1. What happens to
total manufacturing costs per unitwhen a companyâ€™s activity level decreases?
a. Total costs per unit should remain the same
if the company is still in the relevant range.
b. Total cost per unit will drop.
c. Total cost per unit will rise.
d. More information is needed to answer the
2. Lemon Company
has a contribution margin of $150,000 and a contribution margin ratio of 30%.
How much are total variable costs?
Use the following information for questions 3 & 4.
Month Miles Total
March 60,000 $47,500
April 70,000 51,500
June 80,000 50,500
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3. In applying the high-low method, how much
is the variable cost per unit?
d. Cannot be determined from the information
4. How much
is the total fixed cost?
5. Which one
of the following is a similarity of job order and process cost systems?
a. They both track direct materials and direct
labor, but not manufacturing overhead.
both use a single work in process account.
c. They both track direct materials, direct
labor, and manufacturing overhead.
both are used for the same type of inventory production items.
6. Poluttaâ€™sCVP income statement included sales
of 4,000 units, a selling price of $200, variable expenses of $120 per unit,
and fixed expenses of $176,000. Net income is:
d. $ 72,000.
7. The presence of any of the following factors
would suggest a switch to ABC except
lines differ greatly in volume.
costs constitute a minor portion of total costs.
manufacturing process has changed significantly.
d. production managers are
ignoring data provided by the existing system.
the following information to answer questions 8 & 9
Robey Inc. manufactures two products, Extra and Basic.
Overhead costs consist of setting up machines, $200,000; machining, $450,000;
and inspecting, $150,000. Additional information on the two products is:
Extra Basic Total
Direct labor hours 15,000 25,000 40,000
Machine setups 600 400 1,000
Machine hours 24,000 26,000 50,000
Inspections 800 700 1,500
applied to Basic using traditional costing based on direct labor hours is
applied to Extra using activity-based costing is
Use the following information for items 10-13:
Corporation sells two types of riding lawn mowers, Basic and Extra Power. Three Basic mowers are sold for every 2 Extra
Power sales. Elmore incurs $224,000 in
unit data on the two products is presented blow:
Unit data Basic Extra
Selling price $2,000 $3,200
Variable costs 1,200 1,600
Contribution margin $ 800 $1,600
10. The weighted-average contribution margin
breakeven point in total units is:
12. Assuming the breakeven point is 300
units, how many Basic mowers will be sold at the breakeven point?
will be the total contribution margin at the breakeven point?
14. Crate Inc. has a policy of having
sufficient direct materials inventory on hand at the end of each month equal to
20% of next month’s budgeted production needs. Crate has budgeted production of
15,000 units of product in October and 20,000 units in November. It takes 2
pounds of direct materials to produce one unit of product and 6,000 pounds of
direct materials were on hand on September 30. How many pounds of direct
materials should be purchased in the month of October?
a. 28,000 pounds
b. 30,000 pounds
c. 38,000 pounds
d. 32,000 pounds
15. Chestnut, Inc. has
budgeted direct materials purchases of $150,000 in November and $240,000 in December.
The company pays for 70% of its purchases in the month of purchase and the
remaining 30% in the next month. Other costs are all paid during the month
incurred. During December, the following items were budgeted:
of office equipment
and administrative expenses
How much are budgeted cash
disbursements for December?
16. Orr Corporationâ€™s manufacturing costs for
August when production was 800 units appears
$10 per unit
Factory supervisory salaries
Other fixed factory
How much is the total budgeted manufacturing cost for a month when
900 units are produced?
the following information for questions 17 & 18:
At January 1, 2012, Roscoe, Inc. has
beginning inventory of 3,000 units. The company estimates it will sell 14,000
units during the first quarter of 2012 with a 10% increase in sales each
quarter. The firmâ€™s policy is to
maintain an ending inventory equal to 20% of the next quarterâ€™s sales. Each unit
costs $140 and is sold for $200.
17. How many units should Roscoe produce during the first
quarter of 2012?
18. How much is budgeted sales revenue for the third quarter of
Companyâ€™s cash budget for the month of July showed the following:
cash balance $240,000
the company has a policy of maintaining a minimum end of the month cash balance
of $160,000, the amount the company would have to borrow is:
a. $ 40,000.
c. $ 80,000.
d. $ 8,000.
20. Which one of the following would most likely
cause an unrealistic budget to result?
levels of management stress the importance of the budgeting process.
budget has been developed in a participative approach.
budget was developed after considerable planning.
The budget has been developed in a top down fashion.
21. Russ Corporation
sells its product for $40. The variable costs are $18 per unit. Fixed costs are
$16,000. The company is considering the purchase of an automated machine that
will result in a $4 reduction in unit variable costs and an increase of $2,000
in fixed costs. Which of the following is true about the break-even point in
will remain unchanged.
cannot be determined from the information provided.
22. Identify each cost as either variable, fixed,
Cost A $12,900 $19,350
Cost B 12,300 16,650
Cost C 13,000 13,000
a. Cost A and Cost B are variable; Cost C is fixed.
b. Cost A is variable; Cost B is mixed; Cost C is fixed.
c. Cost A and Cost B are mixed; Cost C is fixed.
d. Cost A is mixed; Cost B is variable; Cost C is fixed.
Use the following
information for Questions 23 & 24:
During 2013, Oops Inc. produced 60,000 units and sold 55,000 for $10
per unit. Variable manufacturing costs were $4 per unit. Annual fixed manufacturing
overhead was $120,000 ($2 per unit). Variable selling and administrative costs
were $1 per unit sold, and fixed selling and administrative costs were $30,000.
23. What is net income under variable costing?
a. $ 125,000
b. $ 135,000
d. $ 155,000
24. Whatis net income under absorptioncosting:
is considering buying new equipment for its factory. The new equipment will
variable labor costs but increase
depreciation expense. Contribution margin is expected to increase from $250,000 to $300,000. Net income
is expected to remain the same at $100,000.
Which of the following is (are) correct?
Operating leverage will be 3.0 after acquisition of the new equipment
After the new equipment is purchased, earnings would be more sensitive
c. McBrideshould make the change if it expects sales volume to
increase steadily over
next ten years
d. All of the above
26. Nunn Company makes two types of shoes, sneakers
and sandals. . Additional information
Units 2,000 3,000
Sales $60,000 $25,000
Variable costs 24,000 13,750
Fixed costs 10,000 5,250
Net income $26,000 $ 6,000
Yards of leather per
unit 1.25 0.25
Profit per unit $13.00 $2.00
Contribution margin per
unit $18.00 $3.75
Nunn is having
trouble getting adequate supplies of high quality leather for its
Assume that Nunn is able to order an additional 4,000
yards of leather and wishes to
maximize its income. Of the additional units it
produces, at least 500 of each product are
necessary for sales.
Nunn has demand for all the units (pairs of shoes) it can produce.
What should Nunn produce?
a. 500 Sandals and the rest Sneakers
b. 500 Sneakers and the rest Sandals
c. An equal
number of both products
d. More information is needed to answer the
of the following is true with regard to budgetary planning?
accepted accounting principles require the budgets be prepared at least
cash budget is often considered to be the most important output in preparing
likelihood of a realistic budget is greater when the budget is developed from
top management down to lower management.
human behavior aspects of budgeting, while they should not be ignored, are
generally of little real significance.