1. Cost behavior refers to the manner in which
a cost is allocated to products
a cost is estimated
a cost is used in setting selling prices
a cost changes as the related activity changes
2. Costs that remain constant in total dollar amount as the level of activity changes are called
product costs
fixed costs
variable costs
mixed costs
3. Which of the following describes the behavior of the fixed cost per unit?
increases with increasing production
remains constant with changes in production
decreases with decreasing production
decreases with increasing production
4. Costs that vary in total in direct proportion to changes in an activity level are called
fixed costs
differential costs
sunk costs
variable costs
5. Which of the following describes the behavior of a variable cost per unit?
varies in direct proportion with the activity level
varies in decreasing proportion with changes in the activity level
varies in increasing proportion with changes in the activity level
remains constant with changes in the activity level
6. Given the following cost and activity observations for Bounty Company's utilities, use the high-low method to calculate Bounty' variable utilities costs per machine hour. Round your answer to the nearest cent.
Cost Machine Hours
March $3,100 15,000
April 2,700 10,000
May 2,900 12,000
June 3,600 18,000
$0.11
$0.63
$10.00
$0.67
7. Given the following cost and activity observations for Smithson Company's utilities, use the high-low method to calculate Smithson's fixed costs per month. Do not round your intermediate calculations.
Cost Machine Hours
January $52,200 20,000
February 75,000 29,000
March 57,000 22,000
April 64,000 24,500
a. $22,800
b. $2,530
c. $50,600
d. $1,533
8. In cost-volume-profit analysis, all costs are classified into the following two categories:
variable costs and fixed costs
sunk costs and fixed costs
mixed costs and variable costs
discretionary costs and sunk costs
9. If sales are $820,000, variable costs are 55% of sales, and operating income is $260,000, what is the contribution margin ratio?
32%
55%
45%
62%
10. Spice Inc.'s unit selling price is $60, the unit variable costs are $35, fixed costs are $125,000, and current sales are 10,000 units. How much will operating income change if sales increase by 8,000 units?
$200,000 increase
$150,000 increase
$150,000 decrease
$175,000 increase
11. Lee Industry sales are $525,000, variable costs are 53% of sales, and operating income is $19,000. What is the contribution margin ratio?
9.5%
26.5%
47%
53%
12. If fixed costs are $750,000 and variable costs are 60% of sales, what is the break-even point in sales dollars?
$300,000
$1,875,000
$1,250,000
$450,000
13. If fixed costs are $500,000, the unit selling price is $55, and the unit variable costs are $30, what is the break-even sales (units) if fixed costs are increased by $80,000?
25,000 units
23,200 units
19,333 units
10,545 units
14. Johnson's Plumbing's fixed costs are $700,000 and the unit contribution margin is $17. What amount of units must be sold in order to realize an operating income of $100,000?
41,176
5,000
47,059
58,882
15. If variable costs per unit increased because of an increase in hourly wage rates, the break-even point would
increase or decrease, depending upon the percentage increase in wage rates
decrease
remain the same
increase
16. What term is commonly used to describe the concept whereby the cost of manufactured products is composed of direct materials cost, direct labor cost, and all factory overhead cost?
Absorption costing
Standard costing
Variable costing
Marginal costing
17. What term is commonly used to describe the concept whereby the cost of manufactured products is composed of direct materials cost, direct labor cost, and variable factory overhead cost?
Differential costing
Standard costing
Absorption costing
Variable costing
18. Under variable costing, which of the following costs would not be included in finished goods inventory?
direct materials cost
variable factory overhead cost
direct labor cost
fixed factory overhead cost
19. Under absorption costing, which of the following costs would not be included in finished goods inventory?
variable and fixed selling and administrative expenses
direct materials cost
direct labor cost
variable and fixed factory overhead cost
20. Under variable costing, which of the following costs would be included in finished goods inventory?
only fixed factory overhead cost
neither variable nor fixed factory overhead cost
both variable and fixed factory overhead cost
only variable factory overhead cost
21. Which of the following would be included in the cost of a product manufactured according to variable costing?
interest expense
direct materials
sales commissions
office supply costs
22. On the variable costing income statement, the figure representing the difference between manufacturing margin and contribution margin is the:
variable cost of goods sold
fixed manufacturing costs
variable selling and administrative expenses
fixed selling and administrative expenses
23. In the variable costing income statement, deduction of variable selling and administrative expenses from manufacturing margin yields:
differential margin
gross profit
contribution margin
marginal expenses
24. The amount of income under absorption costing will be less than the amount of income under variable costing when units manufactured:
are equal to or greater than units sold
are less than units sold
exceed units sold
equal units sold
25. The amount of income under absorption costing will be more than the amount of income under variable costing when units manufactured:
are less than units sold
exceed units sold
equal units sold
are equal to or greater than units sold
26. The level of inventory of a manufactured product has increased by 7,000 units during a period. The following data are also available:
Variable Fixed
Unit manufacturing costs of the period $12.00 $6.00
Unit operating expenses of the period 4.00 1.50
27. What would be the effect on income from operations if absorption costing is used rather than variable costing?
$52,500 decrease
$42,000 increase
$52,500 increase
$42,000 decrease
28. A business operated at 100% of capacity during its first month and incurred the following costs:
Production costs (20,000 units):
Direct materials $180,000
Direct labor 240,000
Variable factory overhead 280,000
Fixed factory overhead 100,000 $800,000
Operating expenses:
Variable operating expenses $130,000
Fixed operating expenses 50,000 180,000
29. If 1,600 units remain unsold at the end of the month, what is the amount of inventory that would be reported on the variable costing balance sheet?
$56,000
$64,000
$78,400
$66,400
30. A business operated at 100% of capacity during its first month and incurred the following costs:
Production costs (10,000 units):
Direct materials $ 80,000
Direct labor 120,000
Variable factory overhead 140,000
Fixed factory overhead 40,000 $380,000
Operating expenses:
Variable operating expenses $ 65,000
Fixed operating expenses 25,000 90,000
31. If 1,000 units remain unsold at the end of the month, what is the amount of inventory that would be reported on the absorption costing balance sheet?
a. $47,000
b. $34,000
c. $40,500
d. $38,000
32. Which of the following would not be an appropriate activity base for cost analysis in a service firm?
haircuts given
lawns mowed
inventory produced
customers served
33. A formal written statement of management's plans for the future, expressed in financial terms, is a
performance report
budget
responsibility report
gross profit report
34. The benefits of comparing actual performance of the operations against planned goals include all of the following except
preventing unplanned expenditures
helping to establish spending priorities
providing prompt feedback to employees about their performance relative to the goal
determining how managers are performing against prior years' actual operating results
35. The process of developing budget estimates by requiring all levels of management to estimate sales, production, and other operating data as though operations were being initiated for the first time is referred to as
continuous budgeting
zero-based budgeting
master budgeting
flexible budgeting
36. Jase Manufacturing Co.'s static budget at 10,000 units of production includes $40,000 for direct labor and $4,000 for electric power. Total fixed costs are $24,000. At 12,000 units of production, a flexible budget would show
variable and fixed costs totaling $68,000
variable costs of $52,800 and $24,000 of fixed costs
variable costs of $44,000 and $24,000 of fixed costs
variable costs of $52,800 and $29,000 of fixed costs
37. A disadvantage of static budgets is that they
show the expected results of a responsibility center for several levels of activity
cannot be used by service companies
do not show possible changes in underlying activity levels
are dependent on previous year's actual results
38. Chelsa Manufacturing Co.'s static budget at 5,000 units of production includes $40,000 for direct labor and $5,000 for variable electric power. Total fixed costs are $23,000. At 8,000 units of production, a flexible budget would show
variable and fixed costs totaling $107,000
variable costs of $72,000, and $23,000 of fixed costs
variable costs of $64,000, and $23,000 of fixed costs
variable costs of $64,000, and $28,000 of fixed costs
39. The production budgets are used to prepare which of the following budgets?
operating expenses
sales in units
direct materials purchases, direct labor cost, and factory overhead cost
sales in dollars
40. Principal components of a master budget include
All of these choices are correct.
production budget
sales budget
capital expenditures budget
41. The first budget customarily prepared as part of an entity's master budget is the
cash budget
production budget
sales budget
direct materials purchases
42. Below is budgeted production and sales information for Flushing Company for the month of December:
Product XXX Product ZZZ
Estimated beginning inventory 32,000 units 20,000 units
Desired ending inventory 34,000 units 17,000 units
Region I, anticipated sales 320,000 units 260,000 units
Region II, anticipated sales 180,000 units 140,000 units
43. The unit selling price for product XXX is $5 and for product ZZZ is $15.Budgeted production for product XXX during the month is
a. 534,000 units
b. 502,000 units
c. 566,000 units
d. 498,000 units
44. Mandy Corporation sells a single product. Budgeted sales for the year are anticipated to be 640,000 units, estimated beginning inventory is 98,000 units, and desired ending inventory is 80,000 units. The quantities of direct materials expected to be used for each unit of finished product are given below.
Material A 0.50 lb. per unit @ $0.60 per pound
Material B 1.00 lb. per unit @ $1.70 per pound
Material C 1.20 lb. per unit @ $1.00 per pound
45. The dollar amount of Material B used in production during the year is
a. $1,224,000
b. $1,193,400
c. $1,057,400
d. $1,026,800
46. Nuthatch Corporation began its operations on September 1 of the current year. Budgeted sales for the first three months of business are $260,000, $375,000, and $400,000, respectively, for September, October, and November. The company expects to sell 30% of its merchandise for cash. Of sales on account, 80% are expected to be collected in the month of the sale and 20% in the month following the sale.
The cash collections expected in October from accounts receivable are estimated to be
a. $210,000
b. $246,400
c. $294,500
d. $262,500
47. As of January 1 of the current year, the Grayson Company had accounts receivables of $40,000. The sales for January, February, and March were as follows: $120,000, $140,000, and $150,000, respectively. Of each month's sales, 20% are for cash. Of the remaining 80% (the credit sales), 60% are collected in the month of sale, with the remaining 40% collected in the following month. What is the total cash collected (both from accounts receivable and for cash sales) in the month of January?
$107,000
$61,600
$64,000
$121,600
48. Below is budgeted production and sales information for Bluebird Company for the month of December:
Product XXX Product ZZZ
Estimated beginning inventory 30,000 units 18,000 units
Desired ending inventory 32,000 units 15,000 units
Anticipated sales 520,000 units 460,000 units
49. The unit selling price for product XXX is $5 and for product ZZZ is $14.
Budgeted production for product XXX during the month is
a. 518,000 units
b. 552,000 units
c. 522,000 units
d. 520,000 units