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Use the following information for Boxware Corporation to answer the next four

questions:

Sales price per unit $190


Variable cost per unit $ 80
Average production 1,500 units per month
Total fixed costs $55,000 per month

B1. What is Boxware's contribution margin per unit?


a. $ 80
b. $110
c. $190
d. $270

A2. How many units per month must Boxware sell in order to break even?
a. 500
b. 1000
c. 1500
d. 2000

A3. What amount of dollar sales must Boxware achieve each month in order to break even?
a. $95,000
b. $190,000
c. $285,000
d. $380,000

C4. How many units per month must Boxware sell in order to make a $110,000 profit?
a. 500
b. 1,000
c. 1,500
d. 2,000

Use the following information to answer the next three questions: Derek's Drum Depot (DDD) wants to add a
new line of drumsticks to its product line. The following data apply to the new drumsticks line.

Budgeted sales 30,000 sets per year


Sales price $5 per set
Variable costs $3 per set
Fixed costs $10,000 per year

D5. The break-even point for the new line is


a. 500 sets
b. $5,000
c. 15,000 sets
d. 5,000 sets

A6. The margin of safety for DDD is


a. 83%
b. 15,000 sets
c. 19%
d. 6,000 sets

D7. How many sets of drumsticks must DDD sell to make a profit of $50,000 on the new line?
a. 2,000 units
b. 10,000 units
c. 20,000 units
d. 30,000 units

Use the following data for Fireware Software Corporation to answer the next four questions:

Sales price per unit $44.95


Variable manufacturing cost per unit $17.03
Variable sales commissions per unit $ 3.20
Variable shipping expense per unit $ 1.14
Fixed administrative cost per unit $ 5.77
Other fixed costs per unit $ 1.12
Average production 2,100 units per month

D8. If Fireware makes 2,500 units, total fixed cost would be?
a. $6.89
b. $17,225
c. $11,133
d. $14,469

C9. How many units must Fireware sell in order to break even? (round to the nearest whole unit)
a. 308
b. 500
c. 614
d. 620

D10. How many units must Fireware sell in order to make a $50,000 profit? (Round to the nearest whole unit.)
a. 505
b. 1,090
c. 1,708
d. 2,734

Suggested answers are located after M/C Question #30 below.


1. Managerial accounting stresses accounting concepts and procedures
that are relevant to preparing reports for
a. taxing authorities.
b. internal users of accounting information.
c. external users of accounting information.
d. the Securities and Exchange Commission (SEC).

2. The financial plans prepared by managerial accountants are


referred
to as
a. budgets.
b. financial statements.
c. treasurer's reports.
d. controller's opinions.

3. Which of the following shows the planned quantities of units


to be
manufactured and the expected cost of making these units?
a. Sales budget
b. Production budget
c. Capital budget
d. Cash flow budget

4. Which of the following is not likely to be a fixed cost?


a. direct materials
b. rent
c. depreciation
d. salary of the human resources director

5. Paul's Pizza produced and sold 2,000 pizzas last month and had
fixed
costs of $6,000. If production and sales are expected to
increase
by 10% next month, which of the following statements is true?
a. Total fixed costs will increase.
b. Total fixed costs will decrease.
c. Fixed cost per unit will increase.
d. Fixed cost per unit will decrease.

6. A sunk cost is a cost


a. incurred in the past which is not relevant to present
decisions.
b. incurred in the current period which changes with changes in
production activity.
c. incurred in the current period which remains constant even
though production activity changes.
d. which is estimated to occur in the future.

7. The benefits that are given up when another alternative is


selected
is a(n)
a. sunk cost.
b. controllable cost.
c. opportunity cost.
d. direct cost.

8. You've rented a video for the evening when a friend calls and
asks
you to attend a concert tonight. Which of the following is a
sunk
cost in this situation?
a. the cost of the concert ticket
b. the video rental fee
c. your share of the cost of the gas to get to the concert which
will depend on the number of people riding in the car
d. None of these is a sunk cost.

9. Which of the following is likely to be a noncontrollable cost of


a
department supervisor?
a. labor in the department
b. materials used in the department
c. insurance on the plant
d. overtime premium pay earned by those working in the department

10. A company is deciding whether or not to accept a special order.


Which of the following costs is most likely to be an incremental
cost?
a. material
b. rent
c. insurance
d. CEO's salary

11. Actions of managers are greatly influenced by


a. sunk costs.
b. performance measures.
c. noncontrollable costs.
d. GAAP.

12. Which of the following is not usually a responsibility of the


controller?
a. preparing budgets and performance reports
b. filing tax returns
c. managing cash and marketable securities
d. providing information for management decisions

13. Which of the following skills will be needed by those who desire
a
high-level career in management accounting?
a. written and oral communication skills
b. interpersonal skills
c. knowledge of the industry in which their firm competes
d. All of these skills are necessary for success in management
accounting.

14. Molly's Muffins projects labor costs of $25,000 in a period when


50,000 units are produced. If labor is a variable cost, and if
production is expected to increase to 60,000 units next period,
what is the expected labor cost in the next period?
a. $25,000
b. $35,000
c. $30,000
d. $27,250

15. Megan's Muffins projects the cost of rent to be $10,000 in a


period
when 50,000 units are produced. If rent is a fixed cost, and if
production is expected to drop to 45,000 units next period, what
is the expected cost of rent in the next period?
a. $9,000
b. $10,000
c. $11,000
d. The answer can not be determined with the information that is
given.
------------------------------
Mike's Machines has the following costs in a period when
production
is 1,000 units: Direct materials, $8,500; direct labor, $9,000;
depreciation, $800; rent, $1,200; and other fixed costs, $1,000.

16. The variable cost per unit and fixed cost per unit are,
respectively
a. $8.50 and $3.00.
b. $17.50 and $0.50.
c. $17.50 and $3.00.
d. $8.50 and $12.00.

17. If production changes to 1,200 units, the variable cost per unit
and
fixed cost per unit will be
a. $17.50 and $2.50.
b. $14.58 and $2.50.
c. $17.50 and $3.00.
d. $14.58 and $3.00.

18. If production changes to 800 units, the total variable costs and
total fixed costs will be
a. $17,500 and $3,000.
b. $14,000 and $3,000.
c. $17,500 and $2,250.
d. $14,000 and $2,250.

19. Variable cost per unit is budgeted to be $6.00 and fixed cost per
unit is budgeted to be $3.00 in a period when 5,000 units are
produced. If production is actually 4,500 units, what is the
expected total cost of the units produced?
a. $45,000
b. $40,500
c. $43,500
d. $42,000

20. In a period when anticipated production is 10,000 units, budgeted


variable costs are $85,000 and budgeted fixed costs are
$45,000. If
12,000 units are actually produced, what is the expected total
cost?
a. $130,000
b. $156,000
c. $147,000
d. $139,000

21. At Fruit Company, the total cost to produce 50,000 units is


$750,000. Total fixed costs are $250,000. What is the expected
cost to produce 48,000 units?
a. $730,000
b. $720,000
c. $750,000
d. $740,000

22. Which of the following approaches to cost estimation is not


based on
fitting data points to a line?
a. account analysis
b. scattergraph approach
c. high-low method
d. regression analysis

23. A significant weakness of the high-low method is that


a. a significant amount of management expertise is necessary
to break out the variable and fixed costs.
b. the two data points that are used may not be representative
of the general relation between cost and activity.
c. the calculations are so complex that a computer is usually
necessary in order to get accurate results.
d. monthly data must be collected for at least three years
before the method can be used.

24. Which of the following statements regarding the contribution


margin
ratio is not true?
a. The contribution margin ratio is equal to the contribution
margin
per unit divided by the selling price.
b. The contribution margin ratio is the amount of each sales
dollar
that goes toward covering fixed costs and generating a profit.
c. The contribution margin ratio is equal to variable cost per
unit
divided by fixed cost per unit.
d. The contribution margin ratio is useful when companies that
sell
a variety of products calculate a break-even point.

25. If a company with a contribution margin ratio of 30% is operating


above its break-even point
a. each additional $1.00 in sales will contribute $0.70 towards
fixed costs.
b. it is not earning a profit.
c. each additional $1.00 in sales will contribute $0.30 to
profit.
d. each additional unit sold will add 30% to total variable
costs.

26. Which of the following is not involved in determining


the contribution
margin?
a. anticipated sales for the next period
b. fixed costs
c. selling price per unit
d. variable cost per unit

------------------------------
Nick's Novelties has collected the following information over the
last six months.

Month Units produced Total costs



March 10,000 $25,600
April 12,000 26,200
May 18,000 27,600
June 13,000 26,450
July 12,000 26,000
August 15,000 26,500

27. Using the high-low method, what is the variable cost per unit?
a. $0.22
b. $0.25
c. $2.00
d. $2.56

28. Using the high-low method, what is the total fixed cost?
a. $23,100
b. $1,000
c. $5,600
d. $4,500

29. Using the high-low method, what is the estimated total cost in a
month when 12,000 units are produced?
a. $26,000
b. $26,100
c. $26,200
d. $24,000

30. Which of the following costs does not change when the level of
business activity changes?
a. total fixed costs
b. total variable costs
c. total direct materials costs
d. fixed costs per unit

YOU SHOULD ALSO BE PREPARED TO ANSWER QUESTIONS OF THE TYPES WE


COVERED IN CLASS.

Practice Test I--Page 6


ANSWER KEY
Dr. Ahiarah Managerial Accounting
1 b
2 a
3 b
4 a
5 d
6 a
7 c
8 b
9 c
10 a
11 b
12 c
13 d
14 c
15 b
16 c
17 a
18 b
19 d
20 c
21 a
22 a
23 b
24 c
25 c
26 b
27 b
28 a
29 b
30 a