Accounting 202 test 2

When companies are price-makers, their products and services

$1.58

Knight Company has found that 30% of its sales are collected in the month of the sale and the remainder of the sales is collected in the next month. If sales are expected to be $100,000 in April, $120,000 in May, and $80,000 in June, what is the estimated amount of cash receipts for May?

$106,000

On January 1, LeAnn Company has a beginning cash balance of $21,000. During the year, the company expects cash disbursements of $170,000 and cash receipts of $145,000. If LeAnn requires an ending cash balance of $20,000, the company must borrow:

$24,ooo

Tara Company budgeted sales of 45,000 units, and sold 44,600 units. The flexible budget for sales should be based upon

44,600 units

Each of the following budgets is used in preparing the budgeted income statement except the:

Capital expenditure budget.

Incremental analysis is the process of identifying the financial data that

Change under alternative courses of action.

The selection of strategiges to achieve long-term goals and the development of policies and plans to implement the strategies

Long-Range planning

Which of the following budgets is prepared first?

sales budget

The prediction of sales for the operating budget

sales forecast

An order that is outside a company's normal scope of business activity

special order

Andy's Athletic Apparel plans to sell 24,000 units in May and 30,000 units in June. Andy keeps 10% of the next month's sales as ending inventory. How many units should be produced in May?

24,600

American chemical Company (ACC) manufactures two products as part of a joint process: A1 and B1. Joint costs up to the split-off point total $10,000. The joint cost are allocated to A1 are $3,750 and to B1 are $6,250. At the split-off point A1 can be sold for $30,000, whereas B1 can be sold for $50,000. Product A1 can be processed further to make product A2, at an additional cost of $30,000. A2 can be sold for $75,000. Product B1 can be process further to make product B2, at an additional cost of $35,000. B2 can be sold bor $70,000. Which product should be processed further?

A1

Jones Co can further process Product B to product Product B1. Product B is currently selling for $45 per pound and costs $30 per pound to produce. Product B1 would sell for $80 per pound and would require an additional cost of $18 per pound to product. Should Jones produce Product B1 and what is the effect on net income?

Process futher, Jones will make $17 per pound

Benson Co. is considering disposing of a machine with a book value of $125,000 and estimated remaining life of five years. The old machine can be sold for $15,000. A new high-speed machine can be purchased at a cost of $250,000. It will have a useful life of five years and no salvage value. It is estimated that annual operating costs will be reduced from $260,000 to $235,000 if the new machine is purchased. Should Benson retain or replace the equipment?

Retain; save $110,000

Details the number of units that a manufacturer must produce to meet the sales forecast and desired ending inventory

production budget

A cost or revenue that differs under different alternatives

relevant cost

Static budgets

remain constant throughout the budget period

Which of the following is a benefit of budgeting?

1.Management can plan ahead. 2. An early warning system is provided for potential problems. 3. The coordination of activities is facilitated

All of the following are financial budgets except the

Budgeted income statement

The Beach Hut sells hotdogs for $2 each. The costs associated with each hot dog are estimated at $1 of variable costs and $.35 of fixed overhead costs. A summer camp, whose campers will be visiting the beach once during the summer, wishes to buy 100 hotdogs for $1.25 each. What would be the effect on net income if the special order were accepted?

Increase of $25

A set of interrelated budgets that constitutes a plan of action for a specific time period

Master Budget

An estimate of expected sales for the budget period

Sales Budget

Bubblemanis has three product lines - A, B, and C. A B C Total Sales $10,000 $9,000 $12,000 $31,000 Variable costs 4,500 7,000 6,000 17,500 Contribution margin 5,500 2,000 6,000 13,500 Fixed costs 3,500 6,000 3,000 12,500 Net income 2,000 (4,000) 3,000 1,000 Product line B appears unprofitable, and management is considering discontinuing the line. How would the discontinuation of Product line B affect net income?

decrease by $2,000

In the cost-plus pricing approach, the markup percentage is computed by dividing the

desired ROI/unit by total unit cost

The master budget incorporates individual budgets such as those for

direct materials, direct labor and selling and administrative expenses

If a company uses a cost-plus approach to pricing, the price is set equal to

estimated total costs plus a markup for profit

A past cost that cannot be changed by current or future actions

fixed cost

The income statement for a business for the pear year is as follows Product T U Sales $500,000 $750,000 Variable costs 400,000 550,000 Contribution margin 100,000 200,000 Fixed costs 135,000 120,000 income (loss) from operations ($35,000) $80,000 Management is considering the discontinuance of the manufacture and sale of Product T. The discontinuance would have no effect on the total fixed costs or on the sales of Product U. What is the amount of change in net income for the current year that will result from the discontinuance of Product T?

$100,000 decrease

Variable costs Direct materials $16.30 per unit Direct Labor $15,80 per unit Variable overhead $12.00 per unit Fixed costs Factory depreciation $12,000 per month Supervisory salaries $16,800 per month Other fixed factory costs $2,500 per month What is the total flexible budget amount for a month when 2,500 units are produced?

$141,550

Digitime manufactures wristwatches and is designing a new watch model that incorporates a PDA (personal digital assistant), which Digitime hopes consumers will view as a valuable design feature. As such, the new PDA watch has a target price of $200. Management requires a 15% profit on new product revenues. What is the desired profit and target cost, respectively?

$30; $170

Crescent Electrical Repair has decided to price its work on a time-and-material basis. It estimates the following costs for the year related to labor. Technician wages and benefits $100,000 Office employee's salary/benefits $40,000 Other overhead $80,000 Crescent desires a profit margin of $10 per labor hour and budgets 5,000 hours of repair time for the year. The office employee's salary, benefits, and other overhead costs should be divided evenly between time charges and material loading charges. Crescent labor charge per hour would be:

$42

Caleb's Cookstoves currently manufactures 50,000 cookstoves a year, even though they have the capacity to make 75,000 at no additional fixed cost. Abraham's Army Supply has come to Caleb's to see if they would specially make 20,000 cookstoves. Abraham's is willing to pay $75 for each cookstove. Current costs for manufacturing a cookstove are: Direct materials $20 Direct labor 22 Variable overhead 12 Fixed overhead 26 Total $80 What will be the effect on Caleb's Cookstoves net income if they produce the cookstoves for Abraham's?

$420,000 income

The Plastics Division of Weston Company manufactures plastic molds and then sells them for $70 per unit. Its variable cost is $30 per unit, and its fixed cost per unit is $10. Management would like the Plastics Division to transfer 10,000 of these molds to another division within the company at a price of $40. The Plastics Division is operating at full capacity. What is the minimum transfer price that the Plastics Division should accept?

$70

Expected direct materials purchases in Read Company are $70,000 in the first quarter and $90,000 in the second quarter. Forty percent of the purchases are paid in cash as incurred, and the balance is paid in the following quarter. The budgeted cash payments for purchases in the second quarter are:

$78,000

The essentials of effective budgeting include:

1. Management acceptance. 2.Research and analysis. 3. Sound organizational structure

Each of the following budgets are used in preparing the budgeted income statement:

1. Sales budget. 2.Selling and administrative budget. 3.Direct labor budget.

The budget for a merchandiser differs from a budget for a manufacturer because:

1.A merchandise purchases budget replaces the production budget. 2.The manufacturing budgets are not applicable

A formal written summary of management's plan for a specified future time period expressed in financial terms

Budget

A presentation of estimated assets, liabilities and stockholders' equity at the end of the budgeted period

Budgeted Balance Sheet

Shows expected income for the budget period

Budgeted Income Statement

Book Publishing, Inc operates a bookbinding division. Management is considering whether the hard cardboard for binding should be made internally or purchased from a supplier for $2.35 per book. The current internal production costs for the cardboard average $2.50 of variable costs and $10,000 of fixed costs for the 20,000 books bound annually. What would you recommend Book Publishing do in this situationi, and what is the effect on net income?

Buy, increase net income by $3,000

If an unprofitable segment is eliminated:

Fixed expenses allocated to the eliminated segment will have to be absorbed by other segments.

Johnson Products, a manufacturer of aircraft landing gear, makes 1,000 units each year of a special valve used in assembling one of its products. The unit cost of producing this valve includes variable costs of $60 and fixed costs of $50. The valves could be purchased from an outside supplier at $66 each. If the valve were purchased from the outside supplier, 40% of the total fixed costs incurred in producing this valve could be eliminated. Buying the valves from the outside supplier instead of making them would cause the company's net income to:

Increase by $14,000

The decision rule is a sell-or-process-further decision: Process further as long as the incremental revenue from processing exceeds

Incremental processing costs

A sales budget is:

Management's best estimate of sales revenue for the year.

Target cost related to price and profit means that:

Price and desired profit must be determined before costs.

Sawyer Inc is considering disposing of a machine with a book value of $90,000 and an estimated remaining life of three years. The old machine can be sold for $25,000. A new mahcine with a purchase price of $275,000 is being considered as a replacement. It will have a useful life of three years and no salvage value. It is estimated that annual operating costs will be reduced from $175,000 to $80,000 if the new machine is purchased. Should Sawyer retain or replace the equipment?

Replace; save $35,000

Cost-plus pricing means that:

Selling price = cost + (markup percentage X cost)

In a make-or-buy decision, relevant costs are:

a. Manufacturing costs that will be saved. b. The purchase price of the units. c. Opportunity costs. d. All of the above.

Which of the following does not appear on the budgeted income statement?

accounts receivable

Flexible Budgets

are based upon actual units produced or sold

Shows whether the expected amount of cash generated by operating activities will be sufficient to pay anticipated expenses during the period covered by the operating budget

cash budget

The process of updating the budget every month so the budget is always for twelve months

continuous budgeting

A cost that may be irrelevant in decision-making because it does not vary in total, regardless of changes in production

fixed cost

Attainable only under perfect conditions

ideal standards

Allows for normal, recurring inefficiencies

normal standards

The benefit foregone because one alternative is chosen over another.

opportunity cost

MC Alexander Industries makes tennis balls. Current production is 2 million cans. Annual manufacturing, selling and administrative fixed costs total $700,000. The variable cost of making and selling each can of balls is $1.00. Stockholders expect a 12% annual return on the company's $3,000,000 of assets. Suppose MC Alexander could spend an extra $100,000 on advertising to differentiate its product so that it could be a price-setter. Assuming the original volume and costs, plus the $100,000 of new advertising costs, what price will MC Alexander want to charge for a can of balls?

tend to be unique Correct