ACCT 2302 Exam #3

Ruth Company produces 1,000 units of a necessary component with the following costs: Direct Materials $34,000 Direct Labor 15,000 Variable Overhead 9,000 Fixed Overhead 10,000 Ruth Company could avoid $6,000 in fixed overhead costs if it acquires the components externally. If cost minimization is the major consideration and the company would prefer to buy the components, what is the maximum external price that Ruth Company would accept to acquire the 1,000 units externally? a) $58,000 b) $59,000 c) $62,000 d) $64,000

$64,000

A manager of a cost center is evaluated mainly on a) his or her ability to control costs. b) the amount of investment it takes to support the cost center. c) the amount of revenue that can be generated. d) the profit that the center generates.

a) his or her ability to control costs.

Chambers, Inc. uses flexible budgets. At normal capacity of 16,000 units, budgeted manufacturing overhead is: $64,000 variable and $180,000 fixed. If Chambers had actual overhead costs of $250,000 for 18,000 units produced, what is the difference between actual and budgeted costs? a) $2,000 favorable. b) $6,000 unfavorable. c) $8,000 favorable. d) $2,000 unfavorable.

a) $2,000 favorable.

The Wood Division of Fir Products, Inc. manufactures rubber moldings and sells them externally for $55. Its variable cost is $25 per unit, and its fixed cost per unit is $7. Fir's president wants the Wood Division to transfer 5,000 units to another company division at a price of $32. Assuming the Wood Division has available capacity of 5,000 units, the minimum transfer price it should accept is a) $25. b) $7. c) $32. d) $55.

a) $25

Stone Industries uses flexible budgets. At normal capacity of 16,000 units, budgeted manufacturing overhead is: $48,000 variable and $270,000 fixed. If Stone had actual overhead costs of $321,000 for 18,000 units produced, what is the difference between actual and budgeted costs? a) $3,000 favorable b) $3,000 unfavorable c) $9,000 unfavorable d) $12,000 favorable

a) $3,000 favorable

For June, Gold Corp. estimated sales revenue at $600,000. It pays sales commissions that are 4% of sales. The sales manager's salary is $285,000, estimated shipping expenses total 1% of sales, and miscellaneous selling expenses are $15,000. How much are budgeted selling expenses for the month of July if sales are expected to be $540,000? a) $327,000 b) $27,000 c) $42,000 d) $330,000

a) $327,000

Management of the Catering Company would like the Food Division to transfer 10,000 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 $35 and its fixed cost per unit is $10. If the Food Division has 10,000 units available capacity, what is the minimum transfer price the Food Division should accept? a) $35 b) $70 c) $45 d) $30

a) $35

Sydney, Inc. uses flexible budgets. At normal capacity of 16,000 units, budgeted manufacturing overhead is $128,000 variable and $360,000 fixed. If Sydney had actual overhead costs of $500,000 for 18,000 units produced, what is the difference between actual and budgeted costs? a) $4,000 favorable b) $12,000 unfavorable c) $4,000 unfavorable d) $16,000 favorable

a) $4,000 favorable

The Wood Division of Fir Products, Inc. manufactures rubber moldings and sells them externally for $55. Its variable cost is $25 per unit, and its fixed cost per unit is $7. Fir's president wants the Wood Division to transfer 5,000 units to another company division at a price of $32. Assuming the Wood Division does not have any available capacity, the minimum transfer price it should accept is a) $55. b) $25. c) $32. d) $7.

a) $55

Pippen Co. recorded operating data for its shoe division for the year. The company's desired return is 5%. Sales $1,000,000 Contribution margin 200,000 Total direct fixed costs 120,000 Average total operating assets 400,000 Which one of the following reflects the controllable margin for the year? a) $80,000 b) $60,000 c) 20% d) 50%

a) $80,000

If an investment center has a $90,000 controllable margin and $1,200,000 of sales, what average operating assets are needed to have a return on investment of 10%? a) $900,000 b) $210,000 c) $120,000 d) $1,200,000

a) $900,000

If a company plans to sell 48,000 units of product but sells 60,000, the most appropriate comparison of the cost data associated with the sales will be by a budget based on a) 60,000 units of activity. b) 54,000 units of activity. c) the original planned level of activity. d) 48,000 units of activity.

a) 60,000 units of activity.

Maggie Co. has variable manufacturing costs per unit of $20, and fixed manufacturing cost per unit is $10. Variable selling and administrative costs per unit are $5, while fixed selling and administrative costs per unit are $2. Maggie desires an ROI of $8 per unit. If Maggie Co. uses the variable-cost approach, what is its markup percentage? a) 80% b) 30% c) 50% d) 100%

a) 80%

Boland Manufacturing prepared a 2016 budget for 120,000 units of product. Actual production in 2016 was 130,000 units. To be most useful, what amounts should a performance report for this company compare? a) The actual results for 130,000 units with a new budget for 130,000 units. b) The actual results for 130,000 units with last year's actual results for 134,000 units. c) It doesn't matter. All of these choices are equally useful. d) The actual results for 130,000 units with the original budget for 120,000 units.

a) The actual results for 130,000 units with a new budget for 130,000 units.

What is budgetary control? a) The use of budgets in controlling operations b) The process of providing information on budget differences to lower level managers c) Another name for a flexible budget d) The degree to which the CFO controls the budget

a) The use of budgets in controlling operations

Assume that actual sales results exceed the planned results for the second quarter. This favorable difference is greater than the unfavorable difference reported for the first quarter sales. Which of the following statements about the sales budget report on June 30 is true? a) The year-to-date results will show a favorable difference. b) The year-to-date results will show an unfavorable difference. c) The sales report is not useful if it shows a favorable and unfavorable difference for the two quarters. d) The difference for the first quarter can be ignored.

a) The year-to-date results will show a favorable difference.

The maximum transfer price from the buying division's standpoint is the a) external purchase price. b) external purchase price + opportunity cost. c) total cost + opportunity cost. d) variable cost + opportunity cost.

a) external purchase price.

When a cost-based transfer price is used, the transfer price may be based on any of the following except a) fixed cost alone. b) full cost. c) variable cost alone. d) all of these may be used.

a) fixed cost alone.

A responsibility report should a) show only those costs that a manager can control. b) be prepared in accordance with generally accepted accounting principles. c) only show variable costs. d) only be prepared at the highest level of managerial responsibility.

a) show only those costs that a manager can control.

Costs incurred before the split-off point are a) sunk costs. b) opportunity costs. c) incremental costs. d) relevant costs.

a) sunk costs

Top management's reaction to a difference between budgeted and actual sales often depends on a) the materiality of the difference. b) whether management anticipated the difference. c) the personality of the top managers. d) whether the difference is favorable or unfavorable.

a) the materiality of the difference.

Assuming the selling division has available capacity, a negotiated transfer price should be within the range of a) variable cost per unit and the external purchase price. b) variable cost per unit and the opportunity cost. c) fixed cost per unit and the external purchase price. d) total cost per unit and the external purchase price.

a) variable cost per unit and the external purchase price.

The Dairy Division of Famous Foods, Inc. produces and sells milk to outside customers. The operation has the capacity to produce 200,000 gallons of milk a year. Last year's operating results were as follows: Sales (160,000) gallons $500,000 Variable costs 312,000 Contribution margin 188,000 Fixed costs 100,000 Net Income $ 88,000 Assume the Yogurt Division wants to purchase 30,000 gallons of milk from the Dairy Division. The minimum price that will increase the Dairy Division's profit is a) $0.55 per gallon. b) $1.95 per gallon. c) $2.50 per gallon. d) $1.18 per gallon.

b) $1.95 per gallon.

Papillon Co. has determined the following per unit amounts: Direct materials $30 Fixed selling and administrative $60 Direct labor 36 Variable overhead 24 Desired ROI 33 Variable selling and administrative 15 Fixed overhead 45 The cost base using the absorption-cost approach is a) $195. b) $135. c) $105. d) $90.

b) $135

Alfredo Co. has collected the following per unit data: Direct labor $8 Variable selling and admin. $3 Direct materials 5 Fixed overhead 1 Variable overhead 4 Fixed selling and admin. 7 The markup percentage is 120%. What is the markup amount under the variable-cost approach? a) $21.60 b) $24.00 c) $33.60 d) $20.40

b) $24.00

The Dairy Division of Famous Foods, Inc. produces and sells milk to outside customers. The operation has the capacity to produce 200,000 gallons of milk a year. Last year's operating results were as follows: Sales (160,000) gallons $500,000 Variable costs 312,000 Contribution margin 188,000 Fixed costs 100,000 Net Income $ 88,000 Assume the Dairy Division is operating at capacity. If the Yogurt Division wants to purchase 30,000 gallons of milk from the Dairy Division, what is the minimum price that will allow the Dairy Division to maintain its current net income? a) $0.55 per gallon b) $3.13 per gallon c) $1.18 per gallon d) $1.95 per gallon

b) $3.13 per gallon

A company's planned activity level for next year is expected to be 100,000 machine hours. At this level of activity, the company budgeted the following manufacturing overhead costs: Variable Fixed Indirect materials $140,000 Depreciation $60,000 Indirect labor 200,000 Taxes 10,000 Factory supplies 20,000 Supervision 50,000 A flexible budget prepared at the 80,000 machine hours level of activity would show total manufacturing overhead costs of a) $384,000. b) $408,000. c) $288,000. d) $360,000.

b) $408,000.

Nikoto Steel Co. budgeted manufacturing costs for 50,000 tons of steel are: Fixed manufacturing costs $50,000 per month Variable manufacturing costs $12.00 per ton of steel Nikoto produced 40,000 tons of steel during March. How much is the flexible budget for total manufacturing costs for March? a) $480,000 b) $530,000 c) $520,000 d) $650,000

b) $530,000

Smart Manufacturing budgeted costs for 50,000 linear feet of block are: Fixed manufacturing costs $24,000 per month Variable manufacturing costs $16.00 per linear foot Smart installed 40,000 linear feet of block during March. How much is budgeted total manufacturing costs in March? a) $800,000 b) $664,000 c) $640,000 d) $824,000

b) $664,000

Papillon Co. has determined the following per unit amounts: Direct materials $30 Fixed selling and administrative $60 Direct labor 36 Variable overhead 24 Desired ROI 33 Variable selling and administrative 15 Fixed overhead 45 The markup percentage using the variable-cost approach is a) 90%. b) 131%. c) 80%. d) 102%.

b) 131%

Papillon Co. has determined the following per unit amounts: Direct materials $30 Fixed selling and administrative $60 Direct labor 36 Variable overhead 24 Desired ROI 33 Variable selling and administrative 15 Fixed overhead 45 The markup percentage using the absorption-cost approach is a) 90%. b) 80%. c) 131%. d) 102%.

b) 80%

The area manager of the Red, White, and Brew Restaurants is considering two possible expansion alternatives. The required investments, expected controllable margins, and the ROIs of each are as follows: Project Investment Controllable Margin ROI Phoenix $120,000 $30,000 25% Chicago $540,000 $50,000 9.25% The Red, White, and Brew segment has currently $2,000,000 in invested capital and a controllable margin of $250,000. Which one of following projects will increase the Red, White, and Brew division's ROI? a) Both the Phoenix and Chicago options b) Only the Phoenix option c) Only the Chicago option d) Neither the Phoenix nor the Chicago options

b) Only the Phoenix option

All of the following statements are correct about controllable costs except a) all costs are controllable at some level of responsibility within a company. b) fewer costs are controllable as one moves up to each higher level of managerial responsibility. c) all costs are controllable by top management. d) costs incurred directly by a level of responsibility are controllable at that level.

b) fewer costs are controllable as one moves up to each higher level of managerial responsibility.

The flexible budget a) eliminates the need for a master budget. b) is a series of static budgets at different levels of activity. c) is prepared before the master budget. d) is relevant both within and outside the relevant range.

b) is a series of static budgets at different levels of activity.

Within the relevant range of activity, the behavior of total costs is assumed to be a) curvilinear and upward sloping. b) linear and upward sloping. c) linear to a point and then level off. d) linear and downward sloping.

b) linear and upward sloping.

Management by exception a) means that all differences will be investigated. b) means that material differences will be investigated. c) causes managers to be buried under voluminous paperwork. d) means that only unfavorable differences will be investigated.

b) means that material differences will be investigated.

A cost center a) is a responsibility center which generates profits and evaluates the investment cost of earning the profit. b) only incurs costs and does not directly generate revenues. c) incurs costs and generates revenues. d) is a responsibility center of a company which incurs losses.

b) only incurs costs and does not directly generate revenues.

Negotiated transfer pricing is not always used because of each of the following reasons except that a) negotiations often lead to different pricing strategies from division to division. b) opportunity cost is sometimes not determinable. c) market price information is sometimes not easily obtainable. d) a lack of trust between the negotiating divisions may lead to a breakdown in the negotiations.

b) opportunity cost is sometimes not determinable.

A static budget a) should not be prepared in a company. b) shows planned results at the original budgeted activity level. c) is changed only if the actual level of activity is different than originally budgeted. d) is useful in evaluating a manager's performance by comparing actual variable costs and planned variable costs.

b) shows planned results at the original budgeted activity level.

A major element in budgetary control is a) the valuation of inventories. b) the comparison of actual results with planned objectives. c) approval of the budget by the stockholders. d) the preparation of long-term plans.

b) the comparison of actual results with planned objectives.

The master budget of Windy Co. shows that the planned activity level for next year is expected to be 50,000 machine hours. At this level of activity, the following manufacturing overhead costs are expected: Indirect labor $720,000 Machine supplies 180,000 Indirect materials 210,000 Depreciation on factory building 150,000 Total manufacturing overhead $1,260,000 A flexible budget for a level of activity of 60,000 machine hours would show total manufacturing overhead costs of a) $1,512,000. b) $1,260,000. c) $1,482,000. d) $1,362,000.

c) $1,482,000.

Papillon Co. has determined the following per unit amounts: Direct materials $30 Fixed selling and administrative $60 Direct labor 36 Variable overhead 24 Desired ROI 33 Variable selling and administrative 15 Fixed overhead 45 The cost base using the variable-cost approach is a) $135. b) $90. c) $105. d) $195.

c) $105

In the Dichter Co., indirect labor is budgeted for $72,000 and factory supervision is budgeted for $24,000 at normal capacity of 160,000 direct labor hours. If 180,000 direct labor hours are worked, flexible budget total for these costs is a) $108,000. b) $96,000. c) $105,000. d) $99,000.

c) $105,000.

Grown Industries reported the following items for 2016: Income tax expense $ 60,000 Contribution margin 200,000 Controllable fixed costs 80,000 Interest expense 40,000 Total operating assets 650,000 How much is controllable margin? a) $60,000 b) $20,000 c) $120,000 d) $200,000

c) $120,000

A company's planned activity level for next year is expected to be 100,000 machine hours. At this level of activity, the company budgeted the following manufacturing overhead costs: Variable Fixed Indirect materials $90,000 Depreciation $37,500 Indirect labor 120,000 Taxes 7,500 Factory supplies 15,000 Supervision 30,000 A flexible budget prepared at the 90,000 machine hours level of activity would show total manufacturing overhead costs of a) $270,000. b) $202,500. c) $277,500. d) $225,000.

c) $277,500.

Shane Industries prepared a fixed budget of 60,000 direct labor hours, with estimated overhead costs of $300,000 for variable overhead and $90,000 for fixed overhead. Shane then prepared a flexible budget at 57,000 labor hours. How much is total overhead costs at this level of activity? a) $285,000 b) $370,500 c) $375,000 d) $390,000

c) $375,000

Griffin Corp. is evaluating its Piquette division, an investment center. The division has a $60,000 controllable margin and $400,000 of sales. How much will Griffin's average operating assets be when its return on investment is 10%? a) $400,000 b) $340,000 c) $600,000 d) $660,000

c) $600,000

Trails and Paths, Inc. had average operating assets of $6,000,000 and sales of $3,000,000 in 2016. If the controllable margin was $600,000, the ROI was a) 20% b) 40% c) 10% d) 50%

c) 10%

Which of the following is not a correct match? 1. Incurs costs 2. Generates revenue 3. Controls investment funds a) Investment Center 1, 2, 3 b) Cost Center 1 c) Profit Center 1, 2, 3 d) All are correct matches

c) Profit Center 1, 2, 3

Le Sud Retailers has a current return on investment of 10% and the company has established an 8% minimum rate of return for the division. The division manager has two investment projects available, for which the following estimates have been made: Project A - Annual controllable margin = $24,000, operating assets = $400,000 Project B - Annual controllable margin = $60,000, operating assets = $550,000 Which project should be funded? a) Both projects b) Project A c) Project B d) Neither project

c) Project B

A static budget is appropriate in evaluating a manager's performance if a) the company prepares reports on an annual basis. b) the company is a not-for-profit organization. c) actual activity closely approximates the master budget activity. d) actual activity is less than the master budget activity.

c) actual activity closely approximates the master budget activity.

The best measure of the performance of the manager of a profit center is the a) amount of contribution margin generated by the profit center. b) success in meeting budgeted goals for controllable costs. c) amount of controllable margin generated by the profit center. d) rate of return on investment.

c) amount of controllable margin generated by the profit center.

The comparison of differences between actual and planned results a) is done by the external auditors. b) appears on the company's external financial statements. c) appears on periodic budget reports. d) is usually done orally in departmental meetings.

c) appears on periodic budget reports.

In the absorption-cost approach, the markup percentage covers the a) desired ROI and fixed costs. b) selling and administrative expenses only. c) desired ROI and selling and administrative expenses. d) desired ROI only.

c) desired ROI and selling and administrative expenses.

Under the absorption-cost approach, all of the following are included in the cost base except a) direct materials. b) fixed manufacturing overhead. c) selling and administrative costs. d) variable manufacturing overhead.

c) selling and administrative costs.

The absorption-cost approach is used by most companies for all of the following reasons except that a) absorption cost provides the most defensible bases for justifying prices to interested parties. b) basing prices on only variable costs could encourage managers to set too low a price to boost sales. c) this approach is more consistent with cost-volume-profit analysis. d) absorption cost information is readily provided by a company's cost accounting system.

c) this approach is more consistent with cost-volume-profit analysis.

Under the variable-cost approach, the cost base includes all of the following except a) variable selling and administrative costs. b) variable manufacturing costs. c) total fixed costs. d) all of these answers are included.

c) total fixed costs.

In the Goblette Manufacturing Company, indirect labor is budgeted for $108,000 and factory supervision is budgeted for $36,000 at normal capacity of 160,000 direct labor hours. If 180,000 direct labor hours are worked, flexible budget total for these costs is: a) $148,500. b) $144,000. c) $162,000. d) $157,500.

d) $157,500.

Papillon Co. has determined the following per unit amounts: Direct materials $30 Fixed selling and administrative $60 Direct labor 36 Variable overhead 24 Desired ROI 33 Variable selling and administrative 15 Fixed overhead 45 The target selling price using the absorption-cost approach is a) $162. b) $371. c) $351. d) $243.

d) $243.

A company's planned activity level for next year is expected to be 100,000 machine hours. At this level of activity, the company budgeted the following manufacturing overhead costs: Variable Fixed Indirect materials $120,000 Depreciation $50,000 Indirect labor 160,000 Taxes 10,000 Factory supplies 20,000 Supervision 40,000 A flexible budget prepared at the 90,000 machine hours level of activity would show total manufacturing overhead costs of a) $270,000. b) $300,000. c) $360,000. d) $370,000.

d) $370,000.

Best Shingle's budgeted manufacturing costs for 50,000 squares of shingles are: Fixed manufacturing costs $12,000 Variable manufacturing costs $16.00 per square Best produced 40,000 squares of shingles during March. How much are budgeted total manufacturing costs in March? a) $640,000 b) $812,000 c) $800,000 d) $652,000

d) $652,000

Management of the Catering Company would like the Food Division to transfer 10,000 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 $35 and its fixed cost per unit is $10. If the Food Division is currently operating at full capacity, what is the minimum transfer price the Food Division should accept? a) $70 b) $45 c) $30 d) $35

d) $70

A department has budgeted monthly manufacturing overhead cost of $540,000 plus $3 per direct labor hour. If a flexible budget report reflects $1,044,000 for total budgeted manufacturing cost for the month, the actual level of activity achieved during the month was a) 348,000 direct labor hours. b) cannot be determined from the information provided. c) 528,000 direct labor hours. d) 168,000 direct labor hours.

d) 168,000 direct labor hours.

Maggie Co. has variable manufacturing costs per unit of $20, and fixed manufacturing cost per unit is $15. Variable selling and administrative costs per unit are $4, while fixed selling and administrative costs per unit are $6. Maggie desires an ROI of $7.50 per unit. If Maggie Co. uses the absorption-cost approach, what is its markup percentage? a) 25% b)8.33% c) 16.67% d) 50%

d) 50%

Which of the following would not be considered an aspect of budgetary control? a) It assists in the determination of differences between actual and planned results. b) It provides feedback value needed by management to see whether actual operations are on course. c) It assists management in controlling operations. d) It provides a guarantee for favorable results.

d) It provides a guarantee for favorable results.

What is the primary difference between a static budget and a flexible budget? a) The static budget is prepared only for units produced, while a flexible budget reflects the number of units sold. b) The static budget contains only fixed costs, while the flexible budget contains only variable costs. c) The static budget is constructed using input from only upper level management, while a flexible budget obtains input from all levels of management. d) The static budget is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels.

d) The static budget is prepared for a single level of activity, while a flexible budget is adjusted for different activity levels.

A profit center is a) referred to as a loss center when operations do not meet the company's objectives. b) a responsibility center that always reports a profit. c) evaluated by the rate of return earned on the investment allocated to the center. d) a responsibility center that incurs costs and generates revenues.

d) a responsibility center that incurs costs and generates revenues.

Incremental analysis would be appropriate for a) acceptance of an order at a special price. b) a retain or replace equipment decision. c) a sell or process further decision. d) all of these answers are correct.

d) all of these answers are correct.

In time-and-material pricing, a material loading charge covers all of the following except a) purchasing costs. b) related overhead. c) desired profit margin. d) all of these are covered.

d) all of these are covered.

In the formula for the minimum transfer price, opportunity cost is the __________ of the goods sold externally. a) selling price b) variable cost c) total cost d) contribution margin

d) contribution margin

The purpose of the departmental overhead cost report is to a) control indirect labor costs. b) control selling expense. c) determine the efficient use of materials. d) control overhead costs.

d) control overhead costs.

In the variable-cost approach, the markup percentage covers the a) fixed costs only. b) desired ROI and selling and administrative expenses. c) desired ROI only. d) desired ROI and fixed costs.

d) desired ROI and fixed costs.

The purpose of the sales budget report is to a) control selling expenses. b) control sales commissions. c) determine whether income objectives are being met. d) determine whether sales goals are being met.

d) determine whether sales goals are being met.

The cost-plus pricing approach's major advantage is a) it is simple to compute. b) it can be used to determine a product's target cost. c) it considers customer demand. d) that sales volume has no effect on per unit costs.

a) it is simple to compute.

Companies that sell products whose prices are set by market forces are called a) price takers. b) price givers. c) price leaders. d) price setters.

a) price takers.

Lock Inc. has collected the following data concerning one of its products: Unit sales price $145 Total sales 15,000 units Unit cost $115 Total investment $1,800,000 The markup percentage is: a) 22.59%. b) 25%. c) 26.09%. d) 20.69%.

c) 26.09%

Larry Cable Inc. plans to introduce a new product and is using the target cost approach. Projected sales revenue is $810,000 ($4.05 per unit) and target costs are $730,000. What is the desired profit per unit? a) $0.40 b) $2.03 c) $3.65 d) None of the above

a) $0.40

The Can Division of Fruit Products Inc. manufactures and sells tin cans externally for $0.60 per can. Its unit variable costs and unit fixed costs are $0.24 and $0.08, respectively. The Packaging Division wants to purchase 50,000 cans at $0.32 a can. Selling internally will save $0.02 a can. Assuming the Can Division is already operating at full capacity, what is the minimum transfer price it should accept? a) $0.58 b) $0.28 c) $0.34 d) $0.66

a) $0.58

Well Water Inc. wants to produce and sell a new flavored water. In order to penetrate the market, the product will have to sell at $2.00 per 12 oz. bottle. The following data has been collected: Annual sales 50,000 bottles Projected selling and administrative costs $8,000 Desired profit $70,000 The target cost per bottle is a) $0.60. b) $0.16. c) $0.40. d) $0.44.

a) $0.60.

Bond Co. is using the target cost approach on a new product. Information gathered so far reveals: Expected annual sales 400,000 units Desired profit per unit $0.35 Target cost $168,000 What is the target selling price per unit? a) $0.77 b) $0.35 c) $0.42 d) $0.70

a) $0.77

Carlos Consulting Inc. provides financial consulting and has collected the following data for the next year's budgeted activity for a lead consultant. Consultants' wages $90,000 Fringe benefits $22,500 Related overhead $17,500 Supply clerk's wages $18,000 Fringe benefits $4,000 Related overhead $20,000 Profit margin per hour $20 Profit margin on materials 15% Total estimated consulting hours 5,000 Total estimated material costs $168,000 A consulting job takes 20 hours of consulting time and $180 of materials. The client's bill would be a) $1,172. b) $772. c) $952. d) $1,100.

a) $1,172

The Lumber Division of Paul Bunyon Homes Inc. produces and sells lumber that can be sold to outside customers or within the company to the Construction Division. The following data have been gathered for the coming period: Lumber Division: Capacity 200,000 board feet Price per board foot $2.50 Variable production cost per bd. ft. $1.25 Variable selling cost per bd. ft. $0.50 Construction Division: Board feet needed 60,000 Outside price paid per bd. ft. $2.00 If the Lumber Division sells to the Construction Division, $0.35 per board foot can be saved in shipping costs. If current outside sales are 130,000 board feet, what is the minimum transfer price that the Lumber Division could accept? a) $1.40 b) $1.75 c) $2.50 d) $1.25

a) $1.40

Martin Company incurred the following costs for 70,000 units: Variable costs $420,000 Fixed costs 392,000 Martin has received a special order from a foreign company for 3,000 units. There is sufficient capacity to fill the order without jeopardizing regular sales. Filling the order will require spending an additional $6,300 for shipping. If Martin wants to earn $6,000 on the order, what should the unit price be? a) $10.10 b) $8.00 c) $15.70 d) $9.70

a) $10.10

Custom Shoes Co. has gathered the following information concerning one model of shoe: Variable manufacturing costs $40,000 Variable selling and administrative costs $20,000 Fixed manufacturing costs $160,000 Fixed selling and administrative costs $120,000 Investment $1,700,000 ROI 30% Planned production and sales 5,000 pairs What is the target selling price per pair of shoes? a) $170 b) $114 c) $142 d) $158

a) $170

Sala Co. is contemplating the replacement of an old machine with a new one. The following information has been gathered: Old Machine New Machine Price $300,000 $600,000 Accumulated Depreciation 90,000 -0- Remaining useful life 10 years -0- Useful life -0- 10 years Annual operating costs $240,000 $180,600 If the old machine is replaced, it can be sold for $24,000. The net advantage (disadvantage) of replacing the old machine is a) $18,000 b) $24,000 c) $(60,000) d) $(6,000)

a) $18,000

Bellingham Suit Co. has received a shipment of suits that cost $200 each. If the company uses cost-plus pricing and applies a markup percentage of 60%, what is the sales price per suit? a) $320 b) $500 c) $333 d) $280

a) $320

It costs Garner Company $12 of variable and $5 of fixed costs to produce one bathroom scale which normally sells for $35. A foreign wholesaler offers to purchase 3,000 scales at $15 each. Garner would incur special shipping costs of $1 per scale if the order were accepted. Garner has sufficient unused capacity to produce the 3,000 scales. If the special order is accepted, what will be the effect on net income? a) $6,000 increase b) $6,000 decrease c) $9,000 decrease d) $45,000 increase

a) $6,000 increase

Sandusky Inc. has the following costs when producing 100,000 units: Variable costs $600,000 Fixed costs 900,000 An outside supplier is interested in producing the item for Sandusky. If the item is produced outside, Sandusky could use the released production facilities to make another item that would generate $150,000 of net income. At what unit price would Sandusky accept the outside supplier's offer if Sandusky wanted to increase net income by $120,000? a) $6.30 b) $8.70 c) $7.50 d) $5.70

a) $6.30

Ortiz Co. produces 5,000 units of part A12E. The following costs were incurred for that level of production: Direct materials $ 55,000 Direct labor 160,000 Variable overhead 75,000 Fixed overhead 175,000 If Ortiz buys the part from an outside supplier, $40,000 of the fixed overhead is avoidable. What is the relevant cost per unit of part A12E? a) $66 b) $93 c) $58 d) $85

a) $66

Bell's Shop can make 1,000 units of a necessary component with the following costs: Direct Materials $24,000 Direct Labor 6,000 Variable Overhead 3,000 Fixed Overhead ? The company can purchase the 1,000 units externally for $39,000. The unavoidable fixed costs are $2,000 if the units are purchased externally. An analysis shows that at this external price, the company is indifferent between making or buying the part. What are the fixed overhead costs of making the component? a) $8,000 b) $6,000 c) $4,000 d) Cannot be determined

a) $8,000

Lonely Guy Repair Service recently performed repair services for a customer that totaled $400. Somehow the bill was lost and the company accountant was trying to recreate the bill from memory. This is what was remembered: Total bill $600 Labor profit margin $10 Materials profit margin 20% Total labor charges $390 Cost of materials used $120 Total hourly cost $22.50 How many hours were billed on the job? a) 12.0 b) 18.5 c) 17.3 d) 19.5

a) 12.0

Red Grass 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 1,000 Desired ROI per unit 300 Red Grass Company's markup percentage would be a) 30%. b) 40%. c) 120%. d) 60%

a) 30%

Which of the following is an irrelevant cost? a) A sunk cost b) An opportunity cost c) An avoidable cost d) An incremental cost

a) A sunk cost

Which is the first step in the management decision-making process? a) Identify the problem and assign responsibility. b) Make a decision. c) Determine and evaluate possible courses of action. d) Review results of the decision.

a) Identify the problem and assign responsibility.

Baden Company manufactures a product with a unit variable cost of $100 and a unit sales price of $176. Fixed manufacturing costs were $480,000 when 10,000 units were produced and sold. The company has a one-time opportunity to sell an additional 1,000 units at $140 each in a foreign market which would not affect its present sales. If the company has sufficient capacity to produce the additional units, acceptance of the special order would affect net income as follows: a) Income would increase by $40,000. b) Income would decrease by $8,000. c) Income would increase by $140,000. d) Income would increase by $8,000.

a) Income would increase by $40,000.

The Lumber Division of Paul Bunyon Homes Inc. produces and sells lumber that can be sold to outside customers or within the company to the Construction Division. The following data have been gathered for the coming period: Lumber Division: Capacity 200,000 board feet Price per board foot $2.50 Variable production cost per bd. ft. $1.25 Variable selling cost per bd. ft. $0.50 Construction Division: Board feet needed 60,000 Outside price paid per bd. ft. $2.00 If the Lumber Division sells to the Construction Division, $0.35 per board foot can be saved in shipping costs. If the Lumber Division has sufficient excess capacity to fulfill the Construction Division's needs, what will be the effect on the company's overall contribution margin? a) Increase by $36,000 b) Decrease by $30,000 c) Decrease by $24,000 d) Increase by $33,500

a) Increase by $36,000

In a make-or-buy decision, which costs can be considered relevant? a) Incremental variable costs, incremental fixed costs, and opportunity costs b) Unavoidable variable costs, incremental fixed costs, and sunk costs c) Incremental variable costs, unavoidable fixed costs, and opportunity costs d) Incremental variable costs, incremental fixed costs, and sunk costs

a) Incremental variable costs, incremental fixed costs, and opportunity costs

If a company must expand capacity to accept a special order, it is likely that there will be a) an increase in fixed costs. b) no increase in fixed costs. c) an increase in variable and fixed costs per unit. d) an increase in unit variable costs.

a) an increase in fixed costs.

In most cases, prices are set by the a) competitive market. b) largest competitor. c) selling company. d) customers.

a) competitive market.

A company has three product lines, one of which reflects the following results: Sales $215,000 Variable expenses 125,000 Contribution margin 90,000 Fixed expenses 130,000 Net loss $(40,000) If this product line is eliminated, 60% of the fixed expenses can be eliminated and the other 40% will be allocated to other product lines. If management decides to eliminate this product line, the company's net income will a) decrease by $12,000. b) increase by $40,000. c) increase by $12,000. d) decrease by $90,000.

a) decrease by $12,000.

Ortiz Co. produces 5,000 units of part A12E. The following costs were incurred for that level of production: Direct materials $ 55,000 Direct labor 160,000 Variable overhead 75,000 Fixed overhead 175,000 If Ortiz buys the part from an outside supplier, $40,000 of the fixed overhead is avoidable. If the outside supplier offers a unit price of $68, net income will increase (decrease) by a) $85,000. b) $(10,000). c) $125,000. d) $(50,000).

b) $(10,000)

The Selling Division's unit sales price is $25 and its unit variable cost is $15. Its capacity is 10,000 units. Fixed costs per unit are $6. Current outside sales are 8,000 units. What is the Selling Division's opportunity cost per unit from selling 2,000 units to the Purchasing Division? Entry field with correct answer a) $4 b) $0 c) $10 d) $25

b) $0

Custom Shoes Co. has gathered the following information concerning one model of shoe: Variable manufacturing costs $40,000 Variable selling and administrative costs $20,000 Fixed manufacturing costs $160,000 Fixed selling and administrative costs $120,000 Investment $1,700,000 ROI 30% Planned production and sales 5,000 pairs What is the desired ROI per pair of shoes? a) $168 b) $102 c) $170 d) $68

b) $102

Abel Company produces three versions of baseball bats: wood, aluminum, and hard rubber. A condensed segmented income statement for a recent period follows: Wood Aluminum Hard Rubber Total Sales $500,000 $ 200,000 $65,000 $765,000 Variable expenses 325,000 140,000 58,000 $523,000 Contribution margin 175,000 60,000 7,000 242,000 Fixed expenses 75,000 35,000 22,000 132,000 Net income (loss) $100,000 $25,000 $(15,000) $110,000 Assume none of the fixed expenses for the hard rubber line are avoidable. What will be total net income if the line is dropped? a) $140,000 b) $103,000 c) $105,000 d) $125,000

b) $103,000

Paul Bunyon Lumber Co. produces several products that can be sold at the split-off point or processed further and then sold. The following results are from a recent period: Product Sales Value Additional Sales Value after at Split-Off Variable Costs Further Processing Green lumber $159,600 $24,000 $178,000 Rough lumber 124,000 28,200 173,600 Sawdust 102,000 19,600 130,000 The additional profit that would result from processing rough lumber further is a) $95,800. b) $21,400. c) $49,600. d) $145,400.

b) $21,400

Tex's Manufacturing Company can make 100 units of a necessary component part with the following costs: Direct Materials $120,000 Direct Labor 25,000 Variable Overhead 45,000 Fixed Overhead 30,000 If Tex's Manufacturing Company purchases the component externally, $20,000 of the fixed costs can be avoided. At what external price for the 100 units is the company indifferent between making or buying? a) $200,000 b) $210,000 c) $220,000 d) $190,000

b) $210,000

Chung Inc. is considering the replacement of a piece of equipment with a newer model. The following data has been collected: Old Equipment New Equipment Purchase price $225,000 $375,000 Accumulated depreciation 90,000 - 0 - Annual operating costs 300,000 240,000 If the old equipment is replaced now, it can be sold for $60,000. Both the old equipment's remaining useful life and the new equipment's useful life is 5 years. What is the net cost of the new equipment? a) $375,000 b) $315,000 c) $150,000 d) $75,000

b) $315,000

Carlos Consulting Inc. provides financial consulting and has collected the following data for the next year's budgeted activity for a lead consultant. Consultants' wages $90,000 Fringe benefits $22,500 Related overhead $17,500 Supply clerk's wages $18,000 Fringe benefits $4,000 Related overhead $20,000 Profit margin per hour $20 Profit margin on materials 15% Total estimated consulting hours 5,000 Total estimated material costs $168,000 The labor rate per hour is a) $41.50. b) $46.00. c) $26.00. d) $42.50.

b) $46.00.

Clemente Inc. incurs the following costs to produce 10,000 units of a subcomponent: Direct materials $8,400 Direct labor 11,250 Variable overhead 12,600 Fixed overhead 16,200 An outside supplier has offered to sell Clemente the subcomponent for $2.85 a unit. If Clemente could avoid $3,000 of fixed overhead by accepting the offer, net income would increase (decrease) by a) $(3,150). b) $6,750. c) $750. d) $(5,850).

b) $6,750

The following data is available for Wheels 'N Spokes Repair Shop for 2016: Repair technicians' wages $360,000 Fringe benefits 80,000 Overhead 60,000 Total $500,000 The desired profit margin is $40 per labor hour. The material loading charge is 40% of invoice cost. It is estimated that 5,000 labor hours will be worked in 2016. In March 2016, Wheels 'N Spokes repairs a bicycle that takes two hours to repair and uses parts of $240. The bill for this repair would be a) $520. b) $616. c) $560. d) $592.

b) $616.

Brislin Products has a new product going on the market next year. The following data are projections for production and sales: Variable costs $250,000 Fixed costs $450,000 ROI 14% Investment $2,000,000 Sales 200,000 units What is the markup percentage? a) 112% b) 40% c) 20% d) 62%

b) 40%

Pratt Company has old inventory on hand that cost $15,000. Its scrap value is $20,000. The inventory could be sold for $50,000 if manufactured further at an additional cost of $15,000. What should Pratt do? a) Sell the inventory for $20,000 scrap value b) Manufacture further and sell it for $50,000 c) Hold the inventory at its $15,000 cost d) Dispose of the inventory to avoid any further decline in value

b) Manufacture further and sell it for $50,000

Marcus Company gathered the following data about the three products that it produces: Product Present Estimated Additional Estimated Sales Sales Value Processing Costs if Processed Further A $12,000 $8,000 $21,000 B 14,000 5,000 18,000 C 11,000 3,000 16,000 Which of the products should not be processed further? a) Products A and C b) Product B c) Product C d) Product A

b) Product B

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? a) Revenues b) Variable costs c) Fixed costs d) Variable costs and fixed costs

b) Variable costs

When deciding whether or not to replace old equipment with new equipment, the overriding consideration is the a) salvage value of the old equipment. b) difference between future cost savings and the new equipment's costs. c) book value of the old equipment. d) cost of replacing the old equipment.

b) difference between future cost savings and the new equipment's costs.

The decision rule on whether to sell or process further a) is process further as long as total revenue exceeds present revenues. b) is process further if incremental revenue from such processing exceeds the incremental processing costs. c) is process further if incremental revenue from such processing exceeds incremental fixed costs. d) varies from situation to situation.

b) is process further if incremental revenue from such processing exceeds the incremental processing costs.

Costs that will differ between alternatives and influence the outcome of a decision are a) sunk costs. b) relevant costs. c) product costs. d) unavoidable costs.

b) relavant costs.

Assume the Thread Division has excess capacity. The Garment Division wants the Thread Division to furnish them additional spools of thread that could be made using the excess capacity. In a negotiated transfer price, the Thread Division should accept as a minimum any transfer price that exceeds the a) total cost of producing spools for outside sales. b) variable costs of producing the additional spools for the Garment Division. c) contribution margin and outside spool sales. d) foregone contribution margin on outside spool sales.

b) variable costs of producing the additional spools for the Garment Division.

The Can Division of Fruit Products Inc. manufactures and sells tin cans externally for $0.60 per can. Its unit variable costs and unit fixed costs are $0.24 and $0.08, respectively. The Packaging Division wants to purchase 50,000 cans at $0.32 a can. Selling internally will save $0.02 a can. Assuming the Can Division has sufficient capacity, what is the minimum transfer price it should accept? a) $0.30 b) $0.32 c) $0.22 d) $0.24

c) $0.22

Red Grass 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 1,000 Desired ROI per unit 300 The target selling price for this television is a) $1,050. b) $1,000. c) $1,300. d) $550.

c) $1,300

Abel Company produces three versions of baseball bats: wood, aluminum, and hard rubber. A condensed segmented income statement for a recent period follows: Wood Aluminum Hard Rubber Total Sales $500,000 $ 200,000 $65,000 $765,000 Variable expenses 325,000 140,000 58,000 $523,000 Contribution margin 175,000 60,000 7,000 242,000 Fixed expenses 75,000 35,000 22,000 132,000 Net income (loss) $100,000 $25,000 $(15,000) $110,000 Assume all of the fixed expenses for the hard rubber line are avoidable. What will be total net income if the line is dropped? a) $105,000 b) $140,000 c) $125,000 d) $103,000

c) $125,000

Chung Inc. is considering the replacement of a piece of equipment with a newer model. The following data has been collected: Old Equipment New Equipment Purchase price $225,000 $375,000 Accumulated depreciation 90,000 - 0 - Annual operating costs 300,000 240,000 If the old equipment is replaced now, it can be sold for $60,000. Both the old equipment's remaining useful life and the new equipment's useful life is 5 years. Which of the following amounts is irrelevant to the replacement decision? a) $60,000 b) $375,000 c) $135,000 d) $315,000

c) $135,000

Paul Bunyon Lumber Co. produces several products that can be sold at the split-off point or processed further and then sold. The following results are from a recent period: Product Sales Value Additional Sales Value after at Split-Off Variable Costs Further Processing Green lumber $159,600 $24,000 $178,000 Rough lumber 124,000 28,200 173,600 Sawdust 102,000 19,600 130,000 What is the increase in profit if the appropriate products are processed further? a) $255,800 b) $96,000 c) $29,800 d) $24,200

c) $29,800

Clemente Inc. incurs the following costs to produce 10,000 units of a subcomponent: Direct materials $8,400 Direct labor 11,250 Variable overhead 12,600 Fixed overhead 16,200 An outside supplier has offered to sell Clemente the subcomponent for $2.85 a unit. If Clemente accepts the offer, by how much will net income increase (decrease)? a) $(8,850) b) $(2,850) c) $3,750 d) $19,950

c) $3,750

Billings Company has the following costs when producing 100,000 units: Variable costs $600,000 Fixed costs 900,000 An outside supplier has offered to make the item at $4.50 a unit. If the decision is made to purchase the item outside, current production facilities could be leased to another company for $165,000. The net increase (decrease) in the net income of accepting the supplier's offer is a) $(15,000). b) $285,000. c) $315,000. d) $840,000.

c) $315,000

Alvarez Company is considering the following alternatives: Alternative A Alternative B Revenues $50,000 $60,000 Variable costs 30,000 30,000 Fixed costs 10,000 16,000 What is the incremental profit? a) $0 b) $6,000 c) $4,000 d) $10,000

c) $4,000

Brislin Products has a new product going on the market next year. The following data are projections for production and sales: Variable costs $250,000 Fixed costs $450,000 ROI 14% Investment $2,000,000 Sales 200,000 units What is the target selling price per unit? a) $3.50 b) $3.65 c) $4.90 d) $2.65

c) $4.90

Sala Co. is contemplating the replacement of an old machine with a new one. The following information has been gathered: Old Machine New Machine Price $300,000 $600,000 Accumulated Depreciation 90,000 -0- Remaining useful life 10 years -0- Useful life -0- 10 years Annual operating costs $240,000 $180,600 If the old machine is replaced, it can be sold for $24,000. Which of the following amounts is relevant to the replacement decision? a) $90,000 b) $300,000 c) $59,400 d) $210,000

c) $59,400

Clemente Inc. incurs the following costs to produce 10,000 units of a subcomponent: Direct materials $8,400 Direct labor 11,250 Variable overhead 12,600 Fixed overhead 16,200 An outside supplier has offered to sell Clemente the subcomponent for $2.85 a unit. If Clemente accepts the offer, it could use the production capacity to produce another product that would generate additional income of $3,600. The increase (decrease) in net income from accepting the offer would be a) $150. b) $(3,600). c) $7,350. d) $(150).

c) $7,350

The following data is available for Wheels 'N Spokes Repair Shop for 2016: Repair technicians' wages $360,000 Fringe benefits 80,000 Overhead 60,000 Total $500,000 The desired profit margin is $40 per labor hour. The material loading charge is 40% of invoice cost. It is estimated that 5,000 labor hours will be worked in 2016. In January 2016, Wheels 'N Spokes repairs a bicycle that uses parts of $180. Its material loading charge on this repair would be a) $252. b) $108. c) $72. d) $180

c) $72

Carlos Consulting Inc. provides financial consulting and has collected the following data for the next year's budgeted activity for a lead consultant. Consultants' wages $90,000 Fringe benefits $22,500 Related overhead $17,500 Supply clerk's wages $18,000 Fringe benefits $4,000 Related overhead $20,000 Profit margin per hour $20 Profit margin on materials 15% Total estimated consulting hours 5,000 Total estimated material costs $168,000 The material loading charge is a) 55%. b) 15%. c) 40%. d) 25%.

c) 40%

Brislin Products has a new product going on the market next year. The following data are projections for production and sales: Variable costs $250,000 Fixed costs $450,000 ROI 14% Investment $2,000,000 Sales 200,000 units What would the markup percentage be if only 150,000 units were sold and Brislin still wanted to earn the desired ROI? a) 32.95% b) 53.33% c) 44.00% d) 35.0%

c) 44.00%

Jaycee Auto Repair has the following budgeted costs for the next year: Time Charges Material Charges Shop employees' wages and benefits $120,000 $- Parts manager's salary and benefits - 45,000 Office employee's salary and benefits 30,000 15,000 Other overhead 15,000 40,000 Invoice cost of parts and materials - 400,000 Total budgeted costs $165,000 $500,000 The material loading charge to be used next year assuming a 40% markup on material cost is a) 40%. b) 80%. c) 65%. d) 20%.

c) 65%

Lonely Guy Repair Service recently performed repair services for a customer that totaled $400. Somehow the bill was lost and the company accountant was trying to recreate the bill from memory. This is what was remembered: Total bill $600 Labor profit margin $10 Materials profit margin 20% Total labor charges $390 Cost of materials used $120 Total hourly cost $22.50 What was the material loading charge? a) 43.8% b) 61.3% c) 75% d) 37.5%

c) 75%

Tex's Manufacturing Company can make 100 units of a necessary component part with the following costs: Direct Materials $120,000 Direct Labor 25,000 Variable Overhead 45,000 Fixed Overhead 30,000 If Tex's Manufacturing Company can purchase the component externally for $190,000 and only $5,000 of the fixed costs can be avoided, what is the correct make-or-buy decision? a) Make and save $15,000 b) Buy and save $15,000 c) Buy and save $5,000 d) Make and save $5,000

c) Buy and save $5,000

Which two methods are used most often when establishing a transfer price? a) Negotiated transfer pricing and cost-based transfer pricing b) Cost-based transfer pricing and standard-based pricing c) Cost-based transfer pricing and market-based transfer pricing d) Negotiated transfer pricing and market-based transfer pricing

c) Cost-based transfer pricing and market-based transfer pricing

Janssen Company has old inventory on hand that cost $24,000. Its scrap value is $32,000. The inventory could be sold for $80,000 if manufactured further at an additional cost of $24,000. What should Janssen do? a) Sell the inventory for $32,000 scrap value b) Dispose of the inventory to avoid any further decline in value c) Manufacture further and sell it for $80,000 d) Hold the inventory at its $24,000 cost

c) Manufacture further and sell it for $80,000

What will most likely occur if a company eliminates an unprofitable segment when a portion of fixed costs are unavoidable? a) Net income will increase. b) The company's variable costs will increase. c) Net income will decrease. d) All expenses of the eliminated segment will be eliminated.

c) Net income will decrease.

Paul Bunyon Lumber Co. produces several products that can be sold at the split-off point or processed further and then sold. The following results are from a recent period: Product Sales Value Additional Sales Value after at Split-Off Variable Costs Further Processing Green lumber $159,600 $24,000 $178,000 Rough lumber 124,000 28,200 173,600 Sawdust 102,000 19,600 130,000 Which products should be processed further? a) All three products b) Green lumber and sawdust c) Rough lumber and sawdust d) Green lumber and rough lumber

c) Rough lumber and sawdust

NF Toy Company is unsure of whether to sell its product assembled or unassembled. The unit cost of the unassembled product is $24 and NF Toy would sell it for $52. The cost to assemble the product is estimated at $17 per unit and the company believes the market would support a price of $68 on the assembled unit. What decision should NF Toy make? a) Sell before assembly, the company will be better off by $16 per unit. b) Process further, the company will be better off by $23 per unit. c) Sell before assembly, the company will be better off by $1 per unit. d) Process further, the company will be better off by $11 per unit.

c) Sell before assembly, the company will be better off by $1 per unit.

A company has a process that results in 24,000 pounds of Product A that can be sold for $8 per pound. An alternative would be to process Product A further at a cost of $160,000 and then sell it for $14 per pound. Should management sell Product A now or should Product A be processed further and then sold? What is the effect of the action? a) Process further, the company will be better off by $16,000. b) Sell now, the company will be better off by $160,000. c) Sell now, the company will be better off by $16,000. d) Process further, the company will be better off by $144,000.

c) Sell now, the company will be better off by $16,000.

Prices are set by the competitive market when a) there are no other producers capable of manufacturing a similar item. b) a company can effectively differentiate its product from others. c) a product is not easily distinguished from competing products. d) the product is specially made for a customer.

c) a product is not easily distinguished from competing products.

A company is considering eliminating a product line. The fixed costs currently allocated to the product line will be allocated to other product lines upon discontinuance. If the product line is discontinued, a) total net income will decrease by the amount of the product line's fixed costs. b) total net income will increase by the amount of the product line's fixed costs. c) the contribution margin of the product line will indicate the net income increase or decrease. d) the company's total fixed costs will decrease.

c) the contribution margin of the product line will indicate the net income increase or decrease.

Chung Inc. is considering the replacement of a piece of equipment with a newer model. The following data has been collected: Old Equipment New Equipment Purchase price $225,000 $375,000 Accumulated depreciation 90,000 - 0 - Annual operating costs 300,000 240,000 If the old equipment is replaced now, it can be sold for $60,000. Both the old equipment's remaining useful life and the new equipment's useful life is 5 years. The net advantage (disadvantage) of replacing the old equipment with the new equipment is a) $90,000 b) $(75,000) c) $60,000 d) $(15,000)

d) $(15,000)

The Selling Division's unit sales price is $25 and its unit variable cost is $15. Its capacity is 10,000 units. Fixed costs per unit are $6. Current outside sales are 8,000 units. What is the Selling Division's opportunity cost per unit from selling 3,000 units to the Purchasing Division? Entry field with correct answer a) $0 b) $25 c) $4 d) $10

d) $10

The following data is available for Wheels 'N Spokes Repair Shop for 2016: Repair technicians' wages $360,000 Fringe benefits 80,000 Overhead 60,000 Total $500,000 The desired profit margin is $40 per labor hour. The material loading charge is 40% of invoice cost. It is estimated that 5,000 labor hours will be worked in 2016. Wheels 'N Spokes' labor charge per hour in 2016 would be a) $100. b) $112. c) $128. d) $140.

d) $140

The following per unit information is available for a new product of Red Ribbon Company: Desired ROI $ 20 Fixed cost 40 Variable cost 60 Total cost 100 Selling price 120 The target selling price for this product is a) $125. b) $105. c) $80. d) $155.

d) $155

A company contemplating the acceptance of a special order has the following unit cost behavior, based on 10,000 units: Direct materials $ 4 Direct labor 10 Variable overhead 8 Fixed overhead 6 A foreign company wants to purchase 2,000 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 $4,000 in order to stamp the foreign company's name on the product. The incremental income (loss) from accepting the order is a) $(6,000). b) $(2,000). c) $6,000. d) $2,000.

d) $2,000

The Lumber Division of Paul Bunyon Homes Inc. produces and sells lumber that can be sold to outside customers or within the company to the Construction Division. The following data have been gathered for the coming period: Lumber Division: Capacity 200,000 board feet Price per board foot $2.50 Variable production cost per bd. ft. $1.25 Variable selling cost per bd. ft. $0.50 Construction Division: Board feet needed 60,000 Outside price paid per bd. ft. $2.00 If the Lumber Division sells to the Construction Division, $0.35 per board foot can be saved in shipping costs. If current outside sales are 150,000 board feet, what is the minimum transfer price that the Lumber Division could accept? a) $2.00 b) $1.65 c) $1.40 d) $2.15

d) $2.15

Sala Co. is contemplating the replacement of an old machine with a new one. The following information has been gathered: Old Machine New Machine Price $300,000 $600,000 Accumulated Depreciation 90,000 -0- Remaining useful life 10 years -0- Useful life -0- 10 years Annual operating costs $240,000 $180,600 If the old machine is replaced, it can be sold for $24,000. Which of the following amounts is a sunk cost? a) $240,000 b) $180,600 c) $600,000 d) $210,000

d) $210,000

Jaycee Auto Repair has the following budgeted costs for the next year: Time Charges Material Charges Shop employees' wages and benefits $120,000 $- Parts manager's salary and benefits - 45,000 Office employee's salary and benefits 30,000 15,000 Other overhead 15,000 40,000 Invoice cost of parts and materials - 400,000 Total budgeted costs $165,000 $500,000 The labor rate to be used next year assuming 7,500 hours of repair time and a profit margin of $25 per labor hour is a) $22. b) $43. c) $41. d) $47.

d) $47

Ruth Company produces 1,000 units of a necessary component with the following costs: Direct Materials $27,000 Direct Labor 16,000 Variable Overhead 4,000 Fixed Overhead 7,000 None of Ruth Company's fixed overhead costs can be reduced, but another product could be made that would increase profit contribution by $8,000 if the components were acquired externally. If cost minimization is the major consideration and the company would prefer to buy the components, what is the maximum external price that Ruth Company would be willing to accept to acquire the 1,000 units externally? a) $46,000 b) $51,000 c) $58,000 d) $55,000

d) $55,000

North Division has the following information: Sales $1,200,000 Variable expenses 640,000 Fixed expenses 620,000 If this division is eliminated, the fixed expenses will be allocated to the company's other divisions. What is the incremental effect on net income if the division is dropped? a) $580,000 increase b) $620,000 decrease c) $60,000 increase d) $560,000 decrease

d) $560,000 decrease

Custom Shoes Co. has gathered the following information concerning one model of shoe: Variable manufacturing costs $40,000 Variable selling and administrative costs $20,000 Fixed manufacturing costs $160,000 Fixed selling and administrative costs $120,000 Investment $1,700,000 ROI 30% Planned production and sales 5,000 pairs What is the total cost per pair of shoes? a) $168 b) $40 c) $96 d) $68

d) $68

Jaycee Auto Repair has the following budgeted costs for the next year: Time Charges Material Charges Shop employees' wages and benefits $120,000 $- Parts manager's salary and benefits - 45,000 Office employee's salary and benefits 30,000 15,000 Other overhead 15,000 40,000 Invoice cost of parts and materials - 400,000 Total budgeted costs $165,000 $500,000 Jaycee Auto Repair budgets 7,500 hours of repair time and it desires a profit margin of $25 per hour of labor. A markup on material cost is assumed to be 40%. Jaycee estimates that the repairs to a Cadillac Escalade damaged in an accident will take 45 hours of labor and $3,500 in parts and materials. The total cost of the repairs is a) $7,015. b) $5,890. c) $5,775. d) $7,890.

d) $7,890.

Martin Company incurred the following costs for 70,000 units: Variable costs $420,000 Fixed costs 392,000 Martin has received a special order from a foreign company for 3,000 units. There is sufficient capacity to fill the order without jeopardizing regular sales. Filling the order will require spending an additional $6,300 for shipping. If Martin wants to break even on the order, what should the unit sales price be? a) $11.60 b) $13.70 c) $6.00 d) $8.10

d) $8.10

Custom Shoes Co. has gathered the following information concerning one model of shoe: Variable manufacturing costs $40,000 Variable selling and administrative costs $20,000 Fixed manufacturing costs $160,000 Fixed selling and administrative costs $120,000 Investment $1,700,000 ROI 30% Planned production and sales 5,000 pairs What is the markup percentage? a) 182% b) 850% c) 255% d) 150%

d) 150%

The following per unit information is available for a new product of Red Ribbon Company: Desired ROI $ 20 Fixed cost 40 Variable cost 60 Total cost 100 Selling price 120 Red Ribbon Company's markup percentage would be a) 33%. b) 50%. c) 17%. d) 20%.

d) 20%

Lock Inc. has collected the following data concerning one of its products: Unit sales price $145 Total sales 15,000 units Unit cost $115 Total investment $1,800,000 The ROI percentage is: a) 30%. b) 20%. c) 35%. d) 25%.

d) 25%

Truckel, Inc. currently manufactures a wicket as its main product. The costs per unit are as follows: Direct materials and direct labor $11 Variable overhead 5 Fixed overhead 8 Total $24 Saran Company has contacted Truckel with an offer to sell it 5,000 of the wickets for $18 each. If Truckel makes the wickets, variable costs are $16 per unit. Fixed costs are $8 per unit; however, $5 per unit is unavoidable. Should Truckel make or buy the wickets? a) Make; savings = $5,000 b) Make; savings = $10,000 c) Buy; savings = $15,000 d) Buy; savings = $5,000

d) Buy; savings = $5,000

Which of the following organizations would most likely not use time-and-material pricing? a) Automobile repair company b) Engineering firm c) Public accounting firm d) Custom furniture manufacturer

d) Custom furniture manufacturer

Which of the following will always be a relevant cost? a) Fixed cost b) Sunk cost c) Variable cost d) Opportunity cost

d) Opportunity cost

Which statement is true concerning the decision rule on whether to make or buy? a) The company should buy assuming no additional fixed costs are incurred. b) The company should buy if the incremental revenue exceeds the incremental costs. c) The company should buy as long as total revenue exceeds present revenues. d) The company should buy if the cost of buying is less than the cost of producing.

d) The company should buy if the cost of buying is less than the cost of producing.

Miley, Inc. has excess capacity. Under what situations should the company accept a special order for less than the current selling price? a) When additional fixed costs must be incurred to accommodate the order b) Never c) When the company thinks it can use the cheaper materials without the customer's knowledge d) When incremental revenues exceed incremental costs

d) When incremental revenues exceed incremental costs

In incremental analysis, a) only fixed costs are relevant. b) only variable costs are relevant. c) costs are not relevant if they change between alternatives. d) all costs are relevant if they change between alternatives.

d) all costs are relevant if they change between alternatives.

Factors that can affect pricing decisions include all of the following except a) cost considerations. b) environment. c) pricing objectives. d) all of these are factors.

d) all of these are factors.

The first step for time-and-material pricing is to calculate the a) charge for obtaining materials. b) charges for a particular job. c) charge for holding materials. d) labor charge per hour.

d) labor charge per hour.

The overall objective in the determination of a transfer price is to a) minimize the cost to the purchasing division. b) minimize the return of the selling division. c) maximize the return of the selling division. d) maximize the return to the whole company.

d) maximize the return to the whole company.

In the minimum transfer price formula, variable cost is defined as the variable cost of a) units not sold. b) all units sold, both internally and externally. c) units sold externally. d) units sold internally.

d) units sold internally.