Response to the following multiple choice questions:
1. Woolford's CVP income statement included sales of 3,000 units, a selling price of $50, variable expenses of $30 per unit, and net income of $25,000. Fixed expenses are
a. $35,000.
b. $60,000.
c. $90,000.
d. $150,000.
2. In 2012, Teller Company sold 3,000 units at $300 each. Variable expenses were $210 per unit, and fixed expenses were $180,000. The same selling price, variable expenses, and fixed expenses are expected for 2012. What is Teller's break-even point in units for 2012?
a. 2,000
b. 4,500
c. 6,429
d. 10,000
3. In 2011, Raleigh sold 1,000 units at $500 each, and earned net income of $50,000. Variable expenses were $300 per unit, and fixed expenses were $150,000. The same selling price is expected for 2012. Raleigh's variable cost per unit will rise by 10% in 2012 due to increasing material costs, so they are tentatively planning to cut fixed costs by $15,000. How many units must Raleigh sell in 2012 to maintain the same income level as 2011?
a. 794
b. 971
c. 1,176
d. 1,088
4. Ramirez Corporation sells two types of computer chips. The sales mix is 30% (Q-Chip) and 70% (Q-Chip Plus). Q-Chip has variable costs per unit of $36 and a selling price of $60. Q-Chip Plus has variable costs per unit of $42 and a selling price of $78. Ramirez's fixed costs are $540,000. How many units of Q-Chip would be sold at the break-even point?
a. 5,063
b. 5,869
c. 9,000
d. 11,813
5. 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 $16 and takes two machine hours to make and Product B has a unit contribution margin of $30 and takes three machine hours to make. If there are 2,000 machine hours available to manufacture a product, income will be
a. $4,000 more if Product A is made.
b. $4,000 less if Product B is made.
c. $4,000 less if Product A is made.
d. the same if either product is made.
6. Outsourcing production will
a. reduce fixed costs and increase variable costs.
b. reduce variable costs and increase fixed costs.
c. have no effect on the relative proportion of fixed and variable costs.
d. make the company more susceptible to economic swings.
7. Which of the following statements is not true?
a. Operating leverage refers to the extent to which a company's net income reacts to a given change in sales.
b. Companies that have higher fixed costs relative to variable costs have higher operating leverage.
c. When a company's sales revenue is increasing, high operating leverage is good because it means that profits will increase rapidly.
d. When a company's sales revenue is decreasing, high operating leverage is good because it means that profits will decrease at a slower pace than revenues decrease.
8. Miller Manufacturing's degree of operating leverage is 1.5. Warren Corporation's degree of operating leverage is 4.5. Warren's earnings would go up (or down) by ________ as much as Miller's with an equal increase (or decrease) in sales.
a. 1/3
b. 2 times
c. 3 times
d. 6 times
9. Nielson Corp. sells its product for $6,600 per unit. Variable costs per unit are: manufacturing, $3,600, and selling and administrative, $75. Fixed costs are: $18,000 manufacturing overhead, and $24,000 selling and administrative. There was no beginning inventory at 1/1/11. Production was 20 units per year in 2011'2013. Sales was 20 units in 2011, 16 units in 2012, and 24 units in 2013.
Income under absorption costing for 2013 is
a. $19,800.
b. $23,400
c. $24,600
d. $28,200.
10. Nielson Corp. sells its product for $6,600 per unit. Variable costs per unit are: manufacturing, $3,600, and selling and administrative, $75. Fixed costs are: $18,000 manufacturing overhead, and $24,000 selling and administrative. There was no beginning inventory at 1/1/11. Production was 20 units per year in 2011'2013. Sales was 20 units in 2011, 16 units in 2012, and 24 units in 2013.
Income under variable costing for 2013 is
a. $19,800.
b. $23,400.
c. $24,600.
d. $28,200.
11. Accounting generally has the responsibility for
a. setting company goals.
b. expressing the budget in financial terms.
c. enforcing the budget.
d. administration of the budget.
12. Which is the last step in developing the master budget?
a. Preparing the budgeted balance sheet
b. Preparing the cost of goods manufactured budget
c. Preparing the budgeted income statement
d. Preparing the cash budget
13. The following information is taken from the production budget for the first quarter:
Beginning inventory in units 1,200
Sales budgeted for the quarter 456,000
Capacity in units of production facility 472,000
How many finished goods units should be produced during the quarter if the company desires 3,200 units available to start the next quarter?
a. 458,000
b. 454,000
c. 474,000
d. 459,200
14. Dart, Inc. makes and sells umbrellas. The company is in the process of preparing its Selling and Administrative Expense Budget for the last half of the year. The following budget data are available:
Variable Cost Per Unit Sold Monthly Fixed Cost
Sales commissions $0.60 $ 3,000
Shipping 1.20
Advertising 0.30
Executive salaries 20,000
Depreciation on office equipment 4,000
Other 0.35 14,000
Expenses are paid in the month incurred. If the company has budgeted to sell 6,000 umbrellas in October, how much is the total budgeted variable selling and administrative expenses for October?
a. $12,600
b. $13,800
c. $76,200
d. $14,700
15. Teller Co. is planning to sell 600 boxes of ceramic tile, with production estimated at 580 boxes during May. Each box of tile requires 44 pounds of clay mix and a quarter hour of direct labor. Clay mix costs $0.40 per pound and employees of the company are paid $12.00 per hour. Manufacturing overhead is applied at a rate of 110% of direct labor costs. Teller has 2,600 pounds of clay mix in beginning inventory and wants to have 3,000 pounds in ending inventory.
What is the total amount to be budgeted for manufacturing overhead for the month?
a. $1,914
b. $1,980
c. $7,656
d. $7,920
16. Haft Construction Company determines that 27,000 pounds of direct materials are needed for production in July. There are 1,600 pounds of direct materials on hand at July 1 and the desired ending inventory is 1,400 pounds. If the cost per unit of direct materials is $3, what is the budgeted total cost of direct materials purchases?
a. 79,200.
b. 80,400.
c. 81,600.
d. 82,800.
17. Dolce Co. estimates its sales at 120,000 units in the first quarter and that sales will increase by 12,000 units each quarter over the year. They have, and desire, a 25% ending inventory of finished goods. Each unit sells for $25. 40% of the sales are for cash. 70% of the credit customers pay within the quarter. The remainder is received in the quarter following sale.
Cash collections for the third quarter are budgeted at
a. $2,034,000.
b. $2,952,000.
c. $3,546,000.
d. $4,104,000.
18. Of the following items, which one is not obtained from an individual operating budget?
a. Selling and administrative expenses
b. Accounts receivable
c. Cost of goods sold
d. Sales
19. The following information was taken from Southgate Industry's cash budget for the month of July:
Beginning cash balance $300,000
Cash receipts 190,000
Cash disbursements 340,000
If the company has a policy of maintaining a minimum end of the month cash balance of $250,000, the amount the company would have to borrow is
a. $100,000.
b. $50,000.
c. $150,000.
d. $60,000.
20. The following credit sales are budgeted by Terra Co.:
January $136,000
February 200,000
March 280,000
April 240,000
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
a. $246,880.
b. $224,000.
c. $240,000.
d. $235,200.
21. The comparison of differences between actual and planned results
a. is done by the external auditors.
b. appears on the company's external financial statements.
c. is usually done orally in departmental meetings.
d. appears on periodic budget reports.
22. When budgeted and actual results are not the same amount, there is a budget
a. error.
b. difference.
c. anomaly.
d. by-product.
23. A flexible budget depicted graphically
a. is identical to a CVP graph.
b. differs from a CVP graph in the way that fixed costs are shown.
c. differs from a CVP graph in the way that variable costs are shown.
d. differs from a CVP graph in that sales revenue is not shown.
24. Which of the following is not a correct match?
1. Incurs costs
2. Generates revenue
3. Controls investment funds
a. Investment Center 1, 2, 3
b. CostCenter 1
c. ProfitCenter 1, 2, 3
d. All are correct matches.
25. Given below is an excerpt from a management performance report:
Budget Actual Difference
Contribution margin $1,000,000 $1,050,000 $50,000
Controllable fixed costs $ 500,000 $ 450,000 $50,000
The manager's overall performance
a. is 20% below expectations.
b. is 20% above expectations.
c. is equal to expectations.
d. cannot be determined from information given.
26. Dingo Division's operating results include: controllable margin of $150,000, sales totaling $1,200,000, and average operating assets of $500,000. Dingo is considering a project with sales of $100,000, expenses of $86,000, and an investment of average operating assets of $200,000. Dingo's required rate of return is 9%. Should Dingo accept this project?
a. Yes, ROI will drop by 6.6% which is still above the required rate of return.
b. No, the return is less than the required rate of 9%.
c. Yes, ROI still exceeds the cost of capital.
d. No, ROI will decrease to 7%.
27. The performance of the manager of Ottawa Division is measured by residual income. Which of the following would decrease the manager's performance measure?
a. Decrease in required rate of return
b. Increase in amount of return on investment desired
c. Increase in sales
d. Increase in contribution margin