Question 3 If a company increases its fixed costs for Product Z, then the contribution margin per unit will Remain the same Decrease Increase Incomplete information Question 4 When production levels are expected to increase within a relevant range, and a flexible budget is used, what effect would be anticipated with respect to each of the following costs? Fixed costs per unit Variable costs per unit No change � � No change Decrease � � � No change No change � � � Decrease Decrease � � � Decrease Question 5 Wang Company provides the following information for their first year of operation: Sales 5,000 units @ $10 Selling and administrative costs: Fixed $1,000 Variable $1 per unit Variable production costs per unit: Direct materials $2 Direct labor $2 Variable overhead $1 Fixed factory overhead $7,500 Production 7,500 units If Wang uses variable costing, operating income would be: $11,500 $14,000 $16,500 $20,000 Question 6 The management of Ahad Engineering Services has been approached about purchasing a new management information system. The perceived advantages of the system include each of the following, except: The new system will reduce confusion by doing away with dual presentations of information by line item and object of expenditure. The new system will enable customized business dashboards, with each executive having real-time reports of critical business information. The new system will enable automatic preparation of both internal variable costing information and external absorption costing information. The new system will facilitate disaggregation of overall results into business segment information. Question 7 Strickland Company prepared segment information relative to its office furniture manufacturing division. The controllable contribution margin differed from the segment margin by $100,000. This amount corresponds to the: Total variable costs. Controllable fixed costs. Uncontrollable fixed costs. Non-traceable costs. Question 8 Maverick Corporation had four operating segments. Information for each segment is included in the following table. Maverick has a threshold rate of return of 7%. Which segment has the largest residual income? Segment A Segment B Segment C Segment D Operating Income $100,000 $200,000 $300,000 $400,000 Operating Assets $200,000 $300,000 $300,000 $5,000,000 Segment A Segment B Segment C Segment D Question 9 Which of the following decisions involve differential analysis? The decision by University to drop its intercollegiate football program The decision to close a segment of a business The decision by a record store to add videotapes to the product line. All of the above. Question 10 Fixed costs are $90,000, variable cost per unit is $1.80, and budgeted units of output are 200,000 units. Determine the budgeted production costs. $360,000 $450,000 $414,000 $540,000 Questions 11 and 12 are based on the following information: Anderson Enterprises incurred the following costs while producing 500 units: direct materials, $15 per unit; direct labor, $37.50 per unit; variable manufacturing overhead, $22.50 per unit; total fixed overhead costs, $15,000; variable selling and administrative costs, $7.50 per unit; total fixed selling and administrative costs, $11,250. Question 11 What is the per unit product cost using variable costing? $105 per unit $82.50 per unit $75 per unit $135 per unit Question 12 What is the operating income using variable costing if 450 units are sold for $150 each? $4,125 $7,500 $750 $3,750 Question 13 Production costs (including $30,000 of fixed costs) are budgeted at $150,000 for an expected output of 100,000 units. Actual output was 90,000 units, while actual costs were $142,500. What is the budget variance and is it favorable or unfavorable. $4,500 unfavorable $6,500 favorable $5,500 unfavorable $4,500 favorable Question 14 Information technology has made it easier for managers to perform all of the following tasks except Combining individual units’ budgets into the companywide budget. Removing budgetary slack from the budget. Sensitivity analyses Preparing performance reports that identify variances between actual and budgeted revenues and costs. Use the following information to answer questions 15 and 16. Suppose Amazon sells 1,000 hardcover books per day at an average price of $15. Assume that Amazon’s cost for the books is 75% of the selling price it charges retail customers. Amazon has no beginning inventory, but it wants to have a three-day supply of ending inventory. Assume that selling and administrative expenses are $500 per day. Question 15 Compute Amazon’s budgeted sales for the next (seven-day) week. $78,750 $108,500 $217,500 $105,000 Question 16 Determine Amazon’s budgeted purchases for the next (seven-day) week. $150,000 $112,500 $78,750 $37,500 Question 17 The budgeted statement of cash flows is part of which element of the master budget? The financial budget The operating budget The capital expenditures budget None of the above Question 18 The Best buy company had the following revenue over the past three years: 2007 $300,000 2008 $350,000 2009 $450,000 To forecast revenues for 2010, Best Buy Company uses the average for the past three years. The company’s breakeven revenue is $400,000 per year. What is Best buy predicted margin of safety for 2010 $400,000 $0 $100,000 $50,000 Question 19 If a company increases its selling price per unit for Product A, the new breakeven point will Remain the same Decrease Increase None of the above Question 20 Straight-line depreciation on a company truck is a Variable cost. Fixed cost Mixed cost High-low cost PART 2 Question 1 Jacob Davis recently graduated from medical school. He is considering opening his own family practice doctor office. A doctor’s office is a high-fixed cost business, as it requires considerable expenditures for facilities, labor, and equipment, no matter how many families are served. Assume the annual fixed cost of operations is $400,000. Further assume that the only significant variable cost relates to patients served. An average patient served costs $250. Jacob’s banker has asked a variety of questions in contemplation of providing a loan for this business. Requirements: If the average family is charged $475 for services, how many families must be served to clear the break-even point? If the banker believes Jacob will only serve 1,000 families during the first year in business, how much will the business lose during its first year of operation? If Jacob believes his profits will be at least $100,000 during the first year, how much is he anticipating for total revenue? The banker has suggested that Jacob can reduce his fixed costs by $100,000 if he will not purchase certain equipment. Jacob can instead lease or rent this equipment as needed. The variable cost of leasing this equipment is $55 per family served. Will this suggestion help Jacob reach the break-even point sooner? Question 2 Carpet Clean manufactures a chemical cleaner. The company was formed during the current year. As a result, there was no beginning inventory. Management is evaluating performance and inventory management issues, and desires to know both net income and ending inventory under generally accepted accounting principles (absorption costing) as well as variable costing methods. Relevant facts are as follows: Selling price per gallon $11.00 Variable manufacturing cost per gallon $2.00 Variable SG&A costs per gallon � $2.25 Fixed manufacturing costs $2,900,000 Fixed SG&A � � � � $470,000 Total gallons produced 1,625,000 Total gallons sold � � 1,500,000 Requirement: Prepare income statements based on the absorption costing and variable costing methods.
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