Salem State College
ACC202 – Managerial Accounting – Professor McGee
2nd Exam, Take Home
Chapters 7, 8, and 14
Name ______________________________
Please indicate the best/correct answer by circling the appropriate letter.
1. A cost that has both a fixed and variable component is termed a:
a. step-fixed cost
b. step-variable cost
c. semivariable cost
d. discretionary cost
2, 3 & 4. Yang Manufacturing, which uses the high-low method, makes a product called Yin. The company incurs three different cost types (A, B, and C) and has a relevant range of operation between 2,500 units and 10,000 units per month. Per-unit costs at two different activity levels for each cost type are presented below.
Type A Type B Type C Total 5,000 units $4 $9 $4 $17 7,500 units $4 $6 $3 $13
2. Each type of the cost types shown above is identified by behavior as:
Type A Type B Type C a. Fixed Variable Semivariable b. Fixed Semivariable Variable c. Variable Semivariable Fixed d. Variable Fixed Semivariable
3. If Yang produces 10,000 units, the total cost would be:
a. $ 90,000
b. $100,000
c. $110,000
d. $125,000
4. The cost formula that expresses the behavior of Yang’s total costs is:
a. Y=$0 + $17X
b. Y=$20,000 + $13X
c. Y=$40,000 + $9X
d. Y=$60,000 + $5X
5. Which of the following costs changes in direct proportion to a change in the activity level?
a. Variable cost
b. Fixed cost
c. Semivariable cost
d. Step-variable cost
6. The break-even point is that level of activity where:
a. total revenue equals total cost
b. variable cost equals fixed cost
c. total contribution margin equals the sum of variable cost plus fixed cost
d. sales revenue equals total variable cost
7. Which of the following would produce the largest increase in the contribution margin per unit?
a. a 10% increase in selling price
b. a 15% decrease in selling price
c. a 12% increase in variable cost
d. a 17% decrease in fixed cost
8. Wilson sells a single product for $60 that has a variable cost of $40. Fixed costs at the break-even point amount to $5 per unit. If the company sells one unit in excess of its break-even volume, the bottom-line profit will be:
a. $15
b. $20
c. $60
d. an amount that cannot be derived based on the information presented
9. The difference between budgeted sales revenue and break-even sales revenue is the:
a. unit contribution margin
b. contribution margin ratio
c. safety margin
d. target net profit
10. Archie sells a singe product for $50. Variable costs are 60% of the selling price, and the company has fixed expenses that amount to $400,000. Current sales total 16,000 units. Archie’s break-even (in units) is:
a. 8,000 units
b. 13,333 units
c. 20,000 units
d. 1,000,000 units
11 & 12.Edco Company produced and sold 45,000 units of a single product last year, with the following results:
Sales revenue $1,350,000 Manufacturing costs: Variable 585,000 Fixed 270,000 Selling costs: Variable 40,500 Fixed 54,000 Administrative: Variable 184,500 Fixed 108,000
11. If Edco’s sales revenues increase 15%, what will be the percentage increase in income before income taxes?
a. 15%
b. 45%
c. 60%
d. 75%
12. Assuming that all cost relationships remain constant for the upcoming year, how many units must be sold to earn an after-tax profit of $180,000 if the income tax rate is 40%?
a. 45,000
b. 47,500
c. 61,000
d. 70,000
13. When it comes to decision making, a managerial accountant is chiefly responsible for the:
a. collection of data so that a decision can be made.
b. clarification of the decision problem.
c. selection of an alternative.
d. choice of a decision model
14. The Fashion Shack has $40,000 of inventory that suffered minor smoke damage from a fire in the warehouse. The company can sell the goods “as is” for $10,000; alternatively, the goods can be cleaned and shipped to the firm’s outlet center at a cost of $4,000. There the goods could be sold for $19,000. What alternative is more desirable and what are the total relevant costs for that alternative?
a. sell “as is”, $4,000
b. clean and ship to outlet center, $4,000
c. clean and ship to outlet center, $34,000
d. clean and ship to outlet center, $44,000
15. An opportunity cost may be described as:
a. a forgone benefit
b. an historical cost
c. a specialized type of variable cost
d. a specialized type of fixed cost
16. Sound Inc., reported the following results from the sale of 24,000 radios:
Sales $528,000 Variable manufacturing 288,000 Fixed manufacturing costs 120,000 Variable selling costs 52,800 Fixed administrative costs 35,200
Rhythm Company has offered to purchase 3,000 radios at $16 each. Sound has available capacity, and the president is in favor of accepting the order. She feels it would be profitable because no variable selling costs will be incurred. The plant manager is opposed because the “full cost” of production is $17. Which of the following correctly notes the change in income if the special order is accepted?
a. $3,000 decrease
b. $3,000 increase
c. $12,000 decrease
d. $12,000 increase
17. An architecture firm currently offers services that appeal to both individuals and commercial clients. If the firm decides to discontinue services to individuals because of ongoing losses, which of the following costs could likely be avoided?
a. allocated corporate overhead
b. building depreciation
c. insurance
d. variable operating costs
18. A factory that makes a part has significant idle capacity. The factory’s opportunity cost of making this part is equal to:
a. the variable manufacturing cost per unit
b. the fixed manufacturing cost per unit
c. the semivariable cost per unit
d. zero
19. The book value of equipment is an example of a (n):
a. future cost
b. differential cost
c. comparative cost
d. sunk cost
20. The relationship between cost and activity is termed:
a. cost estimation
b. cost prediction
c. cost behavior
d. cost analysis
1. Alfray Company manufactures and sells three products: Algo, Bego, and Cego. Annual fixed costs are $1,210,000 and data about the three products follow.
Algo Bego Cego Sales mix in units 50% 30% 20% ==== ==== ==== Selling price $200 $600 $800 Variable cost 100 280 320
Required:
A. Determine the weighted-average unit contribution margin.
B. Determine the break-even volume in units for each product.
C. Determine the number of units of each product that must be sold to obtain a total profit for the company of $484,000
D. Assume that the sales mix for Algo, Bego, and Cego is changed to 40%, 30%, and 30%, respectively. Will the number of units required to break-even increase or decrease? Explain. Hint: Detailed calculations are not needed to obtain the proper solution.
2. Monroe Company would like to determine the variable rate per direct machine hour in order to estimate the utilities cost for May. Relevant information is as follows:
Month Machine hours worked Utilities cost January 2,400 $2,060 February 2,600 $2,122 March 2,800 $2,241 April 3,000 $2,420
Monroe anticipates producing 1,850 units in May, with each unit requiring 1.5 hours of machine time. The company uses the high-low method to analyze costs.
Required:
A. Calculate the variable and fixed cost components of the utilities cost.
B. Using the data calculated above, estimate the utilities cost for May.
3. David Rhodes builds custom homes in Kansas City. Rhodes was approached not too long ago by a client about the potential project, and he submitted a bid of $295,000, derived as follows:
Land $40,000 Construction materials 50,000 Subcontractor labor costs 90,000 180,000 Construction overhead – 25% of direct costs 45,000 Allocated corporate overhead 25,000 Total cost $250,000
Rhodes adds an 18% profit margin to all jobs, computed on the basis of total cost. In this client’s case the profit margin amounted to $45,000 ($250,000 x 18%), producing a bid price of $295,000. Assume that 70% of construction overhead is fixed.
Required:
A. Suppose that business is presently very slow, and the client countered with an offer on this home of $230,000. Should Rhodes accept the client’s offer? Why?
B. If Rhodes has more business than he can handle, how much should he be willing to accept for the home? Why?