ACCT 781 - Final (Exam II Review)

Stooge Enterprises manufactures ceiling fans that normally sell for $93 each. There are 320 defective fans in inventory, which cost $58 each to manufacture. These defective units can be sold as is for $21 each, or they can be processed further for a cost of $40 per unit each and then sold for the normal selling price. Stooge Enterprises would be better off by a $10,240 net increase in operating income if the ceiling fans are repaired. $23,040 net increase in operating income if the ceiling fans are repaired. $23,040 net increase in operating income if the ceiling fans are sold as is. $10,240 net increase in operating income if the ceiling fans are sold as is.

$10,240 net increase in operating income if the ceiling fans are repaired.

Divine Foods produces a pie that sells for $16 per unit. Variable costs are $8 per unit and fixed costs are $5,000 per month. If Divine wants to generate operating income of $11,000, compute the margin of safety in dollars. $32,000 $22,000 $10,000 $625

$22,000

Young Corporation is designing a voice-activated control for electronic devices. Its market analysis indicates that the planned device can be sold at a price of $150 per unit. The company has determined that a 30% profit on the product will allow it to recover the costs of development and production, and provide an adequate return on capital. Under these circumstances, the target cost of the remote is: $105 $45 $60 The difference between the $105 and the estimated actual cost of producing the product.

$105

Speedy Runner makes running shoes and they have gathered the following data for the month of October: Cash on 10/1 $15,300 Expected cash collections 435,000 Direct materials cash payments 80,000 Direct labor cash payments 32,000 MOH cash payments 25,000 Operating cash payments 110,000 Capital expenditure cash payments 200,000 Speedy Runner requires an ending cash balance of at least $12,000 and can borrow from a line of credit in $1,000 increments. What is the ending cash balance for October? $12,300 $3,300 $9,000 $12,000

$12,300

Nadal Company produces and sells 20,000 cans of tennis balls at a selling price of $10 each. The product has variable costs of $4 per unit and fixed costs of $50,000. The company currently earns a total contribution margin of: $50,000 $70,000 $120,000 $200,000

$120,000

Distribution Corporation collects 35% of a month's sales in the month of sale, 45% in the month following sale, and 20% in the second month following sale. Budgeted sales for the upcoming four months are: April budgeted sales $120,000 May budgeted sales $150,000 June budgeted sales $230,000 July budgeted sales $170,000 The amount of cash that will be collected in July is budgeted to be $59,500 $133,500 $193,000 $190,000

$193,000

Corny and Sweet grows and sells sweet corn on its roadside produce stand. The selling price is $4.00 per dozen, variable costs are $2.00 per dozen, and total fixed costs are $1,200. What are the breakeven sales in dollars? $600 $1,200 $2,400 $3,600

$2,400

BusyBee Cleaning Co. has the following results from a linear regression analysis of the hours spent cleaning offices and the total costs for each office cleaned: Intercept Coefficient $75 X variable 1 Coefficient $25 R square .9342 Using this information, what is the expected cost of cleaning 100 offices? $2,575 $7,525 $10,000 Should not be determined using the information provided because the resulting formula is not a "good fit" to explain the cost behavior.

$2,575

Pelicans Ice is a snow cone stand near the local park. To plan for the future, Pelicans Ice wants to determine its cost behavior patterns. It has the following information available about its operating costs and the number of snow cones served Number of snow cones January 6,400 February 7,000 March 4,000 April 6,900 May 9,000 June 7,250 Total Operating Costs January $5,980 February $6,400 March $5,000 April $6,330 May $8,000 June $6,575 Using the high-low method, the fixed costs for a month are: $3,000 $2,600 $5,400 $13,000

$2,600

Total fixed costs for Green Planes Inc. are $150,000. Total costs, including both fixed and variable, are $600,000 if 140,000 units are produced. The total variable costs at a level of 230,000 units would be (round any intermediary calculations to the nearest cent). $246,429 $985,714 $738,300 $273,913

$738,300

In regression analysis, which of the following coefficients of correlation (R Square) represents the strongest linear relationship between the independent variables (x) and the dependent variables (y)? 1.03 -.02 .89 .75

.89

Whistle Works manufactures safety whistle keychains. They have budgeted production at 4,500 units in October and 4,750 units in November. It takes 3 ounces of metal to produce each whistle at a cost of $0.50 per ounce. They prefer to have 10% of materials required for the following month's production in ending inventory as well. How many ounces of direct materials does Whistle Works need to purchase in October? 4,500 ounces 13,575 ounces 13,425 ounces 5,200 ounces

13,575 ounces

Kotrick Company has a beginning inventory of 17,000 units and expected sales of 21,000 units. If the desired ending inventory is 20,000 units, how many units should be produced? 18,000 42,000 16,000 24,000

24,000

A company is concerned about its operating performance, as summarized below: Revenues ($12.50 per unit) $300,000 Variable costs $180,000 Operating loss ($40,000) How many additional units should have been sold in order for the company to break even? 32,000 24,000 16,000 8,000

8,000

UP Forklifts sells two products, large forklifts and small forklifts. A large forklift sells for $80,000 per unit with variable costs of $20,000 per unit. Small forklifts sell for $55,000 per unit with variable costs of $12,000 per unit. Total fixed costs for the company are $3,944,000. UP Forklifts typically sells one large forklift for every four small. What is the breakeven point for total package of products in units? 85 units 176 units 38 units 24 units

85 units

Assuming no other changes in the cost-volume-profit relationship, which of the following will decrease the breakeven point in units? A decrease in the selling price per unit An increase in the selling price per unit An increase in the fixed costs An increase in the variable costs per unit

An increase in the selling price per unit

Which of the following statements about budgeting is NOT true? Budgeting is an aid to planning and control. Budgets promote communication between departments in an organization. Budgets should be prepared by top-management, rather than mid-management, because they have the overall objective of the company in mind Budgets help to coordinate the activities of the entire organization.

Budgets should be prepared by top-management, rather than mid-management, because they have the overall objective of the company in mind

The budget that describes the long-term position and objectives of an entity within its environment is the Capital budget Strategic budget Financial budget Operating budget

Strategic budget

All of the following are considered operating budgets except: Sales budget Materials budget Production budget Capital budget

Capital budget

If the fixed costs of a product increase while variable costs and sales price remain constant, what will happen to the contribution margin and breakeven point? Contribution margin will increase and breakeven point will decrease Contribution margin will decrease and breakeven point will increase Contribution margin will be unchanged and breakeven point will increase Contribution margin and breakeven point will be unchanged

Contribution margin will be unchanged and breakeven point will increase

60,000 units Cost A $75,000 Cost B $120,000 Cost C $65,000 Total Costs $260,000 90,000 units Cost A $75,000 Cost B $180,000 Cost C $80,000 Total Costs $335,000 Which of the following statements is true? Cost A is a variable cost Cost B is a mixed cost Cost C is a mixed cost Cost B is a fixed cost

Cost C is a mixed cost

What is the relationship between a cost and a price, if any? Price sets a limit on cost at a given set price Costs do not determine price, they simply are taken out of selling price to yield a profit, thus the relationship is between cost and profit. Cost is set by the market based on the match between a product's attributes and the preferences of the customer, price is than based on the cost. There is no relationship between a cost and a price.

Costs do not determine price, they simply are taken out of selling price to yield a profit, thus the relationship is between cost and profit.

Current business segment operations for Whitman, a mass retailer are presented below: Sales Merchandise $500,000 Automobile $400,000 Restaurant $100,000 Total $1,000,000 Variable Costs Merchandise $300,000 Automobile $200,000 Restaurant $70,000 Total $570,000 Fixed Costs Merchandise $100,000 Automobile $100,000 Restaurant $50,000 Total $250,000 Operating Income Merchandise $100,000 Automobile $100,000 Restaurant -$20,000 Total $180,000 Management is considering the discontinuance of the restaurant segment since it is "losing money". If this segment is discontinued, $30,000 of its fixed costs will be eliminated. In addition, the sales volumes of the merchandise and the automobile segments will each decrease by 5% from their current levels. How will total operating income be affected if the restaurant segment is discontinued? Decrease by $30,000 Decrease by $45,000 Increase by $20,000 Decrease by $20,000

Decrease by $20,000

A "relevant cost" is best described by which of the following: Expected future costs that differ among alternatives Costs that were incurred in the past and cannot be changed A factor that restricts production or sales of a product Cost of developing, producing, and delivering a product or service

Expected future costs that differ among alternatives

Management decisions are based primarily on quantitative data because the qualitative factors are usually not relevant to the decision-making process. True False

False

The first component of the operating budget is the production budget. True False

False

Which of the following is a characteristic of a contribution margin income statement? Fixed and variable expenses are combined as one line. Fixed expenses are listed separately from variable expenses. Fixed and variable manufacturing expenses are combined as one line item, but fixed operating expenses are shown separately from variable operating expenses. Fixed and variable operating expenses are combined as one line item, but fixed manufacturing expenses are shown separately from variable manufacturing expenses.

Fixed expenses are listed separately from variable expenses.

Which is true about scatterplot graphs? If there is a strong relationship between cost and volume, the points will fall in a scattered pattern. A strong relationship between production and inventory is shown by a linear pattern. If there is a strong relationship between cost and volume, the points will fall in a linear pattern. Cost and volume have no effect on the pattern of points on a scatterplot graph.

If there is a strong relationship between cost and volume, the points will fall in a linear pattern.

Widget Inc. manufactures widgets. The company has the capacity to produce 100,000 widgets per year, but it currently produces and sells 75,000 widgets per year. The following information relates to the current production: Sales price per unit $43 Variable cost per unit: Manufacturing $27 Marketing and administrative $10 Total fixed costs: Manufacturing $78,000 Marketing and administrative $21,000 If a special order is accepted for 5,800 widgets at a price of $40 per unit, fixed costs remain unchanged, and no variable marketing and administrative costs will be incurred for this order, how would operating income be affected? (Assume regular sales are not affected by the special order.) Decrease by $75,400 Increase by $17,400 Increase by $232,000 Increase by $75,400

Increase by $75,400

From the perspective of corporate management, the use of budgetary slack Increases the ability to identify potential budget weaknesses Encourages the use of effective corrective actions Increases the likelihood of inefficient resource allocation

Increases the likelihood of inefficient resource allocation

Which of the following qualitative factors favors the buy choice in an insourcing (make) or outsourcing (buy) decision? Maintaining a long-run relationship with suppliers is desirable Quality control is critical Idle capacity is available All of the answers are correct

Maintaining a long-run relationship with suppliers is desirable

Using historical data, a manager is computing a cost equation to be used to predict future costs for budgeting. Assuming they have identified the appropriate cost driver, which method will provide the most accurate total cost equation? Average cost High-low method Regression analysis Scatterplot graph

Regression analysis

What does the term "breakeven point" mean? The level of sales at which total contribution margin equals total fixed costs The point at which total variable costs equal total fixed costs The level of sales at which total contribution margin is zero. The point at which total sales equals total fixed costs

The level of sales at which total contribution margin equals total fixed costs

With respect to total fixed costs, which of the following statements is true? They will remain the same as production levels change within the relevant range. They will decrease as production increases within the relevant range. They will increase as production decreases within the relevant range. They will decrease as production decreases within the relevant range.

They will remain the same as production levels change within the relevant range.

Capacity utilization measurement based on theoretical capacity rather than normal capacity will provide a more useful signal to a decision to acquire additional capacity. True False

True

Cost - volume relationships that are curvilinear may be analyzed by considering a smaller relevant range of volume to prepare the total cost formula. True False

True

The cash budget helps managers determine whether or not the company requires financing in a given month. True False

True

Ultimate Travel Company fabricates automobiles. Each auto includes one wiring harness, which is currently made in-house. Details of the harness fabrication are as follows: Volume 900 units per month Variable cost per unit $10 per unit Fixed costs $15,000 per month A factory has offered to supply Ultimate Travel with ready-,made units for a cost of $7 each. Assume that Ultimate's fixed costs are unavoidable, but the company can use the vacated production facilities to earn an additional $5,000 of profit per month. In order to maximize operating income, Ultimate Travel should outsource. True False

True

When a company produces more units than it sells, absorption costing operating income will be higher than variable costing operating income. True False

True

Which of the following refers to a cost that remains the same as the volume of activity decreases within the relevant range? Average cost per unit Variable cost per unit Fixed cost per unit Total variable cost

Variable cost per unit

A _____ groups costs by behavior, with costs classified as variable or fixed in order to provide better information on what costs change with changes in volume. Balance sheet Variable costing income statement Absorption costing income statement Traditional income statement

Variable costing income statement

All of the following are assumptions of cost-volume-profit analysis except: Total fixed costs do not change with a change in volume Revenues change proportionately with volume Variable costs per unit change proportionately with volume Sales mix for multiproduct situations do not vary with volume changes

Variable costs per unit change proportionately with volume

The ______ budget is a component in a financial budget cash sales direct materials operating expense

cash

The contribution margin ratio explains the percentage of each sales dollar that contributes towards fixed costs and generating a profit contributes towards operating expenses contributes towards variable costs contributes towards period expenses

contributes towards fixed costs and generating a profit

In making product mix decisions under constraining factors, which of the following is the key in choosing the product type to be maximized? revenue per unit contribution margin per unit contribution margin per unit of constraint gross profit per unit

contribution margin per unit of constraint

The relevant range refers to the activity levels over which: cost relationships hold constant costs fluctuate production varies relevant costs are incurred

cost relationships hold constant

Jago Co. has two products that use the same manufacturing facilities and cannot be subcontracted. Each product has sufficient orders to utilize the entire manufacturing capacity. For short-run profit maximization, Jago should manufacture the product with the greater contribution margin per hour of manufacturing capacity. greater contribution margin per unit greater gross profit per unit none of the above

greater contribution margin per hour of manufacturing capacity.

The higher the operating leverage factor, the lesser the impact of volume on operating income. greater the impact of volume on operating income. more likely operating income will stay constant. none of the above.

greater the impact of volume on operating income.

Company A has a higher margin of safety while Company B has a lower margin of safety. Company A would be considered ___________ Company B when considering only margin of safety. more risky than less risky than to have the same level of risk as Unable to judge based on margin of safety

less risky than

The ______ budget is the only budget stated only in units, not dollars. production sales direct materials manufacturing overhead

production