Managerial Accounting 801 EXAM Ch. 5,6,7

Simpson Repair projects variable labor costs of $21,500 in March when 8,600 units are produced. What is the expected labor cost in April if production is expected to drop to 8,000 units? Multiple Choice $21,500 $20,000--Correct $23,113 $20,900 None of these answer choices is correct

Explanation $21,500 ÷ 8,600 units = $2.50; $2.50 × 8,000 = $20,000

Vandelay LLC projects its factory rent to be $8,000 in July when 4,000 pounds of candy are expected to be produced. What is the expected cost of rent in August assuming that rent is a fixed cost, and that production is expected to increase to 6,000 units? Multiple Choice $12,000 $8,000--Correct $7,000 $10,667 Not enough information is provided to determine the answer

Explanation $8,000 because it is fixed in total.

Grandma Gifts had the following costs in March when 400 ceramic statues were produced: materials, $4,200; labor cost, $1,600; depreciation, $800; rent, $700; and other fixed costs, $500. Which one of the following is the correct cost? Multiple Choice The fixed cost per unit is $3.75 The variable cost per unit is $14.50--Correct The fixed cost per unit is $19.50 The total cost per unit is $14.50 None of these answer choices is correct

Explanation ($4,200 + $1,600) ÷ 400 units = $14.50 variable cost per unit.

Spicy Wings has budgeted the following costs for a month in which 12,000 wings will be cooked and sold. Wings, breading, and sauce$ 4,900Direct labor (Variable)3,500Rent1,100Depreciation900Other fixed costs400 Each wing sells for $1.60 each. What is the budgeted total variable cost? Multiple Choice $10,800 $10,400 $9,500 $8,400--Correct None of these answer choices is correct

Explanation ($4,900 + $3,500) variable costs / 12,000 units = $0.70 per unit; $0.70 × 12,000 = $8,400

Spicy Wings has budgeted the following costs for a month in which 12,000 wings will be cooked and sold. Wings, breading, and sauce$ 4,900Direct labor (Variable)3,500Rent1,100Depreciation900Other fixed costs400 Each wing sells for $1.60 each. How much would the profit increase if 100 more wings were sold? Multiple Choice $160.00 $70.00 $90.00--Correct $168.00 None of these answer choices are correct

Explanation ($4,900 + $3,500) variable costs ÷ 12,000 units = $0.70 per unit ($1.60 − $0.70) = $0.90 × 100 wings = $90.00

Narchie sells a single product for $50. Variable costs are 70% of the selling price, and the company has fixed costs that amount to $363,000. Current sales total 18,000 units. In order to produce a target profit of $24,000, Narchie's dollar sales must total: Multiple Choice $7,740. $24,800. $1,210,000. $1,290,000.--Correct none of the answers is correct.

Explanation (Total Fixed cost + Target profit) ÷ Margin percentage = Total Sales Dollars; ($363,000 + $24,000) ÷ ($15 / $50) = $1,290,000.

A 25% increase in production volume will result in: Multiple Choice a 25% increase in the variable cost per unit. a 25% increase in total mixed costs. a 25% increase in total variable costs.--Correct a 25% increase in total administration costs. none of these answer choices is correct.

Explanation A 25% increase in production volume results in a 25% increase in total variable costs.

Pinpoint Production sells a single product to wholesalers. The company's budget projected unit sales of 31,600, a selling price of $20, variable cost per unit of $8, and total fixed costs of $360,000. If Pinpoint's unit sales are 300 units more than anticipated, its break-even point will: Multiple Choice increase by $12 per unit sold. decrease by $12 per unit sold. increase by $8 per unit sold. decrease by $8 per unit sold. does not change.--CORRECT

Explanation A change in the anticipated sales will not change the break-even point.

A cost that has both a fixed and variable component is known as a: Multiple Choice step-fixed cost. step-variable cost. semivariable cost.--Correct curvilinear cost. discretionary cost.

Explanation A cost that is both fixed and variable is called semivariable.

Which cost results from a management decision to spend a particular amount of money for some purpose? Multiple Choice Variable cost Mixed cost Discretionary cost--Correct Committed cost Curvilinear cost

Explanation A discretionary cost rather than a committed cost results from a management decision to spend a particular amount of money for some purpose.

Changing to activity-based costing (ABC) normally results in which of the following? Multiple Choice Equalizing setup costs for all product lines. Substantially lower unit costs for low-volume products than is reported by traditional product costing. Decreased setup costs being charged to low-volume products. Substantially greater unit costs for low-volume products than are reported by traditional product costing.--Correct None of the answer choices is correct.

Explanation Activity-based costing would likely show that low-volume products are charged with more overhead than a traditional system.

Which of the following would produce the largest increase in the contribution margin per unit? Multiple Choice A 8% increase in selling price--Correct A 14% decrease in selling price A 13% increase in variable cost A 16% decrease in fixed cost A 22% increase in the number of units sold

Explanation An increase in selling price will increase the contribution margin per unit.

The high-low method and least-squares regression are used by accountants to: Multiple Choice evaluate divisional managers for purposes of raises and promotions. choose among alternative courses of action. maximize output. estimate costs.--Correct control operations.

Explanation Both of these techniques are used by accountants to estimate costs.

Narchie sells a single product for $50. Variable costs are 70% of the selling price, and the company has fixed costs that amount to $363,000. Current sales total 18,000 units. Narchie will break-even by: Multiple Choice selling 7,260 units. selling 12,857 units. selling 24,200 units.--Correct selling 1,210,000 units. Narchie cannot break-even because it loses money on every unit sold.

Explanation Break-even in units = Total Fixed costs ÷ Fixed cost per unit; $363,000 ÷ [$50 − ($50 × 70%)] = 24,200 units

Narchie sells a single product for $50. Variable costs are 60% of the selling price, and the company has fixed costs that amount to $400,000. Current sales total 16,000 units. Narchie will break-even by: Multiple Choice selling 8,000 units. selling 13,333 units. selling 20,000 units.--Correct selling 1,000,000 units. Narchie cannot break-even because it loses money on every unit sold.

Explanation Break-even in units = Total Fixed costs ÷ Fixed cost per unit; $400,000 ÷ [$50 − ($50 × 60%)] = 20,000 units

Amounts spent for charitable contributions are an example of a(n): Multiple Choice committed fixed cost. committed variable cost. discretionary fixed cost.--Correct discretionary variable cost. engineered cost.

Explanation Charitable contributions are an example of a discretionary fixed cost.

Plane Depot, Incorporated sells a single product for $10. At a volume of 10,000 units, variable costs are $4 per unit and fixed costs total $120,000. What dollar sales level would Plane Depot have to achieve to earn a target profit of $240,000? Multiple Choice $400,000 $500,000 $600,000--Correct $750,000 $900,000

Explanation Contribution margin Percentage = ($10 − $4)/ $10 = 60%; (Total Fixed cost + Target profit) ÷ Contribution Margin percentage = Total Sales; ($120,000 + $240,000) ÷ 60% = $600,000.

At a volume level of 610,000 units, Cardinal Company reported the following information: Sales price$ 71Variable cost per unit21Fixed cost per unit3 The company's contribution-margin ratio is closest to: Multiple Choice 0.30. 0.50. 0.71. 0.70.--Correct none of the answers is correct.

Explanation Contribution margin percentage = (Sales price per unit − Variable cost) ÷ Sales Price per unit ($71 − $21) ÷ $71 = 0.70

An example of a customer-value-added activity is which of the following? Multiple Choice Inspecting a product for high quality Moving the product to the showroom Final painting and polishing a product-Correct Waiting time needed for additional raw materials to be added to the product Storing the product prior to further improvements to the product

Explanation Correct! It is true that final painting and polishing of a product is an example of a customer-value-added activity.

Which term is defined as the cost per unit of the cost driver for a particular activity cost pool? Multiple Choice Unit-level activity Pool rate-Correct Cost hierarchy Cost of measurement Non-value-added cost

Explanation Correct! It is true that the pool rate is the cost per unit of the cost driver for a particular activity cost pool.

Variable costs change in direct proportion to a change in the activity level. Group starts True or False True--Correct False

Explanation Correct! Variable costs change in direct proportion to a change in the activity level.

The relationship between cost and activity is known as: Multiple Choice cost estimation. cost prediction. cost behavior.--Correct cost analysis. cost approximation.

Explanation Cost behavior is the relationship between cost and activity.

Westham Industries is studying the profitability of a change in operation and has gathered the following information: Current OperationAnticipated OperationFixed costs$ 38,000$ 48,000Selling price$ 16$ 22Variable costs$ 10$ 12Sales (units)9,0006,000 Should Westham Industries make the change? Multiple Choice Yes, the company will be better off by $6,000 No, because sales will drop by 3,000 units No, because the company will be worse off by $4,000--Correct No, because the company will be worse off by $22,000 It is impossible to judge because additional information is needed

Explanation Current Operation: $16 − $10 = $6 Contribution Margin per unit; Total CM = $6 × 9,000 units = $54,000; Anticipated Operation: $22 − $12 = $10 Contribution Margin per unit; Total CM = $10 × 6,000 units = $60,000; $60,000 − $10,000 additional fixed costs = $50,000; $54,000 − $50,000 = $4,000 less or worse off.

Westham Industries is studying the profitability of a change in operation and has gathered the following information: Current OperationAnticipated OperationFixed costs$ 41,600$ 56,600Selling price$ 22$ 29Variable costs$ 18$ 19Sales (units)10,8005,400 Should Westham Industries make the change? Multiple Choice Yes, the company will be better off by $10,800 No, because sales will drop by 5,400 units No, because the company will be worse off by $4,200--Correct No, because the company will be worse off by $25,800 It is impossible to judge because additional information is needed

Explanation Current Operation: $22 − $18 = $4 Contribution Margin per unit; Total CM = $4 × 10,800 units = $43,200; Anticipated Operation: $29 − $19 = $10 Contribution Margin per unit; Total CM = $10 × 5,400 units = $54,000; $54,000 − $15,000 additional fixed costs = $39,000; $43,200 − $39,000 = $4,200 less or worse off.

If the Mazanet Golf Club expense includes a rent of $2,000 plus a charge of $40 per member and the club has 80 members, Multiple Choice fixed costs amount to $2,000 and variable costs amount to $3,200.--Correct fixed costs amount to $3,200 and variable costs amount to $2,000. all costs are fixed. all costs are variable. cannot be determined.

Explanation Fixed costs amount to $2,000 and variable costs amount to $3,200.

Which of the following would occur if a company increased its variable cost per unit? Multiple Choice Contribution margin increases, break-even point increases Contribution margin increases, break-even point decreases Contribution margin decreases, break-even point increases--Correct Contribution margin decreases, break-even point decreases Contribution margin increases, no effect on break-even point

Explanation If a company increases its variable cost per unit, then contribution margin decreases and break-even point increases.

A company that wants to lower its break-even point should strive to: Multiple Choice decrease selling prices. reduce variable costs.--Correct increase fixed costs. sell more units. achieve more than one of the answers listed.

Explanation If a company wants to lower its break-even point, it should strive to reduce variable costs.

If a company experiences an increase in its fixed costs, which of the following would occur? Multiple Choice Net income would increase The break-even point would increase-Correct The contribution margin would increase The contribution margin would decrease More than one of the answers would occur

Explanation If fixed costs increase, the break-even point will increase.

Trak Bike Company has a variable selling cost. If sales volume increases, how will the total variable cost and the variable cost per unit behave? Multiple Choice Total variable cost increases and variable cost per unit increases Total variable cost increases and variable cost per unit remains constant--Correct Total variable cost increases and variable cost per unit decreases Total variable cost remains constant and variable cost per unit decreases Total variable cost decreases and variable cost per unit increases

Explanation If sales volume increases, total variable cost will increase and variable cost per unit will remain constant.

Consider the following statements regarding traditional costing systems. Which of the statements is the most accurate? Multiple Choice Overhead costs are applied to products on the basis of volume-related measures All manufacturing costs are easily traceable to the goods produced Traditional costing systems tend to distort unit manufacturing costs when numerous goods are made that have widely varying production requirements Overhead costs are applied to products on the basis of volume-related measures and traditional costing systems tend to distort unit manufacturing costs when numerous goods are made that have widely varying production requirements--Correct All manufacturing costs are easily traceable to the goods produced and traditional costing systems tend to distort unit manufacturing costs when numerous goods are made that have widely varying production requirements

Explanation It is true that overhead costs are applied to products on the basis of volume-related measures and traditional costing systems tend to distort unit manufacturing costs when numerous goods are made that have widely varying production requirements.

Many traditional costing systems: Multiple Choice trace manufacturing overhead to individual activities and require the development of numerous activity-costing rates. write off manufacturing overhead as an expense of the current period. combine widely varying elements of overhead into a single cost pool.-Correct use a host of different cost drivers (e.g., number of production setups, inspection hours, orders processed) to improve the accuracy of product costing. produce results far superior to those achieved with activity-based costing.

Explanation Many traditional costing systems combine widely varying elements of overhead into a single cost pool.

Which of the following is most likely to be a cost driver for a packaging and shipping activity? Multiple Choice Number of setups. Number of components. Hours of testing. Number of orders.-Correct Estimated product costs.

Explanation Number of orders is most likely to be classified a cost driver for a packaging and shipping activity.

On the CVP graph, the break-even point is determined by which of the following? Multiple Choice The intersection of the total-revenue line and the total-expense line--Correct Where total revenue line intersects the x and y axis The intersection of the total-revenue line and the variable-expense line Subtracting the relevant range from the related profit area The intersection of the total-revenue line and the fixed-expense line

Explanation On the CVP graph, the break-even point is determined by the intersection of the total-revenue line and the total-expense line.

Blackwood Industries sells a single product for $50 that has a variable cost of $40. Fixed costs amount to $5 per unit when anticipated sales targets are met. If the company sells one unit in excess of its break-even volume, profit will be: Multiple Choice $5. $10.--Correct $50. $15. an amount that cannot be derived based on the information presented.

Explanation One unit in excess of break-even volume will yield $10 profit (or $50 − $40).

Xiong Company sells a single product at $180 per unit. The most recent income statement revealed unit sales of 3,100, variable costs per unit of $58, and fixed costs of $230,000. Management believes that a 20% drop in selling price will boost sales by 20%. If this reduction in selling price is implemented, Multiple Choice Operating income will increase by $58,280. Operating income will decrease by $111,600. Operating income will decrease by $58,280.--Correct Operating income will increase by $53,320. Operating income will decrease by $164,920.

Explanation Operating income will decrease by $58,280. See calculation below. $180 × 20% = $36 × 3,100 units =$ (111,600)3,100 units × 20% = 620 units × ($144 − $58) =53,320Change in operating income

Which of the following is not an example of a committed fixed cost? Multiple Choice Property taxes Depreciation on buildings Salaries of management personnel Outlays for advertising programs--Correct Equipment rental costs

Explanation Outlays for advertising programs is not an example of a committed fixed cost.

The customer service department of XYZ Incorporated follows up on customer complaints by telephone inquiry. Last quarter the department initiated 10,700 calls and incurred costs of $353,100. If 3,640 of these calls were for the company's wholesale operation (the remainder were for the retail division), costs allocated to the retail division should amount to: Multiple Choice $0. $232,980.--Correct $33. $353,100. $120,120.

Explanation Retail division Allocation = [(Total calls − Wholesale calls) ÷ Total calls] × Total costs = [(10,700 − 3,640) ÷ 10,700] × $353,100 = $232,980.

Narchie sells a single product for $50. Variable costs are 60% of the selling price, and the company has fixed costs that amount to $486,000. Current sales total 18,500 units. Each unit that Narchie sells will: Multiple Choice increase profit by $20.--Correct increase profit by $30. increase profit by $50. increase profit by some other amount. decrease profit by $5.

Explanation Revenue per unit − Variable cost per unit = Marginal increase in profit per unit; $50 − (60% × 50) = $20.

Straight-line depreciation is a typical example of a: Multiple Choice variable cost. step-variable cost. fixed cost.--Correct mixed cost. curvilinear cost.

Explanation Straight-line depreciation is a typical example of a fixed cost.

The break-even point is that level of activity where: Multiple Choice total revenue equals total fixed costs. total revenue equals total variable costs. total revenue equals total cost.--Correct total variable costs equals total fixed cost. total variable costs exceed total fixed cost.

Explanation The break-even point is that level of activity where total revenue equals total cost.

Which method of cost estimation relies on the lowest and highest data points? Multiple Choice Visual-fit method Least-squares regression method High-low method--Correct Multiple regression method Goodness of fit method

Explanation The high-low method is uses only two points, the highest and the lowest points.

The relevant range is that range of activity: Multiple Choice where a company achieves its maximum efficiency. where units produced equal units sold. where management expects the firm to operate.--Correct where the firm will earn a profit. where expected results are abnormally high.

Explanation The relevant range is that range of activity where management expects the firm to operate.

The unit contribution margin is calculated as the difference between: Multiple Choice selling price and fixed cost per unit. selling price and variable cost per unit.--Correct selling price and product cost per unit. fixed cost per unit and variable cost per unit. fixed cost per unit and product cost per unit.

Explanation The unit contribution margin is calculated as the difference between selling price and variable cost per unit.

Olsen Industries has the following information about maintenance costs in the past six months. MonthMachine HoursAmountJanuary200$ 2,800February3503,000March4504,000April5005,000May6005,200June5805,800 If the company uses the high-low method to analyze costs, Olsen's variable cost is: Multiple Choice $8.70. $1.60. $7.90. $6.00.--Correct none of the answers is correct.

Explanation The variable cost per unit is (High − Low costs) ÷ (High − Low Units) = ($5,200 − $2,800) ÷ (600 − 200) = $6.00 per machine hour.

Olsen Industries has the following information about maintenance costs in the past six months. MonthMachine HoursAmountJanuary200$ 2,800February3503,000March4504,000April5005,000May6005,200June5805,800 Olsen's monthly fixed maintenance fee is: Multiple Choice $1,600.--Correct $1,200. $3,600. $112. none of the answers is correct.

Explanation The variable cost per unit is (High − Low costs) ÷ (High − Low Units) = ($5,200 − $2,800) ÷ (600 − 200) = $6.00 per machine hour. Variable costs (using the low level) = 200 × $6.00 = $1,200; Total costs − variable costs = fixed costs (or $2,800 − $1,200 = $1,600); alternatively, Variable costs (using the high level): 600 × $6.00 = $3,600; Total costs − variable costs = fixed costs (or $5,200 − $3,600 = $1,600).

Olsen Industries has the following information about maintenance costs in the past six months. MonthMachine HoursAmountJanuary200$ 2,800February3503,000March4504,000April5005,000May6005,200June5805,800 The cost formula that expresses the behavior of Olsen's maintenance cost is: Multiple Choice Y = $0 + $1,600X. Y = $160 + $6X. Y = $16,000 + $6X. Y = $0 + $6X. Y = $1,600 + $6X.--Correct

Explanation The variable cost per unit is (High − Low costs) ÷ (High − Low Units) = ($5,200 − $2,800) ÷ (600 − 200) = $6.00 per machine hour. Variable costs (using the low level) = 200 × $6.00 = $1,200; Total costs − variable costs = fixed costs (or $2,800 − $1,200 = $1,600); alternatively, Variable costs (using the high level): 600 × $6.00 = $3,600; Total costs − variable costs = fixed costs (or $5,200 − $3,600 = $1,600. $6 variable times units + $1,600 from fixed = maintenance cost

MacDowell's (a fast-food franchise) must pay a franchise fee of $45,000 plus 4% of gross sales. In terms of cost behavior, the fee is known as a: Multiple Choice variable cost. fixed cost. step-fixed cost. semivariable cost.-Correct curvilinear cost.

Explanation This cost is known as a semivariable cost.

What type of cost exhibits the behavior shown below? Manufacturing Volume (Units)Total CostCost Per Unit50,000$ 150,000$ 3.0080,000150,0001.88 Multiple Choice Variable cost Fixed cost--Correct Semivariable cost Step-variable cost Mixed cost

Explanation This is the cost behavior of a fixed cost.

Which of the following costs changes in direct proportion to a change in the activity level? Multiple Choice Variable cost--Correct Fixed cost Semivariable cost Step-variable cost Step-fixed cost

Explanation Variable cost changes in direct proportion to a change in activity level.

What type of cost exhibits the behavior shown below? Manufacturing Volume (Units)Cost Per Unit50,000$ 1.9570,0001.95 Multiple Choice Variable cost--Correct Fixed cost Semivariable cost Discretionary fixed cost Step-fixed cost

Explanation Variable costs are shown.