Exam 3- Chp. 7, 8, 9

A company has the following collection pattern: month of sale, 40%; month following sale, 60%. If credit sales for January and February are $100,000 and $200,000, respectively, the cash collections for February are?

$140,000.

Yummy Jams Company produces a line of jams. Yummy's estimated production of jars of jam for the fourth quarter of the year is as follows: October. 75,000 November. 98,000 December. 63,000 Each jar requires half a pound of berries. Yummy prefers to buy the freshest berries, so its policy is to have just 3% of the following month's production needs in ending inventory. On October 1, the company had 1,125 pounds of berries in inventory. Yummy pays $0.60 per pound of berries. It buys all berries on account and typically pays 40% of a month's purchases in that month and the remaining 60% the following month. What is the dollar cost of purchases for October?

$22,707

Pasha Company produced 50 defective units last month at a unit manufacturing cost of $30. The defective units were discovered before leaving the plant. Pasha can sell them "as is" for $20 or can rework them at a cost of $15 and sell them at the regular price of $50. Which of the following items is not relevant to the sell-or-rework decision?

$30 manufacturing cost

Learner Company sells its product for $100. It has a variable cost ratio of 70% and total fixed costs of $9,000. What is the break-even point in sales dollars for Learner Company?

$30,000

Full Serve Company makes and sells power tools. The budgeted sales are $460,000, the budgeted variable costs are $160,000, and the budgeted fixed cost is $240,000. What is the budgeted contribution

$300,000

Sabor Inc. is a medical testing laboratory that performs several tests and analyses for hospitals in the area. Four of the tests that it performs require the use of a specialized machine that can supply 14,000 hours per year. Information on the four lab tests is as follows: Test A Test B Test C Test D Charging rate $65 $51 $48 $32 Variable cost $25 $18 $13 $8 Machine hours 3 2 1 0.5 What is the contribution margin per unit of machine time for Test D?

$48

Shear-it, Inc., produces paper shredders. Shear-it is considering a new shredder design for home offices. The marketing vice president believes that a basic unit in a variety of attractive colors could be sold for $70. Shear-it requires that all new products yield 30% profit. What is the target cost of the new shredder?

$49

Webster Company sells a product for $20. Unit cost information is as follows: Direct materials-$7 Direct labor-$3 Variable overhead-$4 Fixed overhead-$1 Webster normally produces 50,000 units, and the fixed overhead rate is based on this amount. Fixed selling and administrative expense is $37,000.

$6_______Contribution margin per unit $14______Variable cost per unit 14,500______ break-even point (in units)

Sully Company provided the following information for last month: Production in units. 3,000 Direct materials cost. $7,000 Direct labor cost. $10,000 Overhead cost $9,600 Sales commission per unit sold. $4 Price per unit sold. $29 Fixed selling and administrative expense. $7,000 There were no beginning and ending inventories. What is Sully's cost of goods sold per unit? Round your answer to two decimal places.

$8.87

A company requires 100 pounds of plastic to meet the production needs of a small toy. It currently has 10 pounds of plastic inventory. The desired ending inventory of plastic is 30 pounds. How many pounds of plastic should be budgeted for purchasing during the coming period?

120 pounds

Excellent Company manufactures lamps. The estimated number of lamp sales for three months is as follows: Month Sales August 12,000 September 16,000 October 15,000 Finished goods inventory at the end of July was 3,600 units. Ending finished goods inventory is budgeted as 30% of the next month's sales. Excellent expects to sell the lamps for $30 each. In November, sales are projected at 18,000 lamps. How many lamps should be produced in September?

15,700 Lamps

Wright & Boyle Company budgeted the following production in units for the second quarter of the year: April. 50,000 May. 43,000 June. 47,000 Each unit requires five pounds of raw material. Wright & Boyle's policy is to have 20% of the following month's production needs for materials in inventory. This policy was met in March. The raw materials purchases budgeted for May in pounds equals:

219,000 pounds.

Dartmouth Company produces a single product with a price of $12, variable cost per unit of $3, and total fixed cost of $7,200.The variable cost ratio and the contribution margin ratio for Dartmouth are

25% and 75%, respectively.

Grass Valley Mining mines three products. Gold ore sells for $1,000 per ton, variable costs are $400 per ton, and fixed mining costs are $250,000. Last year the segment margin was $(100,000).How many tons of gold ore did Grass Valley Mining sell last year?

250 ton

Dartmouth Company produces a single product with a price of $9, variable cost per unit of $3, and total fixed cost of $8,000. The variable cost ratio and the contribution margin ratio for Dartmouth, rounded to the nearest whole number, are

33% and 67%, respectively.

Kenner Company produces two products: SR200 and TX500. Budgeted sales for four months are as follows: SR200 TX500 May 8,000 20,000 June 13,000 32,000 July 11,000 39,000 August 18,000 46,000 Kenner's ending inventory policy is that SR200 should have 15% of next month's sales in ending inventory and TX500 should have 40% of next month's sales in ending inventory. On May 1, there were 1,200 units of SR200 and 9,000 units of TX500.TX500 requires 6 units of Component A. (SR200 does not use Component A.) There were 30,000 units of Component A in inventory on May 1. Kenner wants to have 20% of the following month's production needs in inventory for Component A. How many units of TX500 are budgeted for production in June?

34,800

Pauley Company provides home health care. Pauley charges $35 per hour for the professional care. The variable costs are $21 per hour and the fixed costs are $78,000. Next year, Pauley expects to charge out 12,000 hours of the home health care. What is the contribution margin ratio?

40%

Saphire Company budgeted the following production in units for the second quarter of the year: April 45,000 May 38,000 June. 42,000 Each unit requires four pounds of raw material. Saphire's policy is to have 30% of the following month's production needs for materials in inventory. This policy was met in March. The desired ending inventory for April in pounds equals:

45,600

Paney Company makes and sells calendars. The information on the cost per unit is as follows: Direct materials-$1.50 Direct labor-1.20 Variable overhead-0.90 Variable marketing expense-0.40 The fixed marketing expense totaled $13,000, and the fixed administrative expense totaled $35,000. The price per calendar is $10. What is the contribution margin ratio?

60%

Dartmouth Company produces a single product with a price of $12, variable cost per unit of $3, and total fixed cost of $7,200.Dartmouth's break-even point in units

800

Standlar Company makes and sells wireless speakers. The price of the standard model is $360 and its variable expenses are $210. The price of the deluxe model is $500 and its variable expenses are $300. The price of the superior model is $1,600 and its variable expense per unit is $600. The total fixed expenses are $300,000. Generally, Standlar sells 8 standard models and 4 deluxe models for every superior model sold. What is the number of standard models sold by Standlar at the break-even point?

800

Dartmouth Company produces a single product with a price of $12, variable cost per unit of $3, and total fixed cost of $8,300. Dartmouth's break-even point in units (round your answer to the nearest whole number)

922

can be used to structure the decision maker's thinking and to organize the information to make a good decision.

A decision model

In the keep-or-drop decision, the company will find which of the following income statement formats most useful?

A segmented income statement in the contribution margin format

Which of the following is true of a static budget?

A static budget represents certain goals that a firm wants to achieve.

Select the one budget below that is not an operating budget.

Cash budget

If the variable cost per unit goes down,

Contribution margin increases and Break-even point decreases.

A segment could be which of the following? a.Product b.Customer type c.Geographic region d.All of these. e.None of these.

D. All of these

Which of the following qualitative factors should be considered when evaluating a make-or-buy decision? a.Whether an outside supplier can provide the needed quantities b.Whether an outside supplier can provide the product when it is needed c.The quality of an outside supplier's product d.All of these factors are correct.

D. All of these are correct

If variable costs per unit decrease, sales volume at the break-even point will:

Decrease

The difference between the summed costs of two alternatives in a decision is known as the

Differential Cost

ColorPro uses part 87A in the production of color printers. Unit manufacturing costs for part 87A are: Direct materials- $8 Direct labor- 2 Variable overhead- 1 Fixed overhead- 4 ColorPro uses 100,000 units of 87A per year. Filbert Company has offered to sell ColorPro 100,000 units of 87A per year for $12. Fixed overhead is unavoidable.Which of the following is a qualitative factor that might affect ColorPro's decision? a.Filbert has an outstanding reputation for quality. b.Making the part in-house would help ColorPro avoid layoffs of direct and indirect labor. c.Filbert is known for the reliability of its products. d.Ordering from Filbert would give ColorPro a chance to see how well Filbert could meet JIT standards for ColorPro's other products. e.All of these choices are correct.

E. All of these are correct

Which of the following is needed to prepare the production budget?

Expected unit sales

In a multi-product firm, if the sales mix changes, the break-even points for each product will not change.

False

In the equation to determine the number of units that must be sold to earn a target income, the targeted income is subtracted from fixed expense in the numerator.

False

Typically, in a special-order decision, a customer wants to pay more than the usual price.

False

The department manager reviews the budget, provides policy guidelines and budgetary goals, resolves differences that arise as the budget is prepared, approves the final budget, and monitors the actual performance of the organization as the year unfolds.

False, its the The budget committee

The output of the cost of goods sold budget is entered into the pro forma balance sheet.

False. (The output of the cost of goods sold budget is entered into the pro forma income statement.)

If variable costs per unit increase, the break-even point will decrease.

False. If variable costs per unit increase, the break-even point will also increase.

Which of the following is true of a performance report?

It compares actual costs with budgeted costs.

Which of the following is not an advantage of participative budgeting?

It encourages budgetary slack.

Which of the following is true of participative budgeting?

It gives an opportunity to build slack into the budgets.

Which of the following is not an advantage of budgeting?

It guarantees an improvement in organizational efficiency.

To create a meaningful performance report, actual costs and expected costs should be compared

at the actual level of activity.

Which of the following is not a step in the short-run decision-making model? a.Defining the problem. b.Identifying alternatives. c.Identifying the costs and benefits of feasible alternatives. d.Assessing qualitative factors. e.All of these choices are steps in the short-run decision-making model.

e.All of these choices are steps in the short-run decision-making model.

An important assumption of cost-volume-profit analysis is that a.both costs and revenues are linear functions. b.all cost and revenue relationships are analyzed within the relevant range. c.there is no change in inventories. d.the sales mix remains constant. e.all of these are assumptions of cost-volume-profit analysis.

e.all of these are assumptions of cost-volume-profit analysis.

Operating leverage is concerned with a relative mix of:

fixed costs and variable costs.

For performance reporting, it is best to compare actual costs with budgeted costs using

flexible budgets.

Target costing is a method of determining the cost of a product or service based on the price (target price) that customers are willing to pay.

True

The budget director is the person responsible for directing and coordinating an organization's overall budgeting process.

True

Monetary incentives include salary increases, bonuses, and promotions.

True.

Sandy is considering moving from her apartment into a small house with a fenced yard. The apartment is noisy, and she has difficulty studying. In addition, the fenced yard would be great for her dog. The distance from school is about the same from the house and from the apartment. The apartment costs $750 per month, and she has 2 months remaining on her lease. The lease cannot be broken, so Sandy must pay the last 2 months of rent whether she lives there or not. The rent for the house is $450 per month, plus utilities, which should average $100 per month. The apartment is furnished; the house is not. If Sandy moves into the house, she will need to buy a bed, dresser, desk, and chair immediately. She thinks that she can pick up some used furniture for a good price. Suppose that the apartment building was within walking distance to campus and the house was five miles away. Sandy does not own a car. How would that affect her decision?

It would make the apartment more desirable.

In the presence of multiple constraints, the solution is considerably more complex than for one constraint and requires a technique known as

Linear Programming

Craydye Corporation manufactures a part for its production cycle. The costs per unit for 8,000 units of this part are as follows: Direct materials- $ 24 Direct labor- 42 Variable overhead- 15 Fixed overhead- 25 Total- $106 Zinkyl Company has offered to sell Craydye Corporation 8,000 units of the part for $120 per unit. If Craydye Corporation accepts Zinkyl Company's offer, total fixed overhead will be reduced by $40,000. What alternative is more desirable and by what amount is it more desirable?

Make; $272,000

The use of fixed costs to extract higher percentage changes in profits as sales activity changes involves

Operating Leverage

Garrett Company provided the following information: Product 1. Product2. Units sold. 10,000 20,000 Price $20 $15 Variable cost per unit. $10 $10 Direct fixed cost $35,000 $75,000 Common fixed cost totaled $46,000. Garrett allocates common fixed cost to Product 1 and Product 2 on the basis of sales. If Product 2 is dropped, which of the following is true?

Overall operating income will decrease by $25,000.

In a segmented income statement, which of the following statements is true?

Segment margin is equal to contribution margin less direct fixed expenses.

Carroll Company, a manufacturer of vitamins and minerals, has been asked by a large drugstore chain to provide bottles of vitamin E. The bottles would be labeled with the name of the drugstore chain, and the chain would pay Carroll $2.30 per bottle rather than the $3.00 regular price. Which type of a decision is this?

Special-order

Jasper Company developed the following flexible budget formulas for its three overhead items: Overhead item. Fixed cost. Variable rate-per unit Power. $1,500 $ 6.00 Indirect labor $ 6.00 Equipment lease $7,000 Total $8,500 $ 6.50 Jasper's accountant developed an overhead budget showing overhead costs by category for 1,000 units, 2,000 units, and 3,000 units. Which of the following is true?

The budgeted amounts for 2,000 units are higher than the budgeted amounts for 1,000 units but not by twice as much.

Which of the following is not part of the operating budget?

The capital budget

On January 1, Loring Company purchased new machinery costing $400,000 on a note payable with equal payments due at the end of each of the next 5 years at a rate of interest equal to 8%. The machinery is expected to last 10 years, and Loring uses straight-line depreciation. What impact will this have on the December 31 cash balance?

The cash balance will not be affected. (The machinery is purchased on a note payable, and the repayment will be made from the next year. This will not have any impact on the cash balance for December 31. Depreciation is a non-cash item and will not affect the cash balance.)

Sandy is considering moving from her apartment into a small house with a fenced yard. The apartment is noisy, and she has difficulty studying. In addition, the fenced yard would be great for her dog. The distance from school is about the same from the house and from the apartment. The apartment costs $750 per month, and she has 2 months remaining on her lease. The lease cannot be broken, so Sandy must pay the last 2 months of rent whether she lives there or not. The rent for the house is $450 per month, plus utilities, which should average $100 per month. The apartment is furnished; the house is not. If Sandy moves into the house, she will need to buy a bed, dresser, desk, and chair immediately. She thinks that she can pick up some used furniture for a good price. Which of the following costs is irrelevant to Sandy's decision to stay in the apartment or move to the house?

The last 2 months of rent in the apartment

Sandy is considering moving from her apartment into a small house with a fenced yard. The apartment is noisy, and she has difficulty studying. In addition, the fenced yard would be great for her dog. The distance from school is about the same from the house and from the apartment. The apartment costs $750 per month, and she has 2 months remaining on her lease. The lease cannot be broken, so Sandy must pay the last 2 months of rent whether she lives there or not. The rent for the house is $450 per month, plus utilities, which should average $100 per month. The apartment is furnished; the house is not. If Sandy moves into the house, she will need to buy a bed, dresser, desk, and chair immediately. She thinks that she can pick up some used furniture for a good price. Which of the following is a qualitative factor?

The noise in the apartment house

Jennings Hardware Store marks up its merchandise by 30%. If a part costs $25.00, which of the following is true?

The price is $32.50.

Which budget should be used to measure whether or not a manager accomplishes his or her goals?

The static budget

If a company's total fixed cost decreases by $10,000, which of the following will be true?

The variable cost ratio will be unchanged.

A firm should develop a strategic plan before preparing a budget.

True

A strategic plan identifies strategies for future activities and operations, generally covering at least 5 years.

True

Future costs that differ across alternatives are relevant costs.

True

If the variable cost per unit decreases and the selling price per unit increases, the break-even units also decrease.

True

Planning is looking ahead to see what actions should be taken to realize particular goals.

True

A company has provided a sales budget for the next four months. It bases its production budget on the sales budget and has a policy that each month's ending inventory of finished product must be equal to 25% of the following month's sales needs. The direct materials purchases budget is based on the production budget. The company's policy for each month's ending inventory of raw materials is that it must be equal to 10% of the following month's production needs for raw materials. Given this information, the company can prepare direct materials purchases budgets for how many months?

Two

Which of the following formulas is used to compute the units to be produced?

Units to be produced = Expected unit sales + Units in desired ending inventory - Units in beginning inventory

A moving, 12-month budget that is updated monthly is

a continuous budget.

In preparing the overhead budget, many companies use:

a unit-based driver such as direct labor hours.

Break-even revenue for the multiple-product firm can

be calculated by dividing total fixed cost by the overall contribution margin ratio.

In the cost-volume-profit graph,

both the total revenue curve and the total cost curve appear.

The ratio of fixed expenses to the contribution margin ratio is the:

break-even point in sales.

In the cash budget, cash available includes:

cash on hand and expected cash receipts.

Which of the following statements is false? a.Fixed costs are never relevant. b.Variable costs are never relevant. c.Usually, variable costs are irrelevant. d.Step costs are irrelevant when a decision alternative requires moving outside of the existing relevant range. e.All of these choices are correct.

e.All of these choices are correct.

The contribution margin is the

difference between sales and total variable cost.

Before a direct materials purchases budget can be prepared, you should first a.prepare a sales budget. b.prepare a production budget. c.decide on the desired ending inventory of materials. d.obtain the expected price of each type of material. e.All of these.

e. all of these

The budget committee a.reviews the budget. b.resolves differences that arise as the budget is prepared. c.approves the final budget. d.is directed (typically) by the controller. e.All of these.

e. all of these

Which of the following items is a possible example of myopic behavior? a.Failure to promote deserving employees b.Reducing expenditures on preventive maintenance c.Cutting back on new product development d.Buying cheaper, lower-quality materials so that the company does not exceed the materials purchases budget e.All of these.

e. all of these

The following information relates to the unit product cost for a product manufactured by Creamer Company: Direct materials- $24 Direct labor- 15 Variable overhead-30 Fixed overhead- 18 Unit cost. $87 In addition, fixed selling costs are $500,000 per year, and variable selling costs are $12 per unit sold. Although production capacity is 600,000 units per year, the company expects to produce only 400,000 units next year. The product normally sells for $120 each. A customer has offered to buy 60,000 units for $90 each.If the firm produces the special order, the effect on income would be a(n):

increase of $540,000.

A budget

is a short-term financial plan.

The units sold or expected to be sold or sales revenue earned or expected to be earned above the break-even volume is called the:

margin of safety.

The percentage of accounts receivable that is uncollectible can be ignored for cash budgeting because

no cash is received from an account that defaults.

To help assess performance, managers should use a static budget. before-the-fact flexible budget. master budget. continuous budget. None of these.

none of these

The first step in preparing the sales budget is to

prepare a sales forecast.

When a company faces a production constraint or scarce resource (e.g., only a certain number of machine hours are available), it is important to

produce the product with the highest contribution margin per unit of scarce resource.

Costs that cannot be affected by any future action are called

sunk costs

If the margin of safety is 0, then

the company is precisely breaking even.

In a make-or-buy decision,

the company would consider the purchase price of the externally provided good to be relevant.

The contribution margin is:

the difference between sales and variable expense.

Assume that the expectations of the static budget were met. We can conclude that:

the effectiveness of the manager is not in question.

In the sell-or-process-further decision,

the most profitable outcome may be to further process some separately identifiable products beyond the split-off point, but sell others at the split-off point.

On a cost-volume-profit graph, a firm earns a profit where:

the total revenue line is above the total cost line. On a cost-volume-profit graph, a firm earns a profit where the total revenue line is above the total cost line.

The amount of revenue required to earn a targeted profit is equal to

total fixed cost plus targeted profit divided by contribution margin ratio.