Q1. The costs that are easiest to trace directly to products are
A) direct materials and direct labor.
B) direct labor and overhead.
C) direct materials and overhead.
D) none of the above; all three costs are equally easy to trace to the product.
Q2. Globe Company produces two products, A1 and B2. A1 is a high-volume item totaling 20,000 units annually. B2 is a low-volume item totaling only 6,000 units per year. A1 requires one hour of direct labor for completion, while each unit of B2 requires 2 hours. Therefore, total annual direct labor hours are 32,000 (20,000 + 12,000). Expected annual manufacturing overhead costs are $640,000. Globe uses a traditional costing system and assigns overhead based on direct labor hours. Each unit of B2 would be assigned overhead of
A) $20.00.
B) $24.61.
C) $40.00.
D) need more information to compute.
Q3. R-Ball Corporation manufactures deluxe and standard racquetball racquets.
R-Ball's total overhead costs consist of assembly costs and inspection costs. The following information is available:
Cost Deluxe Standard Total Cost
Assembly 500 mach. hours 500 mach. hours $30,000
Inspections 350 150 $50,000
2,100 labor hours 1,900 labor hours
R-Ball is considering switching from one overhead rate based on labor hours to activity-based costing. Using activity-based costing, how much assembly cost is assigned to deluxe racquets?
A) $10,500.
B) $15,000.
C) $15,750.
D) $21,000.
Q4. Gee-Tar Company manufactures two models of its guitar, the Beginner and the Pro. The Beginner model requires 10,000 direct labor hours and the Pro requires 30,000 direct labor hours. The company produces 3,400 units of the Beginner model and 600 units of the Pro model each year. The company inspects one Beginner for every 100 produced, and inspects one Pro for every 10 produced. The company expects to incur $56,400 of total inspecting costs this year. How much of the inspecting costs should be allocated to the Beginner model using ABC costing?
A) $14,100
B) $20,400
C) $28,200
D) $47,940
Q5. A company incurs $1,350,000 of overhead each year in three departments: Ordering and Receiving, Mixing, and Testing. The company prepares 2,000 purchase orders, works 50,000 mixing hours, and performs 1,500 tests per year in producing 200,000 drums of Goo and 600,000 drums of Slime. The following data are available:
Department Expected use of Driver Cost
Ordering and Receiving 2,000 $400,000
Mixing 50,000 500,000
Testing 1,500 450,000
Production information for Goo is as follows:
Department Expected use of Driver
Ordering and Receiving 400
Mixing 20,000
Testing 500
Compute the amount of overhead assigned to Goo.
A) $337,500
B) $430,000
C) $527,382
D) $675,000
Q6. An important element of just-in-time processing is
A) dependable suppliers who are willing to deliver on short notice.
B) a specialized workforce.
C) less emphasis on a quality control system.
D) all of the above.
Q7. In the pull approach
A) subassembly parts are manufactured and stored just in case they are needed later in the manufacturing process.
B) Finished goods are completed and stored just in case unexpected and rush customer orders are received.
C) the manufacturing process begins with a customer placing an order.
D) None of the above.
Q8. Two costs at Watson, Inc. appear below for specific months of operation.
Month Amount Units Produced
Delivery costs January $ 40,000 40,000
February 55,000 60,000
Utilities January $ 84,000 40,000
February 126,000 60,000
Which type of costs are these?
A) Delivery costs and utilities are both variable.
B) Delivery costs and utilities are both mixed.
C) Utilities are mixed and delivery costs are variable.
D) Delivery costs are mixed and utilities are variable.
Q9. If the activity level increases 10%, total variable costs will
A) remain the same.
B) increase by more than 10%.
C) decrease by less than 10%.
D) increase 10%.
Q10. At the high level of activity in November, 7,000 machine hours were run and power costs were $12,000. In April, a month of low activity, 2,000 machine hours were run and power costs amounted to $6,000. Using the high-low method, the estimated fixed cost element of power costs is
A) $12,000.
B) $6,000.
C) $3,600.
D) $8,400.
Q11. Wynne Company's high and low level of activity last year was 60,000 units of product produced in May and 20,000 units produced in November. Machine maintenance costs were $78,000 in May and $30,000 in November. Using the high-low method, determine an estimate of total maintenance cost for a month in which production is expected to be 45,000 units.
A) $67,500
B) $72,000
C) $58,500
D) $60,000
Q12. A company has contribution margin per unit of $45 and a contribution margin ratio of 40%. What is the unit selling price?
A) $75.00.
B) $112.50.
C) $18.00.
D) Cannot be determined.
Q13. Disney's variable costs are 30% of sales. The company is contemplating an advertising campaign that will cost $22,000. If sales are expected to increase $40,000, by how much will the company's net income increase?
A) $18,000.
B) $28,000.
C) $12,000.
D) $6,000.
Q14. At the break-even point of 2,000 units, variable costs are $55,000, and fixed costs are $32,000. How much is the selling price per unit?
A) $43.50.
B) $11.50.
C) $16.00.
D) Not enough information
Q15. Fallow-Hawke is a nonprofit organization that captures stray deer from residential communities. Fixed costs are $10,000. The variable cost of capturing each deer is $10.00 each. Fallow-Hawke is funded by a local philanthropy in the amount of $32,000 for 2008. How many deer can Fallow-Hawke capture during 2008?
A) 2,200.
B) 3,200.
C) 4,200.
D) 2,000.
Q16. Reese Company requires sales of $2,000,000 to cover its fixed costs of $700,000 and to earn net income of $500,000. What percent are variable costs of sales?
A) 25%.
B) 40%.
C) 35%.
D) 60%.
Q17. Dodge Company produces flash drives for computers, which it sells for $20 each. Each flash drive costs $6 of variable costs to make. During March, 1,000 drives were sold. Fixed costs for March were $4.20 per unit for a total of $4,200 for the month. If variable costs decrease by 10%, what happens to the break-even level of units per month for Dodge Company?
A) It is 10% higher than the original break-even point.
B) It decreases about 12 units.
C) It decreases about 30 units.
D) It depends on the number of units the company expects to produce and sell.
Q18. How much sales are required to earn a target net income of $128,000 if total fixed costs are $160,000 and the contribution margin ratio is 40%?
A) $400,000.
B) $648,000.
C) $720,000.
D) $320,000.
Q19. Sutton Company produces flash drives for computers, which it sells for $20 each. Each flash drive costs $6 of variable costs to make. During April, 700 drives were sold. Fixed costs for April were $4 per unit for a total of $2,800 for the month. How much does Sutton's operating income increase for each $1,000 increase in revenue per month?
A) $700.
B) $500.
C) $14,000.
D) Not enough information to determine the answer.
Q20. The following monthly data are available for Tugg, Inc. which produces only one product: Selling price per unit, $42; Unit variable expenses, $14; Total fixed expenses, $70,000; Actual sales for the month of June, 4,000 units. How much is the margin of safety for the company for June?
A) $42,000.
B) $63,000.
C) $37,800.
D) $1,500.
Q21. Lagerfield Company reported the following results from the sale of 5,000 hammers in May: sales $200,000, variable costs $120,000, fixed costs $60,000, and net income $20,000. Assume that Lagerfield increases the selling price of hammers by 10% on June 1. How many hammers will have to be sold in June to maintain the same level of net income?
A) 4,000.
B) 4,300.
C) 4,500.
D) 5,000.
Q22. In 2010, Logan sold 1,000 units at $500 each, and earned net income of $40,000. Variable expenses were $300 per unit, and fixed expenses were $160,000. The same selling price is expected for 2011. Logan's variable cost per unit will rise by 10% in 2011 due to increasing material costs, so they are tentatively planning to cut fixed costs by $10,000. How many units must Logan sell in 2011 to maintain the same income level as 2010?
A) 882
B) 1,000
C) 1,056
D) 1,118
Q23. Konerko Company 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 $30 and a selling price of $50. Q-Chip Plus has variable costs per unit of $35 and a selling price of $65. The weighted-average unit contribution margin for Konerko is:
A) $23.
B) $25.
C) $27.
D) $50.
Q24. Konerko Company 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 $30 and a selling price of $50. Q-Chip Plus has variable costs per unit of $35 and a selling price of $65. Konerko's fixed costs are $540,000. How many units of Q-Chip would be sold at the break-even point?
A) 6,000
B) 7,043
C) 10,000
D) 14,000
Q25. Fields Corporation has two divisions; Sporting Goods and Sports Gear. The sales mix is 65% for Sporting Goods and 35% for Sports Gear. Fields incurs $2,220,000 in fixed costs. The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is 50%. The weighted-average contribution margin ratio is
A) 37%.
B) 40%.
C) 43%.
D) 50%.
Q26. Fields Corporation has two divisions; Sporting Goods and Sports Gear. The sales mix is 65% for Sporting Goods and 35% for Sports Gear. Fields incurs $2,220,000 in fixed costs. The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is 50%. The break-even point in dollars is
A) $821,400.
B) $5,162,791.
C) $5,550,000.
D) $6,000,000.
Q27. 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 1,000 machine hours available to manufacture a product, income will be
A) $2,000 more if Product A is made.
B) $2,000 less if Product B is made.
C) $2,000 less if Product A is made.
D) the same if either product is made.
Q28. Small Fry Company has sales of $1,000,000, variable costs of $400,000, and fixed costs of $450,000. Small Fry's degree of operating leverage is:
A) 0.80.
B) 1.50.
C) 1.67
D) 4.00.
Q29. A cost structure which relies more heavily on fixed costs makes the company:
A) more sensitive to changes in sales revenue.
B) less sensitive to changes in sales revenue.
C) either more or less sensitive to changes in sales revenue, depending on other factors.
D) have a lower break-even point.
Q30. A company with a higher contribution margin ratio is:
A) more sensitive to changes in sales revenue.
B) less sensitive to changes in sales revenue.
C) either more or less sensitive to changes in sales revenue, depending on other factors.
D) likely to have a lower breakeven point.