Mendicino Company currently produces and sells
10.Mendicino Company currently produces and sells 37,000 units of product at a selling price of $15. The product has variable costs of $7 per unit and fixed costs of $47,000. The company currently earns a total contribution margin of: $376,000 $282,000 $329,000 $296,000 11. Phoenix Company produces a product that has a selling price of $26.00 and a variable cost of $18.00 per unit. The company’s fixed costs are $64,000. What is the break-even point measured in sales dollars? (Do not round intermediate calculations.) $208,000 $128,000 $144,000 $72,000 12. Zero, Inc. produces a product that has a variable cost of $7.00 per unit. The company’s fixed costs are $45,000. The product sells for $15.00 a unit and the company desires to earn a $21,000 profit. What is the volume of sales in units required to achieve the target profit? (Do not round intermediate calculations.) 6,125 4,175 8,250 5,625 13. Newman Company currently produces and sells 7,000 units of a product that has a contribution margin of $9 per unit. The company sells the product for a sales price of $23 per unit. Fixed costs are $20,000. The company is considering investing in new technology that would decrease the variable cost per unit to $11 per unit and double total fixed costs. The company expects the new technology to increase production and sales to 12,000 units of product. What sales price would have to be charged to earn a $80,000 target profit assuming the investment in technology is made? $16 $21 $11 $23 14. Harris Company produces a product whose cost is $10. Assuming the company uses a cost-plus pricing system, what profit would be earned on a selling price set to earn a profit margin of 30% of cost? $13.00 $3.00 $11.70 $10.00 15. Burke Company has a break-even of $400,000 in total sales. Assuming the company sells its product for $80 per unit, what is its margin of safety in units if sales total $1,000,000? 12,500 units 5,000 units 7,500 units 4,500 units 16. Once sales reach the break-even point, each additional unit sold will: increase fixed cost by a proportionate amount. reduce the margin of safety. increase profit by an amount equal to the per unit contribution margin. increase the company’s operating leverage. 17. Amtek has a selling price of $10 and variable costs of $4. If both the selling price and the variable costs increase by 10%, the break-even point will not change. True False 18. Sensitivity analysis acknowledges that profitability is often affected by multidimensional forces. True False 19. Shed Industries produces two products. The products’ identified costs are as follows: Product A Product B Direct materials $24,000 $19,000 Direct labor 12,000 28,000 The company’s overhead costs of $58,000 are allocated based on direct labor cost. Assume 8,000 units of product A and 9,000 units of Product B are produced. What is the cost per unit for product A? (Do not round your intermediate calculations, round final answer to two decimal places.) $6.68 $11.73 $10.68 None of the above answers are correct. 20. Joint products A and B emerge from common processing that costs $79,000 and yields 4,900 units of Product A and 3,900 units of Product B. Product A can be sold for $100 per unit. Product B can be sold for $190 per unit. What amount of the joint costs will be assigned to Product A if joint costs are allocated on the basis of number of units produced? (Do not round your intermediate calculations.) $35,011 $47,580 $43,989 $31,420 21. A chair manufacturer makes custom chairs using hand tools, wood, glue, and varnish. Which of the following statements is true? The costs of wood and glue would be treated as direct costs. Wood, glue, and varnish would all be direct materials. Wood would be accounted for as a direct cost, and glue and varnish as indirect costs. The concepts of direct and indirect costs are not applicable here. 22. Some costs that possibly could be traced directly to cost objects are nonetheless classified as indirect costs because: Such practice results in a more accurate accumulated cost for the object. Such costs cannot be traced to objects in a cost-effective manner. Generally accepted accounting principles require some costs to be treated as indirect. All of the above answers are correct. 23. At the beginning of 2012, Barr Co. estimated that its total annual fixed overhead costs would amount to $50,000. Further, Barr estimated that its volume of production would be 2,000 units of product. Based on these estimates, Barr computed a predetermined overhead rate that was used to allocate overhead costs to the products made in 2012. As predicted, actual fixed overhead costs did amount to $50,000. However, actual volume of production amounted to only 1,800 units of product. Based on this information alone: Products were costed accurately in 2012. Products were overcosted in 2012. Products were undercosted in 2012. The answer cannot be determined from the information provided. 24. Leather Company makes two types of women’s handbags. Making a standard handbag requires 2 hours of labor while making a deluxe handbag requires 5 hours of labor. During the most recent accounting period the company made 2,000 standard handbags and 500 deluxe handbags. Indirect manufacturing costs amounted to $52,000 and are allocated based on labor hours. Based on this information: $8 of overhead cost should be allocated to each handbag regardless of the type of handbag made. $20.80 of overhead cost should be allocated to each handbag regardless of the type of handbag made. $16 of overhead cost should be assigned to each standard handbag and $40 of overhead cost should be assigned to each deluxe bag. None of the above answers are correct. 25. A factor having a “cause and effect” relationship with a cost object is called: direct cost relevant cost cost driver indirect cost 26.A cost pool should be made up of costs with a common cost driver. True False 27. Barr Company makes steel and titanium handle bars for bicycles. It requires approximately 1 hour of labor to make one handle bar of either type. During the most recent accounting period, Barr Company made 7,100 steel bars and 2,900 titanium bars. Setup costs amounted to $41,000. One batch of each type of bar was run each month. If a single company-wide overhead rate based on direct labor hours is used to allocate overhead costs to the two products, the amount of setup cost assigned to the steel bars will be: $4,100. $11,890. $29,110. $41,000. 28. Brannock Company makes steel and titanium handle bars for bicycles. It requires approximately 1 hour of labor to make one handle bar of either type. During the most recent accounting period, the company made 7,200 steel bars and 2,800 titanium bars. Setup costs amounted to $56,000 for the 40 batches (i.e., 20 of each type) of bars produced during the period. If activity-based costing is used to allocate overhead costs to the two products, the amount of setup cost assigned to the titanium bars will be: $56,000. $40,320. $15,680. $28,000. 29. Mayer Company allocates overhead on the basis of direct labor hours. It allocates overhead costs of $6,400 to two different jobs as follows: Job 1: (10 hours) = $3,200; Job 2: (10 hours) = $3,200 The production process for Job 1 was then automated. Now Job 1 requires only two hours of direct labor but four hours of mechanical processing. As a result, total overhead increases to $8,500. With the change in the production process for Job 1: The amount of overhead assigned to each product will increase. The amount of overhead assigned to Job 2 will increase. The amount of overhead assigned to each product will decrease. The amount of overhead assigned to Job 2 will decrease. 30. For most businesses, quality means: the degree to which products or services conform to design specifications. absolutely no defects. producing the very best. none of the above answers are correct. 31. Which of the following is an example of a prevention cost? Product design Inventory inspection Downtime Repair and rework 32. Which of the following best describes the impact of undercosting? This is a goal of all companies. Undercosting all products allows for larger profit margins. Companies will use target pricing to undercost products. Undercosting some products will lead to overcosting other products, which is acceptable because it all balances. Undercosting some products can lead to overcosting other products which may become overpriced and lose market share. 33. Quick Change and Fast Change are competing oil change businesses. Both companies have 5,000 customers. The price of an oil change at both companies is $20. Quick Change pays its employees on a salary basis, and its salary expense is $40,000. Fast Change pays its employees $8 per customer served. Suppose Quick Change is able to lure 1,000 customers from Fast Change by lowering its price to $18 per vehicle. Thus, Quick Change will have 6,000 customers and Fast Change will have only 4,000 customers. Select the correct statement from the following. Quick Change’s profit will remain the same while Fast Change’s profit will fall. Fast Change’s profit will fall but it will still earn a higher profit than Quick Change. Profits will decline for both Quick Change and Fast Change. Quick Change’s profit will increase, and Fast Change’s profit will decrease. 34. Companies A and B are in the same industry and are identical except for cost structure. At a volume of 50,000 units, the companies have equal net incomes. At 60,000 units, Company B’s net income would be substantially higher than A’s. Based on this information, Company B’s cost structure has more variable costs than A’s. Company A’s cost structure has higher fixed costs than B’s. Company B’s cost structure has higher fixed costs than A’s. At a volume of 50,000 units, Company B’s magnitude of operating leverage was lower than A’s. 35. Operating leverage exists when: small percentage changes in revenue produce large percentage changes in profit. management buys enough of the company’s shares of stock to take control of the corporation. the organization makes purchases on credit instead of paying cash. the organization avoids all fixed costs in its operations. 36. Casters, Inc. normally produces between 120,000 and 150,000 units each year. Producing more than 150,000 units alters the company’s cost structure. For example, fixed costs increase because more space must be rented, and additional supervisors must be hired. The production range between 120,000 and 150,000 is called the: differential range. relevant range. opportunity range. leverage range. 37. Companies with high operating leverage will experience lower profits when sales increase than will companies with lower operating leverage. True False 38. The records of Kennett Company show a contribution margin ratio of 25%. The company desires to earn a profit of $50,000 and has fixed costs of $100,000. What sales revenue would have to be generated in order to earn the desired profit? $600,000 $200,000 $400,000 $155,000
