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Test 2 Study Guide For an activity base to be useful in cost behavior analysis, There should be a correlation between changes in the level of activity and change in costs Which statement below describes a variable cost? It varies in total with changes in the level of activity. Cost behavior analysis is a study of how a firm's costs respond to changes in activity levels within the company. Madonna company's high and low level of activity was 8,000 units during March and 3,000 units produced in August. Machine maintenance costs were $29,000 in March and $12,000 in August. Using the high-low method, how much will total maintenance cost be in January of the following year if production is expected to be 7,000 units? A. $25,600 What happens to total costs if the activity level increases 10%? They increase by less than 10%. What type of information does the high-low method usually produce? A reasonable estimate of variable and fixed costs Sarks Company has a contribution margin of $150,000 and a contribution margin ratio of 30%. How much are total variable costs? D. $350,000 Copper Z Company has variable costs which are 40% of its unit selling price and fixed costs of $30,000. How much sales will Copper Z report at its break even point in dollars? D. $50,000 A company requires $600,000 in sales to meet its target net income. Its contribution margin is 40%, and fixed costs are $80,000. How much is the target net income? $160,000 Croc Catchers calculates its contribution margin to be less than zero. Which statement is true? Its selling price is less than its variable costs Chapter 19

For Dye Company, at a sales level of 5,000 units, sales is $75,000, variable expenses total $40,000, and fixed expenses are $21,000. What is the contribution margin per unit? 7 Vazquez Company's cost of goods sold is $350,000 variable and $200,000 fixed. The company's selling and administrative expenses are $250,000 variable and $300,000 fixed. If the company's sales is $1,400,000, what is its net income? $300,000 In 2010, Masset sold 3,000 units at $450 each. Variable expenses were $350 per unit and fixed expenses were $200,000. The same selling price, variable expenses, and fixed expenses are expected for 2011. What is Masset's break-even point in units for 2011? 2,000

In 2010, McDougal sold 3,000 units at $500 each. Variable expenses were $350 per unit and fixed expenses were $195,000. The same variable expenses per unit and fixed expenses are expected for 2011. If McDougal cuts selling price by 6%, what is McDougal's break-even point in units for 2011?

$1,625 5.In 2010, Thornton sold 3,000 units at $400 each. Variable expenses were $250 per unit and fixed expenses were $200,000. The same selling price is expected for 2011. Thornton is planning to invest in equipment that would increase fixed costs by 20%, while decreasing variable costs per unit by 20%. What is Thornton's break-even point in units for 2011? 1,200 6.In 2010, Logan sold 1,000 units at $500 each and earned a net income of $40,000. Variable expenses were $300 per unit and fixed expenses were $160,000. The same selling price is expected for 2011. Logan's variable cost per unit will rise by 10% in 2011 due to increasing material costs, so they are planning to cut fixed costs by $10,000. How many units must Logan sell in 2011 to maintain the same income level as 2010? 1,118 7.Sales mix is the relative percentage in which a company sells its multiple products.

8.Konerko Company sells two types of computer chips. The sales mix is 30% for Q-Chip and 70% for Q-Chip Plus. Q-Chip has variable costs per unit of $30 and a selling price of $50. Q-Chip Plus has variable costs per unit of $35 and a selling price of $65. The weighted-average unit contribution margin for Konerko is $27 9. Logan Company sells two products, A and B. Their contribution margins per unit are $60 and $120, respectively, and their sales mix is 3:1. What is Logan's weighted average unit contribution margin? $75 10. Shorebuck's Coffee can sell all the units it can produce of either latte or cappuccino but not both. Latte has a unit contribution margin of $45 and takes three machine hours to make and cappuccino has a unit contribution margin of $32 and takes two machine hours to make. There are 1,200 machine hours available to manufacture a product. What should Shorebuck's do? Make cappuccino which creates $1 more profit per constraint than latte does. Chapter 20 A budget is an aid to management Where do most companies start in the budgeting process? They look at past performance. If budgets are to be effective, there must be an organizational structure with clearly defined lines of authority and responsibility. 1. The performance report of the Canadian Division of Sidmund, Inc. showed a difference between the budget and the actual results for the year. Management determines this difference was controllable by the manager in charge. Should the division manager by held responsible? Yes, because managers are responsible for controllable costs for their departments. The production budget shows that expected unit sales are 86,000 for May and 87,000 for June. The company desires to have units on hand at the end of the month equal to 10% of next month's sales. How many units should the company produce during May? A. 86,100

A company determined that the budgeted cost of producing a product is $20 per unit. On June 1, there were 20,000 units on hand, the sales department budgeted sales of 75,000 units in June, and the company desires to have 30,000 units on hand on June 30. The budgeted cost of goods manufactured for June would be 1,700,000 The Cash budget reflects expected cash receipts and cash disbursements from all sources. The following credit sales are budgeted by Roswell Company: January $34,000, February $50,000, March $70,000, and April $60,000. The company's past experience indicates that 70% of the accounts receivable are collected in the month of sale, 20% in the month following the sale, and 8% in the second month following the sale. The anticipated cash inflow for the month of April is $60,000 Which of the following are sections of the cash budget? Cash receipts, cash disbursements, financing Instead of a production budget, a merchandiser will prepare a merchandise purchases budget.

Chapter 23 1. Incremental analysis is synonymous with differential analysis. 2. Which of the following is a true statement about cost behaviors in incremental analysis? 1. Fixed costs will not change between alternatives. 2. Fixed costs may change between alternatives. 3. Variable costs will always change between alternatives. 3. Which of the following is true if a company can accept a special order without affecting its regular sales and is within plant capacity? Net income will increase if the special sales price per unit exceeds the unit variable costs. 4. What is the nature of an opportunity cost? Its a potential benefit

5. Sam's Manufacturing Company can make 100 units of a necessary component part with the following costs: Direct Materials $80,000

Direct Labor $13,000 Variable Overhead $40,000 Fixed Overhead $27,000 If Sam's Manufacturing Company purchases the component externally, $20,000 of the fixed costs can be avoided. At what external price for the 100 units is the company indifferent between making or buying? 153,000 6. Beal Company is starting business and is unsure of whether to sell its product assembled or un-assembled. The unit cost of the un-assembled product is $40 and Beal Company would sell it for $90. The cost to assemble the product is estimated at $18 per unit and Beal Company believes the market woud support a price of $116 on the assembled unit. What is the correct decision using the sell or process further decision rule? Process further, the company will be better off by $8 per unit. 7. In a retain or replace equipment decision, trade-in allowance available on old equipment relevant because it will not be realized if the old equipment is retained. 8. Which statement is true concerning the decision rule on whether to make or buy? The company should buy if the cost of buying is less than the cost of producing. 9. Shorebuck's Coffee can sell all the units it can produce of either latte or cappuccino but not both. Latte has a unit contribution margin of $45 and takes three machine hours to make and cappuccino has a unit contribution margin of $32 and takes two machine hours to make. There are 1,200 machine hours available to manufacture a product. What should Shorebuck's do? Make cappuccino which creates $1 more profit per constraint than latte does. A company can sell all the units it can produce of either Product A or Product B but not both. Product A has a unit contribution margin of $36 and takes two machine hours to make and Product B has a unit contribution margin of $45 and takes three machine hours to make. If there are 1,000 machine hours available to manufacture a product, income will be $3,000 more if Product A is made.