Chapter 5 Accounting

B

An analysis of the processing costs of the billing department of Craig Company revealed that total (variable and fixed) processing costs were $36,800 at an activity level of 16,000 accounts. When only 10,000 accounts were processed, the average processing cost per unit was $2.90. Assuming that this activity is within the relevant range, at a budgeted level of 12,000 accounts processed: A) processing costs are expected to total $34,800. B) the fixed processing costs are expected to be $16,000. C) processing costs are expected to total $15,600. D) the variable processing costs are expected to be $2.63 per account processed.

D

At a sales level of $190,000, Bliss Company's gross margin is $15,000 less than its contribution margin, its net operating income is $30,000, and its selling and administrative expense is $70,000. At this sales level, its contribution margin would be: A) $100,000. B) $160,000. C) $ 85,000. D) $115,000.

D

Brown Company has sales of 2,000 units at $70 per unit. Variable expenses are 40% of the selling price. If total fixed expenses are $44,000, the degree of operating leverage is: A) 0.79. B) 1.40. C) 3.50. D) 2.10.

D

Buffo Company fabricates metal folding chairs. Data concerning the company's revenue and cost structure follow: Selling price per unit $35 Manufacturing cost $4,000 per month plus $17 per unit Administrative expense $2,500 per month plus $2.50 per unit Sales commissions 15% of sales Advertising expense $2,000 per month If Buffo expects to produce and sell 2,000 units next month, the total expected manufacturing cost would be: A) $34,000. B) $39,000. C) $45,500. D) $38,000.

A

Buffo Company fabricates metal folding chairs. Data concerning the company's revenue and cost structure follow: Selling price per unit $35 Manufacturing cost $4,000 per month plus $17 per unit Administrative expense $2,500 per month plus $2.50 per unit Sales commissions 15% of sales Advertising expense $2,000 per month If Buffo plans to produce and sell 3,000 units next month, the expected contribution margin would be: A) $30,750. B) $74,250. C) $26,750. D) $96,500.

C

Buffo Company fabricates metal folding chairs. Data concerning the company's revenue and cost structure follow: Selling price per unit $35 Manufacturing cost $4,000 per month plus $17 per unit Administrative expense $2,500 per month plus $2.50 per unit Sales commissions 15% of sales Advertising expense $2,000 per month If Buffo plans to produce and sell 4,000 units next month, the expected gross margin would be: A) $41,000. B) $37,000. C) $68,000. D) $57,500.

C

Butteco Corporation has provided the following cost data for last year when 100,000 units were produced and sold: Raw materials $200,000 Direct labor 100,000 Manufacturing overhead 200,000 Selling and administrative expense 150,000 All costs are variable except for $100,000 of manufacturing overhead and $100,000 of selling and administrative expense. There are no beginning or ending inventories. If the selling price is $10 per unit, the net operating income from producing and selling 110,000 units would be: A) $450,000. B) $385,000. C) $405,000. D) $560,000.

A

Contribution margin is the amount remaining after: A) variable expenses have been deducted from sales revenue. B) fixed expenses have been deducted from sales revenue. C) fixed expenses have been deducted from variable expenses. D) cost of goods sold has been deducted from sales revenues.

C

If Donnelly Corporation wishes to earn $22,500 in net operating income for the coming year, the company's sales volume in dollars must be: A) $213,750. B) $257,625. C) $207,000. D) $229,500.

C

If sales volume increases and all other factors remain constant, then the: A) contribution margin ratio will increase. B) break-even point will decrease. C) margin of safety will increase. D) net operating income will decrease.

C

In describing the cost equation, Y = a + bX, "a" is: A) the dependent variable, cost. B) the independent variable, the level of activity. C) the total fixed costs. D) the variable cost per unit of activity.

B

Kent Company prepared the following table detailing its operating percentages for last year: Sales 100% Cost of sales: Variable 50% Fixed 10% 60% Gross profit 40% Other operating expenses: Variable 20% Fixed 15% 35% Net operating income 5% Kent's sales totaled $2,000,000 last year. At what sales level would the company break even? A) $1,900,000 B) $1,666,667 C) $1,250,000 D) $833,333

D

Last year Easton Company reported sales of $720,000, a contribution margin ratio of 30% and a net loss of $24,000. Based on this information, the break-even point was: A) $640,000. B) $880,000. C) $744,000. D) $800,000.

D

Northern Pacific Fixtures Company sells a single product for $28 per unit. If variable expenses are 65% of sales and fixed expenses total $9,800, the break-even point will be: A) $15,077. B) $18,200. C) $9,800. D) $28,000.

D

Pool Company's variable expenses are 36% of sales. Pool is contemplating an advertising campaign that will cost $20,000. If sales increase by $80,000, the company's net operating income should increase by: A) $28,800. B) $64,000. C) $ 8,800. D) $31,200.

D

Rothe Company manufactures and sells a single product that it sells for $90 per unit and has a contribution margin ratio of 35%. The company's fixed expenses are $46,800. If Rothe desires a monthly target net operating income equal to 15% of sales, sales will have to be (rounded): A) 1,486 units. B) 3,467 units. C) 1,040 units. D) 2,600 units.

D

Sales for Kallas Company, a retail store, were $300,000. Net operating income totaled $50,000 and cost of goods sold was $132,000. If Kallas Company's contribution margin equals $120,000, total variable selling and administrative expenses must equal: A) $70,000. B) $180,000. C) $118,000. D) $48,000.

A

Sales for the coming year are expected to exceed last years' by 1,000 units. If this occurs, Donnelly's sales volume in the coming year will be: A) 22,600 units. B) 21,960 units. C) 23,400 units. D) 21,000 units.

C

Shipping costs at Fisheries Inc. are a mixed cost with variable and fixed cost components. Records indicate the company shipped 6,000 tons of halibut for $5,000 in March and 9,000 tons for $7,400 in April. Assuming that this activity is within the relevant range, the expected shipping cost for shipping 7,800 tons would be: A) $6,240. B) $9,750. C) $6,440. D) $6,200.

A

Sinclair Company's single product has a selling price of $25 per unit. Last year the company reported a profit of $20,000 and variable expenses totaling $180,000. The product has a 40% contribution margin ratio. Because of competition, Sinclair Company will be forced in the current year to reduce its selling price by $2.00 per unit. How many units must be sold in the current year to earn the same profit as was earned last year? A) 15,000 units B) 12,000 units C) 16,500 units D) 12,960 units

C

Solen Company's break-even-point in sales is $900,000, and its variable expenses are 75% of sales. If the company lost $32,000 last year, sales must have amounted to: A) $868,000. B) $804,000. C) $772,000. D) $628,000.

B

The contribution margin ratio is 25% for Grain Company and the break-even point in sales is $200,000. If Grain Company's target net operating income is $60,000, sales would have to be: A) $260,000. B) $440,000. C) $280,000. D) $240,000.

C

The margin of safety is: A) the excess of budgeted or actual sales over budgeted or actual variable expenses. B) the excess of budgeted or actual sales over budgeted or actual fixed expenses. C) the excess of budgeted or actual sales over the break-even volume of sales. D) the excess of budgeted net operating income over actual net operating income.

B

The number of T-shirts Donnelly Corporation must sell to break even in the coming year is: A) 17,500. B) 19,250. C) 20,000. D) 22,000.

D

The records of the Dodge Company show the following results for the most recent year: Sales (16,000 units) $256,000 Variable expenses 160,000 Net operating income 32,000 Given these data, the unit contribution margin was: A) $16. B) $4. C) $2. D) $6.

B

The traditional income statement required for external reporting: A) organizes costs by behavior rather than by function. B) organizes costs by function rather than by behavior. C) emphasizes the concept of contribution margin. D) is equally useful for internal as well as external decisions.