Show Workings of various answers
Identify the letter of the choice that best completes the statement or answers the question.
1. PennfoilCompany produces retractable pens. March budgeted production costs are given below:
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Pens to be produced
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100,000
|
|
Direct material (variable)
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$33,000
|
|
Direct Labor (variable)
|
$48,000
|
|
Supplies (variable)
|
$27,500
|
|
Supervision (fixed)
|
$40,000
|
|
Depreciation (fixed)
|
$22,000
|
|
Other (fixed)
|
$10,000
|
In April, Pennfoilexpects to produce 90,000 pens. Assuming no structural changes, what is Pennfoil'sbudgeted production cost per pen for April?
A) $1.62
B) $1.72
C) $1.81
D) $1.89
2. Use the cost information in (1) above. In March, the actual direct labor costs were $46,000 and Pennfoilproduced and sold 90,000 pens. The direct labor performance variance (difference) is:
A) $2,800 unfavorable.
B) $5,000 unfavorable.
C) $1,000 unfavorable.
D) $5,000 favorable.
3. Remy's Seafood has budgeted the following costs for a month in which 1,600 seafood dinners will be sold: Materials, $4,080; hourly labor (variable), $5,200; rent (fixed), $1,720; depreciation, $600; and other fixed costs, $550. Each dinner sells for $12.60. How much would Remy's profit increase if 10 more dinners were sold?
A) $52.
B) $68.
C) $72.
D) $126.
4. Farmland Inc. produces 80,000 units of product A at a total cost of $2.4 million. Total fixed costs are $1million. If the company increases production by 25% and uses a 40% markup the price per unit will be:
A) $30.80.
B) $31.54.
C) $38.50.
D) $37.10.
Use the following to answer questions 5-6:
TXU Company's market for the Model 55 has changed significantly, and TXU has had to drop the price per unit from $285 to $200. There are some units in the work in process inventory that have costs of $280 per unit associated with them. TXU could sell these units in their current state for $160 each. It will cost TXU $35 per unit to complete these units so that they can be sold for $200 each.
5. A new employee looks at the analysis and exclaims, "We'll lose money with either of these alternatives! Let's just throw these units in the trash!" Suppose the alternative to trashing is choosing the more profitable of the two alternatives (that the new employee looked at and did not like). What effect will the trashing option (that the new employee
wants) have on net income?
A) Net income will increase by $35 per unit for each unit discarded.
B) Net income will decrease by $115 per unit for each unit discarded.
C) Net income will decrease by $165 per unit for each unit discarded.
D) It will have no effect on net income.
6. When the incremental revenues and expenses are analyzed, the company is better off by
A) $5 per unit if they complete the units.
B) $15 per unit if they sell the units in their current state.
C) $25 per unit if they sell the units in their current state.
D) $35 per unit if they complete the units.
7. A company using activity based pricing marks up the direct cost of goods by 39% plus charges customers for indirect costs based on the activities utilized by the customer. Indirect costs are charged as follows: $6.00 per order placed; $3.00 per separate item ordered; $28.00 per return. A customer places 10 orders with a total direct cost of $2,210, orders 312 separate items, and makes 8 returns. What will the customer be charged?
A) $3,000
B) $4,292
C) $5,330
D) $5,755
8. Manufacturing overhead is allocated to products based on the number of machine hours required. In a year when 20,000 machine hours were anticipated, costs were budgeted at $125,000. If a product requires 7,000 machine hours, how much manufacturing overhead will be allocated to this product?
A) $41,667
B) $46,805
C) $43,750
D) $50,000
Use the following information to answer questions 9-10:
The Sunderland Hotel has 200 rooms. Each room rents at $160 per night and variable costs total $35 per room per night of occupancy. Fixed costs total $80,000 per month.
9. If Sunderland spends an additional $10,000 in the month of February on advertising they feel that they can expect occupancy rate to increase by 10%. What would be the financial impact of spending this additional money on advertising for the month of February (28 days)?
A) Total fixed costs will increase by $10,500.
B) Net income will increase by $60,000.
C) Net income will increase by $26,320.
D) Total fixed costs will remain the same.
10. If 70% of the rooms are occupied each night in the month of February (28 days) what will total costs be for the month?
A) $118,560.
B) $155,680.
C) $173,600.
D) $217,200.
11. A company believes it can sell 6,000,000 of its proposed optical mouse for $14 each. There will be $7,500,000 in fixed costs associated with the mouse. If the company desires to make a profit of $3,000,000 on the mouse, what is the target variable cost per mouse?
A) $12.25
B) $11.00
C) $10.60
D) $9.00
12. Below is a performance report that compares budgeted and actual profit of Boyles Beer for the month of April:
|
|
Budget
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Actual
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Difference
|
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Sales
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$200,000
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$202,000
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$2,000
|
|
Less:
|
|
|
|
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Cost of ingredients
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$162,000
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$166,000
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$4,000
|
|
Salaries
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$31,000
|
$31,200
|
$200
|
|
|
|
|
|
|
Controllable Profit
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$47,000
|
$44,800
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-$2,200
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In evaluating the department in terms of its increase in sales and expenses, what will be most important to investigate?
A) Sales
B) Cost of ingredients
C) Salaries
D) All three components have equal importance.
13. Eibar Incmakes a product that sells for $61 and has $42 per unit in variable costs. Annual fixed costs are $24,000. If Eibar sells 10 units less than break-even. How much loss would the company realize on its income statement?
A) $275
B) $260
C) $190
D) $240
14. Fella's Furniture has a contribution margin ratio of 15%. If fixed costs are $175,500, how many dollars of revenue must the company generate in order to reach the break-even point?
A) $1,111,333
B) $1,211,333
C) $1,170,000
D) $2,111,450
15. Alfredo's Pizza produced and sold 1,000 pizzas last month and had total variable ingredients that cost $4,575. If production and sales are expected to increase by 17% next month, which of the following statements is true?
A) Total variable materials costs are expected to be $4,779.50.
B) Variable material cost per unit is expected to be $4.99.
C) Total variable materials costs are expected to be $4,345.
D) Total variable materials costs are expected to be $5,352.75.
16. Watford Company is a start up with the following profile:
Unit selling price = $230; Variable cost per unit = $130; Fixed Costs = $36,000;
Tax rate = 40%. How many units should Watford sell to achieve an after-tax target income of $6,000?
A) 200.
B) 230.
C) 460.
D) 300.
17. Western Apparel Company owns two stores and management is considering eliminating the East store due to declining sales. Segmented contribution income statements are as follows and common fixed costs are allocated on the basis of sales.
|
|
West
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East
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Total
|
|
Sales
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$500,500
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90,000
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$590,500
|
|
|
Variable costs
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262,500
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45,000
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307,500
|
|
|
Direct fixed costs
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62,500
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25,000
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87,500
|
|
|
Segment margin
|
175,500
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20,000
|
195,500
|
|
|
Allocated fixed costs
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137,500
|
35,000
|
172,500
|
|
|
Net Income
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$38,000
|
($15,000)
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$23,000
|
|
Western feels that if they eliminate the East store that sales in the West store will decline by 15%. If they close the East store, overall company net income will:
A) decline by $90,000.
B) decline by $62,000.
C) decline by $85,625.
D) decline by $55,700.
18. On July 26, 2012, Radio Shack announced disappointing 2nd quarter earnings that caused the stock to fall 29% to all time lows. Although sales were up 1.2% to $953.2 million gross profit fell 16.6% to $360.3 million. Assuming Radio Shack's store count and fixed costs were the same in the 2nd quarter of 2011 and 2012, which of the following statements is the best explanation for the decrease in the firm's profitability?
A) Opportunity costs decreased.
B) Margin of safety decreased.
C) Contribution margin decreased.
D) Selling price decreased.
Information for Questions 19-20
Anderson Manufacturing makes a single product. Budget information regarding the current period is given below:
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Revenue (100,000 units at $8.00)
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$800,000
|
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Direct materials
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150,000
|
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Direct labor
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125,000
|
|
Variable manufacturing overhead
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235,000
|
|
Fixed manufacturing overhead
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110,000
|
|
Net income
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$180,000
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Dye Company approaches Anderson with a special order for 15,000 units at a price of $7.50 per unit. Variable costs will be the same as the current production and accepting the special order will not have any impact on the rest of the company's orders. However, Anderson is operating at capacity and will incur an additional $50,000 in fixed manufacturing overhead if the order is accepted.
19. What is the incremental income (loss) associated with accepting the special order?
A) ($14,000)
B) $36,000
C) ($23,500)
D) $27,000
20. What is the incremental revenue associated with accepting the special order?
A) $170,000.
B) $112,500.
C) $70,000.
D) $120,000.
21. Innovations, Inc is looking to achieve a net income of 15 percent of sales. Unit sales price is $10; variable cost per unit is $6; total fixed costs are $50,000 what is the level of sales (in units) required to achieve a net income of 15 percent of sales?
A) 12,000 units.
B) 16,000 units.
C) 20,000 units.
D) 21,000 units.
22. Anthony's Bakery sold 2,000 muffins last month and had fixed costs of $6,000. If production and sales are expected to increase by 10% next month, which of the following statements is true?
A) Total fixed costs will decrease.
B) Fixed cost per unit will decrease.
C) Total fixed costs will increase.
D) Fixed cost per unit will increase.
23. An auto executive is considering how to price a 2015 hybrid in order to maximize profits for the company. Manufacturing each hybrid involves $9,500 of materials, $12,500 of labor, $3,800 of shipping and $4,000 of other supplies. The facility where the car is manufactured has $12.5 million of fixed costs. The marketing department says that adding a Bose sound system would boost demand, but it would add an additional $750 per car.
The quantity demanded at each unit price is as follows:
|
Price
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Quantity Demanded (No Bose)
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Quantity Demanded (with Bose)
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|
$31,000
|
8,960
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10,752
|
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$32,000
|
7,168
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8,602
|
|
$33,000
|
5,734
|
6,881
|
|
$34,000
|
4,588
|
5,505
|
|
$35,000
|
3,670
|
4,404
|
|
$36,000
|
2,936
|
3,523
|
|
$37,000
|
2,349
|
2,819
|
|
$38,000
|
1,879
|
2,255
|
|
$39,000
|
1,503
|
1,804
|
What profit maximizing price should the executive choose?
A) $34,000 without Bose sound system.
B) $39,000 with Bose sound system.
C) $36,000 without Bose sound system.
D) $35,000 with Bose sound system
24. The Bournemouth Company uses cost-plus pricing with 50% mark-up. The company is currently selling 100,000 units at $12 per unit. Each unit has a variable cost of $6. In addition, the company incurs $200,000 in fixed costs annually. If demand falls to 80,000 and Bournemouth wants to earn a 50% return, what price should the company charge?
A) $12.75.
B) $10.95.
C) $13.50.
D) $14.55.
25. Visit finance.yahoo.com and determine which of the following statements is incorrect:
A) The current market cap ofAlphabet Inc. is greater than the market cap of Microsoft.
B) The current ratio for the most recent quarter for Microsoft is greater than the current ratio for Alphabet Inc.
C) The current Price per share of Alphabet Inc. is more than ten times that of Microsoft.
D) Return on equity for the most recent quarter for Alphabet Inc. is higher than return on equity for Microsoft.