ACCT II Exam

Marla's Publishing Service has $4,800 of fixed expenses. The manager reported the company's operating income as $0, and the contribution margin was 45%. What are the company's sales in dollars, rounding to the nearest dollar, using the shortcut approach to the contribution margin ratio?

($4800 + $0) / 0.45 = $10,667

Lisa's Custom Print Services produces and sells custom seashore prints. The manager reported $5,400 in fixed expenses, operating income of $0 at the breakeven point, and a contribution margin per unit of $50. What is the firm's breakeven point in units using the shortcut approach?

($5,400 + 0) / $50 = 108 units

Daphne's Planter Company produces and sells planters. The manager reported $10,500 in fixed expenses, operating income of $0 at the breakeven point, and a contribution margin per unit of $60. What is the company's breakeven point in units using the shortcut approach?

175 units

What is the most likely change to total variable costs if a manager decreases the production of a product by 25%?

25% decrease

Violet Industries held an annual meeting and reported a new annual budget of $50,000 in total fixed expenses. The new selling price per unit is $58, and the new variable expense per unit is $30. If the manager can reduce fixed expenses by another $10,000, what is the effect on breakeven sales?

357 decrease in breakeven units

The Lampost Production Company has $6,000 of fixed expenses. The manager reported that the company's operating income wass $0, and the contribution margin was 40%. What are the company's sales in dollars using the shortcut approach to the contribution margin ratio?

$15,000

Terry's Frame & Art Shoppe produces and sells picture frames to clients at $8.00 per picture frame. The variable cost to produce each picture frame is $3.25. The fixed costs are $3,000 per month. What is the firm's contribution margin per picture frame?

$4.75

Sam's Auto Repair reported total cost to produce parts of $50,000. The managerial accountant needs a gross profit of $5,500 to meet monthly expenses. What is the cost-plus price?

$55,500

Sal's Manufacturing manufactures and sells couches and tables. The following data was reported by the managerial accountant. The company can manufacture two couches per machine hour and one table per machine hour. The company's production capacity is 800 machine hours per month. What is the contribution margin per machine hour for the couches? Couches Tables Sales price $600 $580 Variable costs $350 $200

$600 - $350 = $250 contribution margin per couch Couches per hour = 2 × $250 = $500

The Beach Sea Shop has variable expenses of 35% of sales. The manager reported monthly fixed expenses of $250,000. The monthly target operating income is $65,000. What is Beach Sea Shop's operating leverage factor at the target level of operating income?

$65,000 + $250,000 = $315,000 $315,000 / $65,000 = 4.846, rounded to 4.85.

Cooke Corporation reports that at an activity level of 7,000 units, the total variable cost is $590,730, and the total fixed cost is $372,750. What would be the total cost, both fixed and variable, at an activity level of 7,100 units? Assume that this level of activity is within the relevant range.

$971,919

Stripes and Stars Manufacturing produces and manufactures sweat shirts and socks. Based on the information listed below, what is the contribution margin ratio for sweat shirts and socks? Sweat Shirts Socks Sales price $20 $18 Less: Variable expenses ($12) ($6) Contribution margin $8 $12 Contribution margin ratio: Sweat shirts: ? Socks: ?

40%; 67%

Terry's Frame & Art Shoppe produces and sells picture frames to clients at $8.00 per picture frame. The variable cost to produce each picture frame is $3.25 per picture frame. The fixed costs are $3,000 per month. What is the firm's contribution margin ratio?

59.37%

How might a change in fixed costs affect the contribution margin?

A change in fixed costs does not affect the contribution margin.

Which of the following is TRUE about constraints?

A constraint limits assembly or sale of a product.

Which of the following statements is NOT true about sensitivity analysis?

A manager will NOT use CVP analysis to conduct sensitivity analysis.

Which of the following refers to the excess of sales revenue over variable expenses?

Contribution margin

Rachel's Automotive Service may need to replace a diagnostic machine which is currently used in the production process. The managerial accountant reported the information listed below. Which of the following costs is irrelevant to the replacement decision? Old Machine Replacement Machine Original purchase cost $85,000 $45,000 Remaining useful life in years 5 5 Current age in years 5 0 Book value $40,000 Current disposal value in cash $0 $0 Future disposal value in cash in 5 years $0 $0 Annual cash operating costs $10,000 $6,000

Original old machine cost

_______ are fixed over a small range of activity and then jump up to a new fixed level with moderately small changes in volume.

Step costs

Which of the following choices represents the computation of contribution margin per unit of a constraint?

Contribution margin per unit × Units per constraint

Mixed costs are________.

Costs that contain mixed and fixed costs

Mike's Bike Shop rents mopeds to tourists at the beach. The old manager charged $20 per day plus $0.05 per mile. The new manager wants to change the marketing strategy and charge $15 per day and exclude the extra $0.05 per mile. What type of costs are most important to consider when the new manager plans to lower the charges to customers?

Fixed costs

The ________ is computed as the total contribution margin divided by total sales.

contribution margin ratio

Variable costing is also known as ________.

direct costing

Under variable costing, a unit of a product includes ________.

direct materials, direct labor, and variable overhead costs

Which of the following is NOT correct about changes in variable and fixed costs?

Lower variable costs decrease the contribution margin and lower the breakeven point.

________ refers to a company having work performed overseas.

Offshoring

(Sales revenue × contribution margin ratio) - fixed costs represents which of the following?

Operating income

A unit of product under absorption costing includes ________.

direct materials, direct labor, variable overhead, and fixed overhead costs

Each of the following includes correct concepts a manager should consider when implementing a special order EXCEPT ________.

existing fixed costs

When production exceeds sales, the net operating income reported under absorption costing is ________.

greater than net operating income reported under variable costing

When sales exceed production, the net operating income reported under variable costing is ________.

greater than the net operating income reported under absorption costing

Relevant information ________.

is expected future data and differs amongst the alternatives

The ________ is the excess of actual or expected sales over breakeven sales.

margin of safety

A special order ________.

occurs when a customer requests a one-time order at a reduction in the sales price

The ________ refers to a company's amount of relative fixed and variable costs.

operating leverage

A scatterplot can indicate a ________.

positive correlation

The vertical axis (y-axis) on a graph plots ________.

total fixed costs

Contribution margin is also known as ________.

variable profit

The horizontal x-axis on the CVP graph represents ________.

volume of units

Martha's Delivery Service reported total variable cost of $2,000,000. The managerial accountant reported 950,000 total number of units. What is the target variable cost per unit? Martha's Delivery Service Target Variable Cost per Unit Target total cost $5,000,000 Less: Fixed costs $3,000,000 Target total variable cost $2,000,000 Number of units 950,000 Target variable cost per unit ?

$2,000,000 / 950,000 = $2.11

Josh's Manufacturing Company reported fixed manufacturing overhead of $2,500,000, and 2,600,000 total units. The variable manufacturing costs were $1.50 per unit. What is the cost per unit using absorption costing?

$2.46

The Heart Foundation is a charity that produces and sells two products, red hearts and purple hearts, to promote health in the community. The manager estimates clients will purchase 2,400 red hearts and 1,100 purple hearts by the end of the next period. The unit contribution margins for red hearts and purple hearts are $2.75 and $3.40. What is the weighted-average unit contribution margin?

$2.95

What is the total cost at an activity level of 5,000 units if y = $12,000 + $3x?

$27,000

Cindy's Manufacturing Services produces and manufactures two types of products. Product I uses 800 machine hours to produce, and Product II uses 2 machine hours to produce. What is the total contribution margin at full capacity of the combined products? Product I Product II Total Contribution margin per machine hour $165 $155 Number of machine hours devoted to product 500 1,400 ? Total contribution margin at full capacity ? ? ?

$299,500

Sandy's Manufacturing Service reported fixed manufacturing overhead of $3,783,000, and 3,900,000 total units. The variable manufacturing costs were $1.50 per unit. What is the cost per unit using absorption costing?

$3,783,000 / 3,900,000 units = $.97 $1.50 + $.97 = $2.47

Daphne's Floral Service has a monthly target operating income of $30,000. Variable expenses are 15% of sales. The manager reported fixed expenses of $20,000. What is Daphne Floral's operating leverage factor at the target level of operating income?

$30,000 + 20,000 = $50,000 $50,000 / $30,000 = 1.66, rounded to 1.67.

Blake's Repair Services has 2,000 damaged radios that cost $40,000. The radios could be sold as is for $20,000, or repaired for $30,000 and then sold for $65,000. Compute the opportunity cost of selling the radios without the repairs.

$35,000

Brandy's Balloon Service currently sells 1,000 balloon bundles per month. The competition in the balloon industry continues to soar within a thirty-mile vicinity of the service location. Variable expenses were $2.00 per balloon and fixed expenses were $5,000. If Brandy changes the price of balloon bundles to $10, how many balloon bundles should she sell to achieve her target operating income of $6,000?

1,375 balloon bundles

Tara's Sewing Service sells designer afgans for $85 each. Unit variable expenses total $50. The breakeven sales in units are 2,500 and budgeted sales in units are 4,300. What is the margin of safety in dollars?

153000

The Coffee Factory sells two products, supreme and mild. The supreme sells for $120 per case (unit) with variable costs of $90 per unit. The mild sells for $90 per unit with variable costs of $10 per unit. The manager reported $42,600 total fixed costs. The Coffee Factory usually sells three supreme brands for each two mild brands. What is the breakeven point in total units?

852 units

Sam's Appliance Outlet has variable expenses of 40% of sales. The manager reported monthly fixed expenses of $240,000. The monthly target operating income is $80,000. What is the monthly margin of safety in dollars if the manager at Sam's Appliance Outlet achieves the operating income goal?

875 units

Which of the following is NOT true regarding the sales mix?

Companies that sell more than one product should NOT consider their sales mix when performing CVP analysis.

________ is an example of a discretionary fixed cost expense.

Advertising

Which of the following is a TRUE concept about what a manager should consider when a customer requests a one-time special order?

Available capacity

________ costs include costs that may be eliminated as a result of discontinuing the product

Avoidable fixed

________ expresses the relationships amongst costs, volume, and organizational profits.

CVP analysis

The Landscape Company produces and sells large and medium landscaping tiles. The large landscaping tiles sell for $90 per unit with variable costs of $30 per unit. The medium landscaping tiles sell for $60 per unit with variable costs of $30 per unit. The total fixed costs for the company is $42,000. The Landscape Company usually sells three large tiles for every two medium tiles. What is the breakeven point in units?

Fixed expenses $240,000 Target income + $80,000 Total $320,000 Contribution margin 60% (Variable Expense of 40%) Target sales $533,333 ($320,000 / .60) Fixed expense $240,000 Contribution margin 60% Breakeven sales $400,000 ($240,000 / .60) Target sales $533,333 Breakeven sales - $400,000 Margin of safety $133,333

Sam's Appliance Outlet has variable expenses of 40% of sales. The manager reported monthly fixed expenses of $270,000. The monthly target operating income is $75,000. What is the monthly margin of safety in dollars if the manager at Sam's Appliance Outlet achieves the operating income goal?

Fixed expenses $270,000 Target income + $75,000 Total $345,000 Contribution margin 60% (Variable Expense of 40%) Target sales $575,000 ($345,000 / .60) Fixed expense $270,000 Contribution margin 60% Breakeven sales $450,000 ($270,000 / .60) Target sales $575,000 Breakeven sales - $450,000 Margin of safety $125,000

Sam's Appliance Outlet has variable expenses of 40% of sales. The manager reported monthly fixed expenses of $270,000. The monthly target operating income is $75,000. What is the monthly margin of safety in dollars if the manager at Sam's Appliance Outlet achieves the operating income goal?

Fixed expenses $270,000 Target income + $75,000 Total $345,000 Contribution margin 60% (Variable Expense of 40%) Target sales $575,000 ($345,000 / .60) Fixed expense $270,000 Contribution margin 60% Breakeven sales $450,000 ($270,000 / .60) Target sales $575,000 Breakeven sales - $450,000 Margin of safety $125,000

What is an argument against the use of variable costing?

Fixed factory overhead is necessary to produce a product.

Which of these is an argument against the use of variable costing?

Fixed factory overhead is necessary to produce a product.

Which of the following is a TRUE statement about the graphing of variable costs?

Graphs of variable costs begin at the point that represents zero volume and zero cost.

Which of the following is NOT a characteristic of a price-setter?

Heavy competition

Which of the following is NOT considered when determining whether to sell or process further?

How much revenue will be earned on all other product lines.

Which of the following is NOT relevant in the thought process to make a "Sell as Is" or "Process Further" decision?

Identifying all costs except the cost of extra revenue from processing further

Which of the following is NOT true about the breakeven point?

It is the sales level at which operating income is never zero.

An advantage of account analysis is ________?

Its simplicity

Which of the following is NOT a benefit of outsourcing?

Outsourcing involves giving up control over quality and scheduling.

How well a regression line fits the data points is illustrated by the ________.

R-square statistic

Page Incorporated manufactures automotive parts that sell for $80 each. The manager reported 280 defective parts in inventory, which cost $50 to reproduce. The manager can sell the defective parts for $20 each, or process the parts further for $30 each, and then sell them for the standard sales price. Which of the following should the managerial accountant recommend for action?

Repair the defective parts for an $8,400 net increase in operating income.

When using a variable costing system, the contribution margin (CM) is calculated as the excess of ________.

Revenues over variable costs

The manager at Vertical Wire Productions reported total sales revenue of $800,000. The variable expenses were $600,000, and there were $125,000 of total fixed expenses. Use the contribution margin shortcut formula to predict the breakeven point in dollars.

Sales Revenue $800,000 Less: Variable expenses 600,000 Contribution margin 200,000 Less: Fixed expenses 125,000 Operating income $75,000 Weighted-average contribution margin ($200,000 / $800,000) = 25% 25.00% Sales in dollars = ($125,000 + 0) / 25% = $500,000 sales to break even

The manager at TV Land Productions reported total sales revenue of $900,000. The variable expenses were $300,000, and there were $325,000 of total fixed expenses. Calculate the contribution margin ratio and use the contribution margin shortcut formula to predict the breakeven point in dollars.

Sales in dollars = ($325,000 + 0) / 66.67% = $487,476 of sales to break even

________ refers to the result of operating income or loss for each individual product line.

Segment margin income

MaryJane's Bakery manufactures and sells a variety of baked goods. The selling price per dozen of chocolate glazed donuts is $8.00. The variable costs to produce the chocolate glazed donuts are $3.75, and total fixed costs are $3,800. How many dozen chocolate glazed donuts must the manager sell to break even?

Step 1: Sales - Variable Costs = Contribution Margin $8 - $3.75 = $4.25 Step 2: Fixed Expenses / Contribution Margin = Breakeven point $3,800 / $4.25 = 894.11, rounded up to 895 dozen chocolate glazed donuts to break even

Which step in the CVP graph indicates the breakeven point?

Step 4

Which of these is a FALSE statement about a scatterplot?

The scatterplot is a graph of the historical cost data on the x-axis and volume data on the y-axis.

When should a manager accept a special order job?

The special reduced sales price is high enough to cover the incremental costs of filling the order.

At an activity level of 6,900 units in a month, Zeus Corporation's total variable maintenance and repair cost is $408,756, and its total fixed maintenance and repair cost is $230,253. What would be the total maintenance and repair cost of both fixed and variable costs combined at an activity level of 7,100 units in a month? Assume that this level of activity is within the relevant range.

The total maintenance and repair cost of both fixed and variable costs combined at an activity level of 7,100 units in a month is $650,857. The other answer choices are incorrect. Variable cost per unit = $408,756 / 6,900 units = $59.24 unit Total cost = Total fixed cost + Total variable cost = $230,253 + ($59.24 per unit × 7,100 units) = $230,253 + $420,604 = $650,857

________ are costs that vary in direct proportion to changes in volume

Total variable costs

________ include fixed costs that continue to be incurred even if the product line is discontinued.

Unavoidable fixed costs

________ are treated as product costs under the variable costing method.

Variable production costs

The Landscape Company produces and sells large and medium landscaping tiles. The large landscaping tiles sell for $90 per unit with variable costs of $30 per unit. The medium landscaping tiles sell for $60 per unit with variable costs of $30 per unit. The total fixed costs for the company is $42,000. The Landscape Company usually sells three large tiles for every two medium tiles. What is the breakeven point in units?

Weighted-average contribution margin per unit = $240 / 5 = $48 Fixed Costs of $42,000 / $48 = 875 units

The total variable costs ________.

are plotted on the vertical axis (y-axis) of a graph

A fixed cost expense that management has little or no control over in the short run is a ________.

committed fixed cost

Offshoring ________.

refers to a company having work performed overseas

The operating leverage ________.

refers to a company's amount of relative fixed and variable costs

On a per-unit basis, variable costs ________.

remain constant

The ________ is the combination of products that make up total sales.

sales mix

The ________ contain(s) NO allocation of common fixed costs.

segment margin income statement

Cost-plus pricing ________.

starts with the product's total costs and adds a desired profit to determine a cost-plus price

Total fixed costs...

stay constant over a wide range of volume

A(n) ________ cost includes costs that have been incurred in the past and cannot be changed.

sunk

A managerial accountant needs to make a sell or continue to process decision about a product. The managerial accountant should continue manufacturing the product instead of selling the product if ________.

the extra revenue is greater than the extra cost to continue manufacturing a product

Which of the following equations best expresses the straight line equation for a variable cost equation when f is zero?

y = vx

Which of the following equations best expresses the straight line equation for a mixed cost equation when y = total cost, v = variable cost per unit, x = volume of activity, and f = fixed cost (vertical intercept)?

y = vx + f