Managerial Accounting Test 2

Fixed costs are $300,000 and the variable costs are 75% of the unit selling price. What is the break-even point in dollars?

$1,200,000 Fixed Costs / CM Ratio = Break-even point in dollars 300,000 / (1 - 0.75) = 1,200,000

The overall objective in the determination of a transfer price is to

maximize the return to the whole company

The calculation to determine target cost is

sales price - desired profit.

In an equipment replacement decision, the cost of the old equipment is a(n)

sunk cost

Variable costing

treats fixed manufacturing overhead as a period cost

A company can sell all the units it can produce of either Product A or Product B but not both. Product A has a unit contribution margin of $12 and takes two machine hours to make and Product B has a unit contribution margin of $24.0 and takes three machine hours to make. If there are 5000 machine hours available to manufacture a product, income will be

$10,000 less if Product A is made (Product A: Unit Contribution Margin / Product A: Machine Hours to Make) x Product A: Machine Hours Available = Net Income (Product A) (Product B: Unit Contribution Margin / Product B: Machine Hours to Make) x Product B: Machine Hours Available = Net Income (Product B) Net Income (Product B) - Net Income (Product A) = Difference in Net Income) $12/2= $6.00 x 5000 = $30,000 (A) $24/3 = $8.000 x 5000 = $40,000 (B) 40,000 - 30,000 = 10,000 LESS

Coronado Industries produces corn chips. The cost of one batch is below: Direct materials $18 Direct labor 15 Variable overhead 12 Fixed overhead 14 An outside supplier has offered to produce the corn chips for $32 per batch. How much will Coronado Industries save if it accepts the offer?

$13 per batch Outside offer price - (Direct materials + Direct labor + variable overhead) = savings $32 - (18 + 15 + 12) = $13 per batch

Concord Corporation has two divisions; Sporting Goods and Sports Gear. The sales mix is 65% for Sporting Goods and 35% for Sports Gear. Concord incurs $5827500 in fixed costs. The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is 50%. The break-even point in dollars is

$15,750,000 (Sales Mix: Sporting Goods x Contribution margin: Sporting Goods) + (Sales Mix: Sports Gear x Contribution margin: Sports Gear) = weighted average contribution margin) Fixed Costs / Weighted Average Contribution Margin = Break-even point in dollars (0.65 x 0.3) + (0.35 x 0.5) = 0.37 or 37% $5,827,500/0.37 = $15,750,000

Management of the Crane Company would like the Food Division to transfer 10500 cans of its final product to the Restaurant Division for $30. The Food Division sells the product to customers for $70 per unit. The Food Division's variable cost per unit is $33 and its fixed cost per unit is $11. If the Food Division has 10500 units available capacity, what is the minimum transfer price the Food Division should accept?

$33 Variable cost = minimum transfer price $33 = variable cost = minimum transfer price

Oriole Company produces hair brushes. The selling price is $30 per unit and the variable costs are $8 per brush. Fixed costs per month are $4800. If Oriole sells 20 more units beyond breakeven, how much does profit increase as a result?

$440 (Selling Price - Variable cost per unit) x units beyond break even = profit increase (30 - 8) x 20 = $440

Waterway Industries has received a shipment of suits that cost $340 each. If the company uses cost-plus pricing and applies a markup percentage of 60%, what is the sales price per suit?

$544 Target cost x markup percentage = sales price per suit $340 x 1.6 = $544

In 2019, Vaughn Manufacturing sold 4400 units at $600 each. Variable expenses were $420 per unit, and fixed expenses were $240000. What was Vaughn's 2019 net income?

$552,000 Units Sold x (Selling price - Variable expenses per unit) - Fixed Expenses = Net Income 4400 x (600 - 420) -240,000 = $552,000

A company contemplating the acceptance of a special order has the following unit cost behavior, based on 10000 units: Direct materials $4 Direct labor 10 Variable overhead 8 Fixed overhead 6 A foreign company wants to purchase 3500 units at a special unit price of $25. The normal price per unit is $40. In addition, a special stamping machine will have to be purchased for $4000 in order to stamp the foreign company's name on the product. The incremental income (loss) from accepting the order is

$6500 ((Special order units x Special order price) - ((Special order units x (Direct materials per unit + Direct labor per unit + Variable overhead per unit)) - Special Stamping machine cost = Income from accepting the order) (3500 x $25) - (3500 x ( 4 + 10 + 8)) - $4000 = $6500 income

Which of the following costs are variable? Cost 10,000 Units 30,000 units 1 $100,000 $300,000 2 40,000 240,000 3 90,000 90,000 4 50,000 150,000

1 and 4 Variable costs are costs that stay the same per unit at every level of activity. So, you can have a pen that is 1 dollar per pen so if you buy 10 pens then it is 10 dollars. So, when you look at this problem you have to see which costs would give you the same number 10,000/100,000= .1 30,000/300,000=.1 so that is variable. 10,000/40,000=.25 and 30,000/240,000=.125 not the same number not variable. 90000=90000 when the two numbers equal each other they are fixed. 10,000/50,000=.2 30,000/150,000=.2 they are the same so variable This means 1 and 4 are variable

If a company had a contribution margin of $1200000 and a contribution margin ratio of 40%, total variable costs must have been

1,800,000 (Contribution Margin/Contribution Margin Ratio)=Total Sales Total Sales - Contribution Margin= Total Variable Costs 1,200,000/0.4 = 3,000,000 3,000,000-1,200,000 = 1,800,000

Coronado Industries's degree of operating leverage is 3.0. Warren Corporation's degree of operating leverage is 3.0. Warren's earnings would go up (or down) by ________ as much as Coronado's with an equal increase (or decrease) in sales.

1.0 times (Warren's: Degree of Operating Leverage / Coronado Industries: Degree of Operating Leverage = Earnings increases (times) 3.0/3.0 = 1.0

Sunland Company produces high definition television sets. The following information is available for this product: Fixed cost per unit $250 Variable cost per unit 750 Total cost per unit 1000 Desired ROI per unit 260 Sunland Company's markup percentage would be

26% Total cost per unit + Desired ROI per unit = Targeted selling price per unit (Target selling price - Total cost per unit) / Total cost per unit = Markup percentage 1000 + 260 = 1260 (1260 - 1000)/1000 = 0.26 or 26%

The cost to produce Part A was $24 per unit in 2019. During 2020, it has increased to $30 per unit. In 2020, Sandhill Company has offered to supply Part A for $20 per unit. For the make-or-buy decision,

Differential costs are $10 per unit (Increased price per unit - Sandhill Offer price = Differential costs) $30 - $20 = $10 differential costs

In applying the high-low method, which months are relevant? Month Miles Total Cost January 80,000 $192,000 February 50,000 160,000 March 70,000 188,000 April 90,000 260,000

February and April High: April (90,000 miles; Low: February (50,000 miles)

A company is considering the following alternatives: Alternative 1 Alternative 2 Revenues $120,000 $120,000 Variable costs 60,000 70,000 Fixed costs 35,000 35,000 Which of the following are relevant in choosing between the alternatives?

Variable costs - b/c they are different and the others are the same