Part 1
Circle the letter of the best response.
1. For Frank's Funky Sounds, units of production depreciation on the trucks is a
A. variable cost.
B. fixed cost.
C. mixed cost.
D. high-low cost.
2. Garth Company sells a single product. If the selling price per unit and the variable expense per unit both increase by 10% and fixed expenses do not change, then
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Contribution
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Contribution
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margin per unit
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margin ratio
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A.
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Increases
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No change
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B.
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Increases
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Increases
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C.
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No change
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Increases
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D.
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No change
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No change
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3. If a company decreases its fixed costs for producing its only product and all other things remain unchanged, then sales revenue per unit at the breakeven point will
A. increase.
B. decrease.
C. remain the same.
D. More information is needed.
4. Worst Appliances provided the following information about its operations:
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Variable Manufacturing Overhead
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$10 per unit
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Variable Selling and Administrative Costs
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$16 per unit
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Prime Costs
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$8 per unit
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Fixed Manufacturing Costs
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$900,000
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Fixed Selling and Administrative Costs
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$600,000
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What is the contribution margin ratio if the company sells its only product for $80 each?
A. 67.5%
B. 57.5%
C. 42.5%
D. 32.5%
5. ComCom Company has fixed costs that total $1,225,000 per month. The selling price for its only product is $70, and the unit variable cost is $45. How much revenue must ComCom generate to earn $840,000 in operating income next month?
A. $8,260,000
B. $5,782,000
C. $2,352,000
D. $2,065,000
6. On a CVP graph, the total cost line intersects the total revenue line at the
A. breakeven point.
B. origin.
C. level of the fixed costs.
D. level of the variable costs.
7. If a company increases unit variable costs for its only product and all other things remain unchanged, then the breakeven quantity will
A. increase.
B. decrease.
C. remain the same.
D. More information is needed.
8. Operating leverage for ACDC Company is 3.5 for current sales of $100,000 and current net income of $20,000. Which of the following statements (I, II) is/are true?
I. If sales increase by 2%, net income will increase by 7%.
II. Current contribution margin is $70,000.
A. Only statement I is true.
B. Only statement II is true.
C. Neither statement is true.
D. Both statements I and II are true.
9. Best Appliances had the following revenue over the past five years:
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2011
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$900,000
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2012
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1,100,000
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2013
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1,300,000
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2014
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1,300,000
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2015
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1,400,000
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To predict revenues for 2016, Best Appliances uses the average for the past five years. The company's breakeven revenue is $700,000 per year. What is the company's predicted margin of safety for 2016?
A. $700,000
B. $620,000
C. $600,000
D. $500,000
10. Bijou Museum sells 75% of its tickets for the regular price of $14. The remaining discount tickets are sold for the price of $10. Variable cost per guest is $2 for both groups, and fixed costs total $66,000 per month. What are the number of regular-price guests and discount guests at the breakeven point?
Regular Discount
A. 6,600 2,200
B. 6,000 2,000
C. 4,500 1,500
D. 4,125 1,375
Question 1
Explain what it means for a company to break even.
Part 2
Circle the letter of the best response.
1. The primary difference between variable costing and absorption costing is
A. in variable costing, fixed manufacturing overhead is a period cost.
B. in absorption costing, fixed manufacturing overhead is a period cost.
C. in variable costing, fixed selling and administrative costs are product costs.
D. in absorption costing, fixed selling and administrative costs are product costs.
2. Winters, Inc., is preparing financial statements to be distributed to internal managers. The company should prepare the income statement using
A. variable costing because it is better for planning purposes.
B. variable costing because it follows GAAP.
C. absorption costing because it is better for controlling purposes.
D. absorption costing because it follows GAAP.
Use the following data for Questions 3-6.
Donovan Company incurred the following costs while producing 2,000 units: direct materials, $15 per unit; direct labor, $5 per unit; variable manufacturing overhead, $12 per unit; variable selling and administrative costs, $14 per unit; total fixed overhead costs, $20,000; total fixed selling and administrative costs, $10,000. There are no beginning inventories.
3. What is the unit product cost using absorption costing?
A. $32 per unit
B. $42 per unit
C. $52 per unit
D. $61 per unit
4. What is the unit product cost using variable costing?
A. $32 per unit
B. $44 per unit
C. $46 per unit
D. $61 per unit
5. What is the operating income using absorption costing if 1,800 units are sold for $100 each?
A. $104,400
B. $96,000
C. $79,200
D. $69,200
6. What is the operating income using variable costing if 1,900 units are sold for $100 each?
A. $57,400
B. $72,600
C. $80,200
D. $102,600
7. Which of the following is the appropriate combination of decision maker and costing method when considering the decision for setting short-run prices?
A. Upper management using absorption costing
B. Upper management using variable costing
C. Lower management using absorption costing
D. Lower management using variable costing
8. Boris's Burgers sells an average of 1,200 burgers per week, of which 40% are Basic Burgers and 60% are Super Burgers. Basic Burgers sell for $5 each and incur variable costs of $1. Super Burgers sell for $9 each and incur variable costs of $4. The total contribution margin for Basics and Supers are
BASICS SUPERS
Total Total
Contribution Margin Contribution Margin
A. $4,800 $6,000
B. $4,320 $6,480
C. $1,920 $3,600
D. $1,920 $2,880
9. If a firm produces fewer units than it sells, absorption costing, relative to variable costing, will result in
A. higher operating income and higher asset value.
B. higher operating income and lower asset value.
C. lower operating income and higher asset value.
D. lower operating income and lower asset value.
10. During a recent week, PDQ CPAs planned to provide tax accounting services to 150 customers for $60 per hour. Each job was expected to take 2.5 hours. The company actually served 15 fewer customers than expected, and the average time spent on each job was 3.0 hours each. Cleveland's revenues for the month were
A. $1,800 more than expected.
B. $1,800 less than expected.
C. $2,700 more than expected
D. $2,700 less than expected.
Question 2
What is absorption costing?
Part 3
Circle the letter of the best response.
1. Which of the following is NOT a benefit of budgeting?
A. Benchmarking
B. Allocation
C. Coordination
D. Planning
2. Which of the following is a long-term financial plan used to coordinate the activities needed to achieve the long-term company goals?
A. Capital expenditures budget
B. Selling and administrative budget
C. Strategic budget
D. Operational budget
3. A sporting goods store purchased $7,000 of ski boots in October. The store had $3,000 of ski boots in inventory at the beginning of October, and it expects to have $2,000 of ski boots in inventory at the end of October to cover part of anticipated November sales. What is the budgeted cost of goods sold for October?
A. $5,000
B. $6,000
C. $8,000
D. $10,000
4. Which of the following is NOT an operational budget?
A. Sales budget
B. Manufacturing overhead budget
C. Selling and administrative expense budget
D. Capital expenditures budget
5. The master budget process usually ends with
A. budgeted statement of cash flows.
B. cash budget.
C. budgeted income statement.
D. capital expenditures budget.
6. Which of the following is a budget prepared for various levels of sales volume?
A. Master budget
B. Flexible budget
C. Strategic budget
D. Static budget
7. Which of the following would not be used in preparing a cash budget for October?
A. Beginning cash balance on October 1
B. Budgeted capital equipment purchases for October
C. Budgeted salaries expense for October
D. Estimated depreciation expense for October
8. In preparing a budgeted balance sheet, the amount for Accounts Receivable is primarily determined from which of the following budgets?
A. Sales budget
B. Purchase budget
C. Budgeted income statement
D. Capital expenditures budget
9. Sacrolotion Co.'s sales are 10% cash and 90% on credit. Credit sales are collected as follows: 30% in the month of sale, 50% in the next month, and 20% in the following month. On December 31, the accounts receivable balance includes $10,500 from November sales and $42,000 from December sales. If total sales for January are budgeted to be $50,000, what are the expected cash receipts for January?
A. $43,100
B. $51,500
C. $59,000
D. $60,500
10. Cost-Minus Inc. is a merchandising company that is trying to decide how many units of merchandise to order each month. The company's policy is to have 20% of the next month's sales in inventory at the end of each month. Projected sales for August, September, and October are 30,000 units, 20,000 units, and 40,000 units, respectively. How many units must be purchased in September?
A. 16,000 units
B. 22,000 units
C. 24,000 units
D. 28,000 units
Question 3
WHY are budgets important?
Part 4
Circle the letter of the best response.
Questions 1-3 rely on the following data
Baltimore Booms is a start-up company that makes electronic sound amplifiers. The company has budgeted variable costs of $250 for each amplifier and fixed costs of $12,000 per month. Baltimore Booms' static budget predicted production and sales of 220 amplifiers in August, but the company actually produced and sold 232 amplifiers, at a total cost of $68,000.
1. Baltimore Booms' total flexible budget cost for the actual number of amplifiers produced and sold is
A. $58,000.
B. $60,000.
C. $67,000.
D. $70,000.
2. Baltimore Booms' sales volume variance for total costs is
A. $3,000 U.
B. $3,000 F.
C. $2,000 U.
D. $2,000 F.
3. Baltimore Booms' flexible budget variance for total costs is
A. $3,000 U.
B. $3,000 F.
C. $2,000 U.
D. $2,000 F.
4. Which department is typically responsible for setting material cost standards?
A. Accounting
B. Quality control
C. Purchasing
D. Production
Questions 5-7 rely on the following data
Baltimore Booms has budgeted 2.5 hours of direct labor per amplifier, at a standard cost of $22 per hour, for producing 220 amplifiers. During April, technicians actually worked 555 hours, producing 232 connectors, which were all sold. Baltimore Booms paid the technicians $24 per hour. The standard cost for variable overhead is $13 per direct labor hour.
5. What is Baltimore Booms' direct labor price variance for April?
A. $1,160 U
B. $1,110 U
C. $1,100 U
D. $440 U
6. What is Baltimore Booms' direct labor efficiency variance for April?
A. $660 U
B. $600 F
C. $550 F
D. $110 U
7. What is Baltimore Booms' variable overhead cost variance for April?
A. $ 65 U
B. $325 F
C. $390 U
D. Cannot be determined from the information provided.
Questions 8-9 rely on the following data
RearGrade Systems produces laser tuners and allocates manufacturing overhead based on standard machine hours. According to its static budget, RearGrade expected the following:
2,880 machine hours per month (11,520 tuners @ 0.25 machine hours per tuner)
Fixed overhead is allocated at $23 per standard machine hour
During June, RearGrade actually used 3,220 machine hours to make 12,200 tuners and spent $68,730 in fixed manufacturing overhead costs.
8. RearGrade's fixed overhead cost variance is
A. $5,330 U.
B. $5,330 F.
C. $2,490 U.
D. $2,490 F.
9. RearGrade's fixed overhead volume variance is
A. $2,490 U.
B. $3,910 F.
C. $3,910 U.
D. $5,330 F.
10. Which of the following statements about variance journal entries is true?
A. Favorable variances are credited because they increase operating income.
B. Favorable variances are credited because they decrease operating income.
C. Unfavorable variances are credited because they increase operating income.
D. Unfavorable variances are debited because they increase operating income.
Question 4
What is the difference between a flexible and a static budget?