9.
Johnson Company manufactures widgets. Old Ham Company has approached Jones with a proposal to sell the company one of the components used to make widgets at a price of $100,000 for 50,000 units. Jones is currently making these components in its own factory. The following costs are associated with this part of the process when 50,000 units are produced:
Direct material
$44,000
Direct labor
20,000
Manufacturing overhead
60,000
Total
$124,000
The manufacturing overhead consists of $32,000 of costs that will be eliminated if the components are no longer produced by Jones. The remaining manufacturing overhead will continue whether or not Jones makes the components.
What is the amount of avoidable costs if Jones buys rather than makes the components?
A)
$60,000
B)
$96,000
C)
$124,000
D)
$100,000
10. Below is a performance report that compares budgeted and actual profit of Famous Beer
for the month of April:
Budget
Actual
Difference
Sales
$200,000
$202,000
$2,000
Less:
Cost of ingredients
$162,000
$166,000
$4,000
Salaries
$31,000
$31,200
$200
Controllable Profit
$47,000
$44,800
-$2,200
In evaluating the department in terms of its increase in sales and expenses, what will be
most important to investigate?
Sales
Cost of ingredients
Salaries
All three components have equal importance.
11.
Fatimaâs Diner has a contribution margin ratio of 17%. If fixed costs are $176,800, how many dollars of revenue must Fatimaâs generate in order to reach the break-even point?
A)
$282,880
B)
$1,040,000
C)
$1,060,800
D)
$1,105,000
12.
New Visions, Inc. is looking to achieve a net income of 15 percent of sales. Hereâs the firmâs profile: Unit sales price is $10; variable cost per unit is $6; total fixed costs are $40,000. What is the level of sales in units required to achieve a net income of 15 percent of sales?
A)
12,000 units
B)
21,000 units
C)
16,000 units
D)
20,000 units
13.
At Zikâs Apparel, the break-even point is 2,400 units. If fixed costs total $300,000 and variable costs are $25 per unit, what is the selling price per unit?
A)
$210
B)
$180
C)
$5
D)
$150
14. Which of the following situations will most likely violate cost-volume-profit
assumptions about fixed costs?
A)
When production volume increases beyond the capacity of the plant, a second shift will be added instead of building a new plant.
B)
The companyâs raw material supplier typically allows volume discounts when larger amounts of the raw material are purchased.
C)
Fixed costs per unit decrease as volume increases.
D)
As volume increases, per unit fixed manufacturing overhead remain constant.
15. Neighborhood Grill Company is a start up with the following profile:
Unit selling price = $200; Variable cost per unit = $100; Fixed Costs = $36,000;
Tax rate = 25%. How many units should Neighborhood Grill sell to achieve an
after-tax target income of $6,000?
A)
200
B)
460
C)
440
D)
300
16.
Northern Apparel Company owns two stores and management is considering eliminating the South store due to declining sales. Segmented contribution income statements are as follows and common fixed costs are allocated on the basis of sales.
North
South
Total
Sales
$475,000
120,000
$595,000
Variable costs
242,500
69,000
311,500
Direct fixed costs
72,500
35,500
108,000
Segment margin
160,000
15,500
175,500
Allocated fixed costs
104,500
48,000
152,500
Net Income
$55,500
($32,500)
$23,000
Northern feels that if they eliminate the South store, sales in the North store will decline by 20%. If they close the South store, overall company net income will:
A)
decline by $90,000.
B)
decline by $85,625.
C)
decline by $62,000.
D)
decline by $20,000.
17.
Forest Park, a best-selling toy has a selling price of $15. If the contribution margin ratio is 40% and if the fixed costs are $60,000, how many Forest Parks must the company sell to realize a profit of $450,000?
A)
30,000
B)
34,000
C)
85,000
D)
100,000
Information for Questions 18
Anderson Manufacturing makes a single product. Budget information regarding the current period is given below:
Revenue (100,000 units at $8.00)
$800,000
Direct materials
150,000
Direct labor
125,000
Variable manufacturing overhead
235,000
Fixed manufacturing overhead
110,000
Net income
$180,000
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.
18.
What is the incremental income (loss) associated with accepting the special order?
A)
($14,000)
B)
$36,000
C)
($23,500)
D)
$27,000
19.
Auto Zone believes it can sell 3,500,000 of a new vehicle charger for $8 each. There will be $3,000,000 in fixed costs associated with the charger. If the company desires to make a profit of $2,000,000 on the charger, what is the target variable cost per charger?
A)
$7.25
B)
$9.00
C)
$6.57
D)
$9.40
20.
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 Shackâs 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 firmâs profitability?
A)
Opportunity costs decreased.
B)
Margin of safety decreased.
C)
Contribution margin decreased.
D)
Selling price decreased.
21
Paul's Pizza produced and sold 2,000 pizzas 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.
22.
The Synergy Company uses cost-plus pricing with a 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 units and the company wants to continue to earn a 50% return, what price should the company charge?
A)
$13.50
B)
$14.55
C)
$12.75
D)
Use the following to answer question 23:
Taylor's Treasures has collected the following information over the last six months.
Month
Units produced
Total costs
March
10,000
$25,600
April
12,000
26,200
May
18,000
27,600
June
13,000
26,450
July
12,000
26,000
August
15,000
26,500
23.
Using the high-low method, what is the variable cost per unit?
A)
$0.25
B)
$2.56
C)
$0.22
D)
$2.00
24.
During 2014, Teko Inc. reported revenues of $925,400 and profits of $88,500. Fixed costs were $456,250 and 37,016 units were sold. If costs and prices are expected to stay the same in 2015, and Teko expects to sell 40,000 units, what will be the companyâs budgeted profit?
A)
$95,457
B)
$132,414
C)
$525,000
D)
$667,957
$10.95
| 9. | Johnson Company manufactures widgets. Old Ham Company has approached Jones with a proposal to sell the company one of the components used to make widgets at a price of $100,000 for 50,000 units. Jones is currently making these components in its own factory. The following costs are associated with this part of the process when 50,000 units are produced:
The manufacturing overhead consists of $32,000 of costs that will be eliminated if the components are no longer produced by Jones. The remaining manufacturing overhead will continue whether or not Jones makes the components. What is the amount of avoidable costs if Jones buys rather than makes the components? | |||||||||
| A) | $60,000 | |||||||||
| B) | $96,000 | |||||||||
| C) | $124,000 | |||||||||
| D) | $100,000 | |||||||||
10. Below is a performance report that compares budgeted and actual profit of Famous Beer
for the month of April:
| Budget | Actual | Difference | |
| Sales | $200,000 | $202,000 | $2,000 |
| Less: | |||
| Cost of ingredients | $162,000 | $166,000 | $4,000 |
| Salaries | $31,000 | $31,200 | $200 |
| Controllable Profit | $47,000 | $44,800 | -$2,200 |
In evaluating the department in terms of its increase in sales and expenses, what will be
most important to investigate?
Sales
Cost of ingredients
Salaries
All three components have equal importance.
| 11. | Fatimaâs Diner has a contribution margin ratio of 17%. If fixed costs are $176,800, how many dollars of revenue must Fatimaâs generate in order to reach the break-even point? | |
| A) | $282,880 | |
| B) | $1,040,000 | |
| C) | $1,060,800 | |
| D) | $1,105,000 | |
| 12. | New Visions, Inc. is looking to achieve a net income of 15 percent of sales. Hereâs the firmâs profile: Unit sales price is $10; variable cost per unit is $6; total fixed costs are $40,000. What is the level of sales in units required to achieve a net income of 15 percent of sales? | |
| A) | 12,000 units | |
| B) | 21,000 units | |
| C) | 16,000 units | |
| D) | 20,000 units | |
| 13. | At Zikâs Apparel, the break-even point is 2,400 units. If fixed costs total $300,000 and variable costs are $25 per unit, what is the selling price per unit? | |
| A) | $210 | |
| B) | $180 | |
| C) | $5 | |
| D) | $150 | |
14. Which of the following situations will most likely violate cost-volume-profit
assumptions about fixed costs?
| A) | When production volume increases beyond the capacity of the plant, a second shift will be added instead of building a new plant. |
| B) | The companyâs raw material supplier typically allows volume discounts when larger amounts of the raw material are purchased. |
| C) | Fixed costs per unit decrease as volume increases. |
| D) | As volume increases, per unit fixed manufacturing overhead remain constant. |
15. Neighborhood Grill Company is a start up with the following profile:
Unit selling price = $200; Variable cost per unit = $100; Fixed Costs = $36,000;
Tax rate = 25%. How many units should Neighborhood Grill sell to achieve an
after-tax target income of $6,000?
| A) | 200 |
| B) | 460 |
| C) | 440 |
| D) | 300 |
| 16. | Northern Apparel Company owns two stores and management is considering eliminating the South store due to declining sales. Segmented contribution income statements are as follows and common fixed costs are allocated on the basis of sales.
Northern feels that if they eliminate the South store, sales in the North store will decline by 20%. If they close the South store, overall company net income will: | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| A) | decline by $90,000. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| B) | decline by $85,625. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| C) | decline by $62,000. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| D) | decline by $20,000. | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| 17. | Forest Park, a best-selling toy has a selling price of $15. If the contribution margin ratio is 40% and if the fixed costs are $60,000, how many Forest Parks must the company sell to realize a profit of $450,000? | |
| A) | 30,000 | |
| B) | 34,000 | |
| C) | 85,000 | |
| D) | 100,000 | |
Information for Questions 18
Anderson Manufacturing makes a single product. Budget information regarding the current period is given below:
|
| Revenue (100,000 units at $8.00) | $800,000 |
| Direct materials | 150,000 | |
| Direct labor | 125,000 | |
| Variable manufacturing overhead | 235,000 | |
| Fixed manufacturing overhead | 110,000 | |
| Net income | $180,000 |
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.
| 18. | What is the incremental income (loss) associated with accepting the special order? | |
| A) | ($14,000) | |
| B) | $36,000 | |
| C) | ($23,500) | |
| D) | $27,000 | |
| 19. | Auto Zone believes it can sell 3,500,000 of a new vehicle charger for $8 each. There will be $3,000,000 in fixed costs associated with the charger. If the company desires to make a profit of $2,000,000 on the charger, what is the target variable cost per charger? | |
| A) | $7.25 | |
| B) | $9.00 | |
| C) | $6.57 | |
| D) | $9.40 | |
| 20. | 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 Shackâs 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 firmâs profitability? | |
| A) | Opportunity costs decreased. | |
| B) | Margin of safety decreased. | |
| C) | Contribution margin decreased. | |
| D) | Selling price decreased. | |
| 21 | Paul's Pizza produced and sold 2,000 pizzas 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. | |
| 22. | The Synergy Company uses cost-plus pricing with a 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 units and the company wants to continue to earn a 50% return, what price should the company charge? | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| A) | $13.50 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| B) | $14.55 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| C) | $12.75 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| D) Use the following to answer question 23: Taylor's Treasures has collected the following information over the last six months.
| $10.95 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
