1. A company increased the selling price for its product from $5 to $6 per unit when total fixed expenses increased from $100,000 to $200,000 and variable expense per unit remained unchanged. How would these changes affect the break-even point?
A. The break-even point in units would decrease.
B. The break-even point in units would increase.
C. The break-even point in units would remain unchanged.
D. The effect can’t be determined from the information given.
2. An increase in the activity level within the relevant range results in a/an
A. decrease in fixed cost per unit.
B. increase in fixed cost per unit.
C. proportionate increase in total fixed costs.
D. unchanged fixed cost per unit.
3. Use the following information to answer this question.
Lifsey Wedding Fantasy Company makes very elaborate wedding cakes to order. The owner of thecompany has provided the following data concerning the activity rates in its activity-based costing system:
l The measure of activity for the size-related activity cost pool is the number of planned guests at thewedding reception. The greater the number of guests, the larger the cake.
l The measure of complexity is the number of tiers in the cake.
l The activity measure for the order-related cost pool is the number of orders. (Each wedding involvesone order.)
l The activity rates include the costs of raw ingredients, such as flour, sugar, eggs, and shortening. Theactivity rates don’t include the costs of purchased decorations, such as miniature statues and weddingbells, which are accounted for separately.
Data concerning two recent orders are listed here:
Activity Cost Pools Activity Rate
Size-related $0.94 per guest
Complexity-related $31.62 per tier
Order-related $55.70 per order
Assuming that the company charges $556.96 for the Smith wedding cake, what would be the overallmargin on the order?
Pyburn
Wedding
Smith
Wedding
Number of reception guests 72 189
Number of tiers on the cake 4 5
Cost of purchased decorations for cake $29.92 $68.75
A. $165.41
B. $96.66
C. $460.30
D. $152.45
4. At a break-even point of 400 units sold, variable expenses were $4,000, and fixed expenses were$2,000. What will the 401st unit sold contribute to profit?
A. $0
B. $15
C. $5
D. $10
5. A disadvantage of the high-low method of cost analysis is that
A. it relies totally on the judgment of the person performing the cost analysis.
B. it can’t be used when there are a very large number of observations.
C. it uses two extreme data points, which may not be representative of normal conditions.
D. it’s too time-consuming to apply.
6. Use the following information to answer this question.
Harris Company produces a single product. Last year, Harris manufactured 17,000 units and sold 13,000units. Production costs for the year were as follows:
Sales were $780,000 for the year, variable selling and administrative expenses were $88,400, and fixedselling and administrative expenses were $170,000. There was no beginning inventory. Assume that directlabor is a variable cost.
Under absorption costing, the carrying value on the balance sheet of the ending inventory for the yearwould be
Production Cost Data
Direct materials $153,000
Direct labor $110,500
Variable manufacturing overhead $204,000
Fixed manufacturing overhead $255,000
A. $0.
B. $170,000.
C. $230,800.
D. $190,800.
7. Indiana Corporation produces a single product that it sells for $9 per unit. During the first year ofoperations, 100,000 units were produced, and 90,000 units were sold. Manufacturing costs and selling andadministrative expenses for the year were as follows:
What was Indiana Corporation’s net operating income for the year using variable costing?
Fixed Costs Variable Costs
Raw materials
$1.75 per unit
produced
Direct labor
$1.25 per unit
produced
Factory
overhead
$100,000
$0.50 per unit
produced
Selling and
administrative
$70,000
$0.60 per unitsold
A. $371,000
B. $181,000
C. $271,000
D. $281,000
8. Purchase-order processing is an example of a/an _______ activity.
A. unit-level
B. product-level
C. batch-level
D. organization-sustaining
9. Viren Corporation has provided the following data from its activity-based costing system:The company makes 240 units of product T91H a year, requiring a total of 550 machine hours, 90 orders,and 40 inspection hours per year. The product’s direct materials cost is $16.98 per unit, and its direct laborcost is $12.09 per unit. According to the activity-based costing system, the average cost of product T91H isclosest to _______ per unit.
Activity Cost Pool Total Cost Total Activity
Assembly $387,000 25,000 machine-hours
Processing orders $68,510 1,700 orders
Inspection $129,117 1,930 inspection-hours
A. $79.66
B. $29.07
C. $90.81
D. $75.70
10. Use the following information to answer this question.
Callaham Corporation is a wholesaler that sells a single product. Management has provided the following
cost data for two levels of monthly sales volume. The company sells the product for $115.80 per unit.
The best estimate of the total contribution margin when 4,300 units are sold is
Sales volume (units)
4,000 5,000
Cost of sales $338,000 $422,500
Selling and administrative costs $89,600 $106,000
A. $38,270.
B. $64,070.
C. $43,430.
D. $134,590.
11. Use the following information to answer this question.
Lifsey Wedding Fantasy Company makes very elaborate wedding cakes to order. The owner of the
company has provided the following data concerning the activity rates in its activity-based costing system:
l The measure of activity for the size-related activity cost pool is the number of planned guests at the
wedding reception. The greater the number of guests, the larger the cake.
l The measure of complexity is the number of tiers in the cake.
l The activity measure for the order-related cost pool is the number of orders. (Each wedding involves
one order.)
l The activity rates include the costs of raw ingredients, such as flour, sugar, eggs, and shortening. The
activity rates don’t include the costs of purchased decorations, such as miniature statues and wedding
bells, which are accounted for separately.
Data concerning two recent orders are listed here:
Activity Cost Pools Activity Rate
Size-related $0.94 per guest
Complexity-related $31.62 per tier
Order-related $55.70 per order
Pyburn
Wedding
Smith
Wedding
Number of reception guests 72 189
Suppose the company decides that the present activity-based costing system is too complex and that all
costs (except for the costs of purchased decorations) should be allocated on the basis of the number ofguests. In that event, what would you expect to happen to the costs of cakes?
Number of tiers on the cake 4 5
Cost of purchased decorations for cake $29.92 $68.75
A. The costs of all cakes would go down.
B. The cost of cakes for receptions with more than the average number of guests would go down.
C. The costs of all cakes would go up.
D. The cost of cakes for receptions with fewer than the average number of guests would go down.
12. Use the following information to answer this question.
Gargymal Company would like to estimate the variable and fixed components of its electrical costs and hascompiled the following data for the past five months of operations.
Using the high-low method of analysis, the estimated fixed cost per month for electricity is closest to whichof the following?
Machine
Hours
Electrical
Cost
August 1,000 $1,620
September 900 $1,510
October 1,500 $1,870
November 2,000 $1,950
December 1,300 $1,730
A. $870.00
B. $1,150.00
C. $1,290.00
D. $1,306.50
13. Murdoch Corporation has provided the following data concerning its only product:
What is the margin of safety in dollars?
Murdoch Product Data
Selling price $230 per unit
Current sales 39,100 units
Break-even sales 29,716 units
A. $5,995,333
B. $6,834,680
C. $2,158,320
D. $8,993,000
14. Use the following information to answer this question.
Harris Company produces a single product. Last year, Harris manufactured 17,000 units and sold 13,000units. Production costs for the year were as follows:
Sales were $780,000 for the year, variable selling and administrative expenses were $88,400, and fixedselling and administrative expenses were $170,000. There was no beginning inventory. Assume that directlabor is a variable cost.
The contribution margin per unit was
Production Cost Data
Direct materials $153,000
Direct labor $110,500
Variable manufacturing overhead $204,000
Fixed manufacturing overhead $255,000
A. $32.50.
B. $25.70.
C. $17.50.
D. $27.30.
15. Use the following information to answer this question.
Harris Company produces a single product. Last year, Harris manufactured 17,000 units and sold 13,000units. Production costs for the year were as follows:
Sales were $780,000 for the year, variable selling and administrative expenses were $88,400, and fixedselling and administrative expenses were $170,000. There was no beginning inventory. Assume that directlabor is a variable cost.
Under variable costing, the company’s net operating income for the year would be _______ than underabsorption costing.
Production Cost Data
Direct materials $153,000
Direct labor $110,500
Variable manufacturing overhead $204,000
Fixed manufacturing overhead $255,000
A. $60,000 lower
B. $60,000 higher
C. $108,000 higher
D. $108,000 lower
16. Bear Publishing sells a nature guide. The following information was reported for a typical month (salesvolume is constant each month):
Bear is expecting a 20-cent increase in variable expenses. No other changes are expected or planned. Howmuch contribution margin should Bear expect after the increase?
Total Per Unit
Sales $17,600 $16.00
Variable expenses $9,680 $8.80
Contribution margin $7,920 $7.20
Fixed expenses $3,600
Net operating income $4,320
A. $7,700
B. $4,100
C. $9,900
D. Can’t be determined
17. Use the following information to answer this question.
Gargymal Company would like to estimate the variable and fixed components of its electrical costs and has
compiled the following data for the past five months of operations.
Using the high-low method of analysis, the estimated variable cost per machine hour for electricity isclosest to which of the following?
Machine
Hours
Electrical
Cost
August 1,000 $1,620
September 900 $1,510
October 1,500 $1,870
November 2,000 $1,950
December 1,300 $1,730
A. $0.40
B. $0.98
C. $1.68
D. $2.50
18. Use the following information to answer this question.
Callaham Corporation is a wholesaler that sells a single product. Management has provided the followingcost data for two levels of monthly sales volume. The company sells the product for $115.80 per unit.
The best estimate of the total variable cost per unit is
Sales volume (units)
4,000 5,000
Cost of sales $338,000 $422,500
Selling and administrative costs $89,600 $106,000
A. $84.50.
B. $106.90.
C. $100.90.
D. $105.70.
19. Which of the following is true regarding the contribution margin ratio of a single-product company?
A. As fixed expenses decrease, the contribution margin ratio increases.
B. The contribution margin ratio multiplied by the variable expense per unit equals the contribution margin per unit.
C. The contribution margin ratio increases as the number of units sold increases.
D. If sales increase, the dollar increase in net operating income can be computed by multiplying the contribution margin ratio bythe dollar increase in sales.
20. Use the following information to answer this question.
Lifsey Wedding Fantasy Company makes very elaborate wedding cakes to order. The owner of thecompany has provided the following data concerning the activity rates in its activity-based costing system:
l The measure of activity for the size-related activity cost pool is the number of planned guests at thewedding reception. The greater the number of guests, the larger the cake.
l The measure of complexity is the number of tiers in the cake.
l The activity measure for the order-related cost pool is the number of orders. (Each wedding involvesone order.)
l The activity rates include the costs of raw ingredients, such as flour, sugar, eggs, and shortening. Theactivity rates don’t include the costs of purchased decorations, such as miniature statues and weddingbells, which are accounted for separately.
Data concerning two recent orders are listed here:
Activity Cost Pools Activity Rate
Size-related $0.94 per guest
Complexity-related $31.62 per tier
Order-related $55.70 per order
Pyburn
Wedding
Smith
Wedding
Number of reception guests 72 189
Number of tiers on the cake 4 5
End of exam
Assuming that all of the costs listed above are avoidable costs in the event that an order is turned down,which amount would the company have to charge for the Pyburn wedding cake to just break even?
Cost of purchased decorations for cake $29.92 $68.75
A. $279.87
B. $55.79
C. $338.64
D. $29.92
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