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MA; T3; STQ

Managerial Accounting; Test 3 (Ch 20-21); Practice

QuestionAnswer
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
Created by: ibenoit95