Exam 2
Homeyer Corporation has provided the following data for its two most recent years of operation: Selling price per unit $ 71 Manufacturing costs: Variable manufacturing cost per unit produced: Direct materials $ 12 Direct labor $ 6 Variable MOH $ 3 Fixed MOH per year $264,000 Selling and administrative expenses: Variable selling and administrative expense per unit sold $ 4 Fixed selling and administrative expense per year $ 74,000 Year 1 Year 2 Units in beginning inventory 0 3,000 Units produced during the year 11,000 12,000 Units sold during the year 8,000 14,000 Units in ending inventory 3,000 1,000 The net operating income (loss) under absorption costing in Year 1 is closest to:
$102,000 Absorption costing unit product cost: Year 1 Direct materials = $12 Direct labor = 6 Variable MOH = 3 Fixed MOH ($264,000 / 11,000 units produced) = 24 Absorption costing unit product cost (add all together) = $45 Absorption costing income statement: Year 1 Sales [(8,000 units sold × $71 per unit)] = $568,000 Cost of goods sold [(8,000 units sold × $45 per unit)] = 360,000 Gross margin = 208,000 Selling and administrative expenses [((8,000 units sold × $4 per unit) + $74,000)] = 106,000 Net operating income (loss) = $102,000
Mullee Corporation produces a single product and has the following cost structure: Number of units produced each year 7,000 Variable costs per unit: Direct materials $ 51 Direct labor $ 12 Variable manufacturing overhead $ 2 Variable selling and administrative expense $ 5 Fixed costs per year: Fixed manufacturing overhead $441,000 Fixed selling and administrative expense $112,000 The absorption costing unit product cost is:
$128 per unit Direct materials = $51 Direct labor = $12 Variable MOH = $2 Fixed MOH cost ($441,000 / 7,000 units) = $63 Absorption costing unit product cost (Direct materials + Direct labor + Variable MOH + Fixed MOH cost) = $128
Schister Systems uses the following data in its Cost-Volume-Profit analyses: Sales $400,000 Variable expenses 280,000 Contribution margin 120,000 Fixed expenses 100,000 Net operating income $20,000 What is total contribution margin if sales volume increases by 20%?
$144,000 Contribution margin ratio = Contribution margin ÷ Sales = $120,000 ÷ $400,000 = 0.30 Contribution margin = Contribution margin ratio × Sales Contribution margin = 0.30 × (1.2 × $400,000) = $144,000
Rovinsky Corporation, a company that produces and sells a single product, has provided its contribution format income statement for November. Sales (5,700 units) $319,200 Variable expenses 188,100 Contribution margin 131,100 Fixed expenses 106,500 Net operating income $24,600 If the company sells 5,300 units, its net operating income should be closest to:
$15,400 Selling price per unit = Sales ÷ Quantity sold = $319,200 ÷ 5,700 units = $56 per unit Variable expenses per unit = Variable expenses ÷ Quantity sold = $188,100 ÷ 5,700 units = $33 per unit Unit contribution margin = Selling price per unit − Variable expenses per unit = $56 per unit − $33 per unit = $23 per unit Profit = (Unit contribution margin × Q) − Fixed expenses = ($23 per unit × 5,300 units) − $106,500 = $121,900 − $106,500 = $15,400
Stockmaster Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. Sales (8,000 units) $320,000 Variable expenses 192,000 Contribution margin 128,000 Fixed expenses 121,600 Net operating income $6,400 The margin of safety in dollars is closest to:
$16,000 Contribution margin ratio = Contribution margin ÷ Sales = $128,000 ÷ $320,000 = 40% Dollar sales to break even = Fixed expenses ÷ Contribution margin ratio = $121,600 ÷ 40% = $304,000 Margin of safety in dollars = Total budgeted (or actual) sales − Break-even sales = $320,000 − $304,000 = $16,000
Mccrone Corporation has provided the following data for its two most recent years of operation: Selling price per unit $ 59 Manufacturing costs: Variable manufacturing cost per unit produced: Direct materials $ 11 Direct labor $ 6 Variable MOH $ 4 Fixed MOH per year $88,000 Selling and administrative expenses: Variable selling & admin expense per unit sold $ 4 Fixed selling & admin expense per year $ 80,000 Year 1 Year 2 Units in beginning inventory 0 1,000 Units produced during the year 11,000 8,000 Units sold during the year 10,000 5,000 Units in ending inventory 1,000 4,000 The net operating income (loss) under variable costing in Year 1 is closest to:
$172,000 Variable costing unit product cost: Direct materials = $11 Direct labor = 6 Variable MOH = 4 Variable costing unit product cost (add them together) = $21 Variable costing income statement: ?
Data for January for Bondi Corporation and its two major business segments, North and South, appear below: Sales revenues, North $660,000 Variable expenses, North $383,000 Traceable fixed expenses, North $79,000 Sales revenues, South $510,000 Variable expenses, South $291,000 Traceable fixed expenses, South $66,000 In addition, common fixed expenses totaled $179,000 and were allocated as follows: $93,000 to the North business segment and $86,000 to the South business segment. A properly constructed segmented income statement in a contribution format would show that the segment margin of the North business segment is:
$198,000 Sales = $660,000 Variable expenses = 383,000 Contribution margin = 277,000 Traceable fixed expenses = 79,000 Segment margin (Sales - variable expenses - traceable fixed expenses) or (contribution margin - traceable fixed expenses) = $198,000
Remmel Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. Sales (6,000 units) $300,000 Variable expenses 240,000 Contribution margin 60,000 Fixed expenses 59,000 Net operating income $1,000 If sales increase to 6,020 units, the increase in net operating income would be closest to:
$200.00 Selling price per unit ($300,000 / 6,000 units) = $50 Variable cost per unit ($240,000 / 6,000 units) = $40 Unit contribution margin ($50 - $40) = $10 Unit contribution margin = $10 Increased unit sales = 20 units Increase in net operating income (Unit contribution margin x Increased unit sales) = $200
Coultrap Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. Sales (3,000 units) $180,000 Variable expenses 117,000 Contribution margin 63,000 Fixed expenses 48,000 Net operating income $14,700 The contribution margin per unit is closest to:
$21.00 Selling price per unit ($180,000 / 3,000 units) = $60 Variable cost per unit ($117,000 / 3,000 units) = $39 Unit contribution margin = $60 - $39 = $21
Jilk Incorporated's contribution margin ratio is 58% and its fixed monthly expenses are $36,000. Assuming that the fixed monthly expenses do not change, what is the best estimate of the company's net operating income in a month when sales are $103,000?
$23,740 Profit = (Contribution margin ratio × Sales) − Fixed expenses = (0.58 × $103,000) − $36,000 = $59,740 − $36,000 = $23,740
Ploeger Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. Sales (4,000 units) $240,000 Variable expenses 156,000 Contribution margin 84,000 Fixed expenses 81,900 Net operating income $2,100 The break-even point in dollar sales is closest to:
$234,000 Contribution margin ratio = Contribution margin ÷ Sales = $84,000 ÷ $240,000 = 35% Dollar sales to break even = Fixed expenses ÷ Contribution margin ratio = $81,900 ÷ 35% = $234,000
Thomason Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. Sales (1,000 units) $40,000 Variable expenses 30,000 Contribution margin 10,000 Fixed expenses 7,000 Net operating income $3,000 If the variable cost per unit increases by $1, spending on advertising increases by $2,000, and unit sales increase by 50 units, the net operating income would be closest to:
$450 Selling price per unit ($40,000 / 1,000 units) = $40 Variable cost per unit ($30,000 / 1,000 units) = $30 Unit contribution margin ($40 - $30) = $10 Selling price = $40 Variable cost per price ($30 per unit + $1 per unit) = 31 per unit Unit contribution margin = $9 Unit sales (1,000 units + 50 units) = 1,050 units Contribution margin (Unit contribution margin x Unit sales) = $9,450 Fixed expenses ($7,000 + $2,000) = $9,000 Net operating income (contribution margin - fixed expenses) = $450
All of Gaylord Corporation's sales are on account. Thirty-five percent of the sales on account are collected in the month of sale, 45% in the month following sale, and the remainder are collected in the second month following sale. The following are budgeted sales data for the company: Jan Feb Mar Apr Total sales $50K $60K $40K $30K What is the amount of cash that should be collected in March?
$51,000 March sales collected in March ($40,000 × 35%) = $14,000 February sales collected in March ($60,000 × 45%) = $27,000 January sales collected in March ($50,000 × 20%) = $10,000 Total cash collections in March $51,000
All of Pocast Corporation's sales are on account. Sixty percent of the credit sales are collected in the month of sale, 30% in the month following sale, and 10% in the second month following sale. The following are budgeted sales data for the company: Jan Feb Mar Apr Total sales $700K $500K $400K $600K Cash receipts in April are expected to be:
$530,000 Cash collections for April: April sales collected in April ($600,000 × 60%) = $360,000 March sales collected in April ($400,000 × 30%) = 120,000 February sales collected in April ($500,000 × 10%) = 50,000 Total cash collections in April = $530,000
A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations: Units in beginning inventory 0 Units produced 8,900 Units sold 8,500 Units in ending inventory 400 Variable costs per unit: Direct materials $26 Direct labor $25 Variable MOH $4 Variable selling & admin expense $4 Fixed costs: Fixed MOH $249,200 Fixed selling & admin expense $17,000 What is the variable costing unit product cost for the month?
$55 per unit Direct materials = $26 Direct labor = 25 Variable MOH = 4 Variable costing unit product cost (add them together) = $55
Sparks Corporation has a cash balance of $18,000 on April 1. The company must maintain a minimum cash balance of $10,000. During April, expected cash receipts are $98,000. Cash disbursements during the month are expected to total $112,000. Ignoring interest payments, during April the company will need to borrow:
$6,000 Beginning cash balance $18,000 Add cash receipts 98,000 Total cash available 116,000 Less cash disbursements 112,000 Excess (deficiency) of cash available over disbursements $4,000 The company will need to borrow $6,000 to maintain its minimum cash balance of $10,000.
Corbel Corporation has two divisions: Division A and Division B. Last month, the company reported a contribution margin of $60,000 for Division A. Division B had a contribution margin ratio of 40% and its sales were $300,000. Net operating income for the company was $40,000 and traceable fixed expenses were $80,000. Corbel Corporation's common fixed expenses were:
$60,000 Net operating income = Segment margin − Common fixed expenses $40,000 = $100,000 − Common fixed expenses Common fixed expenses = $100,000 − $40,000 = $60,000
Rushenberg Corporation's operating leverage is 10.8. If the company's sales volume increases by 14%, its net operating income should increase by about:Rushenberg Corporation's operating leverage is 10.8. If the company's sales volume increases by 14%, its net operating income should increase by about:
151.2% Percentage change in net operating income = Degree of operating leverage × Percentage change in sales = 10.8 ×14% = 151.2%
Mcmurtry Corporation sells a product for $170 per unit. The product's current sales are 10,000 units and its break-even sales are 8,100 units. The margin of safety as a percentage of sales is closest to:
19% Margin of safety in dollars = Total sales − Break-even sales = ($170 per unit × 10,000 units) − ($170 per unit × 8,100 units) = $1,700,000 − $1,377,000 = $323,000 Margin of safety percentage = Margin of safety in dollars ÷ Total sales = $323,000 ÷ $1,700,000 = 0.19
Parwin Corporation plans to sell 23,000 units during August. If the company has 8,000 units on hand at the start of the month, and plans to have 9,000 units on hand at the end of the month, how many units must be produced during the month?
24,000 Budgeted unit sales = 23,000 Add desired ending finished goods inventory = 9,000 Total needs = 32,000 Less beginning finished goods inventory = 8,000 Required production in units = 24,000
The February contribution format income statement of Mcabier Corporation appears below: Sales $211,200 Variable expenses 96,000 Contribution margin 115,200 Fixed expenses 84,100 Net operating income $31,100 The degree of operating leverage is closest to:
3.70 Degree of operating leverage = Contribution margin ÷ Net operating income = $115,200 ÷ $31,100 = 3.70
Fiwrt Corporation manufactures and sells stainless steel coffee mugs. Expected mug sales Fiwrt (in units) for the next three months are as follows: Budget Oct Nov Dec unit sales $30K $36K $34K Fiwrt likes to maintain a finished goods inventory equal to 30% of the next month's estimated sales. How many mugs should Fiwrt plan on producing during the month of November?
35,400 mugs November Budgeted unit sales = 36,000 Add desired ending finished goods inventory(34,000 × 30%) = 10,200 Total needs = 46,200 Less beginning finished goods inventory(36,000 × 30%) = 10,800 Required production in units = 35,400
Borich Corporation produces and sells a single product. Data concerning that product appear below: Selling price per unit $150.00 Variable expense per unit $73.50 Fixed expense per month $308,295 The break-even in monthly unit sales is closest to: (Round your intermediate calculations to 2 decimal places.)
4,030 Unit contribution margin = Selling price per unit − Variable expenses per unit = $150.00 per unit − $73.50 per unit = $76.50 per unit Unit sales to break even = Fixed expenses ÷ Unit contribution margin = $308,295 ÷ $76.50 per unit = 4,030 units
Kelchner Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. Sales (3,000 units) $180,000 Variable expenses 108,000 Contribution margin 72,000 Fixed expenses 62,000 Net operating income $9,600 The contribution margin ratio is closest to:
40% Contribution margin ratio = Contribution margin ÷ Sales = $72,000 ÷ $180,000 = 40%
Masde Corporation produces and sells Product CharlieD. To guard against stockouts, the company requires that 25% of the next month's sales be on hand at the end of each month. Budgeted sales of Product CharlieD over the next four months are: Budgeted Jun Jul Aug Sep sales in units $40K $60K $50K $80K Budgeted production for August would be:
57,500 units August Budgeted unit sales = 50,000 Add desired ending finished goods inventory(80,000 × 25%) = 20,000 Total needs = 70,000 Less beginning finished goods inventory(50,000 × 25%) = 12,500 Required production in units = 57,500
Cassius Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. Sales (7,000 units) $210,000 Variable expenses 136,000 Contribution margin 73,500 Fixed expenses 67,200 Net operating income $6,300 The number of units that must be sold to achieve a target profit of $31,500 is closest to:
9,400 units Selling price per unit ($210,000 / 7,000 units) = $30.00 Variable cost per unit ($136,500 / 7,000 units) = $19.50 Unit contribution margin ($30.00 - $19.50) = $10.50 Unit sales to attain a target profit = (Target profit + Fixed expenses) ÷ Unit contribution margin = ($31,500 + $67,200) ÷ $10.50 per unit = $98,700 ÷ $10.50 per unit = 9,400 units
Kern Corporation produces a single product. Selected information concerning the operations of the company follow: Units in beginning inventory 0 Units produced 10,000 Units sold 9,000 Direct materials $40,000 Direct labor $20,000 Variable MOH $12,000 Fixed MOH $25,000 Variable selling & admin expenses $4,500 Fixed selling & admin expenses $30,000 Assume that direct labor is a variable cost. Which costing method, absorption or variable costing, would show a higher operating income for the year and by what amount?
Absorption costing net operating income would be higher than variable costing net operating income by $2,500. Fixed manufacturing overhead per unit = $25,000 ÷ 10,000 units = $2.50 per unit Units in ending inventory = Units in beginning inventory + Units produced − Units sold = 0 units + 10,000 units − 9,000 units = 1,000 units Manufacturing overhead deferred in (released from) inventory = Fixed manufacturing overhead in ending inventories − Fixed manufacturing overhead in beginning inventories = ($2.50 per unit × 1,000 units) − $0 = $2,500 Therefore, absorption costing net operating income would be higher than variable costing net operating income by $2,500
Budgets are used for the distinct purposes of planning and profit.
False
One of the weaknesses of budgets is that they are of little value in uncovering potential bottlenecks.
False
The cash budget is the starting point in preparing the master budget.
False
The number of units to be produced in a period can be determined by adding the expected sales to the desired ending inventory and then deducting the beginning inventory.
True
Which of the following is true of a company that uses absorption costing?
Unit product costs can change as a result of changes in the number of units manufactured.
Allocating common fixed expenses to business segments:
may cause managers to erroneously discontinue business segments.
If the degree of operating leverage is 4, then a one percent change in quantity sold should result in a four percent change in:
net operating income
Higado Confectionery Corporation has a number of store locations throughout North America. In income statements segmented by store, which of the following would be considered a common fixed cost with respect to the stores?
the cost of corporate advertising aired during the Super Bowl
Net operating income computed under variable costing would exceed net operating income computed using absorption costing if:
units sold exceed units produced.
The costing method that treats all fixed costs as period costs is:
variable costing
