AICPA BEC MC

Spark Co. buys cordless phones for $125 each and sells them for $200 each. Spark pays a sales commission of $25 per phone sold and monthly fixed costs are $3,000. Assuming Spark desired a profit of 10% of sales, how many units must Spark sell?

100 Purchase Cost = 125 Commission = 25 Contribution Margin = 10% Target Profit = 20 125 - 25 - 20 = 90/.90 = 100

The following information pertains to Baxter Co: Inventory at beginning of year: $200,000 Inventory at year end: $300,000 Cost of goods sold during the year: $500,000 What was Baxter's inventory turnover for the year?

2.0 Inventory Turnover Ratio = Cost of Goods Sold/ Average Inventory Average Inventory = Beginning Inventory+ending Inventory/2 Average Inventory = 200,000 + 300,000/2 Average Inventory = 500,000/2 Average Inventory = 250,000 Inventory Turnover Ratio = Cost of Goods Sold/ Average Inventory Inventory Turnover Ratio = 500,000/250,000 = 2

Gamma Co., a manufacturer of medical products, had a 10% return on assets and an asset turnover of 4:1. What was Gamma's profit margin on sales?

2.5%

Grant Co.'s sales budget shows the following projections for the year ending December 31: Quarter Units First: 30,000 Second: 40,000 Third: 22,500 Fourth: 27,500 Total: 120,000 Inventory at the beginning of the year was budgeted at 9,000 units. The quantity of finished goods inventory at the end of each quarter is to equal 30% of the next quarter's budgeted sales of units. What amount should the production budget show for units to be produced during the first quarter?

33,000 Second quarter budgeted x 30% 40,000 x 30% = 12,000 (add) beg inventory (9,000) (deduct) budgeted sales first quarter 30,000 (add) budgeted sales of first quarter = (12,000 + 30,000 - 9,000) = 33,000

A company sells DVD players for $200 per unit. The players have a unit variable cost of $160. The company estimates that it will sell one home entertainment system for every four DVD players sold. Home entertainment systems have a unit variable cost of $460 and sell for $600 per unit. The company's fixed costs are $90,000. Assuming that the sales mix estimate is correct, how many DVD players need to be sold for the company to break even?

1,200 DVD= sales proportion is 4/5 = 80% Home entertainment sales proportion is 1/5 = 20% Now, we need to calculate the break-even point for the whole company: Break-even point (units)= Total fixed costs / Weighted average contribution margin Weighted average contribution margin= (weighted average selling price - weighted average unitary variable cost) Weighted average contribution margin = (200 * 0.8 + 600 * 0.2) - (160 * 0.8 + 460 * 0.2) Weighted average contribution margin = 60 Break-even point (units)= 90,000/60 = 1,500 Finally, the number of DVDs: DVD= 1,500 * 0.8= 1,200 DVDs

The expected selling price for a new product is $19.00. Management's goal is to obtain a 20% contribution margin on all sales. If the new product has variable selling and distribution costs of $3.00 per unit, what is the product's target variable manufacturing cost?

$12.20 19.00 =(variable manufacturing cost + 3)/(100% - 20%) 19.00 = variable manufacturing cost +3/80% variable manufacturing cost =(19x80%) - 3 variable manufacturing cost =15.20 - 3 = 12.20

A 20% target contribution margin is set for Duct, which is a new product with the following unit costs: Manufacturing costs: Variable: $12 Fixed: 8 Selling & admin. Costs : Variable: $3 Fixed: 5 What is Duct's target selling price?

$18.75 Given : 20% contribution margin or mark up percentage Total Variable Cost = Manufacturing+ Selling and Administrative Cost =(12+3) =15 Selling price =variable cost / (100%-contribution margin) Selling price = variable cost / (100% -20%) Selling Price = 15/80% Selling Price = $18.75

Match Co. manufactures a product with the following costs per unit, based on a maximum plant capacity of 400,000 units per year: Direct materials: $60 Direct labor: 10 Variable overhead: 40 Fixed overhead: 30 Total: $140 Match has a ready market for all 400,000 units at a selling price of $200 each. Selling costs in this market consist of $10 per unit shipping and a fixed licensing fee of $50,000 per year. Reno Co. wishes to buy 5,000 of these units on a special order. There would be no shipping costs on this special order. What is the lowest price per unit at which Match should be willing to sell the 5,000 units to Reno?

$190 The contribution margin per unit sold is : 200 (price) - 60 (DM) - 10 (DL) - 40 (VOH) - 10 (shipping) = 80 Because Match Co. is operating at capacity, if they produce 5,000 units for the special order, they would lose 5,000 units worth of profit that they'd normally have. Lost Profits = 5,000 * Contribution Margin = 5000 * 80 = 400,000 The selling price for the special order has to be able to recover the 400,000 in otherwise lost profits: ((Sales Price) - 60 - 10 - 40) * 5000 = 400,000 Sales Price = 190

A company that produces a single product using a continuous process had no work in process on April 1. During the month of April, 10,000 units were started and 9,000 completed units were transferred. The ending work-in-process inventory was complete as to materials and 50% complete as to conversion. The cost of direct materials was $114,000, and the cost of direct labor amounted to $38,000. Manufacturing overhead is assigned at the rate of 50% of direct materials. For the purpose of determining the cost of goods manufactured in April, what is the cost per equivalent whole unit?

$21.40 Direct Materials per unit = 114,000/10,000 = 11.40 Conversion Cost = Direct Labor Cost + Direct Materials (50% of 114,00)/(50% of 10,000 + 50% of 9,000) Conversion Cost per unit = (38,000 + 57,000)/9,500 Conversion Cost per unit = 95,000/9500 Conversion Cost per unit = 10 Total Manufacturing Cost per unit = Direct Materials + Conversion Cost Total Manufacturing Cost per unit = 11.40 + 10 = 21.40

Smith Legal Services has offered to represent a plaintiff in a lawsuit for a retainer of $20,000 plus 40% of any award over $20,000. Smith expects to incur out-of-pocket expenditures of $15,000 in litigating the suit. Possible court awards with their associated probabilities are: Award Probability $100,000 0.7 $0 0.3 What is the expected value to Smith of the lawsuit?

$27,400 Awards 40% = since it says it will be 40% award given if above in 20,000. Since the award is 100,000 and the probability is 70% so total award will be 70,000 which is greater than the 20,000 So Awards will be = 40% x 70,00 = 28,000 Retainer Fee: 20,000 Add: Award in lieu of percentage 20,000 Less: Out of Pocket Expenses (15,000) Awards: (20,000*30%*40%) 2,400 Total Litigation Value: $27,400

Roger Co. implemented activity-based costing in the current year. To select the appropriate driver for Cost Pool A, Roger performed regression analyses for two independent variables, Driver 1 and Driver 2, using monthly operating data. The monthly levels of Cost Pool A were the dependent variables in both regressions. Output results from the regression analyses were as follows: Driver 1 Driver 2 R squared 0.46 0.80 Intercept $551.00 $970.00 X variable (slope) $0.55 $0.33 At the budgeted production level for next month, the levels of Driver 1 and Driver 2 are expected to be 5,880 and 7,000, respectively. Based on this information, what is the budgeted amount for Cost Pool A for next month?

$3,280 The higher the r squared is the better. So, choose driver 2. Budgeted amount = 970 + 0.33x Budgeted amount = 970 + 0.33(7,000) Budgeted amount = 3,280

Star Co. is a retail store specializing in contemporary furniture. The following information is taken from Star's June budget: Sales: $540,000 Cost of goods sold: 300,000 Merchandise inventory-June 1: 150,000 Merchandise inventory-June 30: 180,000 Accounts payable for purchases-June 1: 85,000 Accounts payable for purchases-June 30: 75,000 What amount should Star budget for cash disbursements for June purchases?

$340,000 Find first the budgeted purchases during June through the account of Merchandise inventory. Beginning balance, June 1: 150,000 Add; Purchases: ? Less; Cost of goods sold: (300,000) Ending balance, June 30: 180,000 Purchases = 300,000 + 180,000 - 150,000 = 330,000 Now, find the cash disbursements through the accounts payable account. Beginning balance, June 1: 85,000 Add: Purchases on account: 330,000 Less; Cash disbursements: ? Ending balance: 75,000 Cash disbursements = 85,000 + 330,000 - 75,000 = 340,000 OR: Please note Conversion Cost refers to direct labor and manufacturing overhead Merchandise inventory-June 30: 180,000 Accounts payable for purchases-June 1: 85,000 Accounts payable for purchases-June 30: 75,000 Total: 340,000

Below are data from the income statement of Brown, Inc: Beginning inventory, finished goods: $16,000 Ending inventory, finished goods: 21,000 Cost of goods sold: 43,000 Gross margin from sales: 39,000 Operating expenses - marketing and selling: 20,000 Net income: 19,000 What was Brown's cost of goods manufactured?

$48,000 Since COGS is given, we will be using this formula to workback Cost of Goods Sold = Beginning Finished Good Inventory + Cost of Goods Manufactured -Ending Inventory 43,000 = 16,000 + COGM - 21,000 43,000 - 16,000 = COGM - 21,000 27,000 =COGM - 21,000 27,000 + 21,000 = COGM $48,000

Darv Co. had a current ratio of 3-to-1 and a quick ratio of 1-to-1. Current liabilities were $322,000. What was the total amount for inventory and prepaid expenses?

$644,000 Step 1 get the equivalent of current assets: Current Ratio = Current Assets/Current Liabilities Current Ratio=Current Assets/322,000 3=Current Assets/322,000 322,000 x 3 = Current Assets 966,000 = Current Assets Step 2 get the prepaid and inventory by substituting current assets in the formula: we will be using workback process Quick Ratio = Current Assets - Prepaid and Inventory/current liabilities 1 = 966,000 - Prepaid and Inventory/322,000 1 = 966,000 - 644,000/322,000 1 = 322,000/322,000 1 = 1

Carter Co. had the following items on its balance sheet at the end of the current year: Cash and cash equivalents: $200,000 Short-term investments: 100,000 Accounts receivable: 400,000 Inventories: 600,000 Patent-10 years: 300,000 Equipment: 1,000,000 Accumulated depreciation: 200,000 The amount of current liabilities at the end of the current year was $640,000. What is Carter's working capital at the end of the current year?

$660,000 Working Capital = Current Assets - Current Liabilities Current Assets are: Cash and cash equivalents: $200,000 Short-term investments: 100,000 • Accounts receivable: 400,000 • Inventories: 600,000 Total Current Assets: 1,300,000 Current liabilities: $640,000 Substitute the formula: Working Capital = Current Assets - Current Liabilities Working Capital = 1,300,000 - 640,000 = 660,000

Which of the following statements that relate to capital budgeting is true?

Accelerated methods of depreciation provide tax shields that are advantageous from a present-value point of view.

Skytop Co., a nonprofit entity, is considering acquiring a machine for $80,000 that will produce uniform cash inflows of $25,000 for four years. Skytop evaluates capital projects using discounted cash flows at a cost of capital of 10% per year. Based upon the following table, what action should Skytop take regarding acquisition of the machine, and why? Future value of $1 for 4 years at 10%: $1.464 Present value of $1 for 4 years at 10%: $0.683 Future value of $1 ordinary annuity for 4 years at 10%: $4.641 Present value of $1 ordinary annuity for 4 years at 10%: $3.170

Acquire: No Reason: Net present value is ($750) Net present value (NPV) is the difference between the present value of the cash inflows and the present value of the cash outflows. Let's first take a look at the inflow: the cash inflow is the $25,000 received over four years. To calculate the net present value of those inflows, you must first determine which number to use from the table You can eliminate the first two options because the $25,000 received is an annuity (as a reminder, an annuity is a series of payments made at equal intervals), and neither of the first two options are annuities Since you are looking for the present, not future, value of this money, you can eliminate the third option Therefore, you use the last option since it meets all the criteria: it is an annuity and is calculating the present value at 10% Therefore, take the 3.170 from the table and multiply that times $25,000 to get $79,250 (3.17 x $25,000 = $79,250) Let's now take a look at the cash outflow of $80,000. Since the outflow is occurring in the present and we are comparing present values, no calculations need to be done on the $80,000. The last step is to take the difference between the present values of the inflow and outflow: ·Inflow - Outflow = NPV $79,250 - $80,000 = NPV $79,250 - $80,000 = NPV Answer ($750.00)

What is the process by which products and services of a business entity are measured and evaluated relative to the best possible levels of performance?

Benchmarking

Which of the following is an essential element of the audit trail in an electronic data interchange (EDI) system?

Computer activity logs that indicate failed transactions.

Dawn Corp. uses a standard cost system. During the year, both the labor rate variance and the labor efficiency variance were unfavorable. Dawn wrote the variances off directly to cost of goods sold. If Dawn had allocated the variances to work in process, finished goods, and cost of goods sold instead, what would have been the effects on current ratio and net income?

Current Ratio: Increases Net Income: Increases

The essence of responsibility accounting is

Developing performance reports emphasizing costs and revenues that managers can control.

How would the following ratios or measures be affected if a company issued additional capital stock for cash?

Total debt to total assets: Decrease Working capital: Increase

What term is used to represent unavoidable past costs that cannot be changed no matter what action is taken?

Sunk costs In business, sunk costs are typically not included in consideration when making future decisions, as they are seen as irrelevant to current and future budgetary concerns.

An issuer's board of directors would ordinarily participate in each of the following activities, except

Supervising and monitoring the quality control testing upon the installation of a new information technology system.

Which of the following is a major difference between the just-in-time (JIT) and traditional approaches to manufacturing?

The JIT approach operates with low inventory levels while traditional approaches may operate with high inventory levels. A fundamental difference between traditional and just-in-time (JIT) strategies lies in the approach taken in the intermediate stages of production. The traditional approach adopts a functional organization designed to minimize manufacturing costs for the particular component.A JIT system organizes the intermediate processes to respond directly to demands from later stages of production