Managerial Accounting Exam CH 5-8

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11.

. A company produces a single product. Last year, fixed manufacturing overhead was $30,000,
variable production costs were $48,000, fixed selling and administration costs were $20,000, and
variable selling administrative expenses were $9,600. There was no beginning inventory. During the
year, 3,000 units were produced and 2,400 units were sold at a price of $40 per unit. Under variable
costing, net operating income would be

a loss of $2,000.

. A manufacturing company that produces a single product has provided the following data
concerning its most recent month of operations:
The total gross margin for the month under absorption costing is:
A. $42,000
B. $14,700
C. $69,000
D. $79,800

$42,000

. Avitia Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct
labor budget indicates that 3,700 direct labor-hours will be required in September. The variable
overhead rate is $5.70 per direct labor-hour. The company's budgeted fixed manufacturing overhead
is $48,100 per month, which includes depreciation of $5,550. All other fixed manufacturing
overhead costs represent current cash flows. The company recomputes its predetermined overhead
rate every month. The predetermined overhead rate for September should be:

$18.70

. Clayton Company produces a single product. Last year, the company's variable production costs
totaled $8,000 and its fixed manufacturing overhead costs totaled $4,800. The company produced
4,000 units during the year and sold 3,600 units. Assuming no units in the beginning inventory:

the ending
inventory under
variable costing
will be $480 lower
than the ending
inventory under
absorption costing

. In an income statement segmented by product line, a fixed expense that cannot be allocated among
product lines on a cause-and-effect basis should be

classified as a
common fixed
expense and not
allocated.

. More Company has two divisions, L and M. During July, the contribution margin in Division L was
$60,000. The contribution margin ratio in Division M was 40% and its sales were $250,000. Division
M's segment margin was $60,000. The common fixed expenses were $50,000 and the company net
operating income was $20,000. The segment margin for Division L was:

$10,000

. Roberts Company produces a single product. This year, the company's net operating income under
absorption costing was $2,000 lower than under variable costing. The company sold 8,000 units
during the year, and its variable costs were $8 per unit, of which $2 was variable selling and
administrative expense. If production cost was $10 per unit under absorption costing, then how
many units did the company produce during the year? (The company produced the same number of
units last year.)

7,500

54. Sproles Inc. manufactures a variety of products. Variable costing net operating income was
$90,500 last year and its inventory decreased by 3,500 units. Fixed manufacturing overhead cost was
$6 per unit. What was the absorption costing net operating income last year?
A. $90,500
B. $21,000
C. $69,500
D. $111,500

$69,500

Absorption costing is more compatible with cost-volume-profit analysis than is variable costing.

True

Activity-based costing is a costing method that is designed to provide managers with product cost
information for external financial reports.

False

An activity-based costing system should include all of the activities carried out in an organization
because any simplification will inevitably result in inaccuracy

False

An activity-based costing system that is designed for internal decision-making

will not conform to generally accepted accounting principles because:

. all of the above are reasons why an

activity-based costing system that is
designed for internal decision-making will
not conform to generally accepted
accounting principles

13.

All other things being equal, if a division's traceable fixed expenses increase:

the division's segment margin will decrease

14.

All other things equal, if a division's traceable fixed expenses decrease

the division's segment margin will increase.

All other things the same, which of the following would be true of the
contribution margin and variable expenses of a company with high fixed costs
and low variable costs as compared to a company with low fixed costs and high
variable costs?

Option C (Higher-Lower)

The amount by which a company's sales can decline before losses are incurred
is called the

margin of safety

The ARB Company has two divisions: Electronics and DVD/Video Sales.
Electronics has traceable fixed expenses of $146,280 and the DVD/Video Sales
has traceable fixed expenses of $81,765. If ARB Company has a total of
$322,490 in fixed expenses, what are its common fixed expenses?

$94,445

Assuming that a segment has both variable expenses and traceable fixed
expenses, an increase in sales should increase profits by an amount equal to
the sales times the segment margin ratio.

Falsw

At the break-even point: Sales - Variable expenses = Fixed expenses.

True

Balonek Inc.'s contribution margin ratio is 57% and its fixed monthly expenses
are $41,000. Assuming that the fixed monthly expenses do not change, what is
the best estimate of the company's net operating income in a month when sales
are $112,000?

$22,840

Berol Company plans to sell 200,000 units of finished product in July and
anticipates a growth rate in sales of 5% per month. The desired monthly ending
inventory in units of finished product is 80% of the next month's estimated
sales. There are 150,000 finished units in inventory on June 30.
Berol Company's production requirement in units of finished product for the
three-month period ending September 30 is

665,720 units

Both planning and control are needed for an effective budgeting system

True

Both variable and fixed manufacturing overhead costs are included in the
manufacturing overhead budget.

True

Brasher Company manufactures and sells a single product that has a positive
contribution margin. If the selling price and variable expenses both decrease
by 5% and fixed expenses do not change, then what would be the effect on the
contribution margin per unit and the contribution margin ratio?

Option B (decrease-no change)

25.

Break-even analysis assumes that:

the average variable expense per unit is

constant

26.

The break-even point in unit sales increases when variable expenses

increase and the selling price remains

unchanged

27.

The break-even point in unit sales is found by dividing total fixed expenses by

the contribution margin per unit.

The break-even point in units can be obtained by dividing total fixed expenses
by the contribution margin ratio.

False

The budgeted amount of raw materials to be purchased is determined by.

adding the desired ending inventory of raw

materials to the raw materials needed to
meet the production schedule and
subtracting the beginning inventory of raw
materials

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15.

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31.

32.

Budgeted production needs are determined by

adding
budgeted sales
in units to the
desired ending
inventory in
units and
deducting the
beginning
inventory in
units from this
total.

Budgeted sales in Allen Company over the next four months are given below:
Twenty-five percent of the company's sales are for cash and 75% are on account. Collections for sales on
account follow a stable pattern as follows: 50% of a month's credit sales are collected in the month of sale,
30% are collected in the month following sale, and 15% are collected in the second month following sale.
The remainder are uncollectible. Given these data, cash collections for December should be:

$103,500

Butteco Corporation has provided the following cost data for last year when 100,000 units were
produced and sold:
Raw Material---$200,000
Direct Labor----$100,000
Manufacturing Overhead------$200,000
Selling and administrative expense---$150,000

$405,000

All costs are variable except for $100,000 of manufacturing overhead and $100,000 of selling and
administrative expense. There are no beginning or ending inventories. If the selling price is $10 per unit,
the net operating income from producing and selling 110,000 units would be
33.

34.

The Carlquist Company makes and sells a product called Product K. Each unit of Product K sells for $24
dollars and has a unit variablecost of $18. The company has budgeted the following data for
November:Sales of $1,152,200, all in cash.A cash balance on November 1 of $48,000.Cash
disbursements (other than interest) during November of $1,160,000.A minimum cash balance on
November 30 of $60,000.If necessary, the company will borrow cash from a bank. The borrowing will be
in multiples of $1,000 and will bear interest at 2% per month. All borrowing will take place at the
beginning of the month. The November interest will be paid in cash during November.The amount of
cash needed to be borrowed on November 1 to cover all cash disbursements and to obtain the desired
November 30 cash balance is

$21,000

Christiansen Corporation uses an activity-based costing system with the following three activity cost
pools:

$560 per order

Activity Cost Pool Total Activity

Fabrication..............................70,000 Machine Hours
Order Processing.....................500 Orders
Other..........................................Not Applicable
The Other activity cost pool is used to accumulate costs of idle capacity and organization-sustaining
costs.
The company has provided the following data concerning its costs:
Wages and salaries.............$420,000
Deprecition.........................$160,000
Occupancy...........................$200,000
Total......................................$780,000
The distribution of resource consumption across activity cost pools is given below

Cindy, Inc. sells a product for $10 per unit. The variable expenses are $6 per unit, and the fixed
expenses total $35,000 per period. By how much will net operating income change if sales are
expected to increase by $40,000?

$16,000 increase

Cockriel Inc., which produces a single product, has provided the following data for its most
recent month of operations

$37

Colasuonno Corporation has two divisions: the West Division and the East Division. The
corporation's net operating income is $88,800. The West Division's divisional segment
margin is $39,500 and the East Division's divisional segment margin is $166,900. What is the
amount of the common fixed expense not traceable to the individual divisions?

...

A common cost that should not be assigned to a particular product on a segmented income
statement is

the salary of the

corporation president.

A company has provided the following data

Sales----3,000 units
Sales Price----- $70 per unit
Variable Price -----$50 per unit
Fixed Cost ------$25,000
If the sales volume decreases by 25%, the variable cost per unit increases by 15%, and all other
factors remain the same, net operating income will:

decrease by $31,875.

A company using lean production methods likely would show approximately the same net
operating income under both absorption and variable costing because

production is geared to
sales under lean
production and thus there
would be little or no
ending inventory.

A company with a degree of operating leverage of 4 would expect net operating income to
increase by 200% if sales increased from $100,000 to $150,000

True

42.

A continuous (or perpetual) budget

is a plan that is updated

monthly or quarterly,
dropping one period and
adding another.

43.

Contribution margin and segment margin mean the same thing.

False

The contribution margin is viewed as a better gauge of the long run profitability of a segment
than the segment margin.

...

The contribution margin ratio is 25% for Grain Company and the break-even point in sales is
$200,000. To obtain a target net operating income of $60,000, sales would have to be

$440,000

The contribution margin ratio is 30% for the Honeyville Company and the break-even point in
sales is $150,000. If the company's target net operating income is $60,000, sales would have to
be:

$350,000

The contribution margin tells us what happens to profits as volume changes if a segment's
capacity and fixed costs change as well

...

Costs classified as batch-level costs should depend on the number of batches processed rather
than on the number of units produced, the number of units sold, or other measures of volume

True

The costs of a particular department should not be split up among activity cost pools in an
activity-based costing system.

False

Craft Company produces a single product. Last year, the company had a net operating income
of $80,000 using absorption costing and $74,500 using variable costing. The fixed
manufacturing overhead cost was $5 per unit. There were no beginning inventories. If 21,500
units were produced last year, then sales last year were

20,400 units

Customer-level activities relate to specific customers and are not tied to any specific products

True

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53.

Danneman Corporation's fixed monthly expenses are $13,000 and its contribution margin ratio is 56%.
Assuming that the fixed monthly expenses do not change, what is the best estimate of the company's net
operating income in a month when sales are $41,000?

$9,960

Darth Company sells three products. Sales and contribution margin ratios for the three products follow
Product X product Y Product Z
Sales in dollars....................20,000 $40,000 $100,000
Contibution Margin ration.....45% 40% 15%

25%

Given these data, the contribution margin ratio for the company as a whole would be
54.

55.

Data concerning Knipp Corporation's single product appear below:

Per Unit Percent of Sales
Selling Price $230 100%
Variable Expense 46 20%
Contribution Margin 184 80%

Increase of
$9,800

Data concerning Lancaster Corporation's single product appear below:

Per Unit Percent of Sales
Selling Price $200 100%
Variable Expense 60 30%
Contribution Margin 140 70

Increase of
$5,600

Fixed expenses are $105,000 per month. The company is currently selling 1,000 units per month.
Management is considering using a new component that would increase the unit variable cost by $44. Since
the new component would increase the features of the company's product, the marketing manager predicts
that monthly sales would increase by 400 units. What should be the overall effect on the company's
monthly net operating income of this change?
56.

Data concerning Moscowitz Corporation's single product appear below

Increase of
$8,900

Per Unit Percent of Sales

Selling Price $160 100%
Variable Expense 96 60%
Contribution Margin 64 40%
Fixed expenses are $375,000 per month. The company is currently selling 8,000 units per month. The
marketing manager would like to cut the selling price by $15 and increase the advertising budget by
$23,000 per month. The marketing manager predicts that these two changes would increase monthly sales
by 3,100 units. What should be the overall effect on the company's monthly net operating income of this
change?
57.

Data concerning Runnells Corporation's single product appear below:

Increase of
$1,000

Per Unit Percent of Sales

Selling Price $160 100%
Variable Expense 80 50%
Contribution Margin 80 50
The company is currently selling 6,000 units per month. Fixed expenses are $424,000 per month. The
marketing manager believes that a $7,000 increase in the monthly advertising budget would result in a 100
unit increase in monthly sales. What should be the overall effect on the company's monthly net operating
income of this change?
58.

The degree of operating leverage can be calculated as:

contribution
margin
divided by
net
operating
income

59.

Designing a new product is an example of (an):

Product-level
activity.

60.

The difference between total sales in dollars and total variable expenses is called

The contribution
margin

Dimitrov Corporation, a company that produces and sells a single product, has provided its
contribution format income statement for July

$34,500

61.

Sales (7,000 units)..............$315,000

Variable Expenses...............$175,000
Contribution Margin...............140,000
Fixed Expenses.......................103,500
Net operating Income...............36,500
If the company sells 6,900 units, its net operating income should be closest to:
62.

Dull Corporation has been producing and selling electric razors for the past ten years. Shown below
are the actual net operating incomes for the last three years of operations at Dull:

...

Dull Corporation's cost structure and selling price has not changed during its ten years of operations.
Based on the information presented above, which of the following statements is true?
63.

64.

65.

66.

67.

68.

69.

A duration driver is:

A measure of the
amount of time
required to
perform an
activity.

During April, Division D of Carney Company had a segment margin ratio of 15%, a variable expense
ratio of 60% of sales, and traceable fixed expenses of $15,000. Division D's sales were closest to

$60,000

East Company manufactures and sells a single product with a positive contribution margin. If the
selling price and the variable expense per unit both increase 5% and fixed expenses do not change,
what is the effect on the contribution margin per unit and the contribution margin ratio?

C. Option C
(Increase-No
Change)

Evans Company produces a single product. During the most recent year, the company had a net
operating income of $90,000 using absorption costing and $84,000 using variable costing. The fixed
overhead application rate was $6 per unit. There were no beginning inventories. If 22,000 units were
produced last year, then sales for last year were

21,000

Even departmental overhead rates will not correctly assign overhead costs in situations where a
company has a range of products that differ in volume, lot size, or complexity of production.

True

Fixed costs that are traceable to a segment may become common if the segment is divided into smaller
units.

True

Fixed manufacturing overhead is included in product costs under

Option D (YesNo)

70.

The following data have been taken from the budget reports of Brandon company, a merchandising
company.

$254,000

Forty percent of purchases are paid for in cash at the time of purchase, and 30% are paid for in each of the
next two months. Purchases for the previous November and December were $150,000 per month. Employee
wages are 10% of sales for the month in which the sales occur. Selling and administrative expenses are 20%
of the following month's sales. (July sales are budgeted to be $220,000.) Interest payments of $20,000 are
paid quarterly in January and April. Brandon's cash disbursements for the month of April would be:
71.

The following information relates to Clyde Corporation which produced and sold 50,000 units last month.

$13.30

Sales.......$850,000
Manufacturing Cost:
Fixed..............................$210,000
Variable..........................$140,000
Selling and administrative expenses:
Fixed................................$300,000
Variable............................$45,000
There were no beginning or ending inventories. Production and sales next month are expected to be 40,000
units. The company's unit contribution margin next month should be
72.

73.
74.

For a given level of sales, a low contribution margin ratio will produce less net operating income than a high
contribution margin ratio

True

Gangwer Corporation produces a single product and has the following cost structure

$95

Gaudy Inc. produces and sells a single product. The company has provided its contribution format income
statement for May

$19,500

Sales (4,5000 units)........ $427,500

Variable Expenses...........265,500
Contribution Margin........162,000
Fixed Expenses..............135,300
Net operating income.......$26,700
75.

76.

77.

78.

Gore Corporation has two divisions: the Business Products Division and the Export Products Division.
The Business Products Division's divisional segment margin is $55,700 and the Export Products Division's
divisional segment margin is $70,600. The total amount of common fixed expenses not traceable to the
individual divisions is $107,400. What is the company's net operating income?
A. $233,700
B. $(126,300)
C. $126,300
D. $18,900

18,900

Hagos Corporation is working on its direct labor budget for the next two months. Each unit of output
requires 0.84 direct labor-hours. The direct labor rate is $9.40 per direct labor-hour. The production
budget calls for producing 2,100 units in June and 1,900 units in July. If the direct labor work force is fully
adjusted to the total direct labor-hours needed each month, what would be the total combined direct labor
cost for the two months?

$31,584.00

Hansen Company produces a single product. During the last year, Hansen had net operating income under
absorption costing that was $5,500 lower than its income under variable costing. The company sold 9,000
units during the year, and its variable costs were $10 per unit, of which $6 was variable selling expense. If
fixed production cost is $5 per unit under absorption costing every year, then how many units did the
company produce during the year?

7,900

Hatch Company has two divisions, O and E. During the year just ended, Division O had a segment margin
of $9,000 and variable expenses equal to 70% of sales. Traceable fixed expenses for Division E were
$19,000. Hatch Company as a whole had a contribution margin ratio of 40%, a segment margin of $25,000,
and sales of $200,000. Given this data, the sales for Division E for last year were:

$50,000

79.

80.

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90.

91.

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93.

94.

95.

96.

The Herald Company manufactures and sells a single product which sells for $50 per unit and has a
contribution margin ratio of 30%. The company's monthly fixed expenses are $25,000. If Herald desires
a monthly target net operating income equal to 20% of sales dollars, sales in units will have to be
(rounded)

5,000 units

Hirt Corporation sells its product for $12 per unit. Next year, fixed expenses are expected to be $400,000
and variable expenses are expected to be $8 per unit. How many units must the company sell to generate
net operating income of $80,000?

120,000 units

If fixed expenses increase by $10,000 per year, then the level of sales needed to break even will also
increase by $10,000.

False

If Q equals the level of output, P is the selling price per unit, V is the variable expense per unit, and F is
the fixed expense, then the break-even point in units is

F (P-V). F
divided by (pv)

If the fixed expenses increase in a company, and all other factors remain unchanged, then one would
expect the margin of safety to decrease.

True

If the number of units produced exceeds the number of units sold, then net operating income under
absorption costing will

be greater
than net
operating
income under
variable
costing

If two companies have the same total sales and total expenses and make the same product, the volatility
of net operating income with changes in sales will tend to be greater in the company with a higher
proportion of fixed expenses in its cost structure.

True

If two companies produce the same product and have the same total sales and same total expenses,
operating leverage will be lower in the company with a higher proportion of fixed expenses in its cost
structure.

False

The impact on net operating income of a given dollar change in sales can be computed by applying the
contribution margin ratio to the dollar change in sales.

True

In activity-based costing, some manufacturing costs may be excluded from product costs

True

In activity-based costing, there are a number of activity cost pools, each of which is allocated to products
and other costing objects using its own unique measure of activity

True

In general, duration drivers are more accurate measures of the consumption of resources than
transaction drivers.

True

In responsibility accounting, each segment in an organization should be charged with the costs for
which it is responsible and over which it has control plus its share of common organizational costs

False

In segment reporting, sales dollars is usually an appropriate allocation base for selling, general, and
administrative expenses.

...

In the selling and administrative budget, the non-cash charges (such as depreciation) are added to the
total budgeted selling and administrative expenses to determine the expected cash disbursements for
selling and administrative expenses

False

Incremental analysis is an analytical approach that focuses only on those revenues and costs that will
change as a result of a decision.

True

James Company has a margin of safety percentage of 20% based on its actual sales. The break-even point
is $200,000 and the variable expenses are 45% of sales. Given this information, the actual profit is

$27,500

Johnson Company operates two plants, Plant A and Plant B. Last year, Johnson Company reported a
contribution margin of $40,000 for Plant A. Plant B had sales of $200,000 and a contribution margin
ratio of 40%. Net operating income for the company was $27,000 and traceable fixed expenses for the
two stores totaled $50,000. Johnson Company's common fixed expenses were:

$43,000

97.

98.

99.

100.

101.

102.

103.

104.

Knoke Corporation's contribution margin ratio is 29% and its fixed monthly expenses are $17,000. If the
company's sales for a month are $98,000, what is the best estimate of the company's net operating income?
Assume that the fixed monthly expenses do not change

$11,420

Last year, Flynn Company reported a profit of $70,000 when sales totaled $520,000 and the contribution
margin ratio was 40%. If fixed expenses increase by $10,000 next year, what amount of sales will be
necessary in order for the company to earn a profit of $80,000?

$570,000

Last year, Heidenescher Corporation's variable costing net operating income was $63,600 and its inventory
decreased by 600 units. Fixed manufacturing overhead cost was $1 per unit. What was the absorption
costing net operating income last year?

$63,000

Last year, Salada Corporation's variable costing net operating income was $97,000. Fixed manufacturing
overhead costs released from inventory under absorption costing amounted to $14,000. What was the
absorption costing net operating income last year?

$83,000

Loren Company's single product has a selling price of $15 per unit. Last year the company reported total
variable expenses of $180,000, fixed expenses of $90,000, and a net operating income of $30,000. A study
by the sales manager discloses that a 15% increase in the selling price would reduce unit sales by 10%. If her
proposal is adopted, net operating income would

increase
by
$28,500

Lunderville Inc. bases its selling and administrative expense budget on budgeted unit sales. The sales
budget shows 3,200 units are planned to be sold in December. The variable selling and administrative
expense is $3.10 per unit. The budgeted fixed selling and administrative expense is $60,800 per month,
which includes depreciation of $6,720 per month. The remainder of the fixed selling and administrative
expense represents current cash flows. The cash disbursements for selling and administrative expenses on
the December selling and administrative expense budget should be:

$64,000

Managing and sustaining product diversity requires many more overhead resources such as production
schedulers and product design engineers than managing and sustaining a single product. The costs of these
resources can be accurately allocated to products on the basis of direct labor-hours.

True

Mancuso Corporation has provided its contribution format income statement for January. The company
produces and sells a single product

$173,600

Sales (2,900 units).....................$269,700

Variable Expense ......................$107,300
Contribution Margin....................162,400
Fixed Expenses..........................137,100
Net Operating Income.................$25,300
If the company sells 3,100 units, its total contribution margin should be closest to
105.

A manufacturing company that produces a single product has provided the following data concerning its
most recent month of operations

$90

What is the variable costing unit product cost for the month?
A. $103
B. $99
C. $94
D. $90
106.

A manufacturing company that produces a single product has provided the following data concerning its
most recent month of operations
What is the net operating income for the month under variable costing?
A. $21,600
B. $(15,200)
C. $8,000
D. $13,600

...

A manufacturing company that produces a single product has provided the following data concerning its
most recent month of operations:
A. $58,300
B. $37,100
C. $259,900
D. $201,600

...

A manufacturing company that produces a single product has provided the following data concerning its
most recent month of operations:
A. $102
B. $130
C. $97
D. $125

$125

A manufacturing company that produces a single product has provided the following data concerning its
most recent month of operations:
The total contribution margin for the month under variable costing is:
A. $183,600
B. $90,000
C. $70,400
D. $169,200

$169,200

A manufacturing company that produces a single product has provided the following data concerning its
most recent month of operations:
What is the net operating income for the month under absorption costing?
A. $5,300
B. $3,000
C. $(12,700)
D. $8,300

$8,300

A manufacturing company that produces a single product has provided the following data concerning its
most recent month of operations:
What is the total period cost for the month under variable costing?
A. $185,000
B. $117,600
C. $273,200
D. $302,600

...

The manufacturing overhead budget at Cutchin Corporation is based on budgeted direct labor-hours. The
direct labor budget indicates that 2,800 direct labor-hours will be required in September. The variable
overhead rate is $7.00 per direct labor-hour. The company's budgeted fixed manufacturing overhead is
$43,120 per month, which includes depreciation of $3,640. All other fixed manufacturing overhead costs
represent current cash flows. The September cash disbursements for manufacturing overhead on the
manufacturing overhead budget should be:

$59,080

The manufacturing overhead budget at Latronica Corporation is based on budgeted direct labor-hours. The
direct labor budget indicates that 7,100 direct labor-hours will be required in August. The variable overhead
rate is $8.60 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $132,770 per
month, which includes depreciation of $24,850. All other fixed manufacturing overhead costs represent
current cash flows. The company recomputes its predetermined overhead rate every month. The
predetermined overhead rate for August should be:

$27.30

114.

The margin of safety percentage is computed as

(Total
sales Breakeven
sales)
Total
sales

115.

The margin of safety percentage is equal to the margin of safety in dollars divided by total sales in dollars.

True

107.

108.

109.

110.

111.

112.

113.

116.

117.
118.

Mark Company currently sells a video recorder with a selling price of $300 per unit. The
variable expense per unit is $175 and fixed expenses are $100,000. If the company reduces
variable expenses by $20 per unit and increases the fixed expenses by $10,000, the breakeven point will increase.

False

The master budget is a network consisting of many separate budgets that are interdependent

True

McCaskey Corporation uses an activity-based costing system with the following three activity
cost pools:

$1.65 per machine-hour

Activity Cost Pool Total Activity

Fabrication..............................40,000 Machine Hours
Order Processing.....................500 Orders
Other..........................................Not Applicable
The Other activity cost pool is used to accumulate costs of idle capacity and organizationsustaining costs.
The company has provided the following data concerning its costs:
Wages and salaries.............$420,000
Deprecition.........................$100,000
Occupancy...........................$120,000
Total......................................$640,000
The distribution of resource consumption across activity cost pools is given below
The activity rate for the Fabrication activity cost pool is closest to
119.

Menlove Company had the following income statement for the most recent year:
Sales (17,000 units)...... $357,000
Variable Expenses...........$255,000
Contribution Margin...........102,000
Fixed Expenes...................68,000
Net operating income.........34,000

$6 per unit

Given this data, the unit contribution margin was:

120.

Montgomery Corporation produces and sells a single product. Data concerning that product
appear below
Per Unit Percent of Sales
Selling Price $240 100%
Variable Expense 144 60%
Contribution Margin 96 40%

Decrease of $6,000

Fixed expenses are $239,000 per month. The company is currently selling 3,000 units per
month. The marketing manager would like to cut the selling price by $12 and increase the
advertising budget by $12,000 per month. The marketing manager predicts that these two
changes would increase monthly sales by 500 units. What should be the overall effect on the
company's monthly net operating income of this change
121.

Moore Company produces a single product. During last year, Moore's variable production
costs totaled $10,000 and its fixed manufacturing overhead costs totaled $6,800. The
company produced 5,000 units during the year and sold 4,600 units. There were no units in
the beginning inventory. Which of the following statements is true?

The net operating income

under absorption costing
for the year will be $544
higher than net operating
income under variable
costing

122.

123.

Mosbey Inc. is working on its cash budget for June. The budgeted beginning cash balance is $16,000.
Budgeted cash receipts total$188,000 and budgeted cash disbursements total $187,000. The desired
ending cash balance is $40,000. The excess (deficiency) of cashavailable over disbursements for June
will be

$17,000

Mowrer Corporation produces and sells a single product. Data concerning that product appear below
Per Unit Percent of Sales
Selling Price $120 100%
Variable Expense 48 60%
Contribution Margin 72 40%

Increase of
$21,600

Fixed expenses are $567,000 per month. The company is currently selling 9,000 units per month. The
marketing manager would like to introduce sales commissions as an incentive for the sales staff. The
marketing manager has proposed a commission of $11 per unit. In exchange, the sales staff would accept
a decrease in their salaries of $84,000 per month. (This is the company's savings for the entire sales
staff.) The marketing manager predicts that introducing this sales incentive would increase monthly
sales by 600 units. What should be the overall effect on the company's monthly net operating income of
this change?
National Telephone company has been forced by competition to put much more emphasis on planning
and controlling its costs. Accordingly, the company's controller has suggested initiating a formal
budgeting process. Which of the following steps will NOT help the company gain maximum acceptance
by employees of the proposed budgeting system

Implementing
the change
quickly.

Net operating income reported under absorption costing will exceed net operating income reported
under variable costing for a given period if:

production
exceeds sales
for that
period.

Olds Inc., which produces a single product, has provided the following data for its most recent month of
operations

$130

On a CVP graph for a profitable company, the total expense line will be steeper than the line representing
fixed costs.

True

On a CVP graph for a profitable company, the total revenue line will be steeper than the total expense
line.

True

129.

One benefit of budgeting is that it coordinates the activities of the entire organization

True

130.

One difficulty with self-imposed budgets is that they are not subject to any type of review

False

Only those costs that would disappear over time if a segment were eliminated should be considered
traceable costs of the segment

True

Organization-sustaining activities are activities of the general organization that support specific
products.

False

Over an extended period of time in which the final ending inventories are zero, the accumulated net
operating income figures reported under absorption costing will be

the same as
those reported
under
variable
costing

Patterson Company's variable expenses are 55% of sales. At a $400,000 sales level, the degree of
operating leverage is 5. If sales increase by $30,000, the new degree of operating leverage will be
(rounded)

3.91

Perona Corporation produces and sells a single product. Data concerning that product appear below:
Selling price per unit..............$160.00
Variable Expense per unit $70.40
Fixed expense per month $385,280
The unit sales to attain the company's monthly target profit of $9,000 is closest to

4,400 units

124.

125.

126.

127.

128.

131.

132.

133.

134.

135.

136.

Personnel administration is an example of (an):

Organizationsustaining activity.

137.

Planning and control are essentially the same thing

False

Pool Company's variable expenses are 36% of sales. Pool is contemplating an advertising
campaign that will cost $20,000. If sales increase by $80,000, the company's net operating
income should increase by:

$31,200

A portion of the total fixed manufacturing overhead cost incurred during a period may

be excluded from cost

of goods sold under
absorption costing.

The practice of assigning the costs of idle capacity to products can result in unstable unit product
costs.

True

Prestwich Company has budgeted production for next year as follows:

165,000 pounds

138.

139.

140.

141.

Two pounds of material A are required for each unit produced. The company has a policy of
maintaining a stock of material A on hand at the end of each quarter equal to 25% of the next
quarter's production needs for material A. A total of 30,000 pounds of material A are on hand to
start the year. Budgeted purchases of material A for the second quarter would be
A product sells for $20 per unit and has a contribution margin ratio of 40 percent. Fixed
expenses total $240,000 annually. How many units of the product must be sold to yield a profit of
$60,000?

37,500 units

143.

The production budget is typically prepared prior to the sales budget

False

144.

Property taxes are an example of a cost that would be considered to be

Organizationsustaining.

Reynold Enterprises sells a single product for $25. The variable expense per unit is $15 and the
fixed expense per unit is $5 at the current level of sales. The company's net operating income will
increase by $5 if one more unit is sold.

False

Ribb Corporation produces and sells a single product. Data concerning that product appear
below:

Decrease of $3,200

142.

145.

146.

Per Unit Percent of Sales

Selling Price $190 100%
Variable Expense 57 30%
Contribution Margin 133 70%
Fixed expenses are $913,000 per month. The company is currently selling 9,000 units per month.
Management is considering using a new component that would increase the unit variable cost by
$6. Since the new component would increase the features of the company's product, the marketing
manager predicts that monthly sales would increase by 400 units. What should be the overall
effect on the company's monthly net operating income of this change?
147.

148.

Rothe Company manufactures and sells a single product that it sells for $90 per unit and has a
contribution margin ratio of 35%. The company's fixed expenses are $46,800. If Rothe desires a
monthly target net operating income equal to 15% of sales, the amount of sales in units will have to
be (rounded):

2,600 units

Routsong Company had the following sales and production data for the past four years:

Because of the
changes in
production levels,
under variable
costing the unit
product cost will
change each year.

Selling price per unit, variable cost per unit, and total fixed cost are the same in each year. Which
of the following statements is not correct?

Roy Corporation produces a single product. During July, Roy produced 10,000 units. Costs incurred
during the month were as follows:
Under absorption costing, any unsold units would be carried in the inventory account at a unit
product cost of:
A. $5.10
B. $4.40
C. $3.80
D. $3.50

$4.40

The salary of the treasurer of a corporation is an example of a common cost which normally cannot be
traced to product segments.

True

The salary paid to a store manager is a traceable fixed expense of the store.

True

A sales budget is a detailed schedule showing the expected sales for the budget period; typically, it is
expressed in both dollars and units of product

True

Sales forecasts are drawn up after the cash budget has been completed because only then are the
funds available for marketing known

False

A segment is any portion or activity of an organization about which a manager seeks revenue, cost, or
profit data.

True

155.

Segment margin is sales minus:

variable
expenses and
traceable fixed
expenses.

156.

Segmented statements for internal use should be prepared in the contribution format.

True

157.

Self-imposed budgets typically are:

subject to review
by higher levels
of management
in order to
prevent the
budgets from
becoming too
loose

The selling and administrative expense budget of Breckinridge Corporation is based on budgeted unit
sales, which are 5,500 units for June. The variable selling and administrative expense is $1.00 per
unit. The budgeted fixed selling and administrative expense is $101,200 per month, which includes
depreciation of $6,050 per month. The remainder of the fixed selling and administrative expense
represents current cash flows. The cash disbursements for selling and administrative expenses on
the June selling and administrative expense budget should be:

$100,650

Selling and administrative expenses are considered to be:

a period cost
under variable
costing.

Sensabaugh Inc., a company that produces and sells a single product, has provided its contribution
format income statement for January

$28,800

149.

150.

151.
152.

153.

154.

158.

159.

160.

Sales (1,800 units)......$91,800

Variable expense...........59,400
contribution Margin.......32,400
Fixed Expenes................27,000
Net operating income......5,400
161.

A shift in the sales mix from products with a low contribution margin ratio toward products with a
high contribution margin ratio will lower the break-even point in the company as a whole

True

Shown below is the sales forecast for Cooper Inc. for the first four months of the coming year.
On average, 50% of credit sales are paid for in the month of the sale, 30% in the month following sale, and
the remainder are paid two months after the month of the sale. Assuming there are no bad debts, the
expected cash inflow in March is

$119,000

Shuck Inc. bases its manufacturing overhead budget on budgeted direct labor-hours. The direct labor
budget indicates that 8,100 direct labor-hours will be required in May. The variable overhead rate is $1.40
per direct labor-hour. The company's budgeted fixed manufacturing overhead is $100,440 per month,
which includes depreciation of $8,910. All other fixed manufacturing overhead costs represent current
cash flows. The May cash disbursements for manufacturing overhead on the manufacturing overhead
budget should be

$102,870

Sinclair Company's single product has a selling price of $25 per unit. Last year the company reported a
profit of $20,000 and variable expenses totaling $180,000. The product has a 40% contribution margin
ratio. Because of competition, Sinclair Company will be forced in the current year to reduce its selling price
by $2 per unit. How many units must be sold in the current year to earn the same profit as was earned last
year?

15,000
units

South Company sells a single product for $20 per unit. If variable expenses are 60% of sales and fixed
expenses total $9,600, the break-even point will be

$24,000

Stephen Company has the following data for its three stores last year:
Given the above data, the total company sales were

1,250,000

Stephen Company produces a single product. Last year, the company had 20,000 units in its ending
inventory. During the year, Stephen's variable production costs were $12 per unit. The fixed manufacturing
overhead cost was $8 per unit in the beginning inventory. The company's net operating income for the year
was $9,600 higher under variable costing than it was under absorption costing. The company uses a last-infirst-out (LIFO) inventory flow assumption. Given these facts, the number of units of product in the
beginning inventory last year must have been:

21,200

Street Company's fixed expenses total $150,000, its variable expense ratio is 60% and its variable expenses
are $4.50 per unit. Based on this information, the break-even point in units is

50,000
units

169.

Swiatek Corporation produces a single product and has the following cost structure:

$153

170.

To facilitate decision-making, fixed expenses should be expressed on a per-unit basis

False

A total of 30,000 units were sold last year. The contribution margin per unit was $2, and fixed expenses
totaled $20,000 for the year. This year fixed expenses are expected to increase to $26,000, but the
contribution margin per unit will remain unchanged at $2. How many units must be sold this year to earn
the same profit as was earned last year?

43,000
units

The total volume in sales dollars that would be required to attain a given target profit is determined by
dividing the sum of the fixed expenses and the target profit by the contribution margin ratio.

True

173.

A transaction driver is

A simple
count of
the
number of
times an
activity
occurs.

174.

Transaction drivers usually take more effort to record than duration drivers.

True

Tsuchiya Corporation manufactures a variety of products. Last year, the company's variable costing net
operating income was $57,500. Fixed manufacturing overhead costs deferred in inventory under
absorption costing amounted to $35,400. What was the absorption costing net operating income last year?

$92,900

Turner Company's contribution margin ratio is 15%. If the degree of operating leverage is 12 at the $150,000
sales level, net operating income at the $150,000 sales level must equal

$1,875

Under variable costing, all variable costs are treated as product costs

True

162.

163.

164.

165.

166.

167.

168.

171.

172.

175.

176.

177.

178.

Under variable costing, costs that are treated as period costs include

all fixed costs.

179.

Under variable costing, fixed manufacturing overhead cost is treated as a product cost

True

180.

The unit product cost under absorption costing does not include fixed manufacturing overhead cost.

False

181.

Unit-level activities are performed each time a unit is produced.

True

The variable expense per unit is $12 and the selling price per unit is $40. Then the contribution margin
ratio is 70%.

True

Variable manufacturing overhead costs are treated as period costs under both absorption and variable
costing

False

Veltri Corporation is working on its direct labor budget for the next two months. Each unit of output
requires 0.77 direct labor-hours. The direct labor rate is $11.20 per direct labor-hour. The production
budget calls for producing 7,100 units in October and 6,900 units in November. The company
guarantees its direct labor workers a 40-hour paid work week. With the number of workers currently
employed, that means that the company is committed to paying its direct labor work force for at least
5,480 hours in total each month even if there is not enough work to keep them busy. What would be the
total combined direct labor cost for the two months?

A.
$122,752.00

Walsh Company expects sales of Product W to be 60,000 units in April, 75,000 units in May and 70,000
units in June. The company desires that the inventory on hand at the end of each month be equal to 40%
of the next month's expected unit sales. Due to excessive production during March, on March 31 there
were 25,000 units of Product W in the ending inventory. Given this information, Walsh Company's
production of Product W for the month of April should be

75,000 units

Weinreich Corporation produces and sells a single product. Data concerning that product appear
below

Decrease of
$2,700

182.

183.

184.

185.

186.

Per Unit Percent of Sales

Selling Price $180 100%
Variable Expense 90 50%
Contribution Margin 90 50%
The company is currently selling 2,000 units per month. Fixed expenses are $131,000 per month. The
marketing manager believes that an $18,000 increase in the monthly advertising budget would result in
a 170 unit increase in monthly sales. What should be the overall effect on the company's monthly net
operating income of this change?
When production is less than sales for the period, absorption costing net operating income will
generally be less than variable costing net operating income

True

When reconciling variable costing and absorption costing net operating income, fixed manufacturing
overhead costs deferred in inventory under absorption costing should be added to variable costing net
operating income to arrive at the absorption costing net operating income.

True

189.

Which of the following activities would be classified as a batch-level activity?

Setting up
equipment

190.

Which of the following are considered to be product costs under absorption costing?

I. Variable
manufacturing
overhead.
II. Fixed
manufacturing
overhead.

191.

Which of the following are considered to be product costs under variable costing?

I. Variable
manufacturing
overhead

187.

188.

Which of the following formulas is used to calculate the contribution

margin ratio?

(Sales - Variable expenses)

193.

Which of the following is not a benefit of budgeting?

It reduces the need for tracking actual cost

activity.

194.

Which of the following is not a limitation of activity-based costing

More accurate product costs may result in

increasing the selling prices of some products.

Which of the following is not correct regarding the manufacturing

overhead budget?

Total budgeted cash disbursements for

manufacturing overhead is equal to the total of
budgeted variable and fixed manufacturing
overhead

Which of the following represents the correct order in which the

indicated budget documents for a manufacturing company would be
prepared?

Selling and administrative expense budget, cash

budget, budgeted income statement, budgeted
balance sheet

Which of the following represents the normal sequence in which the

indicated budgets are prepared?

Production, Cash, Income Statement

Which of the following statements is not correct?

The cash budget must be prepared prior to the

sales budget because managers want to know the
expected cash collections on sales made to
customers in prior periods before projecting sales
for the current period.

The Willsey Merchandise Company has budgeted $40,000 in sales for the
month of December. The company's cost of goods sold is 30% of sales. If
the company has budgeted to purchase $18,000 in merchandise during
December, then the budgeted change in inventory levels over the month of
December is:

$6,000 increase

With regard to the CVP graph, which of the following statements is not
correct?

. The CVP graph assumes that variable costs go

down as volume goes up.

Would the following activities at a manufacturer of canned soup be best

classified as unit-level, batch-level, product-level, or organizationsustaining activities?

Option D
Product/batch

192.

195.

196.

197.

198.

199.

200.

201.

Researching recipes Shipping orders to G. Stores

unit unit
batch batch
Product unit
product batch
202.

203.

Would the following costs be classified as product or period costs under

variable costing at a retail clothing store

B. Product -Period

Zee Corporation has provided the following data concerning its overhead
costs for the coming year:
The activity rate for the Assembly activity cost pool is closest to
A. $2.70 per labor-hour
B. $4.25 per labor-hour
C. $4.05 per labor-hour
D. $8.10 per labor-hour

$4.25 per labor-hour

Sales