has space and labor to make 250 bikes total. If bike A provides a contribution margin of $100 per bike, and bike B provides $79 per bike, what sales mix should Mike use if there is a market for 125 Bike A and 250 Bike B? -Make 125 bike A and 125 bike B. -Make 250 bike B and no bike A. -Make 250 bike A and no bike B.

Make 125 bike A and 125 bike B.

If we would like to meet a specific profit goal, the formula to calculate the number of items we need to sell using the equation method is; -Profit= Unit Contribution Margin x Quantity-Fixed expenses -Sales = Variable costs x quantity- fixed expenses. -0= unit contribution margin x quantity- fixed expenses

Profit= Unit Contribution Margin x Quantity-Fixed expenses

Period costs include: -Selling and administrative costs -All costs including direct materials and direct labor -Selling, administrative and indirect costs

Selling and administrative costs

When materials are moved from the raw materials inventory to the production floor: -They will be moved from the raw materials inventory account to a WIP account -They will be moved to a cost of goods sold account. They will be put with the direct material and manufacturing overhead until the job is completed.

They will be moved from the raw materials inventory account to a WIP account

The weighted average method of calculating equivalent units of production is easier because: -We don't need to calculate the equivalent units for the ones in ending inventory, since they are considered 100% complete. -We don't need to calculate the equivalent units, but can simply use the number of units transferred to the next step in the process. -We don't need to calculate the equivalent units for the ones transferred out, as they are considered 100% complete

We don't need to calculate the equivalent units for the ones transferred out, as they are considered 100% complete

Computer Company miscalculated their contribution margin on their computers. They had calculated their margin at $40 per unit, but after review, it should be $30 per unit. If they sell 500 units at $90 each, how much more (less) per unit do they have to go towards their fixed costs and profit? -$40 less per unit -$10 less per unit -$10 more per unit

$10 less per unit

A vendor raises the price of a component of your product from $1 to $2. If you sell your product for $5, your contribution margin goes from __ to __

-$4 to $3

Two companies, make the same product and have the same sales level and net profit. What can we assume about these two companies if they both experience a 20% increase in sales. -Both will experience a 20% increase in their net profit. -Both will experience the same increase in their net profit, but we don't know how much without more information. -

Both will see an increase in net profit, but without variable and fixed cost information we can't calculate how much they will see.

Using the weighted average method, you are provided the following information: Beginning WIP 500 needing 50% yet to completeUnits started and completed and moved to the next process- 1000 unitsEnding WIP of 500 units that are 50% complete. -1750 -1500 -2000

1750

Mike's Bikes has sales of $50,000, with a $28,000 break-even point. What is his margin of safety percentage? -44% -56% -79%

44%

Computer Corp sells 2000 flash drives at a price of $20 each with variable expenses of $5 per drive. What is the contribution margin percentage for each flash drive they sell?

75%

Farmer Jane would like to show a net profit of $1,000 per month. She is growing tomatoes and sells them for $3 per pound. Her variable costs per pound are $1, and she has $700 in fixed cost. How many pounds does she need to sell? -567 pounds -850 pounds -1700 pounds

850 pounds

Accumulating the costs involved in the production process is the goal of: -Job order costing -Process costing -Both job order costing and process costing.

Both job order costing and process costing.

In a process costing system, the costs are added: -As the individual job moves through production. -As each process or step in the production cycle occurs -Once at the beginning of the production process.

As each process or step in the production cycle occurs

When two components of the CVP change at the same time it will: -Be a negative change for the company since changes in costs always create a lower net profit. -Be a positive or negative situation for the company depending on the direction of the change. -Net profit will be unaffected since two changes are happening at the same time.

Be a positive or negative situation for the company depending on the direction of the change.

Assignment of Indirect costs are part of: -Activity based costing only -Both activity based costing and traditional costing methods -Traditional costing only

Both activity based costing and traditional costing methods

An increase in sales volume will: -Create an increase or decrease in net profits depending on what happens with variable and fixed costs. -Always create a higher net profit, since sales is higher. -Will always decrease net profit, since our expenses will increase with higher sales.

Create an increase or decrease in net profits depending on what happens with variable and fixed costs.

A 10% increase in sales and a 20% increase in fixed costs will: - Always create a lower net profit, or even a loss, since the expenses increased more than the sales. -Create either a higher or lower net profit, since the two increases are not proportional. -Always create a higher net profit, since 10% of sales will always be more of an increase than the 20% increase in fixed costs.

Create either a higher or lower net profit, since the two increases are not proportional.

As the new accountant at The Mason Company, you have been asked to set up a costing system for their new company. They build custom boats, each one made to order. The best system for them would be: -Job order costing -Process costing -Either costing system would work.

Job order costing

Direct materials, direct labor and estimated manufacturing overhead are tracked: -Materials requisition to order raw materials -On the job cost sheet to be used to prepare a cost summary -By the accounting department in an spreadsheet for invoicing purposes.

On the job cost sheet to be used to prepare a cost summary

Health insurance premiums have risen, creating a substantial decrease in net profits for your small company. As a manager, it is your job to figure out how to handle this increase. A good first option may be: -Shop around for other policies. -Drop health insurance for your employees -sImmediately raise the price of your product to cover the additional costs.

Shop around for other policies.

An increase in the cost of rent can be offset by: -Immediately move to a cheaper facility. -Immediately raise prices to cover the increase. -Working to reduce other fixed expenses such as utilities and telephone.

Working to reduce other fixed expenses such as utilities and telephone.

The contribution margin ________ vary depending on the quantity of items sold.

will

When Bread and Butter Bakers got the newest batch of flour, they noticed a price increase of $1.00 per pound of flour (double their old price!). Bread and Butter plans to use 10,000 pounds of flour per month at a price of $2.00 per pound with an additional variable expense per loaf of $1.50. Their fixed costs are $13,500 per month and they hope to sell 10,000 loaves of bread at $6.00 per loaf. If they meet their sales goal what is their net profit per month? -$21,500 -$11,500 -$26,500

$11,500

In the process costing system the costs are: -Carried forward to the next process, so all costs in the production are accounted for. -Not carried forward to the next process, since each process is an individual step. -Estimated until all of the bills for raw material and labor are received.

Carried forward to the next process, so all costs in the production are accounted for.

As a manager, one good way to keep your contribution margin high on the products you sell may be to -Threaten your vendors if they try to raise the prices. -Keep seeking competitive bids on your components. - Immediately take production overseas to reduce your costs.

Keep seeking competitive bids on your components.

Job numbers are assigned in order to: -Invoice the customer -Keep track of all jobs being worked on in the facility -Let purchasing know they can go ahead and order the raw materials for the job.

Keep track of all jobs being worked on in the facility

The contribution margin is an important number to calculate when figuring out the CVP analysis for sales. This number represents: -The profit of the company per item sold. -The amount we should price our items. -The dollars each additional item sold will provide to cover fixed costs.

The dollars each additional item sold will provide to cover fixed costs.

The higher the price of the item a company sells: -The more items they will need to sell to break even if all other factors remain unchanged. -The fewer items they will need to sell to break even if all other factors remain unchanged. -The less competition they will have, so they won't have to worry about costs.

The fewer items they will need to sell to break even if all other factors remain unchanged.

Estimated amounts are used to calculate manufacturing overhead because:-The company won't have all of the actual numbers until the end of the year, so estimating is easier. -To bill clients in an efficient manner, it would not be feasible to wait for all of the overhead -Since the costs are pretty much the same estimating comes pretty close to the actual amounts.

To bill clients in an efficient manner, it would not be feasible to wait for all of the overhead

A strength of a shift in costs from a variable cost to a fixed cost may be: -You don't have to worry about budgeting when you shift to fixed costs since it is the same each month. -You have a predetermined expense each month with no variation, which may make planning easier. -Sales will no longer be an important item to track, since the cost is now fixed and doesn't hinge on sales.

You have a predetermined expense each month with no variation, which may make planning easier.

The estimated allocation base is 25,000 machine hours and the estimated total manufacturing overhead cost is $71,500. The predetermined overhead rate to be applied to the jobs is: -$2.86 per job -$.35 per machine hour -$2.86 per machine hour

$2.86 per machine hour

Logan's Bike Shop is preparing the CVP analysis at sales of 50 bicycles. They have fixed costs of $2500, variable costs per bicycle of $25 and the selling price of each bicycle is $100. Calculate their contribution margin for all 50 bicycles: -$1,250 -$2,500 -$3,750

$3,750

You are provided the following data: Total estimated manufacturing overhead cost of $28,000 (consisting of $13,000 fixed and $15,000 variable) Estimated total allocation base of 7,500 direct labor hours Calculate the predetermined overhead rate: -$3.73 per direct labor hour -$3.73 per job -$7.46 per direct labor hour

$3.73 per direct labor hour

Mike's Bikes is working on securing new pricing for the tires they put on their bikes. They plan to sell 1000 bikes at $200 per bike. Their old supplier raised prices to $10 per tire, from $8 per tire. Mike's is struggling to find new pricing, so is working on the CVP analysis with the higher pricing. How much more per bike will Mike's be spending on tires? -$2 per bike -$4 per bike -$10 per bike

$4 per bike

If a company is selling 100 items for $10 each, and variable costs of $5 per item, how much can their fixed expenses be for them to break even? -$500 -$501 -$499

$500

Your vendor calls you and unfortunately the cost of a small component in your product has increased in cost substantially! If you have budgeted to sell 1000 widgets at $5 each, and your variable cost per widget has gone from $2 each to $2.50 each, how much will your total contribution margin change due to this increase? -$500 higher -$250 lower -$500 lower

$500 lower

Mike's Bikes has asked you to figure out how many bikes they need to sell and what their total sales in dollars would be to show a net profit of $5,000. They sell each bike for $100, with $40 in variable expenses per bike. Mike's fixed expenses per month are $3,500. Mike would need to sell _____________ bikes for a total sale of _______ to meet his net target sale.

-142 bikes -$14,200 in sales

Traditional costing ABC both ___________________, but ABC is more ________

-Allocate indirect overhead -Costly to implement

The purchasing department uses the ___________________ to order______________________ for each job

-Materials requisition sheet -Raw Materials and parts

The cost of the main component in Computer Corporation's biggest seller has just increased by 50%. As a manager, you could _______________________ Or ____________________ as first steps to try to keep costs down.

-seek bids from other vendors -talk with your current vendor about alternative pricing or discounts

Due to limited production space, Computer Inc needs to adjust its sales mix. Current production is 500 flash drives (contribution margin $7 each) and 500 charging cords (contribution margin $8each). There has been a surge in sales on the flash drives and Computer Inc could sell 1000 of them if they could make them! There is only space to manufacture a total of 1150 items. What should they do? -1000 flash drives and 150 charging cords. -650 charging cords and 500 flash drives. -500 charging cords and 650 flash drives

650 charging cords and 500 flash drives.

Farmer Jane is anticipating an increase in sales this year of 25%. If her contribution margin on her sales this year was $29,000 and her net profit $10,000, what can she anticipate her net profit will be next year, if nothing else changes? -25% increase in net profit -72.5% increase in net profit -We don't have enough information to calculate the increase.

72.5% increase in net profit

A 10% increase in fixed costs along with a 10% decrease in sales will create: -A 10% decrease in net profit -A 20% decrease in net profit -A decrease in net profit, but we don't have enough information to determine the amount.

A decrease in net profit, but we don't have enough information to determine the amount.

Pricing and billing correctly can be made easier by using: -A job cost sheet that follows the job through the manufacturing process -Any accounting software program. -Insuring that staff stop in to the accounting office each day and have someone write down which jobs they were working on.

A job cost sheet that follows the job through the manufacturing process

A shift from labor to equipment is: -A shift from a variable cost to a fixed cost. -Always a good idea as it eliminates the need for payroll and the related costs. A good idea because equipment is a fixed expense, so you know how much your monthly costs will be regardless of how many products you sell.

A shift from a variable cost to a fixed cost.

You have recently been made aware that your purchasing department is spending five hours to source and purchase components for your deluxe line as opposed to only one hour to source and purchase components for your basic line. Which costing system may be more effective in this situation? -ABC would give a clearer picture of the direct costs involved. - ABC would give a clearer picture of the indirect costs involved. -Traditional based costing would give a clearer picture of indirect costs involved.

ABC would give a clearer picture of the indirect costs involved.

Your boss has asked you to review a machine that can replace five full-time employees in your production facility. The machine has an upfront cost of $1 million dollars, a useful life of 20 years, but can only make one of your products and would be obsolete if that line is discontinued. Where would you start? -Tell your boss it is a bad idea to let go of the employees. -Since the machine has a useful life of 20 years, it will pay for itself before the product line becomes obsolete, so let your boss know you think it is a good investment. -Analyze the cost of the employees per year as a variable cost, and the machine as a fixed cost, and create a spreadsheet with best and worst case scenarios.

Analyze the cost of the employees per year as a variable cost, and the machine as a fixed cost, and create a spreadsheet with best and worst case scenarios.

The step-down method of allocating service costs: -Provide services to the entire company, but do not produce a profit on their own. -Produce a profit of their own through the sales of their services. -Don't make a profit for the company, so should be eliminated.

Provide services to the entire company, but do not produce a profit on their own.

Limitations of the ABC system include: -It is very costly to implement. -It is easier to implement than a traditional costing method. -Managers enjoy the ABC system due to its simplicity.

It is very costly to implement.

Your company currently uses job order costing, but are starting to do one product on a continuous basis on one of the lines, due to a high demand. What might be a good course of action from a costing standpoint for the new line? -Change the entire costing system over to process costing. -Keep doing your job order costing for the special orders, and set the new line up either as one "job" that runs continuously, or do a process costing system for that product line. -Do not begin doing the continuous product since you do not have a good costing system to accommodate the change.

Keep doing your job order costing for the special orders, and set the new line up either as one "job" that runs continuously, or do a process costing system for that product line.

Knowing the current margin of safety is important when we are planning our budget because: -If our margin of safety is too high, we can adjust our budget for marketing. -If our margin of safety is too low, we can eliminate that product line. -Knowing what sales we anticipate, but also where our break-even point is can help with planning

Knowing what sales we anticipate, but also where our break-even point is can help with planning

Materials, labor and overhead may be added: -On the costing sheet for each job. -In any processing department. -On the bill of materials before starting the job.

In any processing department.

Components of the value chain: -Stand alone and do not need to communicate with each other. -Include any process or task that adds value to the end product. -Are overhead and not included in the costing of the end product.

Include any process or task that adds value to the end product.

Increase the number of items you need to sell to make a profit. -Decrease the contribution margin as sales will go down if you increase the price. -Increase net profit because you will continue to sell the same quantity as you did at the lower price. -Increase the contribution margin if all other factors remain unchanged.

Increase the contribution margin if all other factors remain unchanged.

A lower price per item with stable variable costs and an increase in fixed costs will -Increase the number of items you need to sell to make a profit. -Create a higher demand for the product, so sales will offset the increase in fixed costs. -Make a short term change in your net profit, until sales increase with the price discount.

Increase the number of items you need to sell to make a profit.

Engineering is working on a new product. They must communicate with other departments in order to first: -Purchasing can get the components. -Insure that there is a market for the product and it is cost effective to produce. -Accounting is aware that a new line is being added

Insure that there is a market for the product and it is cost effective to produce.

Raw materials is a(n): -Inventory asset account on the income statement - Cost of goods sold account -Inventory asset account on the balance sheet

Inventory asset account on the balance sheet

A possible disadvantage of ABC may be: -It may give less accurate cost information. -It will have one rate for allocation used over the entire company. - It is a costly system to implement

It is a costly system to implement

The number of items needed to get to the break even point can change by: -It cannot be changed, as the company has to sell a certain number of items to meet costs. -Increasing the selling price of the item is the only way to change the number needed to break even. Lowering variable and fixed costs or increasing the selling price of the item.

Lowering variable and fixed costs or increasing the selling price of the item.

Managerial accounting is a component in the value chain of: -Most other processes of the business operation -The accounting department and its functions. -The production and sales and marketing processes.

Most other processes of the business operation

ABC Company makes one widget in their production facility. They offer no variations in the product. -Process costing, since it is the same process over and over again. -Job order costing, since each day they produce a new batch of widgets. -Either system would work for costing the widgets.

Process costing, since it is the same process over and over again.

All manufacturing overhead costs are: -Entered directly to their respective expense accounts, with no reconciliation to the estimated amounts. -Recorded to a clearing account and reconciled to the estimated costs at the end of the period. A journal entry may then be done to clear the balance of the account. -Simply recorded to manufacturing overhead, and if there is a variance between the actual and the estimated it is written off to miscellaneous expense.

Recorded to a clearing account and reconciled to the estimated costs at the end of the period. A journal entry may then be done to clear the balance of the account.

The contribution margin is important when determining a proper sales mix because: -Contribution margin are the same for all of the products manufactured, so make the easier to build products first. -The higher the price of the item, the higher contribution margin, so we can manufacture those items first, using any available manufacturing time for our lower priced items. - The contribution margin is the amount available to help cover the fixed costs of a company, so a higher CM product should be manufactured first.

The contribution margin is the amount available to help cover the fixed costs of a company, so a higher CM product should be manufactured first.

Activity based costing may be beneficial if: -Your company only makes one product on a continuous basis. -Direct costs are difficult to assign to each product. -Your company produces product lines that take very different amounts of time with particular processes

Your company produces product lines that take very different amounts of time with particular processes