Fixed costs expressed on a per unit basis

Managerial Accounting Help

Managerial Accounting , Summer 2013
Test for Chapters 1-6
Each Questions 1-52 are worth 5 pts.

Question 53 is worth 40pts.

1. Manufacturing overhead consists of:

A. all manufacturing costs, excepts direct materials and direct labor

B. all manufacturing costs

C. indirect materials but not indirect labor

D. indirect labor but not indirect materials

· 2. Which of the following should NOT be included as part of manufacturing overhead at a company that makes office furniture?

·

·

A. sheet steel in a file cabinet by the company 


B. manufacturing equipment depreciation 


C. idle time for direct labor 


D. taxes on a factory building

· 



· 3. Which of the following costs would not be included as part of manufacturing overhead?

A. Insurance on sales vehicles

B. Depreciation of production equipment

C. Lubricants for production equipment

D. Direct labor overtime premium

4. The advertising cost that Pepsi incurred to air its commercials during the Super Bowl can best be described as a:

A. fixed cost

B. variable cost

C. product cost

A. D. prime cost

5. Each of the following would be a period cost except:

·

·

A. depreciation of a machine used in manufacturing

B. 
 the salary of the company president's secretary 


C. the cost of the general accounting office 


D. sales commissions

·

·

· 



6. Which of the following costs is an example of a period rather than a product cost?

A. Wages of salespersons

B. Depreciation on production equipment

C. Wages of production machine operators

D. insurance on production equipment

7. Which of the following would be considered a product cost for external financial reporting purposes

A. Cost of sand spread on the factory floor to absorb oil from manufacturing machines

B. cost of a wharehouse used to store finished goods

C. Cost of guided public tours through the company's facilities

D. Cost of travel necessary to sell the manufactured product

8. The salary of the president of a manufacutring company would be classified as which of the following?

A. Period cost

B. product cost

C. Manufacturing overhead

D. Direct labor

9. Conversion cost do NOT include:

A. Direct materials

B. depreciation

C. Indirect labor

D. indirect materials

10. Last month, when 10,000 units of a product were manufactured, the cost per unit was $60. At this level of activity, variable costs are 50% of total unit costs. If 10,500 units are manufactured next month and cost behavior patterns remain unchanged the:

A. Total cost per unit will decrease

B. Total variable cost will remain unchanged

C. fixed cost will increase in total

D. variable cost per unit will increase

11. Variable cost:

A. remains constant on a per unit basis as the number of units produced increases

B. increases on a per unit basis as the number of units produced increases

C. remians the same in total as production increases

D. decreases on a per unit basis as the number of units produced increases

12. Which of the following statement regarding fixed costs is incorrect?

A. Expressing fixed costs on a per unit basis usually is the best approach for decision making

B. Fixed costs expressed on a per unit basis will decrease with increases in activity

C. Total fixed costs are constant within the relevant range

D. Fixed costs expressed on a per unit basis will increase with decreases in activity

13. The term "relevant range" means the range of activity over which:

A. The assumptions about fixed and variable cost behavior are reasonable valid

B. relevant costs are incurred

C. costs may fluctuate

D. production may vary

14. Brace Corporation uses direct labor-hours in its predetermined overhead rate. At the beginning of the year, the estimated direct labor-hours were 21,600 hours. At the end of the year, actual direct labor-hours for the year were 20,400, the actual manufacturing overhead for the year was $506,920, and manufacturing overhead for the year was underapplied by $23,440. The estimated manufacturing overhead at the beginning of the year used in the predetermined overhead rate must have been:

A. 501,920

B. 531,445

C. 483,489

D. 511,920

15. Snappy Company has a job-order costing system and uses a predetermined overhead rate based on direct labor-hours to apply manufacturing overhead to jobs. Manufacturing overhead cost and direct labor hours were estimated at $100,000 and 40,000 hours, respectively, for the year. In July Job#334 was completed at a cost of $5,000 in direct materials and $2,499 in direct labor. The labor rate is $6 per hour. By the end of the year, Snappy had worked a total of 45,000 direct labor-hours and had incurred $110, 250 actual manufacturing overhead cost.

If Job #334 contained 200 units, the unit product cost on the completed job cost sheet would be:

A. 37.00

B. 42.00

C. 41.90

D. 39.50

16. Guerra Electronics manufactures a variety of electronic gadgets for use in the home. Which of the following would probably be the most accurate measure of activity to use for allocating the cost of inspecting the finished product at Gurerra.

A. Machine-hours

B. Direct labor-hours

C. Inspection time

D. Number of inspections

17. Daston Company manufactures tow products, Product F and Product G. The company expects to produce and sell 1,600 units of Product F and 3,000 units of Product G during the current year. The Company used activity-based costing to compute unit product costs for external reports. Data relating to the company's three activity pools are given below for the current year:

Activities Est. Overhead ____________Expected Activity________________

Cost Product F Product G Total

Machine setupps $14,960 130 90 220

Purchase orders 63,360 650 1,110 1,760

General factory 32,240 1,280 1,200 2,480

Required: Use activity based costing to determine the overhead cost per unit for each product.

18.

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

A.

net operating income.

B.

net profit.

C.

the gross margin.

D.

the contribution margin.

19.

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?

A.

Option A

B.

Option B

C.

Option C

D.

Option D

20.

Which of the following formulas is used to calculate the contribution margin ratio?

A.

(Sales - Fixed expenses) ÷ Sales

B.

(Sales - Cost of goods sold) ÷ Sales

C.

(Sales - Variable expenses) ÷ Sales

D.

(Sales - Total expenses) ÷ Sales

21.

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?

A.

Option A

B.

Option B

C.

Option C

D.

Option D

22..

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

A.

the contribution margin ratio.

B.

the variable expenses per unit.

C.

the sales price per unit.

D.

the contribution margin per unit.

23..

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

A.

increase and the selling price remains unchanged.

B.

decrease and the selling price remains unchanged.

C.

decrease and the selling price increases.

D.

remain unchanged and the selling price increases.

24..

The margin of safety percentage is computed as:

A.

Break-even sales ÷ Total sales.

B.

Total sales - Break-even sales.

C.

(Total sales - Break-even sales) ÷ Break-even sales.

D.

(Total sales - Break-even sales) ÷ Total sales.

25.

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

A.

contribution margin.

B.

degree of operating leverage.

C.

margin of safety.

D.

contribution margin ratio.

26.

The degree of operating leverage can be calculated as:

A.

contribution margin divided by sales.

B.

gross margin divided by net operating income.

C.

net operating income divided by sales.

D.

contribution margin divided by net operating income.

27.

A company has provided the following data: 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:

A.

decrease by $31,875.

B.

decrease by $15,000.

C.

increase by $20,625.

D.

decrease by $3,125.

28.

Butteco Corporation has provided the following cost data for last year when 100,000 units were produced and sold: 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:

A.

$450,000

B.

$385,000

C.

$405,000

D.

$560,000

29.

Sensabaugh Inc., a company that produces and sells a single product, has provided its contribution format income statement for January. If the company sells 1,600 units, its total contribution margin should be closest to:

A.

$22,200

B.

$28,800

C.

$4,800

D.

$32,400

30.

Gaudy Inc. produces and sells a single product. The company has provided its contribution format income statement for May. If the company sells 4,300 units, its net operating income should be closest to:

A.

$7,700

B.

$25,513

C.

$26,700

D.

$19,500

31.

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:

A.

$260,000

B.

$440,000

C.

$280,000

D.

$240,000

32.

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:

A.

$200,000

B.

$350,000

C.

$250,000

D.

$210,000

33.

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):

A.

2,500 units

B.

5,000 units

C.

1,666 units

D.

1,000 units

34.

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:

A.

50,000 units

B.

37,500 units

C.

33,333 units

D.

100,000 units

35.

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:

A.

$24,000

B.

$14,400

C.

$9,600

D.

$16,000

36.

Darth Company sells three products. Sales and contribution margin ratios for the three products follow: Given these data, the contribution margin ratio for the company as a whole would be:

A.

25%

B.

75%

C.

33.3%

D.

it is impossible to determine from the data given.

37.

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.

A.

$81,000

B.

$11,420

C.

$52,580

D.

$28,420

38.

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?

A.

$63,840

B.

$7,160

C.

$71,000

D.

$22,840

39.

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?

A.

$9,960

B.

$5,040

C.

$22,960

D.

$28,000

40.

Data concerning Runnells Corporation's single product appear below: 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?

A.

increase of $8,000

B.

increase of $1,000

C.

decrease of $7,000

D.

decrease of $1,000

41.

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

A.

increase of $2,700

B.

increase of $15,300

C.

decrease of $18,000

D.

decrease of $2,700

42.

Data concerning Lancaster Corporation's single product appear below: 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?

A.

decrease of $38,400

B.

decrease of $5,600

C.

increase of $5,600

D.

increase of $38,400

43.

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

A.

decrease of $3,200

B.

increase of $50,800

C.

decrease of $50,800

D.

increase of $3,200

44.

Data concerning Moscowitz Corporation's single product appear below: 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?

A.

decrease of $128,900

B.

increase of $426,500

C.

increase of $8,900

D.

increase of $128,900

45.

Which of the following are considered to be product costs under absorption costing? I. Variable manufacturing overhead. II. Fixed manufacturing overhead. III. Selling and administrative expenses.

A.

I, II, and III.

B.

I and II.

C.

I and III.

D.

I.

46.

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

A.

only fixed manufacturing costs.

B.

both variable and fixed manufacturing costs.

C.

all fixed costs.

D.

only fixed selling and administrative costs.

47.

Pong Incorporated's income statement for the most recent month is given below. If Store G sales increase by $40,000 with no change in fixed costs, the overall company net operating income should:

A.

increase by $4,000

B.

increase by $8,000

C.

increase by $24,000

D.

increase by $20,000

48.

Pong Incorporated's income statement for the most recent month is given below. The marketing department believes that a promotional campaign for Store H costing $8,000 will increase the store's sales by $15,000. If the campaign is adopted, overall company net operating income should:

A.

decrease by $5,000

B.

decrease by $5,500

C.

increase by $2,000

D.

increase by $7,000

49.

Ring, Incorporated's income statement for the most recent month is given below. Refer to the original data. If Store Q sales increase by $30,000 with no change in fixed expenses, the overall company net operating income should:

A.

increase by $3,750

B.

increase by $7,500

C.

increase by $12,000

D.

increase by $18,000

50.

Ring, Incorporated's income statement for the most recent month is given below. Refer to the original data. The marketing department believes that a promotional campaign at Store P costing $5,000 will increase sales by $15,000. If the campaign is adopted, overall company net operating income should:

A.

decrease by $800

B.

decrease by $5,800

C.

increase by $5,800

D.

increase by $10,000

51.

Ring, Incorporated's income statement for the most recent month is given below. Refer to the original data. A proposal has been made that will lower variable costs in Store P to 65% of sales. However, this reduction can only be accomplished by a $16,000 increase in Store P's traceable fixed costs. If this proposal is implemented and sales remain constant, overall company net operating income should:

A.

remain the same

B.

decrease by $2,000

C.

increase by $2,000

D.

increase by $14,000

52.

Ring, Incorporated's income statement for the most recent month is given below. Refer to the original data. If sales in Store Q increase by $30,000 as a result of a $7,000 increase in traceable fixed costs:

A.

Store Q's contribution margin should increase by $18,000

B.

Store Q's segment margin should increase by $12,000

C.

Store Q's contribution margin should increase by $11,000

D.

Store Q's segment margin should increase by $5,000

53. In October, Patnode Inc., a merchandising company, had sales of $294,000, selling expenses of $27,000, and administrative expenses of $35,000.

The cost of merchandise purchased during the month was $211,000. The beginning balance in merchandise inventory account was $38,000 and the ending balance was $34,000.

1. Prepare a tradition format income statement for October.

2. Prepare a contribution format income statement for October.