ACCT 2521 Exam 2 Review

A firm operated at 80% of capacity for the past year, during which fixed costs were $210,000, variable costs were 65% of sales, and sales were $1,000,000. Net income was: A.$140,000 B.$150,000 C.$310,000 D.$200,000

A.$140,000 Sales $1,000,000 -variable cost $650,000 (65%) Contribution Margin $350,000 -fixed cost $210,000 Net Income $140,000

The Molis Company has the capacity to produce 15,000 haks each month. Current regular production and sales are 10,000 haks per month at a selling price of $15 each. Based on this level of activity, the following unit costs are incurred: Direct materials$5.00 Direct labor$3.00 Variable manuf. overhead$0.75 Fixed manuf. Overhead$1.50 Variable selling expense$0.25 Fixed administrative expense$1.00 The fixed costs, both manufacturing and administrative, are constant in total within the relevant range of 10,000 to 15,000 haks per month.The Molis Company has received a special order from a customer who wants to pay a reduced price of $10 per hak. There would be no selling expense in connection with this special order. And, this order would have no effect on the company's other sales.Suppose the special order is for 4,000 haks this month. If this offer is accepted by Molis, the company's operating income for the month will: A. increase by $6,000 B. decrease by $6,000 C. increase by $5,000 D. decrease by $5,00

C. increase by $5,000 Var. Costs DM $5.00 DL 3.00 VMOH .75 Inc. in Var cost 8.75 Sale Price $10.00 Incre. In cost 8.75 GP increase 1.25 x 4,000 = $5,000 increase in NI

Swashbuckler, Inc. produces buckets. The selling price is $20 per unit and the variable costs are $8 per bucket. Fixed costs per month are $4,800. If Swashbuckler sells 10 more units beyond breakeven, how much does net income increase as a result? A. $120 B. $400 C. $600 D. $12,000

A. $120 Sales | $ 20 -VC | $ 8 CM | $ 12 X # units | x 10 Total | $ 120 For every unit you sell after breakeven, net income goes up by your UCM

Landor Appliance Company makes and sells electric fans. Each fan regularly sells for $42. The following cost data per fan is based on a full capacity of 150,000 fans produced each period. Direct materials..................................................$ 8 Direct labor...................................................... 9 Manufacturing overhead (70% variable; 30% unavoidable fixed)..................... 10 A special order has been received by Landor for a sale of 25,000 fans to an overseas customer. The only selling costs that would be incurred on this order would be $4 per fan for shipping. Landor is now selling 120,000 fans through regular channels each period. What should Landor use as a minimum selling price per fan in negotiating a price for this special order? A. $28 B. $27 C. $31 D. $24

A. $28 Direct materials$8.00 Direct labor $9.00 Var. MOH $7.00 Shipping fee 4.00 Total $28.00 minimum selling price* * must cover all VC and all incremental costs associated with the special order. In this case, you would have shipping, so it must be added. If the special order was not going to include shipping, you would not include it. Thus relevant costs - only include costs that differ among the alternatives.

Forms, Inc. wants to sell a sufficient quantity of products to earn a profit of $40,000. If the unit sales price is $10, unit variable cost is $8, and total fixed costs are $80,000, how many units must be sold to earn income of $40,000? A. 60,000 units B. 40,000 units C. 15,000 units D. 600,000 units

A. 60,000 units Target sales (in UNITS) = (FC + TP) / UCM → ($80,000+$40,000) / 2 = 60,000 units UCM = UNIT SALES PRICE - UNIT VC, SO 10-8=2

Championship T-shirts has the following cost information at the expected production level of 20,000 shirts: Direct material $5 per shirt Direct labor 5 per shirt Variable Overhead 1 per shirt Fixed Overhead 1 per shirt Sales price $15 The company has the capacity to produce 25,000 t-shirts, but management believes that only 19,000 to 20,000 can be sold at the $15 price. A local soccer team has contacted Championship T-shirts requesting 1,000 specialty t-shirts. In addition to the costs noted above, the team wants their team logo monogrammed to the front. The estimated cost of the logo and monogramming is $2 per shirt. What is the minimum price that Championship should charge for these shirts? A. $10. B. $11. C. $13 D. $15

C. $13 DM (5) + DL (5) + VC (1) + Monogram (2) = $13

How much sales are required to earn a target income of $80,000 if total fixed costs are $100,000 and the contribution margin ratio is 40%? A. $300,000 B. $200,000 C. $450,000 D. $330,000

C. $450,000 Target sales (in dollars) = (FC + TP) / CM% → ($100,000+$80,000) / 40% (.40) = $450,000

The Cook Company has two divisions--Eastern and Western. The divisions have the following revenues and expenses: Name Eastern | Western Sales .................................$550,000 | $500,000 Variable costs .................... 275,000 | 200,000 Direct fixed costs ............... 180,000 | 150,000 Allocated corporate costs ..... 170,000 | 135,000 Net income (loss) ................ (75,000) | 15,000 The management of Cook is considering the elimination of the Eastern Division. If the Eastern Division were eliminated, the direct fixed costs associated with this division could be avoided. However, corporate costs would be the same. Given these data, the elimination of the Eastern Division would result in an increase or decrease in net income of: A. $90,000. B. $15,000. C. ($95,000). D. ($155,000).

C. ($95,000). Sales 0 VC 0 DFC 0 ACC 170,000 (170,000) -170,000 + 75,000 = -95,000

Gandy Company has 5,000 obsolete desk lamps that are carried in inventory at a manufacturing cost of $50,000. If the lamps are reworked for $20,000, they could be sold for $35,000. Alternatively, the lamps could be sold for $8,000 for scrap. In a decision model analyzing these alternatives, the sunk cost would be: A. $8,000 B. $15,000 C. $20,000 D. $50,000

D. $50,000 The sunk costs are the costs that were incurred in the past. The $50,000 carrying value of ending inventory.

Sarks Company has a contribution margin of $150,000 and a contribution margin ratio of 30%. How much are total variable costs? A. $45,000 B. $350,000 C. $105,000 D. $500,000

D. $500,000 Sales $500,000 -variable cost $350,000 (70%) Contribution Margin $150,000 (30%) or 150,000 / 3 = 50,000 = 10% 50,000 * 7 (70%) = 350,000 150,000 + 350,000 = 500,000

The Cook Company has two divisions--Eastern and Western. The divisions have the following revenues and expenses: Name Eastern | Western Sales .................................$550,000 | $500,000 Variable costs .................... 275,000 | 200,000 Direct fixed costs ............... 180,000 | 150,000 Allocated corporate costs ..... 170,000 | 135,000 Net income (loss) ................ (75,000) | 15,000 The management of Cook is considering the elimination of the Eastern Division. If the Eastern Division were eliminated, the direct fixed costs associated with this division could be avoided. However, corporate costs would be the same. Given these data, the elimination of the Eastern Division would result in a NEW company net income (loss) of: A. $90,000. B. $15,000. C. ($95,000). D. ($155,000).

D. ($155,000). Name Eastern | Western | New Sales .................................550,000 | 500,000 | 500,000 Variable costs ................. 275,000 | 200,000 | 200,000 Direct fixed costs ............... 180,000 | 150,000 | 150,000 Allo. corporate costs ... 170,000 | 135,000 | 305,000 Net income (loss) ........... (75,000) | 15,000 | (155,000)

A company has provided the following data: Sales.................3,000 units Sales price..........$70 per unit Variable cost.......$50 per unit Fixed cost...........$25,000 If the dollar contribution margin per unit is increased by 10%, total fixed cost is decreased by 20%, and all other factors remain the same, net income will: A. increase by $61,000 B. increase by $20,000 C. increase by $3,500 D. increase by $11,000

D. increase by $11,000 Old NI Sales 210,000 (3,000*$70) -Var. Costs (35%) 150,000 (3,000*$50 Cont. Margin 60,000 Fixed Costs 25,000 Net Income 35,000 New NI Selling price $70 Variable costs $50 Cont. margin $20 ↑ 10% → $22 * 3,000 units = $66,000 Fixed costs $25,000 ↓ 20%, so (25,000 x .80) = $20,000 Net income $46,000 So, NI went from $35,000 to $46,000 or increased $11,000