Accounting Two Chapters 17, 18, 19 Multiple Choice

Deighan Company had the following amounts from its income statement: Sales revenue (800 units) $80,000 Cost of goods sold -fixed 20,000 Cost of goods sold -variable 18,500 Selling expenses - fixed 7,000 Selling expenses - variable 6,000 Administrative expenses - fixed 5,000 Administrative expenses - variable 7,500 How much is Deighan's contribution margin? a) $48,000 b) $61,500 c) $16,000 d) $41,500

Answer: A

If Morton Company expects to sell VCR's at $100 a unit with variable costs of $60 per unit and DVD's at $200 per unit with variable costs of $120 per unit, what is the weighted average contribution margin if the sales mix is 4 DVD's for 1 VCR? a) $ 72 b) $ 36 c) $120 d) $160

Answer: A

In the month of April, Carly's Carwash provided 3,000 car washes at an average price of $25. Fixed costs are $9,300 and variable costs are 85% of sales. Compute the contribution margin and the contribution margin ratio. a) $11,250 and 15% b) $13,200 and 17.6% c) $65,700 and 87.6% d) $1,950 and 2.6%

Answer: A

The primary objective of just-in-time processing is to a) eliminate or reduce all manufacturing inventories. b) accumulate overhead in activity cost pools. c) identify relevant activity cost drivers. d) identify value-added activities.

Answer: A

Which one of the following is not an assumption of cost-volume-profit analysis? a) Changes in activity and sales mix are the only factors that affect costs. b) The behavior of costs is linear throughout the relevant range. c) All costs can be classified as either variable or fixed. d) All units produced are sold.

Answer: A

Bennett Company's high and low level of activity last year was 150,000 units produced in June and 50,000 units produced in January. Machine maintenance costs were $104,000 in June and $40,000 in January. Using the high-low method, estimated total maintenance cost for a month in which 100,000 units will be produced is: a) not determinable with the information given. b) $72,000. c) $80,000. d) $69,334.

Answer: B

How many steps are involved in activity-based costing? a) 2 b) 4 c) 5 d) 3

Answer: B

The degree of operating leverage can be computed as: a) contribution margin ratio times the sales mix percentage. b) contribution margin divided by net income. c) net income divided by contribution margin ratio. d) net income divided by the sales mix percentage.

Answer: B

Werth Company produces tie racks. Its estimated fixed costs for the year are $288,000, and the estimated variable costs per unit are $14. Werth expects to produce and sell 60,000 racks at a price of $20 per unit. How many units will be sold at breakeven? a) 20,571. b) 48,000. c) 3,600. d) 14,400.

Answer: B

What is the primary benefit of activity-based costing? a) All these are primary benefits of ABC b) More cost pools and therefore more accurate product costing c) The cost of implementation d) Arbitrary allocations of overhead costs

Answer: B

Which of the following statements is false concerning the use of ABC in service industries? a) In most service industries, a large portion of overhead costs are company-wide costs. b) When using ABC for service industries, special methods must be used to identify cost pools and cost drivers due to the unique nature of the services offered. c) The notion regarding eliminating as many non-value-added activities as possible applies equally to manufacturers and service providers. d) All of the statements are true concerning the use of ABC in service industries.

Answer: B

Which one of the following is not an assumption of CVP analysis? a) Costs can be classified as variable or fixed. b) Profit for the period is constant. c) Volume or level of activity affects costs. d) The sales mix is constant.

Answer: B

Gossen Company is planning to sell 200,000 pliers for $4 per unit. The contribution margin ratio is 25%. If Gossen will break even at this level of sales, what are the fixed costs? a) $300,000. b) $160,000. c) $200,000. d) $100,000.

Answer: C

If a company has limited resources: a) there is no effect on sales mix. b) it will sell more of the product with the highest contribution margin. c) the sales mix is determined by computing contribution margin per unit of limited resource. d) contribution margin per unit is used in determining product mix.

Answer: C

If a company makes two products, R1 and R2, what is the formula for the weighted-average unit contribution margin? a) (Unit Contribution Margin of R1) + (Unit Contribution Margin of R2). b) (Unit Contribution Margin Ratio of R1) + (Unit Contribution Margin Ratio of R2). c) (Unit Contribution Margin of R1 x Sales Mix Percentage of R1) + (Unit Contribution Margin of R2 x Sales Mix Percentage of R2). d) The correct formula is not listed above.

Answer: C

Marten Corp. has a limited number of machine hours available to produce its three products A11, B22, and C33. Determine the order that these products should be produced given the following data: A11 B22 C33 Unit sales price $14 $36 $10 Unit variable costs 6 32 3 Machine hours per unit 5 4 2 a) A11, B22, C33 b) A11, C33, B22 c) C33, A11, B22 d) B22, C33, A11

Answer: C

Moss, Inc. has total fixed costs of $56,000 and a contribution margin ratio of 40%. Moss wants to generate net income totaling $35,000. How much will sales revenue be at Moss' target net income? a) $127,400. b) $57,400. c) $227,500. d) $140,000.

Answer: C

Palms, Inc. wants to sell enough palm trees to earn a profit of $20,000. If the unit sales price is $40, unit variable cost is $22, and total fixed costs are $120,400, how many trees must be sold to earn a profit of $20,000? a) 6,689. b) 8,911. c) 7,800. d) 312,000

Answer: C

Which statement describes a fixed cost? a) The unit costs stay the same at every activity level. b) The unit cost varies directly to the activity level. c) When activity declines, its cost per unit increases. d) It varies in total at every level of activity.

Answer: C

Winston Company's high and low level of activity last year was 60,000 units produced in April and 20,000 units produced in December. Machine maintenance costs were $52,000 in April and $20,000 in December. Using the high-low method, estimated total maintenance cost for a month in which 40,000 units will be produced is a) $34,667. b) not determinable with the information given. c) $36,000. d) $40,000.

Answer: C

Activity-based costing: a) is the initial phase of converting to a just-in-time operating environment. b) can be used only in a job order costing system. c) uses direct labor as its primary cost driver. d) is a two-stage overhead cost allocation system that identifies activity cost pools and cost drivers.

Answer: D

An activity that adds costs to the product but does not increase its market value is a a) value-added activity. b) cost-benefit activity. c) cost driver. d) non-value-added activity.

Answer: D

Croc Catcher calculates its contribution margin to be less than zero. Which statement is true? a) Its fixed costs are less than the variable cost per unit. b) Its profits are greater than its total costs. c) The company should sell more units. d) Its selling price is less than its variable costs.

Answer: D

If Company A has a higher proportion of fixed costs relative to variable costs than Company B: a) Company A has a higher break-even point than Company B. b) Company A is more sensitive to changes in sales than Company B. c) Company A has greater risk compared to Company B. d) All of the above are true.

Answer: D

The margin of safety ratio is: a) is not affected by operating leverage. b) lower for a company with lower operating leverage. c) is increased by a greater proportion of variable to fixed costs. d) higher for a company with lower operating leverage.

Answer: D

Under just-in-time processing a) raw materials are received just in time for use in production. b) subassembly parts are completed just in time for use in assembling finished goods. c) finished goods are completed just in time to be sold. d) all of the above.

Answer: D

What type of cost remains the same per unit at every level of activity? a) Mixed cost. b) Fixed cost. c) Semivariable cost. d) Variable cost.

Answer: D

Which of the following is the third step in applying an activity-based costing system? a) Identify the appropriate cost driver. b) Assign manufacturing overhead costs for each cost pool to the products. c) Identify and classify the major activities involved in the manufacture of each product. d) Compute the overhead rate for each cost driver.

Answer: D

Which of the following should not be included as part of the cost pool of machine setups? a) Salaries of those supervising machine operators B) Depreciation on machines and parts used for different setups c) Supplies needed in changing machines from one production setting to another d)Cost of the accounts payable supervisor's salary

Answer: D

Which statement is true about activity-based costing? a) It can be used only in a process cost system. b) It focuses on units of production. c) It uses a single basis ob allocation. d) It focuses on activities performed to produce a product.

Answer: D