Question 18
What kind of effect on fixed costs per unit do changes in activity have?
a. Positive
b. Negative
c. Inverse
d. Neutral
Question 19
A division sold 200,000 calculators during 2017:
Sales $2,000,000
Variable costs:
Materials $380,000
Order processing 150,000
Billing labor 110,000
Selling expenses 60,000
Total variable costs 700,000
Fixed costs 1,000,000
How much is the unit contribution margin?
a. $1.00
b. $3.50
c. $6.50
d. $8.50
Question 20
Which of the following is an implausible explanation of why variable costs often behave in a curvilinear fashion?
a. Labor specialization
b. Overtime wages
c. Total variable costs are constant within the relevant range
d. Availability of quantity discounts
Question 21
Which of the following would be the least controllable fixed costs?
a. Property taxes
b. Rent
c. Research and development
d. Management training programs
Question 18
What kind of effect on fixed costs per unit do changes in activity have?
| a. Positive | |
| b. Negative | |
| c. Inverse | |
| d. Neutral |
Question 19
A division sold 200,000 calculators during 2017:
Sales $2,000,000
Variable costs:
Materials $380,000
Order processing 150,000
Billing labor 110,000
Selling expenses 60,000
Total variable costs 700,000
Fixed costs 1,000,000
How much is the unit contribution margin?
| a. $1.00 | |
| b. $3.50 | |
| c. $6.50 | |
| d. $8.50 |
Question 20
Which of the following is an implausible explanation of why variable costs often behave in a curvilinear fashion?
| a. Labor specialization | |
| b. Overtime wages | |
| c. Total variable costs are constant within the relevant range | |
| d. Availability of quantity discounts |
Question 21
Which of the following would be the least controllable fixed costs?
| a. Property taxes | |
| b. Rent | |
| c. Research and development | |
| d. Management training programs |
Related questions
Question 16
Red Rock Company sells a single product that has variable costsof $14 per unit. Fixed costs will remain constant across all levelsof sales shown.
Units Sold | Price per Unit |
80,000 | $35 |
90,000 | $33 |
100,000 | $31 |
110,000 | $29 |
120,000 | $27 |
What price should Red Rock charge to maximize profits?
| A. | $33 | |
| B. | $29 | |
| C. | $31 | |
| D. | $27 | |
| E. | $35 |
2 points
Question 17
Core Manufacturing makes a single product. Budget informationregarding the current period is given below:
| Revenue (100,000 units at $8.00) | $800,000 |
| Direct materials | $170,000 |
| Direct labor | 125,000 |
| Variable manufacturing overhead | 235,000 |
| Fixed manufacturing overhead | 110,000 | 640,000 |
| Net income | $160,000 |
Deer Company approaches Core with a special order for 15,000 unitsat a price of $8.50 per unit. Variable costs will be the same asthe current production and accepting the special order will nothave any impact on the rest of the company's orders. However, Coreis operating at capacity and will incur an additional $55,000 infixed manufacturing overhead if the order is accepted. What is theincremental income (loss) associated with accepting the specialorder?
| A. | $48,000 | |
| B. | ($7,000) | |
| C. | $134,500 | |
| D. | ($23,500) |
2 points
Question 18
Jackson Company is trying to determine the optimal price tocharge for its PUNCH model. Jackson has fixed costs of $50,000 andthe PUNCH has variable costs of $12.00 per unit. Jackson hasdetermined that the following relationships exist between price anddemand:
Price | Demand |
$20 | 6,875 |
$19 | 8,800 |
$18 | 10,000 |
$17 | 11,000 |
What is the contribution margin for a price of $20?
| A. | $12.00 | |
| B. | $8.00 | |
| C. | $10.00 | |
| D. | $6.00 |
Question 21
Wharton Company has the capacity to produce 50,000 units peryear. The company sells each unit for $125. Budgeted information isas follows:
| Revenues | $5,612,000 |
| Direct materials | $1,932,000 |
| Direct labor | 552,000 |
| Manufacturing overhead (fixed) | 276,000 |
| Manufacturing overhead (variable) | 552,000 | 3,312,000 |
| Total | $2,300,000 |
A special order has been received for 5,000 units to be sold for$80 per unit. The company would incur an additional $60,000 intotal fixed costs in order to lease a special machine in order tomake a slight modification to the original product. Should thecompany accept the special order?
| A. | Yes, the revenue will increase substantially. | |
| B. | No, total costs would increase by $303,600. | |
| C. | Yes, profit will increase by $36,400. | |
| D. | No, accepting this order would decrease profits to$2,263,600. |
2 points
Question 22
Billings Company sells one product with a variable cost of $4per unit. The company is unsure what price to charge in order tomaximize profits. The price charged will also affect the demand asshown below.
Units Sold | Price |
20,000 | $9 |
30,000 | $8 |
35,000 | $7 |
50,000 | $6 |
If fixed costs are $100,000 and the chart represents the demand atvarious prices, what price should be charged in order to maximizeprofits?
| A. | $7 | |
| B. | $8 | |
| C. | $9 | |
| D. | $6 |
Question A
Cash BudgetProblem
The Teletron Corporationmanufactures different types of printers for personal computers.The company is planning its cash needs for the first quarter of2006. In the past, Teletron has had to borrow money during thefirst quarter since sales peak during this period of time. It wouldlike to be aware of any potential cash shortages before theyoccur.
The Controller asks you,the Senior Budgeting Accountant, to prepare a Cashbudget for January, February, and March 2006 for the entirecompany. Today is December 1, 2005 and you have just met with otheremployees from the Purchasing, Production, Marketing, and Financedepartments. From this meeting you compiled the following table ofinformation (all based on estimates).
2005 | 2005 | 2006 | 2006 | 2006 | |
Nov | Dec | Jan | Feb | Mar | |
Raw MaterialsPurchases | $ 20,000 | $ 25,000 | $ 25,000 | $ 20,000 | $ 25,000 |
Direct Labor Hours | 1,600 hrs | 1,760 hrs | 1,760 hrs | 2,240 hrs | 1,760 hrs |
Factory OverheadCosts | $ 4,000 | $ 4,000 | $ 4,000 | $ 4,000 | $ 4,000 |
Selling & AdministrativeExpenses | $ 10,000 | $ 12,000 | $ 12,000 | $ 10,000 | $ 12,000 |
Sales to customers | $ 100,000 | $ 110,000 | $ 120,000 | $ 110,000 | $ 100,000 |
Monthly sales to clientsare expected to be collected as follows: 60% in the first monthfollowing the sale; 30% in the second month following the sale; and10% in the third month following the sale. Note that October 2005sales to customers totaled $ 90,000.
Raw Material Purchasesare expected to be paid as follows: 50% in the month of thepurchase; 50% in the following month.
The production workersmake $ 25 per hour. There is no overtime and all wages are paid inthe month they are incurred.
Factory Overhead Costs arepaid in the month following the month they are incurred.
Selling &Administrative Expenses are paid in the month in the month they areincurred.
Teletron plans onborrowing $ 100,000 from its bank and will receive the money onJanuary 1, 2006. The loan is due to be paid back in 2008 in a lumpsum payment. The yearly interest rate will be 12% and interest willbe paid each month (assume the same interest expense each monthregardless of the number of days in each month).
Teletron plans on makingtwo $ 75,000 federal income tax payments during 2006 %u2013 one inJanuary 2006 and the other one in June 2006.
Teletron plans on paying$ 200,000 cash for the purchase of new production machinery inFebruary 2006.
Teletron plans on issuing(selling) 30,000 new shares of common stock in March 2006. Thesales price is expected to be $ 25 per share.
Teletron expects its cashbalance on December 31, 2005 to be $ 45,000.
(continued onback)
Requirements:
1. Prepare a cash budget for Teletron for each month of the firstquarter 2006 (i.e. January, February, and March 2006).
2. Comment on whether the ending cash balances each month areadequate for Teletron%u2019s cash needs and what Teletron might doin a month where the estimated cash balance isnegative.
QuestionB
Cost-Volume-ProfitAnalysis Problem
The Salazar Corporation manufactures only oneproduct %u2013 a medium-size, high-quality paper shredder calledthe MS-100. In an effort to better understand cost behavior,Salazar%u2019s accounting department has identified its costs aseither variable or fixed.
Salazar%u2019s Management wants to performCost-Volume-Profit (CVP) analysis to evaluate three differentscenarios it is considering for the year 2012. Under the currentproduction process (Scenario 1), variable costs are $ 90 per unitand fixed costs are $ 420,000 per year. The sales price for theMS-100 is $150 per unit and the number of units to be sold in 2012is 20,000 units.
Scenarios
- Leave the current production process as it is- make no changes.
- Purchase machinery that will decreasevariable costs by $ 30 per unit will but increase yearly fixedcosts by $ 390,000
- Purchase machinery that will decreasevariable costs by $ 15 per unit but will increase yearly fixedcosts by $ 255,000.
Requirements:
a) Calculate thecontribution margin per unit and the contribution margin ratio foreach of the three scenarios. Show your calculations.
b) Calculate the breakevenpoint in units and dollars - only for ScenarioI, the current production process. Show yourcalculations.
c) Prepare a contributionmargin income statement for each of the threescenarios.
d) Which of the three scenariosprovides the highest net income for the Salazar Company?
Salazar%u2019s management subsequently makes adecision that the company must make
$ 918,000 of after-tax net income in 2012,otherwise certain investors might decide to sell their ownershipinterest.
e) Calculate the salesthat Salazar must make in order to produce an after-tax net incomeof $ 918,000 (both in total sales dollars and in total salesunits). This calculation should be based on thescenario in d) that provides that highest net income.Salazar%u2019s income tax rate is 20%. Show your calculations.
f) Prepare aforecasted contribution margin income statement that shows theresults for the sales level computed in part e) above.
