ACCT 2301 Chapter Notes - Chapter 2: Contribution Margin, Dependent And Independent Variables, Operating Leverage
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If variable costs per unit increased because of an increase in hourly wage rates, the break-even point would:
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1.
Payton Industries has fixed costs of $490,000, the unit sellingprice is $35, and the unit variable costs are $20. What is thebreak-even sales (units) if fixed costs are reduced by $40,000?
a. | 32,667 units | |
b. | 14,000 units | |
c. | 24,500 units | |
d. | 30,000 units |
2.
Rusty Co. sells two products, X and Y. Last year, Rusty sold5,000 units of X and 35,000 units of Y. Related data are:
Unit Selling Price | Unit Variable | Unit Contribution | |
Product | Price | Cost | Margin |
X | $110.00 | $70.00 | $40.00 |
Y | 70.00 | 50.00 | 20.00 |
â
â
What was Rusty Co.âs weighted average unit contributionmargin?
a. | $20.00 | |
b. | $22.50 | |
c. | $60.00 | |
d. | $40.00 |
3.
Charlotte Co. has budgeted salary increases to factorysupervisors totaling 9%. If selling prices and all other costrelationships are held constant, next year's break-even point
a. | cannot be determined from the data given | |
b. | will increase by 9% | |
c. | will decrease by 9% | |
d. | will increase at a rate greater than 9% |
4.
Flying Cloud Co. has the following operating data for itsmanufacturing operations:
Unit selling price | $250 |
Unit variable cost | 100 |
Total fixed costs | $840,000 |
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The company has decided to increase the wages of hourly workerswhich will increase the unit variable cost by 10%. Increases in thesalaries of factory supervisors and property taxes for the factorywill increase fixed costs by 4%. If sales prices are held constant,the next break-even point for Flying Cloud Co. will be
a. | increased by 800 units | |
b. | increased by 640 units | |
c. | increased by 400 units | |
d. | decreased by 640 units |
5.
Given the following cost and activity observations for BountyCompanyâs utilities, use the high-low method to calculate Bountyâvariable utilities costs per machine hour. Round your answer to thenearest cent.
â
â | Cost | Machine Hours |
March | $3,100 | 15,000 |
April | 2,700 | 10,000 |
May | 2,900 | 12,000 |
June | 3,600 | 18,000 |
a. | $10.00 | |
b. | $0.11 | |
c. | $0.63 | |
d. | $0.67 |
6.
Costs that remain constant in total dollar amount as the levelof activity changes are called
a. | variable costs | |
b. | mixed costs | |
c. | product costs | |
d. | fixed costs |
7.
Lee Industry sales are $525,000, variable costs are 53% ofsales, and operating income is $19,000. What is the contributionmargin ratio?
a. | 47% | |
b. | 26.5% | |
c. | 53% | |
d. | 9.5% |
8.
If Kaden Company's fixed costs are $46,800, the unit sellingprice is $42, and the unit variable costs are $24. What is thebreak-even sales (units)?
a. | 1,950 | |
b. | 1,114 | |
c. | 2,400 | |
d. | 2,600 |
9.
Contribution margin is
a. | the same as sales revenue | |
b. | the excess of sales revenue over variable cost | |
c. | another term for volume in the "cost-volume-profit" analysis | |
d. | profit |
1) All of the following are examples of product costs except:
depreciation on the company's administrative offices.
salary of the plant manager.
insurance on the factory equipment.
rental costs of the factory facility.
2) Period costs:
are treated as expenses in the period they are incurred
are directly traceable to products
include direct labor
are also referred to as manufacturing overhead costs
.
3) Axle and Wheel Manufacturing currently produces 1,000 axles per month. The following per unit data apply for sales to regular customers:
Direct materials $30
Direct manufacturing labor 5
Variable manufacturing overhead 10
Fixed manufacturing overhead 40
Total manufacturing costs $85
The plant has capacity for 2,000 axles and is considering expanding production to 1,500 axles. What is the total cost of producing 1,500 axles?
a. $85,000
b. $170,000
c. $107,500
d. $102,500
4) In the preparation of the schedule of Cost of Goods Manufactured, the accountant incorrectly included as part of manufacturing overhead the rental expense on the firm's retail facilities. This inclusion would:
overstate period expenses on the income statement.
overstate the cost of goods sold on the income statement.
understate the cost of goods manufactured.
have no effect on the cost of goods manufactured.
5) In CVP analysis, focusing on target net income rather than operating income:
a. will increase the breakeven point
b. will decrease the breakeven point
c. will not change the breakeven point
d. does not allow calculation of breakeven point
6) A variable cost is constant if expressed on a per unit basis but the total dollar amount changes as the number of units increases or decreases.
a. True
b. False
7) As activity increases within the relevant range, fixed costs remain constant on a per unit basis.
a. True
b. False
8) Which of the following statements is correct with regard to a CVP graph?
A CVP graph shows the maximum possible profit.
A CVP graph shows the break-even point as the intersection of the total sales revenue line and the total expense line.
A CVP graph assumes that total expense varies in direct proportion to unit sales.
A CVP graph shows the operating leverage as the gap between total sales revenue and total expense at the actual level of sales.
9) How would the following costs be classified (product or period) under variable costing at a retail clothing store?
Cost of purchasing clothing | Sales commissions | |
a. | Product | Product |
b. | Product | Period |
c. | Period | Product |
d. | Period | Period |
10) The principal difference between variable costing and absorption costing centers on:
whether variable manufacturing costs should be included as product costs.
whether fixed manufacturing costs should be included as product costs.
whether fixed manufacturing costs and fixed selling and administrative costs should be included as product costs.
none of these.
11) Joe has a hot dog cart that he parks on the NY sidewalk and sells hotdogs during the day. The variable cost of a hot dog is $.90. The selling price of the hot dog is $2.00. The fixed cost is $3,000 per month which covers the loan for the cart and the salary Joe needs to make to live. How many hotdogs must Joe sell in one month in order to break even?
3,300 hot dogs
3,000 hot dogs
2,727.27 hot dogs
2,728 hot dogs
12) Shun Corporation manufactures and sells a hand held calculator. The following information relates to Shun's operations for last year:
Unit product cost under variable costing.......................... | $5.20 per unit | |
Fixed manufacturing overhead cost for the year.............. | $260,000 | |
Fixed selling and administrative cost for the year............ | $180,000 | |
Units (calculators) produced and sold.............................. | 400,000 |
What is Shun's unit product cost under absorption costing for last year?
$4.10
$4.55
$5.85
$6.30.
Use the following information to answer questions 13 to 15:
Barnett Company uses the weighted-average method in its process costing system. The company adds materials at the beginning of the process in Department M. Conversion costs were 75% complete with respect to the 4,000 units in work in process at May 1 and 50% complete with respect to the 6,000 units in work in process at May 31. During May, 14,000 units were started, 12,000 units were completed and transferred to the next department.
13) Calculate the number of equivalent units for materials.
10,000 units
12,000 units
14,000 units
15,000 units
18,000 units
14) Calculate the number of equivalent units for conversion?
10,000 units
12,000 units
14,000 units
15,000 units
18,000 units
15) An analysis of the costs relating to work in process at May 1 and to production activity for May follows:
Materials | Conversion | ||
Work in process 5/1....................... | $13,800 | $3,740 | |
Costs added during May................ | $42,000 | $26,260 |
The total cost per equivalent unit for May was:
$5.02
$5.10
$5.12
$5.25