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MA; T3; STQ
Managerial Accounting; Test 3 (Ch 20-21); Practice
| Question | Answer |
|---|---|
| 1.) Which one of the following is the format of a CVP income statement? | Sales – Variable costs – Fixed costs = Net income. |
| 2.) Croc Catchers calculates its contribution margin to be less than zero. Which statement is true? | Its selling price is less than its variable costs. |
| 3.) Which one of the following describes the break-even point? | It is the point where total sales equals total variable plus total fixed costs. |
| 4.) The following information is available for Chap Company. Which amount would you find on Chap’s CVP income statement? | Contribution margin of $250,000. ($350,000 – $100,000) |
| 5.) Gabriel Corporation has fixed costs of $180,000 and variable costs of $8.50 per unit. It has a target income of $268,000. How many units must it sell at $12 per unit to achieve its target net income? | 128,000 units. [($180,000 + $268,000) / ($12 – $8.50)] |
| 6.) Mackey Corporation has fixed costs of $150,000 and variable costs of $9 per unit. If sales price per unit is $12, what is break-even sales in dollars? | $600,000 [$150,000 / ($3 / $12)] |
| 7.) Sales mix is: | a measure of the relative percentage in which a company's products are sold. |
| 8.) Net income will be: | greater if more higher-contribution margin units are sold than lower-contribution margin units. |
| 9.) If the contribution margin per unit is $15 and it takes 3.0 machine hours to produce the unit, the contribution margin per unit of limited resource is: | $5 ($15 / 3.0) |
| 10.) Product X has a cm of $26 & requires 4hr of machine time. Product Y has a cm of $14 & requires 2hr of machine time. Assuming that machine time is limited to 3,000hr, how should it allocate the machine time to maximize its income? | Use 3,000 hours to produce only Y. [($26 / 4) < ($14 / 2)] |
| 11.) When a company has a limited resource, it should apply additional capacity of that resource to providing more units of the product or service that has: | the highest contribution margin per unit of that limited resource |
| 12.) The degree of operating leverage: | All of the above. (can be computed by dividing total contribution margin by net income; provides a measure of the company’s earnings volatility; affects a company’s break-even point). |
| 13.) A high degree of operating leverage: | exposes a company to greater earnings volatility risk. |
| 14.) Stevens Company has a degree of operating leverage of 3.5 at a sales level of $1,200,000 and net income of $200,000. If Stevens' sales fall by 10%, Stevens can be expected to experience a: | decrease in net income of $70,000. ($200,000 x 3.5 x 10%) |
| 15.) Fixed manufacturing overhead costs are recognized as: | product costs under absorption costs. |
| 16.) Net income computed under absorption costing will be: | higher than net income under variable costing when units produced are greater than units sold. |
| 17.) Contribution margin ratio is contribution margin divided by sales. | True |
| 18.) Margin of safety measures how far sales can drop before a company will be operating at a loss. | True |
| 19.) Which one of the following describes the break-even point? | It is the point where total sales equals total variable costs plus total fixed costs. |
| 20.) Determining the sales mix with limited resources requires determining the products with the highest contribution margin. | False |
| 21.) If the contribution per unit is $15 and it takes 3.0 machine hours to produce the unit, the contribution margin per unit of limited resource is: | $5 |
| 22.) Cost structure refers to the relative proportion of fixed versus variable costs that a company incurs. | True |
| 23.) Operating leverage refers to the extent to which a company’s net income reacts to a given change in sales. | True |
| 24.) Assume absorption costing net income is $50,000, ending inventory consists of 1,000 units, the variable overhead rate is $10 per unit, and the fixed overhead rate is $15 per unit. Determine the net income under variable costing. | $35,000 |
| 25.) Which of the following is not an advantage of variable costing? | It makes it difficult to evaluate the impact of fixed costs on a company’s results. |
| 26.) Management may be tempted to overproduce in a given period: | when using absorption costing, in order to increase net income. |
| 1.) Three of the steps in management's decision-making process are (1) review results of decision, (2) determine and evaluate possible courses of action, and (3) make the decision. The steps are prepared in the following order: | (2), (3), (1) |
| 2.) Incremental analysis is the process of identifying the financial data that: | change under alternative courses of action. |
| 3.) In making business decisions, management ordinarily considers: | both financial and nonfinancial information |
| 4.) A company is considering the following alternatives: Which of the following are relevant in choosing between these alternatives? | Fixed costs only. |
| 5.) It costs a company $14 of variable costs and $6 of fixed costs to produce product Z200 that sells for $30. A foreign buyer offers to purchase 3,000 units at $18 each. If the special offer is accepted and produced with unused capacity, net income will: | increase $12,000. (3,000 x $4) |
| 6.) It costs a company $14 of vc & $6 of fc to produce product Z200. Product Z200 sells for $30. A buyer offers to purchase 3,000u @ $18e. The seller will incur special shipping costs of $5pu. If the special offer is accepted & produced, net income will: | decreases $3,000. [$18 – ($14 + $5)] x 3,000 |
| 7.) If Jobart purchases the part, it can use the released productive capacity to generate additional income of $30,000 from producing a different product. When conducting incremental analysis in this make-or-buy decision, the company should: | add $30,000 to other costs in the “Make” column. |
| 8.) In a make-or-buy decision, relevant costs are: | All of the above. ( manufacturing costs that will be saved; the purchase price of the units; the opportunity costs) |
| 9.) If Derek buys Item X, he can use its released productive capacity to produce Item Z. Derek will sell Item Z for $12,000 and incur production costs of $8,000. Derek's incremental analysis should include an opportunity cost of: | $4,000. ($12,000 – $8,000) |
| 10.) The decision rule in a sell-or-process-further decision is: process further as long as the incremental revenue from processing exceeds: | incremental processing costs. |
| 11.) Walton, Inc. makes an unassembled product that it currently sells for $55. Pc are $20. Walton is considering assembling the product & selling it for $68. The cost to assemble the product is estimated at $12. What decision should Walton make? | Process further; net income per unit will be $1 greater. [($68 – $55) – $12] |
| 12.) In a decision to retain or replace equipment, the book value of the old equipment is a (an): | sunk cost. |
| 13.) If an unprofitable segment is eliminated: | fixed expenses allocated to the eliminated segment will have to be absorbed by other segments. |
| 14.) A segment of Hazard Inc. has the following data: If this segment is eliminated, what is the effect for remaining company? Assume that 50% of the fixed expenses will be eliminated & the rest will be allocated to the segments of the remaining company. | $10,000 decrease. (.5 x $100,000) – ($200,000 – $140,000) |
| 15.) Incremental analysis is the process of identifying the financial data that: | change under alternative courses of action. |
| 16.) Relevant costs in accepting an order at a special price include all of the following except: | fixed manufacturing overhead |
| 17.) In a make-or-buy decision, relevant costs are: | all of these (manufacturing costs that will be saved; the purchase price of the units; opportunity costs) |
| 18.) Which of the following would be considered a qualitative factor in a make-or-buy decision? | Cost of lost morale |
| 19.) Incremental costs are the costs that differ between the alternatives being considered. | True |
| 20.) The basic rule in a sell or process further decision is to process further as long as the incremental revenue is: | more than the incremental processing costs |
| 21.) Sunk costs are not relevant in incremental analysis. | True |
| 22.) When a company is deciding to retain or replace equipment, trade-in value of the existing equipment is irrelevant. | False |
| 23.) If a company decides to eliminate an unprofitable segment, its net income will always increase. | False |
| 24.) The key to making the best decision concerning eliminating an unprofitable segment is to focus on relevant costs. | True |
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