1. The Old Van Rental Company has 6 vans available for rent
late on Wednesday night when the office gets a call from a small group of
tourists wishing to rent 3 vans for the next day (one day rental). The daily
rate that the rental company charges is $40 per van. However, the group is
willing to pay just $30 per van. The company has fixed costs of $ 200,000. What
will be the incremental revenue generated if the rental company decides to
accept the price offered by the group?
A) $10
B) $30
C) $90
D) $ 0
2. In most cases, which of the following costs are likely to
be variable costs?
A) advertising to promote the product
B) depreciation of assets
C) space rental costs
D) materials used in production
3. The Sarbanes – Oxley Act requires companies to:
A) report instances of child labor law violations
B) implement activity-based cost accounting and enterprise
resource planning systems
C) certify to shareholders that they have not invested in
derivatives
D) report on the existence and reliability of their internal
controls as they relate to their financial statements
4. Which of the following statements about using incremental
analysis in decision making is true?
A) measurement is centered on meeting incremental changes in
quality standards
B) incremental analysis requires a calculation of changes in
both cost and revenue
C) sunk costs should be included in the analysis
D) controllable costs are always considered indirect costs
5. Budgets are essential tools for:
A) avoiding sunk costs
B) producing financial statements that comply with GAAP
C) achieving planning and control
D) maintaining a high leverage ratio
6. In managerial accounting, a key idea is that ‘you get
what you measure’. This idea refers to:
A) the need for a single measure of profitability
B) a growing focus of regulators on executive accountability
C) the notion that how firms measure performance affects how
managers behave
D) changing ethical standards in a dynamic business
environment
7. The Great View Shop sells an inexpensive, but
high-quality, camera for $ 125. The firm has fixed costs of $ 150,000 and the
firm’s contribution margin amounts to 60% of revenue per unit. How many units
must the firm sell to breakeven?
A) 700 units
B) 1,800 units
C) 1,900 units
D) 2,000 units
8. Small Industries has fixed costs of $ 100,000 and
breakeven sales of $ 800,000. What is the firm’s estimated pre-tax profit at
$1,200,000 sales?
A) $75,000
B) $50,000
C) $25,000
D) $ 5,000
9. Breakeven analysis assumes that over the relevant range:
A) Unit revenues are nonlinear.
B) Unit variable costs are unchanged.
C) Total costs are unchanged.
D) Total fixed costs are declining.
10. When a company is operating at the breakeven point, the
contribution margin is equal to total:
A) Variable costs.
B) Sales revenue.
C) Overhead costs.
D) Fixed costs.
11. The New Company has two products (Product A and Product
B) with the following profile as far as contribution margin:
A B
Selling Price $15 $10
Variable Cost $ 12 $5
Unit CM $3 $5
Sales Mix 60% 40%
Company’s total fixed costs equal $76,000. Using a weighted
average CM, what is the company’s breakeven point in units?
A) 18,000 units
B) 20,000 units
C) 22,000 units
D) 31,000 units
12. Generally, firms with high operating leverage are:
A) more likely to have lower selling prices per unit.
B) considered more risky than firms with low operating
leverage.
C) more likely to have low levels of fixed costs.
D) dependent on declining variable costs to be profitable.
13. 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) $43,750
C) $1,120
D) $50,000
14. Conan Company’s monthly activity level ranged from a low
of 17,000 units in May to a high of 26,000 units in October. Average production
was 20,000 units per month. Utilities cost was $8,250 in May and $10,500 in
October. The variable utility cost per unit, to the nearest cent, is:
A) $0.49.
B) $0.47.
C) $0.25.
D) $0.40.
15. ABC Diner has a contribution margin ratio of 16%. If
fixed costs are $176,800, how many dollars of revenue must ABC generate in
order to reach the break-even point?
A) $282,880
B) $1060,800
C) $208,476
D) $1,105,000
16. Jones 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
17. 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.
18. In an activity-based cost system, an overhead cost
system would first be allocated to __________, and then allocated to
__________.
A) a product; an activity pool
B) a product only
C) an activity pool; a product
D) an activity pool only
19. A company has a total cost of $50.00 per unit at a
volume of 100,000 units. The variable cost per unit is $20.00. What would the
price be if the company expected a volume of 120,000 units and used a markup of
50%?
A) $75.00
B) $62.50
C) $67.50
D) There is not enough information in the problem to answer
Use the following to answer questions 20-22:
Benz Company sells a single product that has variable costs
of $10 per unit. Fixed costs will be $850,000 across all levels of sales shown.
Units Sold Price
per unit
90,000 $33
100,000 $31
110,000 $30
120,000 $29
125,000 $28
20. What price
should Benz charge to maximize profits?
A) $29
B) $33
C) $28
D) $31
E) $30
21. What price
would Benz charge to maximize revenues?
A) $30
B) $31
C) $28
D) $29
E) $33
22. What, if
any information given was not relevant to the profit maximization decision?
A) The
variable costs per unit
B) The total
fixed costs
C) All of
the information was relevant
D) The
selling prices
E) The total
quantities demanded
Use the following to answer questions 23-25:
A company’s market for the Model 55 has changed
significantly, and it has had to drop the price per unit from $199 to $135.
There are some units in the work in process inventory that have costs of $150
per unit associated with them. The company could sell these units in their
current state for $100 each. It will cost the company $15 per unit to complete
these units so that they can be sold for $135 each.
23. Which of
the following is the amount of sunk costs in this problem?
A) $100 per
unit
B) $135 per
unit
C) $150 per
unit
D) $199 per
unit
24. 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 decrease by $120 per unit for each unit discarded.
B) Net
income will increase by $15 per unit for each unit discarded.
C) It will
have no effect on net income.
D) Net income
will decrease by $199 per unit for each unit discarded.
25. When the
incremental revenues and expenses are analyzed, the company is better off by
A) $15 per
unit if the sell the units in their current state.
B) $35 per
unit if they sell the units in their current state.
C) $20 per
unit if they complete the units.
D) $135 per
unit if they complete the units.
26. NoIdea
Records Company uses activity-based costing. The company produces CDs and DVDs.
The estimated costs and expected activity for each of the activity pools
follow:
Activity Estimated Expected Activity
Cost Pool Cost DVDs CDs Total
Activity 1 $31,350 8,000 3,000 11,000
Activity 2 $23,800 5,000 2,000 7,000
Activity 3 $55,200 8,000 4,000 12,000
Total costs which would be charged to DVDs would be:
A. $110,50.
B. $36,800.
C. $76,600.
D. $59,850.
27. SnowBird
Company produces two products, X and Y. The annual production and sales of
product X and Y are 1,200 and 750 units, respectively. The company has
traditionally used direct labor hours to apply manufacturing overhead. Product
X requires 0.6 labor hours per unit and product B requires 0.4 labor hours per
unit. The company has decided to utilize activity based costing with three cost
pools. Estimated costs for each pool are as follows:
Estimated
Activity Overhead Expected Activity
Cost Pool Costs Product X Product
Y Total
Activity 1 $72,075 225 210 435
Activity 2 $50,640 1,000 375 1,375
General Factory $96,042 60 75 135
Total $218,757
The predetermined overhead rate for activity 1 using
activity based costing system is closest to:
A. $490.86.
B. $320.24.
C. $343.20.
D. $165.66.
Use the following information for questions 28 – 29.
RossSignal Company’s market for the Model 225CM ski has
declined, and RossSignal has had to drop the price per pair from $795 to $375.
There are some pairs in the work in process inventory that have costs of $450
per pair associated with them. RossSignal could sell these skis in their
current state for $300 per pair. It will cost RossSignal $30 per pair to
complete these skis so that they can be sold for $375 per pair.
28. When the
incremental revenues and expenses are analyzed, the company is better off by
A. $375 per
pair if they complete the units.
B. $45 per
pair if they complete the units.
C. $30 per
pair if the sell the units in their current state.
D. $75 per
pair if they sell the units in their current state.
29. Which of
the following is the amount of sunk costs in this problem?
A. $795 per
pair
B. $450 per
pair
C. $375 per
pair
D. $30 per
pair
30. Picayune Company estimates that ordering costs are $6.00
per order, picking costs are $4.50 per unique item ordered, packing costs are
$0.075 per item, and return costs are $135.00 per return. A customer orders
$30,000 worth of goods with direct costs of $24,000. The customer places 200
orders, orders 240 unique items, 1600 items, and makes 22 returns. What is the
profit (loss) on this customer?
A. $6,000
B. $630
C. ($300)
D. $1200
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