Accounting EXAM 3
The difference between the current sales revenue and the sales at the break-even point is called the A) contribution margin B) margin of safety C) price factor D) operating leverage
A) margin of safety
Use this information for Carter Co. to answer the questions that follow. Carter Co. sells two products, arks and bins. Last year, Carter sold 14,000 units of arks and 56,000 units of bins. Related data are as follows: If a business had sales of $4,000,000 and a margin of safety of 25%, the break-even point was A) $5,000,000 B) $3,000,000 C) $12,000,000 D) $1,000,000
B) $3,000,000
Jase Manufacturing Co.'s static budget for 10,000 units of production includes $40,000 for direct labor and $4,000 for variable electric power. Total fixed costs are $24,000. At 12,000 units of production, a flexible budget would show variable costs of $52,800 and $29,000 of fixed costs variable costs of $44,000 and $24,000 of fixed costs variable costs of $52,800 and $24,000 of fixed costs variable and fixed costs totaling $68,000
variable costs of $52,800 and $24,000 of fixed costs
Developing and retaining quality managers are advantages of decentralization. true or false
T
Separation of businesses into more manageable operating units is termed decentralization true or false
T
What ratio indicates the percentage of each sales dollar that is available to cover fixed costs and to provide a profit? A) margin of safety ratio B) contribution margin ratio C) costs and expense ratio D) profit ratio
contribution margin ratio
In a cost center, the manager has responsibility and authority for making decisions that affect revenues investments in assets both costs and revenues costs
costs
The cost of a manufactured product generally consists of which of the following costs? direct materials cost and factory overhead cost only direct labor cost and factory overhead cost only direct labor cost, direct materials cost, and factory overhead cost direct materials cost and direct labor cost only
direct labor cost, direct materials cost, and factory overhead cost
The budget procedure that requires all levels of management to start from zero in estimating sales, production, and other operating data is called zero-based budgeting. true or false
true
Jarrett Company is considering a cash outlay of $300,000 for the purchase of land, which it could lease out for $36,000 per year. If alternative investments that yield a 9% return are available, the opportunity cost of the purchase of the land is $27,000 $36,000 $9,000 $72,000
$27,000
Yasmin Co. can further process Product B to produce Product C. Product B is currently selling for $30 per pound and costs $28 per pound to produce. Product C would sell for $55 per pound and would require an additional cost of $31 per pound to produce. What is the differential cost of producing Product C? $30 per pound $31 per pound $28 per pound $55 per pound
$31 per pound
Variable costs as a percentage of sales for Lemon Inc. are 80%, current sales are $600,000, and fixed costs are $130,000. How much will operating income change if sales increase by $40,000? A) $8,000 increase B) $8,000 decrease C) $30,000 decrease D) $30,000 increase
A) $8,000 increase
Piper Technology's fixed costs are $1,500,000, the unit selling price is $250, and the unit variable costs are $130. What is the amount of sales in units (rounded to a whole number) required to realize an operating income of $200,000? A) 14,167 units B) 12,500 units C) 16,000 units D) 11,538 units
A) 14,167 units
A firm operated at 90% of capacity for the past year, during which fixed costs were $420,000, variable costs were 40% of sales, and sales were $1,000,000. Operating profit was A) $180,000 B) $420,000 C) $1,080,000 D) $980,000
A) 180,000
If sales are $820,000, variable costs are 55% of sales, and operating income is $260,000, what is the contribution margin ratio? A) 45% B) 55% C) 62% D) 32%
A) 45%
Budgets are normally used only by profit-making businesses. true or false
false
Cost behavior refers to the methods used to estimate costs for use in managerial decision making. true or false
false
Direct materials cost that varies with the number of units produced is an example of a fixed cost of production. true or false
false
If fixed costs are $850,000 and the unit contribution margin is $50, profit is $0 when 15,000 units are sold. true or false
false
If the property tax rates are increased, this change in fixed costs will result in a decrease in the break-even point. true or false
false
In most business organizations, the chief accountant is called the treasurer. true or false
false
Make-or-buy decisions should be made only with related parties. true or false
false
One of the advantages of decentralization is that delegating authority to managers closest to the operation always results in better decisions. true or false
false
Rental charges of $40,000 per year plus $3 for each machine hour over 18,000 hours are an example of a fixed cost. true or false
false
The cash budget summarizes future plans for acquisition of fixed assets. true or false
false
The first budget to be prepared is usually the cash budget. true or false
false
Use this information for Falcon Co. to answer the questions that follow. Falcon Co. produces a single product. Its normal selling price is $30 per unit. The variable costs are $19 per unit. Fixed costs are $25,000 for a normal production run of 5,000 units per month. Falcon received a request for a special order that would not interfere with normal sales. The order was for 1,500 units with a special price of $20 per unit. Falcon has the capacity to handle the special order, and for this order, a variable selling cost of $1 per unit would be eliminated. If the order is accepted, what would be the impact on net income? decrease of $750 decrease of $4,500 increase of $3,000 increase of $1,500
increase of $3,000
The three common types of responsibility centers are referred to as cost centers, profit centers, and investment centers. true or false
true
Variable costs are costs that vary in total in direct proportion to changes in the activity level. true or false
true
The budgetary unit of an organization that is led by a manager who has both the authority over and responsibility for the unit's performance is known as a control center budgetary area responsibility center managerial department
responsibility center
In evaluating the profit center manager, the income from operations should be compared across profit centers to historical performance or budget to the competitor's net income to the total company earnings per share
to historical performance or budget
A budget procedure that provides for the maintenance at all times of a 12-month projection into the future is called continuous budgeting. true or false
true
A mixed cost has characteristics of both variable and fixed costs. true or false
true
A production supervisor's salary that does not vary with the number of units produced is an example of a fixed cost. true or false
true
Cost behavior refers to the manner in which a cost changes as the related activity changes. true or false
true
Manley Co. manufactures office furniture. During the most productive month of the year, 4,500 desks were manufactured at a total cost of $86,625. In its slowest month, the company made 1,800 desks at a cost of $49,500. Using the high-low method of cost estimation, total fixed costs A) $61,875 B) $33,875 C) $24,750 D) cannot be determined
24750
. As of January 1 of the current year, Gunner Company had accounts receivable of $50,000. The sales for January, February, and March were $120,000, $140,000, and $150,000, respectively. Of each month's sales, 20% are for cash. Of the remaining 80% (the credit sales), 60% are collected in the month of sale, with the remaining 40% collected in the following month. What is the accounts receivable balance as of March 31? (Note: The accounts receivable balance includes sales that have not been paid for yet) A) $72,000 B) 48,000 C) 58,720 D) 60,000
B) 48,000
Which of the following would not be considered an internal centralized service department? A) payroll accounting department B) manufacturing department C) information systems department D) purchasing department
B) manufacturing department
Miller and Sons' static budget for 10,000 units of production includes $50,000 for direct materials, $44,000 for direct labor, variable utilities of $5,000, and supervisor salaries of $24,000. A flexible budget for 12,000 units of production would show the same cost structure in total direct materials of $60,000, direct labor of $52,800, utilities of $6,000, and supervisor salaries of $28,800 total variable costs of $148,000 direct materials of $60,000, direct labor of $52,800, utilities of $6,000, and supervisor salaries of $24,000
direct materials of $60,000, direct labor of $52,800, utilities of $6,000, and supervisor salaries of $24,000
Because variable costs are assumed to change in direct proportion to changes in the activity level, the graph of the variable costs when plotted against the activity level appears as a circle. true or false
false
Budget preparation is best determined in a top-down managerial approach true or false
false
Use the information below for Nuthatch Corporation to answer the questions that follow. Nuthatch Corporation began its operations on September 1 of the current year. Budgeted sales for the first three months of business—September, October, and November—are $260,000, $375,000, and $400,000, respectively. The company expects to sell 30% of its merchandise for cash. Of sales on account, 80% are expected to be collected in the month of the sale and 20% in the month following the sale. The cash collections expected in October from accounts receivable are estimated to be $246,400 $262,500 $210,000 $294,500
$246,400
Keating Co. is considering disposing of equipment with a cost of $50,000 and accumulated depreciation of $40,000. Keating Co. can sell the equipment through a broker for $25,000, less a 5% broker commission. Alternatively, Gunner Co. has offered to lease the equipment for five years for a total of $48,750. Keating will incur repair, insurance, and property tax expenses estimated at $8,000 over the five-year period. At lease-end, the equipment is expected to have no residual value. The net differential income from the lease alternative is $17,000 $7,000 $27,000 $14,500
$7,000
Use this information for Carter Co. to answer the questions that follow. Carter Co. sells two products, arks and bins. Last year, Carter sold 14,000 units of arks and 56,000 units of bins. Related data are as follows: Cost-volume-profit analysis cannot be used if which of the following occurs? A) costs cannot be properly classified into fixed and variable costs B) the total fixed costs change C) the per-unit variable costs change D) per-unit sales prices change
A) costs cannot be properly classified into fixed and variable costs
Flying Cloud Co. has the following operating data for its manufacturing operations: Unit selling price $ 250 Unit variable cost 100 Total fixed costs 840,000 The company has decided to increase the wages of hourly workers which will increase the unit variable cost by 10%. Increases in the salaries of factory supervisors and property taxes for the factory will increase fixed costs by 4%. If sales prices are held constant, the next break-even point for Flying Cloud Co. will be A) increased by 640 units B) increased by 400 units C) increased by 640 units D) increased by 800 units
A) increase by 640 units
Some organizations use internal service departments to provide like services to several divisions or departments within an organization. Which of the following would probably not lend itself as a service department? A) inventory control B) payroll accounting C) information systems D) human resources
A) inventory control
Use this information for Carter Co. to answer the questions that follow. Carter Co. sells two products, arks and bins. Last year, Carter sold 14,000 units of arks and 56,000 units of bins. Related data are as follows: If sales are $400,000, variable costs are 80% of sales, and operating income is $40,000, what is the operating leverage? A) 0.0 B) 7.5 C) 2.0 D) 1.3
C) 2.0
Spice Inc.'s unit selling price is $60, unit variable costs are $35, fixed costs are $125,000, and current sales are 10,000 units. How much will operating income change if sales increase by 8,000 units? A) $150,000 decrease B) $175,000 increase C) $200,000 increase D) $150,000 increase
C) 200,000 increase
Use this information for Carter Co. to answer the questions that follow. Carter Co. sells two products, arks and bins. Last year, Carter sold 14,000 units of arks and 56,000 units of bins. Related data are as follows: Forde Co. has an operating leverage of 4. Sales are expected to increase by 12% next year. Operating income is A) unaffected B) expected to increase by 3% C) expected to increase by 48% D) expected to increase by 4%
C) expected to increase by 48%
Which of the following budgets provides the starting point for the preparation of the direct labor cost budget? A) direct materials purchases budget B) cash budget C) production budget D) sales budget
C) production budget
The first budget customarily prepared as part of an entity's master budget is the A) production budget B) cash budget C) sales budget D) direct materials purchases budget
C) sales budget
In a cost-volume-profit chart, the A) total cost line begins at zero B) slope of the total cost line is dependent on the fixed cost per unit C) total cost line begins at the total fixed cost value on the vertical axis D) total cost line normally ends at the highest sales value
C) total cost line begins at the total fixed cost value on the vertical axis
Which of the following conditions would cause the break-even point to decrease? A) total fixed costs increase B) unit selling price decreases C) unit variable cost decreases D) unit variable cost increases
C) unit variable cost decreases
Use this information for Carter Co. to answer the questions that follow. Carter Co. sells two products, arks and bins. Last year, Carter sold 14,000 units of arks and 56,000 units of bins. Related data are as follows: Rocky Company reports the following data: Sales $800,000Variable costs 300,000Fixed costs 120,000 Rocky Company's operating leverage is A) 6.7 B) 2.7 C) 1.0 D) 1.3
D) 1.3
Use this information for Carter Co. to answer the questions that follow. Carter Co. sells two products, arks and bins. Last year, Carter sold 14,000 units of arks and 56,000 units of bins. Related data are as follows: Assume that Corn Co. sold 8,000 units of Product A and 2,000 units of Product B during the past year. The unit contribution margins for Products A and B are $30 and $60, respectively. Corn has fixed costs of $378,000. The break-even point in units is A) 8,000 units B) 6,300 units C) 12,600 units D) 10,500 units
D) 10,500 units
Use this information for Carter Co. to answer the questions that follow. Carter Co. sells two products, arks and bins. Last year, Carter sold 14,000 units of arks and 56,000 units of bins. Related data are as follows: Harley Company has sales of $500,000, variable costs are 75% of sales, and operating income is $40,000. What is Harley's operating leverage? A) 0.0 B) 1.2 C) 1.3 D) 3.1
D) 3.1
The point where the profit line intersects the horizontal axis on the profit-volume chart represents the A) maximum possible operating loss B) maximum possible operating income C) total fixed costs D) break-even point
D) break-even point
The point where the sales line and the total costs line intersect on the cost-volume-profit chart represents the A) maximum possible operating loss B) maximum possible operating income C) total fixed costs D) break-even point
D) break-even point
A manager is responsible for costs only in a(n) A) profit center B) investment center C) volume center D) cost center
D) cost center
Which of the following is not a disadvantage of a decentralized operation? A) competition among mangers B) duplication of operations C) price cutting by departments that are competing in the same product market D) top management freed from everyday tasks to do strategic planning
D) top management freed from everyday tasks to do strategic planning
Which of the following conditions would cause the break-even point to increase? A) total fixed costs decrease B) unit selling price increases C) unit variable cost decreases D) unit variable cost increases
D) unit variable cost increases
A decentralized business organization is one in which all major planning and operating decisions are made by top management. true or false
F
The ratio that indicates the percentage of each sales dollar available to cover the fixed costs and to provide operating income is termed the contribution margin ratio. true or false
true
Differential analysis only considers the short-term (one-year) effects of discontinuing a product. true or false
true
Differential revenue is the amount of increase or decrease in revenue expected from a particular course of action as compared with an alternative. true or false
true
Flexible budgeting builds the effect of changes in level of activity into the budget system. true or false
true
Goal conflict can be avoided if budget goals are carefully designed for consistency across all areas of the organization. true or false
true
If direct materials cost per unit decreases, the amount of sales necessary to earn a desired amount of profit will decrease. true or false
true
If sales total $2,000,000, fixed costs total $800,000, and variable costs are 60% of sales, the contribution margin ratio is 40%. true or false
true
In an investment center, the manager has the responsibility and the authority to make decisions that affect not only costs and revenues, but also the plant assets invested in the center. true or false
true
The amount of income that would result from an alternative use of cash is called opportunity cost. true or false
true
The cash budget is affected by the sales budget, the various budgets for manufacturing costs and operating expenses, and the capital expenditures budget. true or false
true
The cash budget presents the expected inflow and outflow of cash for a specified period of time. true or false
true
The objectives of budgeting are (1) establishing specific goals for future operations, (2) executing plans to achieve the goals, and (3) periodically comparing actual results with these goals. true or false
true
The point in operations at which revenues and expenses are exactly equal is called the break-even point. true or false
true
The range of activity over which changes in cost are of interest to management is called the relevant range. true or false
true
