The area to the right of the breakeven point and between the total revenue line and the total expense line represents:
A. expected profits.
B. expected losses.
C. variable expenses.
D. fixed expenses.
To find the number of units that need to be sold in order to breakeven or generate a target profit, the formula used is:
A. (fixed expenses + operating income) ÷ contribution margin per unit.
B. (fixed expenses + operating income) ÷ contribution margin ratio.
C. (fixed expenses - operating income) ÷ contribution margin ratio.
D. (fixed expenses - operating income) ÷ contribution margin per unit.
Pluto Incorporated provided the following information regarding its single product:
Direct materials used $240,000
Direct labor incurred $420,000
Variable manufacturing overhead $160,000
Fixed manufacturing overhead $100,000
Variable selling and administrative expenses $60,000
Fixed selling and administrative expenses $20,000
The regular selling price for the product is $80. The annual quantity of units produced and sold is 40,000 units (the costs above relate to the 40,000 units production level). The company has excess capacity and regular sales will not be affected by this special order. There was no beginning inventory. What would be the effect on operating income of accepting a special order for 3,500 units at a sale price of $55 per product?
A. Increase by $115,500
B. Increase by $269,500
C. Decrease by $115,500
D. Decrease by $269,500
Assume the following amounts:
Total fixed costs $24,000
Selling price per unit $20
Variable costs per unit $15
If sales revenue per unit increases to $22 and 12,000 units are sold, what is the operating income?
A. $264,000
B. $60,000
C. $108,000
D. $84,000
Sky High Seats manufactures seats for airplanes. The company has the capacity to produce 100,000 seats per year, but is currently producing and selling 75,000 seats per year. The following information relates to current production:
Sale price per unit $400
Variable costs per unit: $220
Manufacturing $50
Marketing and administrative
Total fixed costs:
Manufacturing $750,000
Marketing and administrative $200,000
If a special sales order is accepted for 7,000 seats at a price of $350 per unit, and fixed costs remain unchanged, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.)
A. Increase by $560,000
B. Decrease by $560,000
C. Increase by $2,450,000
D. Increase by $8,000,000
Blue Technologies manufactures and sells DVD players. Great Products Company has offered Blue Technologies $22 per DVD player for 10,000 DVD players. Blue Technologies' normal selling price is $30 per DVD player. The total manufacturing cost per DVD player is $18 and consists of variable costs of $14 per DVD player and fixed overhead costs of $4 per DVD player. (NOTE: Assume excess capacity and no effect on regular sales.)
How much are the expected increase (decrease) in revenues and expenses from the special sales order?
A. Expected increase in revenues $220,000; expected increase in expenses $140,000
B. Expected increase in revenues $220,000; expected increase in expenses $40,000
C. Expected increase in revenues $300,000; expected increase in expenses $140,000
D. Expected increase in revenues $220,000; expected increase in expenses $120,000
Which of the following best describes a "sunk cost"?
A. Costs that were incurred in the past and cannot be changed
B. Benefits foregone by choosing a particular alternative course of action
C. A factor that restricts the production or sale of a product
D. Expected future data that differ among alternatives
A product is sold at $60.00 per unit, the variable expense per unit is $30, and total fixed expenses are $200,000, what are the breakeven sales in dollars?
A. $3,333
B. $100,000
C. $133,333
D. $400,000
"Contribution margin per unit" is best described by which of the following?
A. Sales price per unit minus fixed cost per unit
B. Sales price per unit minus variable cost unit
C. Sales price per unit minus fixed and variable costs per unit
D. Units sold time contribution margin ratio
The Muffin House produces and sells a variety of muffins. The selling price per dozen is $15, variable costs are $9 per dozen, and total fixed costs are $4,200. How many dozen muffins must The Muffin House sell to breakeven?
A. 10,500
B. 700
C. 280
D. 175
Samson Incorporated provided the following information regarding its only product:
Sale price per unit $50.00
Direct materials used $160,000
Direct labor incurred $185,000
Variable manufacturing overhead $120,000
Variable selling and administrative expenses $70,000
Fixed manufacturing overhead $65,000
Fixed selling and administrative expenses $12,000
Units produced and sold 20,000
Assume no beginning inventory
Assuming there is excess capacity, what would be the effect on operating income of accepting a special order for 1,200 units at a sale price of $47 per product? The 1,200 units would not require any variable selling and administrative expenses. (NOTE: Assume regular sales are not affected by the special order.)
A. Increase by $84,300
B. Decrease by $28,500
C. Increase by $24,300
D. Increase by $28,500
To find the breakeven point using the shortcut formulas, you use:
A. zero for the contribution margin per unit.
B. zero for the fixed expenses.
C. zero for the contribution margin ratio.
D. zero for the operating income.
The horizontal line intersecting the vertical y-axis at the level of total cost on a CVP graph represents:
A. total costs.
B. total variable costs.
C. total fixed costs.
D. breakeven point.
In a special sales order decision, incremental fixed costs that will be incurred if the special order is accepted are considered to be:
A. opportunity costs.
B. irrelevant to the decision.
C. relevant to the decision.
D. sunk costs.
A manager should always reject a special order if:
A. the special order price is less than the variable costs of the order.
B. there is available excess capacity.
C. the special order price is less than the regular sales price.
D. the special order will require variable nonmanufacturing expenses.
The effect of a plant closing on employee morale is an example of which of the following?
A. A qualitative factor
B. A quantitative factor
C. A sunk cost
D. A variable cost
If total fixed costs are $455,000, the contribution margin per unit is $25.00, and targeted operating income is $25,000, how many units must be sold to breakeven?
A. 11,375,000
B. 19,200
C. 18,200
D. 625,000
Corny and Sweet grows and sells sweet corn at its roadside produce stand. The selling price per dozen is $3.75, variable costs are $1.25 per dozen, and total fixed costs are $750.00. What are breakeven sales in dollars?
A. $563
B. $300
C. $375
D. $1,125
Sky High Seats manufactures seats for airplanes. The company has the capacity to produce 100,000 seats per year, but is currently producing and selling 75,000 seats per year. The following information relates to current production:
Sale price per unit $400
Variable costs per unit: $220
Manufacturing $50
Marketing and administrative
Total fixed costs:
Manufacturing $750,000
Marketing and administrative $200,000
If a special sales order is accepted for 3,000 seats at a price of $300 per unit, and fixed costs increase by $10,000, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.)
A. Decrease by $80,000
B. Increase by $230,000
C. Increase by $90,000
D. Increase by $80,000
The breakeven point may be defined as the number of units a company must sell to do which of the following?
A. Generate a net loss
B. Generate a zero profit
C. Earn more net income than the previous accounting period
D. Generate a net income
If a company must decrease its selling price while all of the company's expenses remain constant, what will happen to return on investment (ROI)?
A. ROI will decrease.
B. ROI will increase.
C. ROI will not be affected.
D. We cannot determine the effect from the information provided.
Brockman Company is preparing its cash budget for the upcoming month. The budgeted beginning cash balance is expected to be $35,000. Budgeted cash disbursements are $123,000, while budgeted cash receipts are $130,000. Brockman Company wants to have an ending cash balance of $48,000. How much would Brockman Company need to borrow to achieve its desired ending cash balance?
A. $6,000
B. $90,000
C. $42,000
D. $55,000
The performance evaluation of a profit center is typically based on its:
A. flexible budget variance.
B. static budget variance.
C. return on investment.
D. return on assets.
Feeney Furniture prepared the following sales budget.
Month Cash Sales Credit Sales
March $20,000 $10,000
April $36,000 $16,000
May $42,000 $40,000
June $54,000 $48,000
Credit collections are 15% two months following the sale, 50% in the month following the sale, and 30% in the month of sale. The remaining 5% is expected to be uncollectible. What are the total cash collections in June?
A. $36,800
B. $90,800
C. $86,000
D. $96,600
All of the following are responsibility centers EXCEPT:
A. profit centers.
B. investment centers.
C. customer centers.
D. cost centers.
Assume Cucumber Company expects each division to earn an 8% target rate of return. Assume the Company's Pickle Division had the following results.
Sales $24,500,000
Operating income $1,250,000
Total assets $15,500,000
The Division's RI is:
A. ($10,000).
B. $10,000.
C. ($710,000).
D. $710,000.
Beginning inventory is $120,000 and ending inventory is 60% of beginning inventory. Compute cost of goods sold for the period if purchases are $400,000.
A. $72,000
B. $448,000
C. $520,000
D. $592,000
Which of the following types of cash outlays has its own budget?
A. Capital expenditures
B. Dividends
C. Income taxes
D. All of the above
The ________ budget is the only budget stated ONLY in units, not dollars.
A. production
B. sales
C. direct materials
D. manufacturing overhead
Green Company has budgeted sales of 23,000 units for June and 25,000 units for July. Green's policy is to maintain its finished goods inventory at 25% of the following month's sales. Accordingly, at the end of May, Green had 5,750 units on hand. How many units must it produce in June in order to support the sales goal and maintain its policy regarding finished goods inventory?
A. 6,250 units
B. 23,000 units
C. 23,500 units
D. 29,250 units
The difference between actual and budgeted figures is known as:
A. fluctuations.
B. variances.
C. overages.
D. underages.
In a(n) ________ center, managers are accountable for both revenues and costs.
A. cost
B. profit
C. equity
D. investment
Kotrick Company has beginning inventory of 15,000 units and expected sales of 23,000 units. If the desired ending inventory is 18,000 units, how many units should be produced?
A. 20,000
B. 56,500
C. 10,000
D. 26,000
The results of a customer survey about customer experiences with the company's services would be an example of measuring which perspective?
A. Financial
B. Customer
C. Internal business
D. Learning and growth
For the most recent year, Robin Company reports operating income of $650,000. Robin's sales margin is 10%, and capital turnover is 2.0. What is Robin's return on investment (ROI)?
A. 5%
B. 1%
C. 100%
D. 20%
Budget committees most often would include all of the following people EXCEPT:
A. CEO.
B. research and development manager.
C. shareholder.
D. marketing manager.
Regarding the budgeting process, which of the following statements is true?
A. The budget should always be designed by top corporate management.
B. The budget should be approved by the company's external auditors.
C. The budget should be designed from the bottom up, with input from employees at all levels.
D. All of the listed statements are true regarding the budgeting process.
Forty Winks Corporation manufactures nightstands. The production budget shows that Forty Winks Corporation plans to produce 1,200 nightstands in March and 1,050 nightstands in April. Each nightstand requires .50 direct labor hours in its production. Forty Winks Corporation has a direct labor rate of $12 per direct labor hour. What is the total combined direct labor cost that should be budgeted for March and April?
A. 6,300
B. 7,200
C. 27,000
D. 13,500
Selected financial data for The Portland Porcelain Works Coffee Mug Division is as follows.
Sales $2,300,000
Operating income $414,000
Total assets $718,750
Current liabilities $180,000
Target rate of return 10%
Weighted average cost of capital 8%
What is The Portland Porcelain Works Coffee Mug Division capital turnover?
A. 5.6
B. 12.8
C. 3.2
D. 1.7
Assume Cucumber Company expects each division to earn an 8% target rate of return. Assume the Company's Pickle Division had the following results.
Sales $24,500,000
Operating income $1,250,000
Total assets $15,500,000
The Division's ROI is:
A. 8.1%.
B. 15.8%.
C. 5.1%.
D. 7.0%.