Exam 4

Kent Company has a sales budget for next month of $1,000,000. Cost of goods sold is expected to be 25 percent of sales. All goods are paid for in the month following purchase. The beginning inventory of merchandise is $50,000, and an ending inventory of $64,000 is desired. Beginning accounts payable is $160,000.For Kent Company, the ending accounts payable should be:

1000000*.25+(64000-50000)= 264000 Rationale: Ending accounts payable should be equal to current period's purchases since the beginning balance carried over from the prior period is paid in the current period. Current purchases are $264,000 calculated as ending inventory of $64,000 plus cost of goods sold of $250,000 = $314,000, less beginning inventory of $50,000 = $264,000. The correct answer is: $264,000

Assume Beneteau manufactures sailboat hulls at a cost of $7,500 per unit. The hulls are sold to boat yards for $9,000. The company is evaluating the desirability of adding masts, sails, and rigging to the hulls prior to sale at an additional cost of $2,500. The completed sailboats could then be sold for $10,500 each. Determine whether the company should sell sailboat hulls or process them further into complete sailboats. Assume sales volume will not be affected. Calculate the net advantage (disadvantage) of processing the boat hulls into sail boats. Use a negative sign with your answer, if appropriate.

10500-9000=1500 1500-2500=1000 Answer: (1000)

Advanced Micro Devices develops high-performing computing products. Assume one of its processors, Ryzen 7 Pro, has a standard labor time of 0.25 hour and a standard labor rate of $20 per hour. During February, the following activities pertaining to direct labor for Ryzen 7 Pro were recorded: Direct labor hours used 64,000 Direct labor cost $1,248,000 Units of Ryzen 7 Pro manufactured 250,000 (a) Determine the labor rate variance. (b) Determine the labor efficiency variance. (c) Determine the total flexible budget labor cost variance.

32000 F (20*64000)-1248000=32000 30000 U ((.25*250000)-64000)*20=30000 2000 F 32000-30000

Ecolab produces cleaning and sanitizing chemicals for commercial markets. Assume the company processes raw material D into joint products E and F. Raw material D costs $8 per liter. It costs $150 to convert 100 liters of D into 60 liters of E and 40 liters of F. Product F can be sold immediately for $40 per liter or processed further into Product G at an additional cost of $12 per liter. Product G can then be sold for $55 per liter. Determine whether Product F should be sold or processed further into Product G. Calculate the net advantage (disadvantage) of further processing. Use a negative sign to indicate a net disadvantage (if applicable).

55-(40+12)=$3

Happy Manufacturing Company needs to know its anticipated cash inflows for the next quarter by month. Cash sales are 25 percent of total sales each month. Historically, sales on account have been collected as follows: 50 percent in the month of the sale, 30 percent in the month after the sale, and the remaining 20 percent two months after the sale. Gross sales for the quarter are projected as follows: January $20,000 February $10,000 March $40,000 Accounts receivable on December 31 were $30,000.Happy's expected cash collections for March would be:

Cash sales of 25% x $40,000 = $10,000. In addition, 50% of the remaining $30,000 or $15,000 will be collected, plus 30% of 75% of Feb. sales of $10,000, or $2,250, plus 20% of 75% of January sales of $20,000, or $3,000. Total cash collections are $10,000 + $15,000 + $2,250 + $3,000 = $30,250. The correct answer is: $30,250

The Fred Fisher Corporation has a sales budget for next month of $200,000. Cost of goods sold is expected to be $125,000. All goods are paid for in the month following their purchase. The beginning inventory of merchandise is $8,000, and an ending inventory of $6,000 is desired. Beginning accounts payable is $26,000.How much merchandise inventory will The Fred Fisher Corporation need to purchase next month?

Ending inventory of $6,000 + Cost of sales of $125,000 = $131,000 - Beginning Inventory of $8,000 = Purchases of $123,000. The correct answer is: $123,000

Dark Wind manufactures decorative weather vanes that have a standard materials cost of three pounds of raw materials at $4.00 per pound. During September 17,500 pounds of raw materials costing $4.25 per pound were used in making 6,000 weather vanes. Determine the materials price and quantity variance.

Materials price variance: 4375 U .25*17500 Materials quantity variance: (3*6000)-17500=500*4=20000 F

The following information pertains to Supersupper's 2020 operations: Selling price per unit $50 Variable costs per unit $10 Total fixed costs $55,000 Supersupper's break-even point in units is:

Rationale: $55,000 / ($50 - $10) = 1,375 units at break-even The correct answer is: 1,375 units

Bro Company has a sales budget for next month of $200,000. Cost of goods sold is expected to be 25 percent of sales. All goods are paid for in the month following purchase. The beginning inventory of merchandise is $20,000, and an ending inventory of $24,000 is desired. Beginning accounts payable is $206,500.The cost of goods sold for next month is expected to be:

Rationale: 25% × $200,000 = $50,000 The correct answer is: $ 50,000

A profit-volume graph Select one: A. plots total profit on the Y axis against total volume on the X axis. B. plots both revenue and total cost on the Y axis. C. is most useful in situations where there are multiple cost drivers. D. plots contribution margin on the Y axis and volume on the X axis.

Rationale: A profit-volume graph plots total activity volume on the X axis and total profit on the Y axis. The correct answer is: plots total profit on the Y axis against total volume on the X axis.

Which of the following factors is not an advantage of preparing operating budgets? Select one: A. Increased employee loyalty B. Improved planning C. Improved basis of performance evaluation D. Improved communications

Rationale: All of the above are cited in the text as advantages of budgeting, except for increased amounts employee loyalty. Whether budgeting will increase employee loyalty would depend on management's approach to budgeting and whether all levels of employees participate in the process. The correct answer is: Increased employee loyalty

If a trucking company were operating at capacity, but had an opportunity to fill a one-time high volume special order, which of the following ramifications could occur? Select one: A. Lost revenues from regular customers B. Long-term revenue loss from customers who change service to competitors C. Questions from regular customers about commitment to service

Rationale: At full capacity, accepting a one-time offer could have all these effects on current customers and related revenues. The correct answer is: All of the above

The break-even point is Select one: A. the volume of activity where all of the variable costs, but none of the fixed costs are recovered. B. where total fixed costs equal total variable costs. C. where total revenues equal total costs. D. all of the above.

Rationale: Break-even point is defined as the activity level where total revenue equals total cost. The correct answer is: where total revenues equal total costs.

Budgets improve ____________________ and ____________________. Select one: A. communication; coordination B. information; revenues C. communication; profits D. revenues; profits

Rationale: Budgeting invariably improves communication and coordination. It may or may not improve revenues and profits. The correct answer is: communication; coordination

The contribution margin is Select one: A. total sales minus total cost of goods sold. B. the difference between sales price and total variable cost. C. the difference between total revenue and total variable cost. D. the difference between total sales and total cost of goods sold.

Rationale: Contribution margin is calculated as revenues minus variable costs. It can be calculated on either an aggregate or per-unit basis. The correct answer is: the difference between total revenue and total variable cost.

In a contribution income statement Select one: A. the gross margin is computed as the difference between sales revenue and the cost of goods sold. B. the contribution margin is computed as the difference between sales revenue and fixed costs. C. net income plus all fixed expenses equal the contribution margin. D. all fixed costs are grouped together and subtracted from gross profit.

Rationale: Contribution margin minus fixed costs equals net income; therefore net income plus fixed costs equals contribution margin. The correct answer is: net income plus all fixed expenses equal the contribution margin.

Lorri's income statement is as follows: Sales (5,000 units) $75,000 Less variable costs - 24,000 Contribution margin $51,000 Less fixed costs - 12,000 Net income $ 39,000 What is the unit contribution margin?

Rationale: Contribution margin of $51,000 divided by 5,000 units equals a unit contribution margin of $10.20. The correct answer is: $10.20

The portion of each dollar that can be used to cover fixed costs and provide a profit is known as: Select one: A. Gross margin percent B. Operating leverage C. Margin of safety D. Contribution margin ratio

Rationale: Contribution margin ratio is the portion (or percent) of revenues available for covering fixed costs and providing a profit. It is calculated as contribution margin dollars divided by sales. The correct answer is: Contribution margin ratio

If a cost is identical under each alternative under consideration within a given decision context, the cost is considered Select one: A. a sunk cost. B. an irrelevant cost. C. an outlay cost. D. an opportunity cost.

Rationale: Costs that do not differ between competing decision alternatives are not relevant; only those that differ are relevant. The correct answer is: an irrelevant cost.

Relevant costs are best described as Select one: A. future costs. B. opportunity costs. C. out-of-pocket costs. D. future costs that differ between competing decision alternatives.

Rationale: Costs that do not differ between competing decision alternatives are not relevant; only those that differ are relevant. The correct answer is: future costs that differ between competing decision alternatives.

Which of the following items is not typically considered in the development of the cash budget? Select one: A. Purchases B. Depreciation Expense C. Selling expenses D. Administrative expenses

Rationale: Depreciation is a non-cash expense that does not affect the cash budget. The correct answer is: Depreciation Expense

Which of the following statements concerning an incremental budget is true? Select one: A. An incremental budget has revenues and expenditures assigned to specific categories and items of responsibility. B. An incremental budget is often used where the relationships between inputs and outputs are weak or nonexistent. C. An incremental budget begins with the premise that every dollar of budgeted expenditure must be justified. D. An incremental budget has revenues and expenditures allocated to general areas.

Rationale: If a clear relationship between inputs and outputs cannot be established, companies may use an incremental budgeting approach which begins with the most recent budget adjusted for an increase. The correct answer is: An incremental budget is often used where the relationships between inputs and outputs are weak or nonexistent.

An outlay cost is not relevant if it Select one: A. is under $5,000 or if it is less than 2% of sales. B. does not differ under the decision alternatives at hand. C. not an opportunity cost. D. sunk.

Rationale: If an outlay cost will be incurred under all competing alternatives, then it is not relevant. The correct answer is: does not differ under the decision alternatives at hand.

Sunny Corporation sells 1,000 units of product A per day at $1.00 per unit. Sunny has the option of processing the product further for additional costs of $400 per day to produce product B, which sells for $1.45 per unit.If Sunny processes product A further to produce product B, the company's net income will: Select one: A. Decrease by $50 per day B. Increase by $50 per day C. Decrease by $450 per day D. Increase by $450 per day

Rationale: If processed further, revenue will increase by $0.45 x 1,000 units, or $450. With additional costs of processing of $400, profit will increase by $50 per day. The correct answer is: Increase by $50 per day

___________ are costs that require future expenditures of cash or other resources. Select one: A. Committed costs B. Outlay costs C. Opportunity costs D. Sunk costs

Rationale: Only future costs that will be incurred are outlay costs, as opposed to past sunk costs. The correct answer is: Outlay costs

Which budgeting approach predicts a cost objective's budget by anticipating the consumption of cost drivers? Select one: A. The input/output approach B. The continuous budgeting approach C. The activity-based approach D. Participation budgeting

Rationale: The activity-based approach to budgeting estimates the activities to be consumed and then budgets costs to those activities. The correct answer is: The activity-based approach

A basic assumption of the cost-volume-profit model is that Select one: A. higher volumes of product require lower prices. B. the mix of products changes over time. C. cost drivers can be organized into unit-level, batch level, product-level and facility-level factors. D. all costs can be accurately classified as either fixed or variable.

Rationale: The basic CVP model requires all cost to be treated as either fixed or variable. The correct answer is: all costs can be accurately classified as either fixed or variable.

Leap Company has collected the following information: Cost to buy one unit $24 Production costs per unit: Direct materials $10 Direct labor $8 Variable manufacturing overhead $1 Total fixed manufacturing overhead $95,000 What level of production is needed for Leap to be indifferent between making or buying the part, assuming it can eliminate $75,000 of fixed costs?

Rationale: The point of indifference is the point where the cost to make and the cost to buy are equal. With total variable cost per unit of $19, the point at which the relevant cost to make equals $24 per unit is where relevant fixed cost per unit is $5, which is $75,000 / $5, or 15,000 units. Let Q = Quantity. The cost to make of $19Q + $75,000 = $24Q the cost to buy5Q = $75,000Q = 15,000 units The correct answer is: 15,000 units

Lorri's income statement is as follows: Sales (5,000 units) $75,000 Less variable costs - 24,000 Contribution margin $51,000 Less fixed costs - 12,000 Net income $ 39,000 If sales increase by 1,000 units, profits will:

Rationale: The unit contribution margin is the $51,000 Contribution Margin divided by 5,000 units, or $10.20 per unit. If sales increase by 1,000 units, total contribution margin and total profits will increase by 1,000 units times $10.20, or $10,200, because fixed costs will remain unchanged. The correct answer is: Increase by $10,200

Which of the following is not a common approach to developing a budget? Select one: A. The input/output approach B. The qualitative approach C. The minimum level approach D. The incremental approach

Rationale: There is no such thing as the qualitative approach to budgeting. The correct answer is: The qualitative approach

A unit contribution margin measures Select one: A. the difference between unit sales and total costs per unit. B. the difference between unit selling price and variable cost per unit. C. the percentage difference between sales and cost of goods sold. D. the difference between sales and cost of goods sold on a unit basis.

Rationale: Unit selling price minus unit variable cost is the definition of unit contribution margin. The correct answer is: the difference between unit selling price and variable cost per unit.

The Rug Weaving Company manufactures an intermediate product identified as Y3. Variable manufacturing costs per unit of Y3 are as follows: Direct materials $2 Direct labor $7 Variable manufacturing overhead $5 Purple Company has offered to sell Rug Weaving 5,000 units of Y3 for $20 per unit. If Rug Weaving accepts the offer, $25,000 of fixed manufacturing overhead will be eliminated. Applying differential analysis to the situation, Rug Weaving should

Rationale:Relevant cost to manufacture = [(2 + 7 + 5) x 5,000] + 25,000) = $95,000The cost to purchase is $20 × 5,000 = $100,000The savings from making is $100,000 - $95,000 = $5,000 The correct answer is: make Y3; the savings is $5,000.

Assume that Pearle Vision uses standard costs to control the materials in its made-to-order sunglasses. The standards call for 3 ounces of material for each pair of lenses. The standard cost per ounce of material is $12. During July, the Santa Clara location produced 6,000 pairs of sunglasses and used 17,750 ounces of materials. The cost of the materials during July was $12.25 per ounce, and there were no beginning or ending inventories. a. Determine the flexible budget materials cost for the completion of the 6,000 pairs of glasses. b. Determine the actual materials cost incurred for the completion of the 6,000 pairs of glasses and compute the total materials variance. c. How much of the total variance was related to the price paid to purchase the materials? d. How much of the difference between the answers to requirements (a) and (b) was related to the quantity of materials used? (Hint: Compute materials quantity variance.)

a. 216000 12*3*6000 b. actual materials cost: 217438 =12.25*17750 total materials variance: 1438 U = a-b c. 4438 U =.25*17750 d. 3000 F =c-b

Assume Strands Salon, a San Diego hair salon, provides cuts, perms, and hairstyling services. Annual fixed costs are $225,000, and variable costs are 45 percent of sales revenue. Last year's revenues totaled $450,000. (a) Determine its break-even point in sales dollars. Round answer to the nearest dollar. (b) Determine last year's margin of safety in sales dollars. Round answer to the nearest dollar. (c) Determine the sales dollar volume required for an annual pretax profit of $200,000.Round your answer to the nearest dollar.

a. Break-even point = $225,000/(1 - 0.45) = $409,091 (rounded) b. Margin of safety = $450,000 - $409,091 = $40,909 c. Sales volume for desired profit = ($225,000 + $200,000) = $772,727 (rounded) (1 - 0.45)