Practice 1, 10, & 11 Study units
The contribution margin for the Quinoa Bars is 25% of sales. Millet Cookies and Amaranth Pops both have a 50% contribution margin. Calculate the breakeven point in sales dollars if fixed costs are $675,000.
$1,705,263
A company sells two products with the following results for the year just ended. Product 1 Product 2 Sales $12,000,000 $3,000,000 Variable costs 4,800,000 1,500,000 Fixed costs 5,400,000 400,000 Assuming the product mix and the sales mix remain the same, the company's breakeven point in sales dollars is
$10,000,000
The selling price that would maintain the same contribution margin rate as last year is
$10.00
Cervine Corporation makes two types of motors for use in various products. Operating data and unit cost information for its products are presented below.Product AProduct BAnnual unit capacity10,00020,000Annual unit demand10,00020,000Selling price$100$80Variable manufacturing cost(53)(45)Fixed manufacturing cost(10)(10)Variable selling & administrative(10)(11)Fixed selling & administrative(5)(4)Fixed other administrative(2)(0)Unit operating profit$ 20$10Machine hours per unit2.01.5Cervine has 40,000 productive machine hours available. '; Cervine's relevant contribution margins, per machine hour for each product, to be utilized in making a decision on product priorities for the coming year are
$18.50 $16.00
The breakeven point in units sold is 44,000. If fixed costs are equal to $880,000 annually and variable costs are $10 per unit, what is the contribution margin per unit?
$20.00
Panyer has again received a special, one-time offer for 2,000 units of J-5. Panyer is now operating at full capacity, 10,000 units, at a total cost of $2,300,000. To produce this order would cause a 20% increase in fixed costs. What is the minimum price that is acceptable for this one-time, special order?
$230
A company with $280,000 of fixed costs has the following data: Product A Product B Sales price per unit $5 $6 Variable costs per unit $3 $5 Assume three units of A are sold for each unit of B sold. How much will sales be in dollars of product B at the breakeven point?
$240,000
The marginal cost of producing the ninth unit is
$25.75
The maximum after-tax profit that can be earned by Delphi Company from sales of the new product during the next fiscal year is
$30,000
If prime costs increased by 20% and all other values remained the same, Oradell Company's contribution margin (to the nearest whole percent) is
.24
A corporation produces two joint products, JP-1 and JP-2, and a single by-product, BP-1, in Department 2 of its manufacturing plant. JP-1 is subsequently transferred to Department 3, where it is refined into a more expensive, higher-priced product, JP-1R, and a by-product known as BP-2. Recently, a competitor introduced a product that would compete directly with JP-1R, and as a result, the corporation must re-evaluate its decision to process JP-1 further. The market for JP-1 will not be affected by the competitor's product, and the corporation plans to continue production of JP-1, even if further processing is terminated. Should this latter action be necessary, Department 3 will be dismantled. Which of the following items should the corporation consider in its decision to continue or terminate Department 3 operations? The selling price per pound of JP-1. The total hourly direct labor cost in Department 3. Unit marketing and packaging costs for BP-2. Supervisory salaries of Department 3 personnel who will be transferred elsewhere in the plant, if processing is terminated. Department 2 joint cost allocated to JP-1 and transferred to Department 3. The cost of existing JP-1R inventory.
1, 2, 3
After completing a marketplace analysis of Product Z, a company's accountant has determined that a price change from $25 to $20 will result in a demand increase for Product Z from 1,000 units to 1,500 units. Based on the information provided, what is the price elasticity of demand for Product Z using the midpoint formula?
1.80
Moorehead Manufacturing Company produces two products for which the data presented to the right have been tabulated. Fixed manufacturing cost is applied at a rate of $1.00 per machine hour. The sales manager has had a $160,000 increase in the budget allotment for advertising and wants to apply the money to the most profitable product. The products are not substitutes for one another in the eyes of the company's customers. Per Unit XY-7 BD-4 Selling price $4.00 $3.00 Variable manufacturing cost 2.00 1.50 Fixed manufacturing cost .75 .20 Variable selling cost 1.00 1.00 '; Suppose the sales manager chooses to devote the entire $160,000 to increased advertising for XY-7. The minimum increase in sales units of XY-7 required to offset the increased advertising is
160,000 units
Suppose the sales manager chooses to devote the entire $160,000 to increased advertising for XY-7. The minimum increase in sales units of XY-7 required to offset the increased advertising is
160,000 units.
A company attempts to achieve an annual after-tax operating profit of $2,400,000 by selling a good for $3,000 per unit. Production of the good involves fixed costs of $15,000,000 and variable cost per unit of $2,000. Assuming an average income tax rate of 40%, the volume (in units) required to produce the target amount of profit would be
19,000
The number of T-shirts Donnelly Corporation must sell to break even in the coming year is
19,250
The overhead is 40% fixed. Of the fixed overhead, $25,000 is the salary of the cafeteria supervisor. The remainder of the fixed overhead has been allocated from total company overhead. Assuming the cafeteria supervisor will remain and the corporation will continue to pay his/her salary, the maximum cost the corporation will be willing to pay an outside firm to service the cafeteria is
241,000
How many surge protectors (rounded to the nearest hundred) must Bruell Electronics sell at a selling price of $14 per unit to increase after-tax income by $30,000? Bruell Electronics' effective income tax rate is 40%.
28,300 units.
A company includes a margin of safety when it examines a new product with a cost-volume-profit analysis. The total fixed cost of production is $200,000. If the unit selling price is $80, the unit variable cost is $60, and budgeted revenue is $1,040,000, what is the margin of safety in units?
3,000 units
Projected sales for a tent manufacturer are $510,000. Each tent sells for $850 and requires $350 of variable costs to produce. The tent manufacturer's total fixed costs are $145,000. The tent manufacturer's margin of safety is
310 units
What will Whitman's total contribution margin be if the Restaurant segment is discontinued?
380,000
A company manufactures cell phone cases. The selling price per case is $20 with a variable cost per unit of $10. The forecasted sales for the year are $400,000. Related costs are shown below. Depreciation $35,000 Fixed overhead 40,000 Administration 65,000 Utility costs 20,000 What is the margin of safety?
4,000 units
Considering the company as a whole, the number of composite units to break even is
4,500 composite units.
Assume a 10% increase in annual fixed costs, a 20% unit cost increase for direct labor, and a reduction in unit material costs of 25%, with no change in selling price. Madengrad Company's breakeven point would increase (decrease) (rounded to the nearest whole unit) by
407 units
The data below are available for Xerbert Co.:Xerbert Co.Budget and Actual Income StatementsFor the Year Ending December 31(000s omitted)BudgetActualXenoxXeonTotalXenoxXeonTotalUnit sales150100250130130260Net dollar sales$900$1,000$1,900$780$1,235$2,015Variable expenses(450)(750)(1,200)(390)(975)(1,365)Contribution margin$450$ 250$ 700$390$ 260$ 650Fixed expenses:Manufacturing$ 153$ 140Marketing9590Other fixed expenses200190Total fixed expenses$ 448$ 420Income before taxes$ 252$ 230 '; The percentage difference between the actual and the budgeted breakeven point in units was that actual was
5.00% above budget.
The following information pertains to Syl Co.: Sales $800,000 Variable costs 160,000 Fixed costs 40,000 What is Syl's breakeven point in sales dollars?
50,000
A firm produces three inexpensive socket wrench sets that are popular with do-it-yourselfers. Budgeted information for the upcoming year is as follows. Model Selling Price Variable Cost Estimated Sales Volume No. 109 $10.00 $ 5.50 30,000 sets No. 145 15.00 8.00 75,000 sets No. 153 20.00 14.00 45,000 sets Total fixed costs for the socket wrench product line is $961,000. If the company's actual experience remains consistent with the estimated sales volume percentage distribution, and the firm desires to generate total operating income of $161,200, how many Model No. 153 socket sets will the firm have to sell?
54,300
Assume the rental opportunity does not exist and Richardson Motors could use the idle capacity to manufacture another product that would contribute $104,000 per month. If Richardson chooses to manufacture the ten T305 units in order to maintain quality control, Richardson's opportunity cost is
8,000
A bakery produces two types of cakes, a round cake and a heart-shaped cake. Total fixed costs for the firm are $92,000. Variable costs and sales data for these cakes are presented below. Round Cake Heart-shaped Cake Selling price per unit $12 $20 Variable cost per unit $8 $15 Budgeted sales (units) 10,000 15,000 How many cakes will be required to reach the breakeven point?
8,000 round cakes and 12,000 heart-shaped cakes.
A company sells two products that are manufactured in the same production department on two different machines. The contribution margin per unit of the two products is $120 and $80, respectively. When deciding if the second product should be discontinued, which one of the following pieces of information is needed to make the correct decision?
Alternative use of the second product's space.
If a product's demand is elastic and there is a decrease in price, the effect will be
An increase in total revenue.
Buyer-based pricing involves
Basing prices on the product's perceived value.
Relativism is the branch of moral philosophy that
Denies the existence of universal moral principles.
A staff accountant becomes aware of an off-balance-sheet bank account where funds have been diverted with offsetting credits approved by his immediate supervisor. His immediate supervisor refuses to discuss it and suggests the staff accountant forget about it. Which one of the following should be the staff accountant's next course of action in this circumstance?
Discuss concerns with the level of management above the immediate supervisor.
Sunk costs are not relevant in the decision-making process because they are
Historical costs
A company produces X-547 in a joint manufacturing process. The company is studying whether to sell X-547 at the split-off point or upgrade the product to become Xylene. The following information has been gathered: Selling price per pound of X-547 Variable manufacturing costs of upgrade process Avoidable fixed costs of upgrade process Selling price per pound of Xylene Joint manufacturing costs to produce X-547 Which items should be reviewed when making the upgrade decision?
I, II, III, and IV only.
A management accountant was recently tried and convicted in court for producing and selling illegal narcotic drugs. None of the activity occurred during work hours, and he performed duties as a management accountant without incident during the period of illegal activity. The management accountant has argued that because the illegal activity was unrelated to his service as a management accountant, no ethical violation had been committed. Which provision of the IMA Statement of Ethical Professional Practice is most likely to apply to the management accountant's illegal actions?
Integrity.
Monopolistic competition is characterized by a
Relatively large group of sellers who produce differentiated products.
When a company decides to divest a segment, the underlying reason for this decision could be any one of the following except
The realization of economies of scale where average cost declines as volume increases.
Which branch of moral philosophy emphasizes the outcome of the decision in terms of the greatest good for the greatest number of people?
Utilitarianism.
Korbin is considering a promotional campaign at the Suburban Store that would not affect the Urban Store. Increasing annual promotional expense at the Suburban Store by $60,000 in order to increase this store's sales by 10% would result in a monthly increase (decrease) in Korbin's operating income during the year (rounded) of
$(1,400)
The net benefit (loss) per machine hour that would result if Stewart accepts the supplier's offer of $13.50 per unit for Component B18 is
$(1.00)
How much does each additional sales dollar contribute toward profit for a firm with $4 million breakeven level of revenues and $1.2 million in fixed costs including depreciation?
$0.30
BCC has received a request from a research lab for 200 computers. Assembly and testing of each computer will require 17 labor hours. BCC believes bids in excess of $1,050 per computer are not likely to be considered. Using the full-cost criteria and desired level of return, which one of the following prices should be recommended to BCC's management for bidding purposes?
$1,026.30
Hermo Company has just completed a hydro-electric plant at a cost of $21,000,000. The plant will provide the company's power needs for the next 20 years. Hermo will use only 60% of the power output annually. At this level of capacity, Hermo's annual operating costs will amount to $1,800,000, of which 80% are fixed. Quigley Company currently purchases its power from MP Electric at an annual cost of $1,200,000. Hermo could supply this power, thus increasing output of the plant to 90% of capacity. This would reduce the estimated life of the plant to 14 years. '; The maximum amount Quigley would be willing to pay Hermo annually for the power is
$1,200,000
Kator Co. has received a special, one-time order for 1,000 KB-96 parts. Assuming Kator has excess capacity, the minimum price that is acceptable for this one-time special order is in excess of
$50
A company produces three distinct products as follows: Product Percentage ofTotal Sales in Units Sale Price Quinoa bars 50% $1 Millet cookies 30% $1 Amaranth pops 20% $2 The contribution margin for the Quinoa Bars is 25% of sales. Millet Cookies and Amaranth Pops both have a 50% contribution margin. Calculate the breakeven point in sales dollars if fixed costs are $675,000.
$1,705,263
Raymund currently sells its only product to a single customer. Raymund has received a one-time-only order for 2,000 units from another buyer. Sale of the special order items will not require any additional selling effort. In negotiating a price for the special order, Raymund should set the minimum per unit selling price at
$10
If Raymund retools its production process, the company's fixed manufacturing costs would be increased by $30,000 per month and its variable costs would be reduced by $5 per unit. If Raymund selects this option, the company's monthly operating income would be
$10,000
A company sells its single product for $30 per unit. The contribution margin ratio is 45%, and fixed costs are $10,000 per month. The company has an effective income tax rate of 40%. If the company sells 1,000 units in the current month, the company's variable expenses would be
$16,500
Data available for the current year are presented below. Whole Company Division 1 Division 2 Variable manufacturing cost of goods sold $ 400,000 $220,000 $180,000 Unallocated costs (e.g., president's salary) 100,000 Fixed costs controllable by division managers (e.g., advertising, engineering supervision costs) 90,000 50,000 40,000 Net revenue 1,000,000 600,000 400,000 Variable selling and administrative costs 130,000 70,000 60,000 Fixed costs controllable by others (e.g., depreciation, insurance) The contribution by Division 1 was
$190,000
An auto dealer employs 45 sales personnel to market its line of luxury automobiles. The average car sells for $23,000, and a 6% commission is paid to the salesperson. The auto dealer is considering a change to a commission arrangement that would pay each salesperson a salary of $2,000 per month plus a commission of 2% of the sales made by that salesperson. The amount of total monthly car sales at which the auto dealer would be indifferent as to which plan to select is
$2,250,000
Based on potential sales of 500 units per year, a new product has estimated traceable costs of $990,000. What is the target price to obtain a 15% profit margin on sales?
$2,329
A company requires its branch offices to transfer cash balances once per week to the central corporate account. A wire transfer costs $12 and assures the cash is available the same day. A depository transfer check (DTC) costs $1.50 and generally results in funds being available in 2 days. The company's cost of short-term funds averages 9%, and they use a 360-day year in all calculations. What is the minimum transfer amount that would justify the cost of a wire transfer as opposed to a DTC?
$21,000
A company that sells its single product for $40 per unit had after-tax net income for the past year of $1,188,000 after applying an effective tax rate of 40%. The projected costs for manufacturing and selling its single product in the coming year are listed below.Variable costs per unit:Direct material$ 5.00Direct labor4.00Manufacturing overhead6.00Selling and administrative costs 3.00Total variable cost per unit$18.00Annual fixed operating costs:Manufacturing overhead$6,200,000Selling and administrative costs3,700,000Total annual fixed cost$9,900,000 '; The dollar sales volume required in the coming year to earn the same after-tax net income as the past year is
$21,600,000
The dollar sales volume required in the coming year to earn the same after-tax net income as the past year is
$21,600,000
A foreign company recently approached the corporation with an order of 50,000 units of a specially designed component at $35 per unit. The order will require specialized procurement costs of $150,000, and only one-half of the variable costs associated with the administrative area will be needed. Otherwise, cost behavior will remain the same. Adequate capacity is available to handle this request. What is the relevant unit cost to be considered by the corporation in making a decision on this offer?
$25.00
Total Units Average Average Average of Product Fixed Cost Variable Cost Total Cost 6 $15.00 $25.00 $40.00 7 12.86 24.00 36.86 8 11.25 23.50 34.75 9 10.00 23.75 33.75 '; The marginal cost of producing the ninth unit is
$25.75
Delphi Company's management has stipulated that it will not approve the continued manufacture of the new product after the next fiscal year unless the after-tax profit is at least $75,000 the first year. The unit selling price to achieve this target profit must be at least
$39.00
A fuel company can sell 8 units of product at a selling price of $450. However, at a selling price of $445 the company can sell 9 units. What is the marginal revenue that is derived from selling the 9th unit?
$405
The controller based the next year's budget on the assumption that fixed costs, unit sales, and the sales price would remain as they were in Year 1, but with operating income being reduced to $300,000. By July of Year 2, the controller was able to predict that unit sales would increase over Year 1 levels by 10%. Based on the Year 2 budget and the new information, the predicted Year 2 operating income would be
$420,000
A company's product has an expected 4-year life cycle from research, development, and design through its withdrawal from the market. Budgeted costs are Upstream costs (R&D, design) $2,000,000 Manufacturing costs 3,000,000 Downstream costs (marketing, distribution, customer service) 1,200,000 After-purchase costs 1,000,000 The company plans to produce 200,000 units and price the product at 125% of the whole-life unit cost. Thus, the budgeted unit selling price is
$45
Costs relevant to an insourcing vs. outsourcing decision include variable manufacturing costs as well as
Avoidable fixed costs.
The following information is taken from Wampler Co.'s current-year contribution income statement: Sales $200,000 Contribution margin 120,000 Fixed costs 90,000 Income taxes 12,000 What was Wampler's margin of safety?
$50,000
A company prices its main product by adding 30% to the manufacturing cost per unit. The company's variable manufacturing costs are $12 per unit, variable selling and administrative costs are $1 per unit, and fixed manufacturing costs per quarter total $2,000,000. Anticipated quarterly sales were 50,000 units. The company's market has become more competitive with similar companies offering a selling price of $60 per unit. This has resulted in decreased demand for the company's product, causing actual quarterly sales to be 40,000 units. The company's selling price per unit for the next quarter should be
$60.00
The data below are available for Xerbert Co.:Xerbert Co.Budget and Actual Income StatementsFor the Year Ending December 31(000s omitted)BudgetActualXenoxXeonTotalXenoxXeonTotalUnit sales150100250130130260Net dollar sales$900$1,000$1,900$780$1,235$2,015Variable expenses(450)(750)(1,200)(390)(975)(1,365)Contribution margin$450$ 250$ 700$390$ 260$ 650Fixed expenses:Manufacturing$ 153$ 140Marketing9590Other fixed expenses200190Total fixed expenses$ 448$ 420Income before taxes$ 252$ 230 '; The variance of actual contribution margin from budgeted contribution margin attributable to sales price is
$65,000 unfavorable.
What is the maximum total contribution margin that Cervine can generate in the coming year?
$690,000
For the coming year, the management of Barnes Corporation anticipates a 10% increase in sales, a 12% increase in variable costs, and a $45,000 increase in fixed expenses. The breakeven point for next year will be
$729,027
For one of its divisions, Buona Fortuna Company has fixed costs of $300,000 and a variable-cost percentage equal to 60% of its $10 per unit selling price. It would like to earn a pre-tax income of $90,000 per year from the division. '; What is the breakeven point in dollars?
$750,000
Assume the rental opportunity does not exist and Richardson Motors could use the idle capacity to manufacture another product that would contribute $104,000 per month. If Richardson chooses to manufacture the ten T305 units in order to maintain quality control, Richardson's opportunity cost is
$8,000
What branch of moral philosophy states that what is good or right is derived from the action itself regardless of the consequences?
Deontology.
The total sales revenue at which Siberian Ski Company would make the same profit or loss regardless of the ski model it decided to produce is
$880,000
A company invested $300,000 in a new machine to produce cones for the textile industry. Variable costs are 30% of the selling price and fixed costs are $600,000. The company has an effective income tax rate of 40%. The amount of sales required to earn an 8% after-tax return on its investment would be
$914,286
An entity is planning to introduce a new product, DMA. It is expected that 10,000 units of DMA will be sold. The full product cost per unit is $300. Invested capital for this product amounts to $20 million. The entity's target rate of return on investment is 20%. The markup percentage for this product, based on operating income as a percentage of full product cost, will be
133.3%
A firm is analyzing the market potential for its specialty turbines. The firm developed pricing and cost structures for its specialty turbines over various relevant ranges. The pricing and cost data for each relevant range are presented below. Units produced and sold 1 - 5 6 - 10 11 - 15 16 - 20 Total fixed costs $200,000 $400,000 $600,000 $800,000 Unit variable cost 50,000 50,000 45,000 45,000 Unit selling price 100,000 100,000 100,000 100,000 Which one of the following production/sales levels would produce the highest operating income?
14 units
The total number of units needed to break even if sales were budgeted at 150,000 units of plastic frames and 300,000 units of glass frames with all other costs remaining constant is
153,947 units.
Assume a 10% increase in annual fixed costs, a 20% unit cost increase for direct labor, and a reduction in unit material costs of 25%, with no change in selling price. Madengrad Company's breakeven point would increase (decrease) (rounded to the nearest whole unit) by
407 units.
Kim is thinking of organizing a fundraiser to support a local charity. She has planned to rent a banquet hall and provide the guests with food, entertainment, and various party favors. She has decided to charge $500 a person. After researching around town, Kim has discovered the following costs: Fixed Costs Rental fee of banquet hall $150,000 Advertising 50,000 Entertainment 4,000 Variable Costs Per Guest Food $12 Other miscellaneous costs 8 '; If Kim's goal is to raise $10,000 for her charity, how many people must attend the banquet?
446
A firm produces and sells two main products, with contribution margins per unit as follows. Product A: $10.00 per unit Product B: $8.00 per unit Fixed costs for the year are budgeted at $264,480, and the firm calculated its breakeven point at 28,500 units. What percentage of units sold are expected to be Product A?
64%
Two companies are expected to have annual sales of 1,000,000 decks of playing cards next year. Estimates for next year are presented below: Company 1 Company 2 Selling price per deck $3.00 $3.00 Cost of paper per deck .62 .65 Printing ink per deck .13 .15 Labor per deck .75 1.25 Variable overhead per deck .30 .35 Fixed costs $960,000 $252,000 Given these data, which of the following responses is true?
800,000 420,000 1,180,000
Two companies are expected to have annual sales of 1,000,000 decks of playing cards next year. Estimates for next year are presented below: Company 1Company 2Selling price per deck$3.00$3.00Cost of paper per deck.62.65Printing ink per deck.13.15Labor per deck.751.25Variable overhead per deck.30.35Fixed costs$960,000$252,000Given these data, which of the following responses is true? Volume in Units Breakeven Breakeven at Which Profits Point in Point in of Company 1 Units for Units for and Company 2 Company 1 Company 2 Are Equal
800,000 420,000 1,180,000
A company produces educational software. Its unit cost structure, based upon an anticipated production volume of 150,000 units, is as follows: Sales price $160 Variable costs 60 Fixed costs 55 The marketing department has estimated sales for the coming year at 175,000 units, which is within the relevant range of the company's cost structure. The company's breakeven volume (in units) and anticipated operating income for the coming year would amount to
82,500 units and $9,250,000 of operating income.
A company produces educational software. Its unit cost structure, based upon an anticipated production volume of 150,000 units, is as follows:Sales price$160Variable costs60Fixed costs55The marketing department has estimated sales for the coming year at 175,000 units, which is within the relevant range of the company's cost structure. The company's breakeven volume (in units) and anticipated operating income for the coming year would amount to
82,500 units and $9,250,000 of operating income.
How many units will Buona Fortuna have to sell to earn a pre-tax income of $90,000 per year?
97,500 units.
Which one of the following situations best lends itself to a cost-based pricing approach?
A computer component manufacturer debating pricing with a new customer for a made-to-order, state-of-the-art application.
Which one of the following would cause a profitable company's margin of safety to decrease?
A decrease in sales units.
When only differential manufacturing costs are taken into account for special-order pricing, an essential assumption is that
Acceptance of the order will not affect regular sales. Answer C is correct.
Which behavior is considered ethical?
Agreeing not to release toxic substances into the environment.
In order to avoid pitfalls in relevant-cost analysis, management should focus on
Anticipated revenues and costs that differ for each alternative.
According to the IMA Statement of Ethical Professional Practice, a member has a responsibility to recognize and help manage risk. Under which standard of ethical conduct would this responsibility be included?
Competence.
A firm in which of the following industries is most likely to use a market-based as opposed to a cost-based approach to pricing decisions?
Competitive market, competitors' products similar.
A new accounting clerk at a firm that had recently terminated several employees due to budgetary cutbacks accidentally viewed a supervisor's biweekly paycheck. Not realizing that the paycheck included an annual bonus, the accounting clerk erroneously multiplied the gross pay by 26 to find annual earnings. The accounting clerk was amazed that this supervisor appeared to earn more than twice the local average for employees in an accounting supervisory position. The accounting clerk discussed this situation with a friend, a recently terminated employee of the company who now worked for a local newspaper. As a result of this discussion, the supervisor's "outrageous" salary was made public. Which one of the standards of the IMA Statement of Ethical Professional Practice did the accounting clerk's actions violate?
Confidentiality.
A furniture manufacturer currently has three divisions: Maple, Oak, and Cherry. The oak furniture line does not seem to be doing well, and the president of the manufacturer is considering dropping this line. If it is dropped, the revenues associated with the Oak Division will be lost and the related variable costs saved. Also, 50% of the fixed costs allocated to the oak furniture line would be eliminated. The income statements, by divisions, are as follows: Maple Oak Cherry Sales $55,000 $85,000 $100,000 Variable costs 40,000 72,000 82,000 Contribution margin $15,000 $13,000 $ 18,000 Fixed costs 10,000 14,000 10,200 Operating profit (loss) $ 5,000 $ (1,000) $ 7,800 Which one of the following options should be recommended to the president of the manufacturer?
Continue operating the Oak Division as discontinuance would result in a $6,000 decline in operating profits
Which one of the following pricing methods focuses on setting the price based on recouping the manufacturing cost of the product and achieving a desired profit?
Cost-based pricing.
Which ethical standard is most clearly violated if an IMA member knows of information that could mislead users but does not report the deficiency?
Credibility.
Under the express terms of the IMA Statement of Ethical Professional Practice, an IMA member may not
Disclose confidential information unless authorized or legally required.
The branch of moral philosophy in which what is good or right derives from the action itself, regardless of the consequences, is
Deontology.
An accountant has concerns that a particular transaction is being recorded in a manner that does not reflect the nature of the transaction and believes that alternative accounting is being used to avoid recording the appropriate expense for a period. The accountant attempted to speak to the accounting manager, but the manager rebuffed the accountant and said there was no time to discuss the issue further. According to the IMA Statement of Ethical Professional Practice, what is the next appropriate step the accountant should take regarding this issue?
Discuss the issue with the next level of management over the accounting manager.
If an IMA member has a problem in identifying unethical behavior or resolving an ethical conflict, the first action (s)he should normally take is to
Discuss the problem with his or her immediate superior.
The advantages of incorporating full product costs in pricing decisions include all the following except
Ease in identifying unit fixed costs with individual products.
The concept of business ethics that requires judging decisions without regard for personal opinions or feelings is
Fairness.
Employee A observes that Employee B is improperly altering department records to meet month end goals. These records are for internal use only and do not impact the company's financial records. Employee A notifies her supervisor of the impropriety, and the supervisor advises Employee A that she instructed Employee B to alter the records and an adjustment would be made the subsequent month to correct the records. Employee A should
Follow the organization's established procedures on the resolution of such conflict.
An entity has developed and patented a new laser disc reading device that will be marketed internationally. Which of the following factors should the entity consider in pricing the device? Quality of the new device Life of the new device Customers' relative preference for quality compared with price
I, II, and III
When used in cost-volume-profit analysis, sensitivity analysis
Is done through various possible scenarios and computes the impact on profit of various predictions of future events.
A manufacturer contemplates a change in technology that would reduce fixed costs from $800,000 to $700,000. However, the ratio of variable costs to sales will increase from 68% to 80%. What will happen to the breakeven level of revenues?
Increase by $1,000,000.
Charlie Benwal was on a team that evaluated a potential acquisition. Both Benwal's employer and the potential target are publicly-traded companies. A significant portion of Benwal's personal investment portfolio is composed of the target company's stock, which Benwal did not disclose. Based on the IMA Statement of Ethical Professional Practice, Benwal would be in violation of which one of the following standards?
Integrity.
The controller is responsible for directing the budgeting process. In this role, the controller has significant influence with executive management as individual department budgets are modified and approved. For the current year, the controller was instrumental in the approval of a particular line manager's budget without modification, even though significant reductions were made to the budgets submitted by other line managers. As a token of appreciation, the line manager in question has given the controller a gift certificate for a popular local restaurant. In considering whether or not to accept the certificate, the controller should refer to which section of the IMA Statement of Ethical Professional Practice?
Integrity.
Which standard in the IMA Statement of Ethical Professional Practice states that financial management professionals should not engage in activities that might discredit the profession?
Integrity.
While entering the workplace, Mike found $20 on the ground. Mike can either (a) keep the $20 for himself or (b) find the individual who dropped the money. Mike chose to look for the individual who dropped the money. What term can be used to describe Mike's actions?
Integrity.
Which one of the following is not a characteristic of market-based costing?
It is used by companies facing minimal competition.
A new management accountant is concerned about complying with the ethical standard of competence in the IMA Statement of Ethical Professional Practice. Which one of the following is not required under the standard of competence?
Maintain expertise in all areas of accounting.
A manufacturing company is considering a new product for the coming year, which requires the production of an electric motor. The company can purchase the motor from a reliable vendor for $21 per unit, or manufacture it internally. The company has excess capacity to manufacture the 30,000 motors needed in the coming year except for manufacturing space and special machinery. The machinery can be leased for $45,000 annually. The company has finished goods warehouse space that it currently leases for $39,000, which can be converted and used to manufacture the motors. To replace the finished goods warehouse, additional off-site space can be leased at an annual cost of $54,000. The estimated unit costs for manufacturing the motors internally, exclusive of the leasing costs itemized above, are shown below. Direct material $8.00 Direct labor 4.00 Variable manufacturing overhead 3.00 Allocated fixed manufacturing overhead 5.00 Should the company make or buy the electric motors, and why?
Make, because manufacturing the motors internally would save $81,000.
For a profitable company, the amount by which sales can decline before losses occur is known as the
Margin of Safety
Two months ago, a corporation purchased 4,500 pounds of Kaylene at a cost of $15,300. The market for this product has become very strong, with the price jumping to $4.05 per pound. Because of the demand, the corporation can buy or sell Kaylene at this price. The corporation recently received a special order inquiry that would require the use of 4,200 pounds of Kaylene. In deciding whether to accept the order, management must evaluate a number of decision factors. Without regard to income taxes, which one of the following combinations of factors correctly depicts relevant and irrelevant decision factors, respectively?
Market price of $4.05 per lb. Purchase price of $3.40 per lb.
The IMA Statement of Ethical Professional Practice includes an integrity standard. It requires an IMA member to
Mitigate actual conflicts of interest.
The opportunity cost of making a component part in a factory with no excess capacity is the
Net benefit given up from the best alternative use of the capacity.
The controller has expressed concern about the operating loss for Segment 1 and has suggested that it be closed. If the segment is closed, none of the employees would be retained. Should the company drop Segment 1?
No, because total operating income would decrease by $234,000.
IMA members are obligated to maintain the highest standards of ethical conduct. Accordingly, the IMA Statement of Ethical Professional Practice explicitly requires that IMA members
Not condone violations by others.
A firm produces two joint products (A and B) from one unit of raw material, which costs $1,000. Product A can be sold for $700 and product B can be sold for $500 at the split-off point. Alternatively, both A and/or B can be processed further and sold for $900 and $1,200, respectively. The additional processing costs are $100 for A and $750 for B. Should the firm process products A and B beyond the split-off point?
Only A should be processed further.
Target cost per unit is the difference between target
Operating income per unit and the target price
If the coefficient of elasticity is zero, then the consumer demand for the product is said to be
Perfectly inelastic.
A company has a December 31 year end. Which one of the following options to increase net income during the last month of the company's fiscal year end would least likely result in a violation of the IMA Statement of Ethical Professional Practice?
Postpone planned marketing expenditures until January.
A financial manager has discovered that her company is violating environmental regulations. If her immediate superior is involved, the appropriate action is to
Present the matter to the next higher managerial level.
A firm manufactures three products: A, B, and C. During the month of May, the firm's production, costs, and sales data were as follows: Products A B C Units of production 30,000 20,000 70,000 Further processing costs $ -- $60,000 $140,000 Unit sales price: At split-off 3.75 5.50 10.25 After further processing -- 8.00 12.50 Joint production costs to the split-off point will total $480,000. Based on the above information, which one of the following alternatives should be recommended to the firm's management?
Process Product C further but sell Product B at the split-off point.
Suppose Moorehead has only 100,000 machine hours that can be made available to produce additional units of XY-7 and BD-4. If the potential increase in sales units for either product resulting from advertising is far in excess of this production capacity, which product should be advertised and what is the estimated increase in contribution margin earned?
Product BD-4 should be produced, yielding a contribution margin of $250,000
Which one of the following statements is the best definition of inelastic demand?
Product demand for which the percentage change in quantity demanded is less than the percentage change in price.
In Country X, government officials are expected to be paid reasonable amounts to facilitate performance of routine services. An example is a payment to expedite issuance of a license to operate an import-export business. These facilitation payments are routinely made even by applicants that meet all the legal requirements, including payment of statutory fees. In Country X, such payments are regarded as ethical. In Country Z, such payments are regarded as unethical and illegal. The differing ethical judgments of facilitation payments are both most likely to be considered correct under which branch of moral philosophy?
Relativism.
Year-end bonuses at each branch office are based on branch profitability. Due to a slow economy, profitability through the third quarter at the Northeast branch is under budget. To address this issue, the accounting staff at the Northeast branch develops a list of end-of-year actions designed to boost earnings for the year. Which one of the following is most likely to violate the IMA Statement of Ethical Professional Practice?
Requesting the branch's advertising agency to delay billing third-quarter advertisements until January.
A pharmaceutical company is preparing to release a new medication. The controller would like to consider the product life cycle in pricing, costing, and budgeting decisions for the product. The statement below that best represents the time span that the controller should consider is the time from initial
Research and development on a product to the time that customer service and support is no longer offered on that product.
The cost incurred by Gleason for the market study is a(n)
The Sunk Costs
When is an IMA member permitted to communicate confidential information to individuals or authorities outside the firm?
Such communication is legally required.
Gleason Co. has two products, a frozen dessert and ready-to-bake breakfast rolls, ready for introduction. However, plant capacity is limited, and only one product can be introduced at present. Therefore, Gleason has conducted a market study at a cost of $26,000, to determine which product will be more profitable. The results of the study follow.Sales of Desserts at$1.80/unitSales of Rolls at$1.20/unitVolumeProbabilityVolumeProbability250,000.30200,000.20300,000.40250,000.50350,000.20300,000.20400,000.10350,000.10The costs associated with the two products have been estimated by Gleason's cost accounting department and are as follows:DessertRollsIngredients per unit$ .40$ .25Direct labor per unit.35.30Variable overhead per unit.40.20Production tooling*48,00025,000Advertising30,00020,000*Gleason treats production tooling as a current operating expense rather than capitalizing it as a fixed asset. '; The cost incurred by Gleason for the market study is a(n)
Sunk cost.
Which one of the following moral philosophies is focused on the consequences of an action when judging whether that action is morally acceptable or not?
Teleology.
Assume that Catfur Company achieved its planned breakeven level of sales in dollars, but the mix of products sold was one-to-one. All actual costs and unit selling prices equaled budgeted amounts. What is the impact on profitability?
The company earned a profit.
Market-skimming pricing strategies could be appropriate when
The costs of producing a small volume are low
Recently, a company submitted to management a budget for the coming year. Included in the budget were the plans for a new product, a rechargeable fan. The new fan will not only last longer than the competitor's product but is also more quiet. While not yet approved, the budget called for aggressive advertising to support its sales targets, as the business community was not yet aware that the company was close to production of a new fan. A member of the management accounting staff "shared" the budget with a distributor. In accordance with the IMA Statement of Ethical Professional Practice, which one of the following would best represent an ethical conflict in this situation?
The employee should refrain from disclosing confidential information.
A financial manager who is an IMA member discovers an issue that could result in misleading users of the firm's financial data. She has informed her immediate supervisor. She should report the circumstances to the audit committee or the board of directors only if
The immediate supervisor, the firm's chief executive officer, knows about the situation but refuses to correct it.
A new accountant is assisting in the month-end close of the books. His supervisor told him to accrue a large receivable and said that he would provide the supporting documentation later. The new accountant made the accrual, and the books were closed. Subsequently, the new accountant found out that the company would have missed the earnings estimate without the receivable. The new accountant requested the documentation, but the supervisor could not provide it. Other associates told the new accountant that this supervisor had directed that undocumented entries be recorded in the books in the past and that the former accountant had left the company because he was uncomfortable making the entries. Recommend the best course of action for the new accountant.
The new accountant should present this issue to his supervisor's manager to resolve it.
A car rental company uses a significant number of vehicles in its operations. The management has to decide if it would be more advantageous to acquire new vehicles utilizing a financial lease as opposed to ownership. Which one of the following factors would not be relevant to the decision?
The operating cost of the vehicles.
A table manufacturing company has the following cost structure for producing table tops. Unit Costs Direct materials $23.00 Direct labor 12.00 Variable manufacturing overhead 10.00 Fixed manufacturing overhead 17.00 Variable administrative costs 2.00 Fixed administrative costs 3.00 Total unit costs $67.00 Recently, the table manufacturer received an offer from a corporation to supply the table tops to the table manufacturer. The table manufacturer is considering buying the table tops instead of manufacturing them internally. Which one of the following statements is correct?
The table manufacturer should accept the offer if it is less than $47.00 and the table manufacturer has excess manufacturing capacity.
Recently, the table manufacturer received an offer from a corporation to supply the table tops to the table manufacturer. The table manufacturer is considering buying the table tops instead of manufacturing them internally. Which one of the following statements is correct?
The table manufacturer should accept the offer if it is less than $47.00 and the table manufacturer has excess manufacturing capacity.
Breakeven quantity is defined as the volume of output at which revenues are equal to
Total Costs
A large Internet company must protect the privacy of user data while providing services and earning profits. Option A maximizes profits and customer satisfaction with services while providing minimal security for customer data. Option B will result in lower profits and customer satisfaction with maximum security for user data. A cost-benefit analysis quantifies profits, customer satisfaction, and the losses from breaches of data security. This analysis indicates that Option A is preferable. The company's adoption of this approach is most consistent with which branch of moral philosophy?
Utilitarianism.
Which one of the following moral philosophies states that an action is morally acceptable if it promotes the greater good?
Utilitarianism.
Systematic evaluation of the trade-offs between product functionality and product cost while still satisfying customer needs is the definition of
Value engineering.
A company produces educational software. Its current unit cost, based upon an anticipated volume of 150,000 units, is as follows. Selling price $150 Variable costs 60 Contribution margin 90 Fixed costs 60 Operating income 30 Sales for the coming year are estimated at 175,000 units, which is within the relevant range of the company's cost structure. Cost management initiatives are expected to yield a 20% reduction in variable costs and a reduction of $750,000 in fixed costs. The company's cost structure for the coming year will include a
Variable cost ratio of 32% and operating income of $9,600,000.
The branch of moral philosophy in which a decision is right if a virtuous person would do the same in the same circumstances is
Virtue ethics.
A manager of an organization does more than apply the organization's ethical standards. What type of manager does this describe?
Virtuous manager.
Concerning AM-12, which one of the following alternatives is most advantageous?
Whitehall should process further and sell to Flank if the total selling price per unit after further processing is greater than $5.00.
A company currently sells 46,000 units of its product annually at a sales price of $38 per unit. Variable costs per unit total $21 and the total fixed costs each year are $749,000. Fixed costs include the annual salary of three sales staff, which is $55,000 each. Management is considering changing the sales staff's compensation. Under this proposal, sales staff salaries would decrease to $25,000, but sales staff would also receive a commission of $2 per unit for each unit sold. Management estimates this option will increase sales 10%. Should management change to the commission-based plan, and why?
Yes, because it will increase operating income by $67,000.
A company has two business units (Division 1 and Division 2) that are currently operating as profit centers. Management is evaluating the possibility of discontinuing Division 2 because of the operating losses it has experienced over the last few years. Select information from the operating budget for the upcoming fiscal year is shown below. Division 1 Division 2 Sales $800,000 $400,000 Cost of goods sold 300,000 250,000 Gross margin $500,000 $150,000 Variable selling and administrative expenses 100,000 80,000 Fixed selling and administrative expenses 75,000 75,000 Operating income (loss) $325,000 $ (5,000) Fixed selling and administrative expenses are allocated equally between the two units. If Division 2 is discontinued, fixed selling and administrative expenses are expected to decrease by 20% from the current level, and Division 1's sales are expected to increase by 15%. Based on the budget information above, should the company discontinue Division 2, and why?
Yes, because operating income will increase by $20,000.
The data below are available for Xerbert Co.:Xerbert Co.Budget and Actual Income StatementsFor the Year Ending December 31(000s omitted)BudgetActualXenoxXeonTotalXenoxXeonTotalUnit sales150100250130130260Net dollar sales$900$1,000$1,900$780$1,235$2,015Variable expenses(450)(750)(1,200)(390)(975)(1,365)Contribution margin$450$ 250$ 700$390$ 260$ 650Fixed expenses:Manufacturing$ 153$ 140Marketing9590Other fixed expenses200190Total fixed expenses$ 448$ 420Income before taxes$ 252$ 230 '; The variance of actual contribution margin from budgeted contribution attributable to unit variable cost changes is
Zero, because actual unit variable costs were the same as budgeted unit variable costs.