accounting 2 test 2
Gossen Company is planning to sell 200,000 pliers for $4 per unit. The contribution margin ratio is 25%. If Gossen will break even at this level of sales, what are the fixed costs?
$1 ($4 X 25%). Fixed costs / Contribution margin per unit = Break-even point in units. Solving for fixed costs, 200,000 units x $1 per units = $200,000.
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 at Split-off Additional Variable Costs Sales Value after Further Processing Green lumber $159600 $24000 $178000 Rough lumber 124000 28200 173600 Sawdust 102000 19600 130000 The additional profit that would result from processing rough lumber further is
$21400.
Hinge Manufacturing's cost of goods sold is $420000 variable and $240000 fixed. The company's selling and administrative expenses are $300000 variable and $360000 fixed. If the company's sales is $1580000, what is its net income?
$260000
Woolford's CVP income statement included sales of 5000 units, a selling price of $50, variable expenses of $30 per unit, and net income of $25000. Fixed expenses are
$75000.
Deighan Company had the following amounts from its income statement: Sales revenue (800 units) $80,000 Cost of goods sold -fixed 20,000 Cost of goods sold -variable 18,500 Selling expenses - fixed 7,000 Selling expenses - variable 6,000 Administrative expenses - fixed 5,000 Administrative expenses - variable 7,500 How much is Deighan's contribution margin?
$80,000 − $18,500 − $6,000 − $7,500 = $48,000 $48,000.
Contribution margin
(d) both (a) and (b) above.
Variable costs are costs that
(d) both (a) and (b) above.
In 2016, Raleigh sold 1000 units at $500 each, and earned net income of $40000. Variable expenses were $300 per unit, and fixed expenses were $160000. The same selling price is expected for 2017. Raleigh's variable cost per unit will rise by 10% in 2017 due to increasing material costs, so they are tentatively planning to cut fixed costs by $10000. How many units must Raleigh sell in 2017 to maintain the same income level as 2016?
1118
In 2016, Teller Company sold 3000 units at $600 each. Variable expenses were $420 per unit, and fixed expenses were $270000. The same selling price, variable expenses, and fixed expenses are expected for 2017. What is Teller's break-even point in units for 2017?
1500
Warner Manufacturing reported sales of $2000000 last year (100000 units at $20 each), when the break-even point was 80000 units. Warner's margin of safety ratio is
20%.
Redman Company had actual sales $800,000 and its break-even sales were $600,000. Morgan's margin of safety ratio is
25% ($800,000 - $600,000) / $800,000)
For Sanborn Co., sales is $1000000, fixed expenses are $300000, and the contribution margin per unit is $60. What is the break-even point?
5000 units
Marten Corp. has a limited number of machine hours available to produce its three products A11, B22, and C33. Determine the order that these products should be produced given the following data: A11 B22 C33 Unit sales price $14 $36 $10 Unit variable costs 6 32 3 Machine hours per unit 5 4 2
C33, A11, B22
Fixed costs are costs that remain the same per unit regardless of changes in the activity level.
False
When a company is deciding to retain or replace equipment, trade-in value of the existing equipment is irrelevant.
False
Which of the following will not affect a make-or-buy decision?
Incremental revenue.
Croc Catcher calculates its contribution margin to be less than zero. Which statement is true?
Its selling price is less than its variable costs.
The following information is available for Chap Company. Sales $350,000 Cost of goods sold $120,000 Total fixed expenses $60,000 Total variable expenses $100,000 Which amount would you find on Chap's CVP income statement?
Sales $350,000 - Total variable expenses $100,000 = Contribution margin of $250,000
On a CVP income statement
Sales - Variable costs = Contribution margin.
Contribution margin ratio is contribution margin divided by sales.
True
What type of cost remains the same per unit at every level of activity?
Variable cost.
Incremental analysis is the process of identifying the financial data that:
change under alternative courses of action.
The break-even point can be
computed from a mathematical equation. computed by using contribution margin. derived from a cost-volume-profit graph. all of these are correct
Net income will be:
greater if more higher-contribution margin units are sold than lower-contribution margin units.
Lean manufacturing policies of US manufacturers have resulted in
higher automation and lower labor costs.
The decision rule in a sell-or-process-further decision is: process further as long as the incremental revenue from processing exceeds:
incremental processing costs.
Costs incurred prior to the split-off are
joint costs
Starwise Company had the following amounts from its income statement: Sales revenue $100,000 Cost of goods sold -fixed 32,000 Cost of goods sold -variable 25,000 Selling expenses - fixed 9,000 Selling expenses - variable 11,000 Administrative expenses - fixed 12,000 Administrative expenses - variable 8,000 How much is Starwise's contribution margin?
$100,000 − $25,000 − $11,000 − $8,000 = $56,000
When the units required to fill a special order can be produced within existing plant capacity, which of the following will not increase?
Fixed costs.
Margin of safety is the difference between actual sales and sales at the break-even point.
True
Sunk costs are not relevant in incremental analysis.
True
Taser Industries must decide whether to make or buy some of its components. The costs of producing 175,000 battery packs for its product are as follows: Direct Materials $15,000 Direct Labor $5,000 Variable overhead $6,000 Fixed overhead $9,000 The company has an opportunity to purchase the battery packs for $0.18 per unit, which would eliminate all variable costs, and $2,000 of fixed costs. Based on your analysis, what is the net income increase or decrease if the company purchases the battery packs?
a decrease in net income of $3,500
A company, such as a railroad, is likely to have
a higher break even rate due to higher fixed costs.
In general, a company should sell more units of products with
a higher contribution margin.
In a make or buy decision, opportunity costs are:
added to the make total cost.
When deciding whether to offer free shipping to its premium subscription members, which of the following relevant item(s) should Amazon consider?
additional revenue from subscriptions and higher sales as well as the cost of shipping the items
The degree of operating leverage:
all of the above.
All of the following types of decisions involve incremental analysis except:
all of these options are involved in incremental analysis.
When choosing between products to stock on its shelves, a retailer will
always prefer a product with higher contribution margin per unit floor space over a period of time, such as a day or a week.
Mixed costs
are costs that vary as activity level changes, but do not stay the same per unit like variable cost.
In a decision to retain or replace equipment, the book value of the old equipment is a(an):
sunk cost.
In a sell or process further decision, joint costs are:
sunk costs.
In order to maximize profits when limited resources are available a company should concentrate on the producing products with:
the highest contribution margin per unit of limited resource.
The relevant range is
the range over which the company expects to operate during a year.
Mixed costs consist of a
variable cost element and a fixed cost element
Management may be tempted to overproduce in a given period:
when using absorption costing, in order to increase net income.
If an airline company needs to estimate its seat occupancy breakeven point, it
will calculate its contribution margin per seat and divide total fixed cost by that margin.
In incremental analysis, the only costs to be considered are:
relevant costs.
When a company needs to manage the downside impact of an adverse event, it should perform
scenario analysis.
It costs Bluffton Company $18.20 of variable costs and $7.80 of fixed costs to produce its product that sells for $39. Osborne Company, a foreign buyer, offers to purchase 3,000 units at $23.40 each. If the special offer is accepted and produced with unused capacity, net income will:
$15,600 [3,000 units X ($23.40 - $18.20)]
If the contribution per unit is $15 and it takes 3.0 machine hours to produce the unit, the contribution margin per unit of limited resource is:
$15/3.0 = $5
Moss, Inc. has total fixed costs of $56,000 and a contribution margin ratio of 40%. Moss wants to generate net income totaling $35,000. How much will sales revenue be at Moss' target net income?
$227,500 to earn a net income of $35,000. Sales revenues required to attain target net income of $35,000 = fixed costs of $56,000 + target net income of $35,000 ÷ contribution margin ratio of 40% = $227,500
Your phone service provider offers a plan that is classified as a mixed cost. The cost per month is $50 flat rate for the first 1,000 minutes plus $0.35 for each minute exceeding 1,000 minutes. If you use 1,200 minutes this month, your cost will be
$50 + ($0.35 x 200 minutes) = $120. $120.
North Division has the following information: Sales $1200000 Variable expenses 640000 Fixed expenses 620000 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?
$560000 decrease
Deighan Company had the following amounts from its income statement: Sales revenue (800 units) $80,000 Cost of goods sold -fixed 20,000 Cost of goods sold -variable 18,500 Selling expenses - fixed 7,000 Selling expenses - variable 6,000 Administrative expenses - fixed 5,000 Administrative expenses - variable 7,500 How much is Deighan's contribution margin?
$80,000 − $18,500 − $6,000 − $7,500 = $48,000
Winston Company's high and low level of activity last year was 60,000 units produced in April and 20,000 units produced in December. Machine maintenance costs were $52,000 in April and $20,000 in December. Using the high-low method, estimated total maintenance cost for a month in which 40,000 units will be produced is
($.80) = change in total costs ($52,000 - $20,000) / high minus low activity level (60,000 - 20,000). Fixed cost element = total cost at high level ($52,000) - variable cost at high level ($48,000 =$.80 x 60,000 units) = $4,000. Maintenance costs are therefore $4,000 fixed cost per month + $.80 variable cost per unit, and at 40,000 units, the maintenance costs = $4,000 fixed cost per month + ($.80 x 40,000 units) = $36,000 $36,000.
Cournot Company sells 100,000 wrenches for $12 a unit. Fixed costs are $300,000, and net income is $200,000. What should be reported as variable expenses in the CVP income statement?
($300,000 + $200,000 = $500,000)-($1,200,000) $700,000.
Given the following information, what is the contribution margin ratio? Sales $900,000 Variable expenses 400,000 Fixed Expenses 300,000 Net Income 200,000
($900,000 - $400,000)/ $900,000) = 56%
Three of the steps in management's decision process are: (1) review results of decision, (2) determine and evaluate possible courses of action, and (3) make the decision. The steps are prepared in the following order.
(2), (3), (1).
Which one of the following is not an assumption of cost-volume-profit analysis?
Changes in activity and sales mix are the only factors that affect costs.
What is the key factor in determining sales mix if a company has limited resources?
Contribution margin per unit of limited resource
Which one of the following is the format of a CVP income statement?
Sales - Variable costs - Fixed costs = Net income.
The basic rule in a sell or process further decision is to process further as long as the incremental revenue is:
The basic rule in a sell or process further decision is to process further as long as the incremental revenue is:
Which one of the following is an important assumption that is made when considering the decision to accept an order at a special price?
The firm is not currently operating at full capacity.
It costs Orkid Company $17 of variable costs and $3 of fixed costs to produce its product. The company currently has unused capacity. The product sells for $25. Homer Industries offers to purchase 5,000 units at $19 each. In the deal, Orkid will incur special shipping costs of $1.50 per unit. If the special offer is accepted and produced with unused capacity, net income will:
The variable cost per unit will be $18.50 ($17 + $1.50); the income per unit is $.50 ($19 - $18.50); and the total increase in net income will be $2,500 ($.50 X 5,000 units). increase $2,500.
Cost-volume-profit analysis assumes that changes in activity are the only factors that affect costs.
True
The high-low method is used in classifying a mixed cost into its variable and fixed elements.
True
The key to making the best decision concerning eliminating an unprofitable segment is to focus on relevant costs.
True
The process used to identify the financial data that changes under alternative courses of action is called incremental analysis.
True
Unit contribution margin is the amount that each unit sold contributes towards the recovery of fixed costs and to income.
True
Which statement describes a fixed cost?
When activity declines, its cost per unit increases.
In a retain or replace equipment decision, all of the following are considered except the:
book value of the old asset.
At the break-even point
contribution margin equals total fixed costs.
A company would determine its breakeven quantity in the following manner
divide fixed cost by contribution margin per unit.
When a company sells multiple products, the breakeven point in sales dollars is computed by:
dividing the total fixed costs by the weighted average contribution margin ratio.
One of the following is not involved in CVP analysis. That factor is
fixed costs per unit.
Relevant costs in accepting an order at a special price include all of the following except:
fixed manufacturing overhead.
Accounting's contribution to the decision-making process occurs in all of the following steps except to:
identify the problem and assign responsibility.
The degree of operating leverage
is computed by dividing total contribution margin by net income.
In a make-or-buy decision, relevant costs are:
manufacturing costs that will be saved, the purchase price of the units, opportunity costs All of the abpve
When comparing a traditional income statement to a CVP income statement
net income will always by identical on both.
Another name for the option to buy a component from a supplier is
outsourcing
