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BUS-2003 Study Guide - Midterm Guide: Gross Margin, Contribution Margin, Fixed Cost


Department
BUSINESS AND ADMINISTRATION
Course Code
BUS-2003
Professor
Debbie Mortimer
Study Guide
Midterm

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DEPARTMENT OF BUSINESS AND ADMINISTRATION
BUS2003
Test 3
November 1, 2010
Name:____________________________________________________
Student Number: __________________________________________
Instructions: Please answer the following questions on the examination test sheets. If you need
more room, please use the back of the pages. Show your calculations in detail.
Grading:
Q1
/9
Q2
/14
Q3
/ 13
Q4
/ 19
Total
/55

Only pages 1-3 are available for preview. Some parts have been intentionally blurred.

Question One: (9 marks; 1 mark each)
Use the following to answer parts a-c:
Maxwell Company has a total expense per unit of $2.00 per unit at the 16,000-unit level of activity, and
total expense per unit of $1.95 at the 21,000-unit level of activity.
a) What is the best estimate of the variable cost per unit for Maxwell Company?
A) $0.56.
B) $1.79.
C) $1.95.
D) $2.00.
Ans: B
b) What is the best estimate of the total fixed cost per period for Maxwell Company?
A) $ 3,360.
B) $29,190.
C) $32,000
D) $40,950.
Ans: A
c) What is the best estimate of the total expected costs at the 19,000 level of activity for Maxwell
Company?
A) $37,050.
B) $37,370.
C) $38,000.
D) $39,830.
Ans: B

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Use the following information to answer parts d-f:
Porter Company has provided the following data for the second quarter of the most recent year:
Sales $300,000
Fixed Manufacturing Overhead $ 55,000
Direct Labour $ 72,500
Fixed Selling Expenses $ 46,250
Variable Manufacturing Overhead $ 41,000
Variable Administrative Expenses $ 48,000
Direct Materials $ 51,500
Fixed Administrative Expenses $ 44,500
Variable Selling Expenses $ 49,750
Assume that direct labour is a variable cost and that there were no beginning or ending inventories.
d) What was the total contribution margin of Porter Company for the second quarter?
A) $ 37,250.
B) $ 87,000.
C) $176,000.
D) $211,000.
Ans: A
e) What was the gross margin for Porter Company for the second quarter?
A) $(12,500).
B) $ 80,000.
C) $ 131,500.
D) $ 135,000.
Ans: B
f) Average maintenance costs are $1.50 per machine hour at an activity level of 8,000 machine
hours and $1.20 per machine hour at an activity level of 13,000 machine hours. Assuming that
this activity is within the relevant range, total expected maintenance cost for a budgeted activity
level of 10,000 machine hours would be closest to which of the following?
A) $11,433.
B) $13,440.
C) $15,000.
D) $16,128.
Ans: B
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