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1) Pacific Auto manufactures batteries for cars. The company has the capacity to produce 35,000 batteries per year,

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1) Pacific Auto manufactures batteries for cars. The company has the capacity to produce 35,000 batteries per year, and is currently producing and selling 25,000 batteries per year. The following information relates to current production:

 

Sale price per unit

$175

Variable costs per unit:

 

    Manufacturing

60

    Marketing and administrative

20

Total fixed costs:

 

    Manufacturing

$700,000

    Marketing and administrative

$300,000

 

If a special sales order is accepted for 5,500 batteries at a price of $150 per unit, and fixed costs remain unchanged, what is the change in operating income? (Assume the special sales order will require variable manufacturing costs and variable marketing and administrative costs.)

A) Operating income decreases by $825,000.

B) Operating income increases by $825,000.

C) Operating income decreases by $385,000.

D) Operating income increases by $385,000.

 

2) Talk Made EZ Company makes special equipment used in cell phones. Each unit sells for $400. Talk Made  EZ uses just-in-time inventory procedures; it produces and sells 12,500 units per year. It has provided the following income statement data:

 

Traditional Costing Contribution Margin

Revenue $5,000,000 Revenue $5,000,000

Cost of goods sold 3,000,000 Variable Expenses

Gross Profit 2,000,000 Manufacturing 1,000,000

Selling & admin expenses 650,000 Selling & admin 400,000

Contribution Margin 3,600,000

Fixed Expenses

Manufacturing 2,000,000

Selling & admin 250,000

Operating income $1,350,000 Operating income $1,350,000

 

A foreign company has offered to buy 100 units for a reduced price of $250 per unit. The marketing manager says the sale will not negatively impact the company's regular sales. The sales manager says that this sale will not require any incremental selling & administrative costs, as it is a one-time deal. The production manager reports that there is plenty of excess capacity to accommodate the deal without requiring any additional fixed costs. If Talk Made EZ accepts the deal, how will this impact operating income?

A) up $17,000

B) down $8,000

C) up $25,000

D) down $800

 

3) Benjamin Sports Inc. has two product lines—softball helmets and football helmets. Income statement data for the most recent year follow:

 

 

Total

Softball Helmets

Football Helmets

Sales revenue

$850,000

$500,000

$350,000

Variable expenses

(530,000)

(250,000)

(280,000)

Contribution margin

$320,000

$250,000

$70,000

Fixed expenses

(180,000)

(90,000)

(90,000)

Operating income (loss)

$140,000

$160,000

$(20,000)

 

Assuming fixed costs remain unchanged, and that there would be no adverse effect on other sales. What will be the effect of dropping Football Helmets line on the operating income of the company?

A) Operating income will increase by $20,000.

B) Operating income will increase by $90,000.

C) Operating income will decrease by $70,000.

D) Operating income will decrease by $350,000.

Note: Supporting computations are required for this problem. Failure to do so will result in loss of points.

 

 

4) Sadie Kitchenware Co. manufactures two products: toaster ovens and bread machines. The following data are available:

 

 

Toaster Ovens

Bread Machines

Sale price

$80

$150

Variable costs

$40

$70

 

Sadie Kitchenware Co. can manufacture six toaster ovens per machine hour and four bread machines per machine hour. Sadie Kitchenware Co.’s production capacity is 1,800 machine hours per month, and Sadie Kitchenware Co. can sell as many units of either type as it can produce. What product and how many units should the company produce in a month to maximize profits?

A) 7,200 bread machines

B) 5,400 toaster ovens and 3,600 bread machines

C) 7,200 toaster ovens and 2,400 bread machines

D) 10,800 toaster ovens

Note: Supporting computations are required for this problem. Failure to do so will result in loss of points.

 

 

5) Rajiv Motors fabricates inexpensive automobiles for sale to 3rd world countries. Each auto includes one wiring harness, which is currently made in-house. Details of the harness fabrication are as follows:

 

Volume

1,200.00

units per month

Variable cost per unit

$12.50

per unit

Fixed costs

$20,000.00

per month

 

A factory in Bangladesh has offered to supply Rajiv Motors with ready-made units for a price of $15 each. Assume that Rajiv Motors fixed costs are unavoidable, and that Rajiv will not be able to use the excess capacity in any profitable manner. What will be the impact on Rajiv’s monthly operating income, if Rajiv decides to outsource?

A) It will go up by $3,000.

B) It will go down by $20,000.

C) It will go up by $20,000.

D) It will go down by $3,000.

 

6) Cluck Cluck Co. produces 1,000 packs of chicken feed per month. Sales price is $4 per pack. Variable cost is $1.50 per unit, and fixed costs are $1,800 per month. Management is considering adding a vitamin supplement to improve the value of the product. The variable cost will go up from $1.50 to $1.90 per unit, and fixed costs will go up by 20%. Cluck Cluck will price the new product at $5 per pack. How will this affect operating income?

A) Operating income will go down by $150 per month.

B) Operating income will remain unchanged.

C) Operating income will go down by $400 per month.

D) Operating income will go up by $240 per month.

 

7)  Which of the following statements is correct regarding the activity-based costing system?

A) It uses separate indirect cost allocation rates for each activity.

B) It is not as accurate or precise as traditional costing systems.

C) It accumulates overhead costs by processing departments.

D) It is less complex and, therefore, less costly than traditional systems.

 

8) Morgana Avionics makes three types of radios for small aircraft: Model A, Model B, and Model C. The manufacturing operations are mechanized and there is no direct labor. Manufacturing overhead costs are significant, and Morgana has adopted an activity-based costing system. Direct materials costs per unit for each model are as follows:

 

Model A

$28

Model B

$32

Model C

$40

 

Morgana has three activities: assembly, materials management, and testing. The cost driver for assembly is machine hours. The cost driver for materials management is number of parts, and the cost driver for testing is the number of units of product. Total costs and production volumes for the year 2015 were estimated as follows:

 

 

Total cost

Total units

Cost Driver

Assembly

$780,000

120,000

Machine hours

Materials management

$120,000

80,000

Parts

Testing

$22,500

5,000

Units

 

The Model A radio requires 12 parts to construct, and requires 16 machine hours of processing. What is the manufacturing cost to make one unit of Model A?

A) $150.00

B) $132.00

C) $126.50

D) $154.50

Note: Supporting computations are required for this problem. Failure to do so will result in loss of points.

 

 

9) Norman Audio Services provided the following information regarding its activity-based costing system:

•  Purchasing department costs are allocated based on the number of purchase orders and the cost allocation rate is $75 per purchase order.

•  Assembly department costs are allocated based on the number of parts used and the cost allocation rate is $1.00 per part.

•  Packaging department costs are allocated based on the number of units produced and the allocation rate is $2.00 per unit produced.

 

Each stereo produced has 50 parts, and the direct materials cost per unit is $70. There are no direct labor costs. Quality Stereo has an order for 1,000 stereos which will require 50 purchase orders in all. What is the total cost of the 1,000 stereos?

A) $125,750

B) $55,750

C) $123,750

D) $122,000

 

10) Trang Company had the following activities, allocated costs, and allocation bases:

 

Activities

Allocated Costs

Allocation Base

Account inquiry (hours)

$60,000

2,000 hours

Account billing (lines)

$30,000

20,000 lines

Account verification (accounts)

$15,000

20,000 accounts

Correspondence (letters)

$10,000

1,000 letters

 

The above activities are carried out at two of their regional offices.

 

 

Northeast Office

Midwest Office

Account inquiry (hours)

100 hours

200 hours

Account billing (lines)

10,000 lines

7,000 lines

Account verification (accounts)

1,000 accounts

600 accounts

Correspondence (letters)

50 letters

100 letters

 

What is the cost per line to Trang for the account billing activity?

A) $1.50

B) $30.00

C) $1.60

D) $1.43

 

11) Praneel Auto Spares Inc, a manufacturer of spare parts, has two production departments: Assembling and Packaging. The Assembling department is machine oriented, while the Packaging department is labor oriented. Estimated manufacturing overhead costs for the year 2015 were $15,000,000 for Assembling and $10,000,000 for Packaging. Calculate departmental wide allocation rates if total estimated machine hours were 30,000 and labor hours were 20,000 for the year.

A) $250, $300

B) $500, $500

C) $300, $300

D) $450, $540

 

12) What do Increased number of repeat customers and increased rate of on-time deliveries signify?:

A) product quality.

B) market share.

C) customer satisfaction.

D) skills and knowledge of the employees.

 

13) Zarena was reviewing the water bill for her dog day care and spa and determined that her highest bill, $3,800, occurred in May when she washed 400 dogs and her lowest bill, $2,400, occurred in November when she washed 200 dogs. What was the variable cost per dog associated with Zarena’s water bill?

A) $6.00

B) $12.00

C) $9.50

D) $7.00

 

14) Phan Company sold 2,000 units in December at a price of $35 per unit. The variable cost is $20 per unit. The monthly fixed costs are $10,000. What is the operating income earned in December?

A) $30,000

B) $70,000

C) $20,000

D) $40,000

 

15) Vatsala sells hand-knit scarves at the flea market. Each scarf sells for $25.Vatsala pays $30 to rent a vending space for one day. The variable costs are $15 per scarf. What total revenue amount does she need to earn to break even?

A) $85

B) $75

C) $50

D) $100

 

16) Brielle Company sells glass vases at a wholesale price of $2.50 per unit. The variable cost of manufacture is $1.75 per unit. The monthly fixed costs are $7,500. Brielle’s current sales are 25,000 units per month. If Brielle wants to increase operating income by 20%, how many additional units, must Brielle sell? (Round your intermediate calculations to two decimal places)

A) 145,000 glass vases

B) 7,500 glass vases

C) 13,500 glass vases

D) 3,000 glass vases

Note: Supporting computations are required for this problem. Failure to do so will result in loss of points.

 

 

17) Out of this World Foods produces a gourmet condiment which sells for $16 per unit. Variable costs are $6 per unit, and fixed costs are $5,000 per month. If Out of this World expects to sell 1,500 units, compute the margin of safety in units.

A) 500 units

B) 1,000 units

C) 1,500 units

D) 8,000 units

 

18) Venkat Company has provided the following information regarding the two products that it sells:

 

 

Jet Boats

Ski Boats

Sales price per unit

$8,000

$20,000

Variable cost per unit

$4,800

$14,000

 

Annual fixed costs are $280,000.

 

How many units must be sold in order for Venkat to breakeven, assuming that Venkat sells five jet boats for every two ski boats sold?

A) 70 jet boats and 28 ski boats

B) 50 jet boats and 20 ski boats

C) 20 jet boats and 50 ski boats

D) 45 jet boats and 28 ski boats

Note: Supporting computations are required for this problem. Failure to do so will result in loss of points.

 

 

19)  White Marsh Company has prepared the following sales budget:

 

Month

Budgeted Sales

March

$200,000

April

180,000

May

220,000

June

260,000

 

Cost of goods sold is budgeted at 60% of sales and the inventory at the end of February was $36,000. Desired inventory levels at the end of each month are 20% of the next month's cost of goods sold. What is the desired beginning inventory on June 1?

A) $52,000

B) $26,400

C) $43,200

D) $31,200

Note: Supporting computations are required for this problem. Failure to do so will result in loss of points.

 

 

20)  EZ Financing Inc. has prepared the operating budget for the first quarter of 2015. They forecast sales of $50,000 in January, $60,000 in February, and $70,000 in March. Variable and fixed expenses are as follows:

 

Variable: Power cost (40% of Sales)

Miscellaneous expenses: (5% of Sales)

Fixed: Salary expense: $8,000 per month

Rent expense: $5,000 per month

Depreciation expense: $1,200 per month

Power cost/fixed portion: $800 per month

Miscellaneous expenses/fixed portion: $1,000 per month

 

Calculate total selling and administrative expenses for the month of January.

A) $38,500

B) $47,500

C) $41,700

D) $43,000

Note: Supporting computations are required for this problem. Failure to do so will result in loss of points.

 

 

21)  Mumbai Inc. has prepared the following purchases budget:

 

Month

Budgeted Purchases

June

$67,000

July

72,500

August

76,300

September

73,700

October

69,200

 

All purchases are paid for as follows: 10% in the month of purchase, 50% in the following month, and 40% two months after purchase. Calculate total cash payments made in October for purchases.

A) $72,630

B) $70,680

C) $70,520

D) $74,290

Note: Supporting computations are required for this problem. Failure to do so will result in loss of points.

 

22 Mumbai Inc. has prepared the following purchases budget:

 

Month

Budgeted Purchases

June

$67,000

July

72,500

August

76,300

September

73,700

October

69,200

 

All purchases are paid for as follows: 10% in the month of purchase, 50% in the following month, and 40% two months after purchase. Calculate balance of Accounts payable at the end of October.

A) $77,680

B) $91,760

C) $69,330

D) $74,290

Note: Supporting computations are required for this problem. Failure to do so will result in loss of points.

 

 

23)   Jackson Corp. has provided a part of its budget for the 2nd quarter:

 

 

Apr

May

June

Cash collections

$40,000

$45,000

$52,000

Cash payments:

 

 

 

Purchases of inventory

4,500

7,200

4,500

Operating expenses

7,900

5,600

9,000

Capital expenditures

0

20,000

4,600

 

The cash balance on April 1 is $12,000. Assume that there will be no financing transactions or costs during the quarter. Calculate the cash balance at the end of April.

A) $50,000

B) $40,200

C) $39,600

D) $51,800

 

 

24) Baltimore Enterprises has budgeted sales for the months of September and October at $300,000 and $280,000, respectively. Monthly sales are 80% credit and 20% cash. Of the credit sales, 50% are collected in the month of sale and 50% are collected in the following month. Calculate cash collections for the month of October.

A) $168,000

B) $232,000

C) $288,000

D) $290,000

Note: Supporting computations are required for this problem. Failure to do so will result in loss of points.

 

 

25) The budgeted production of Fells Point Inc. is 8,000 units. Each unit requires 40 minutes of direct labor work to complete. The direct labor rate is $100 per hour. Calculate the budgeted cost of direct labor for the month.

A) $533,333.33

B) $500,000.00

C) $566,666.66

D) $633,333.33

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