# Acc6241 Exam 1

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Chapter 1, 5 & 6 from Study Guide

### Which of the following costs would not be included as part of manufacturing overhead? A. Insurance on sales vehicles. B. Depreciation of production equipment. C. Lubricants for production equipment. D. Direct labor overtime premium.

A. Insurance on sales vehicles.

### Electrical costs at one of Vanartsdalen Corporation's factories are listed below: Management believes that electrical cost is a mixed cost that depends on machine-hours. Using the high-low method to estimate the variable and fixed components of this cost, these estimates would be closest to: A. \$14.41 per machine-hour; \$33,832 per month B. \$0.11 per machine-hour; \$33,957 per month C. \$9.35 per machine-hour; \$11,885 per month D. \$11.30 per machine-hour; \$7,229 per month

C. \$9.35 per machine-hour; \$11,885 per month
Variable cost per unit = Change in cost  Change in activity
= \$785  84 machine-hours
= \$9.35 per machine-hour

Fixed cost = Total cost - Variable cost element
= \$34,213 - (\$9.35 per machine-hour  2,388 machine-hours)
= \$34,213 - \$22,328
= \$11,885

### Maintenance costs at a Tierce Corporation factory are listed below: Management believes that maintenance cost is a mixed cost that depends on machine-hours. Using the high-low method to estimate the variable and fixed components of this cost, these estimates would be closest to: A. \$14.54 per machine-hour; \$52,671 per month B. \$9.27 per machine-hour; \$19,076 per month C. \$0.11 per machine-hour; \$52,591 per month D. \$9.27 per machine-hour; \$19,071 per month

B. \$9.27 per machine-hour; \$19,076 per month
Variable cost per unit = Change in cost  Change in activity
= \$649  70 machine-hours
= \$9.27 per machine-hour

Fixed cost = Total cost - Variable cost element
= \$52,986 - (\$9.27 per machine-hour  3,658 machine-hours)
= \$52,986 - \$33,910
= \$19,076

### Gabruk Inc. is a merchandising company. Last month the company's merchandise purchases totaled \$88,000. The company's beginning merchandise inventory was \$15,000 and its ending merchandise inventory was \$13,000. What was the company's cost of goods sold for the month? A. \$88,000 B. \$90,000 C. \$86,000 D. \$116,000

B. \$90,000
Cost of goods sold = Beginning merchandise inventory + purchases - Ending merchandise inventory
= \$15,000 + \$88,000 - \$13,000
= \$90,000

### Dickison Corporation reported the following data for the month of December The prime cost for December was: A. \$109,000 B. \$111,000 C. \$107,000 D. \$66,000

A. \$109,000
Prime cost = Direct materials + Direct labor
= \$71,000 + \$38,000
= \$109,000

### Management of Mcentire Corporation has asked your help as an intern in preparing some key reports for April. Direct materials cost was \$64,000, direct labor cost was \$47,000, and manufacturing overhead was \$75,000. Selling expense was \$15,000 and administrative expense was \$44,000. The conversion cost for April was: A. \$186,000 B. \$100,000 C. \$128,000 D. \$122,000

D. \$122,000
Conversion cost = Direct labor + Manufacturing overhead
= \$47,000 + \$75,000
= \$122,000

### Management of Mcentire Corporation has asked your help as an intern in preparing some key reports for April. Direct materials cost was \$64,000, direct labor cost was \$47,000, and manufacturing overhead was \$75,000. Selling expense was \$15,000 and administrative expense was \$44,000. The prime cost for April was: A. \$59,000 B. \$122,000 C. \$100,000 D. \$111,000

D. \$111,000
Prime cost = Direct materials + Direct labor
= \$64,000 + \$47,000
= \$111,000

### At an activity level of 5,300 machine-hours in a month, Clyburn Corporation's total variable maintenance cost is \$114,268 and its total fixed maintenance cost is \$154,336. What would be the total variable maintenance cost at an activity level of 5,600 machine-hours in a month? Assume that this level of activity is within the relevant range. A. \$163,072 B. \$268,604 C. \$114,268 D. \$120,736

D. \$120,736
Variable maintenance cost per unit = Total variable maintenance cost  Total activity
= \$114,268  5,300 machine-hours
Total variable maintenance cost = Variable maintenance cost per unit  Total activity
= \$21.56 per machine-hours  5,600 machine-hours
= \$120,736

### Chaffee Corporation staffs a helpline to answer questions from customers. The costs of operating the helpline are variable with respect to the number of calls in a month. At a volume of 33,000 calls in a month, the costs of operating the helpline total \$742,500. To the nearest whole dollar, what should be the total cost of operating the helpline costs at a volume of 34,800 calls in a month? (Assume that this call volume is within the relevant range.) A. \$742,500 B. \$783,000 C. \$704,095 D. \$762,750

B. \$783,000
Helpline cost per call = Total helpline costs  Number of calls
= \$742,500  33,000 calls
= \$22.50 cost per call

Total helpline cost = Helpline cost per call  Number of calls
= \$22.50  34,800 calls
= \$783,000

### Emilio Corporation reports that at an activity level of 3,400 units, its total variable cost is \$59,058 and its total fixed cost is \$101,150. What would be the total variable cost at an activity level of 3,500 units? Assume that this level of activity is within the relevant range. A. \$59,058 B. \$160,208 C. \$60,795 D. \$104,125

C. \$60,795

Variable cost per unit = Total variable cost  Total activity
= \$59,058  3,400 units
= \$17.37 per unit

Total variable cost = Variable cost per unit  Total activity
= \$17.37 per unit  3,500 units
= \$60,795

### Glatt Inc., an escrow agent, has provided the following data concerning its office expenses: Management believes that office expense is a mixed cost that depends on the number of escrows completed. Note: Real estate purchases usually involve the services of an escrow agent that holds funds and prepares documents to complete the transaction. Using the high-low method, the estimate of the variable component of office expense per escrow completed is closest to: A. \$101.08 B. \$59.12 C. \$17.11 D. \$17.15

C. \$17.11
Variable cost per unit = Change in cost  Change in activity
= \$1,403  82 escrows
= \$17.11 per escrow

### Electrical costs at one of Reifel Corporation's factories are listed below: Management believes that electrical cost is a mixed cost that depends on machine-hours. Using the high-low method, the estimate of the variable component of electrical cost per machine-hour is closest to: A. \$0.12 B. \$20.38 C. \$7.98 D. \$8.22

D. \$8.22
Variable cost per unit = Change in cost  Change in activity
= \$411  50 machine-hours
= \$8.22 per machine hour

B. \$209,000

D. \$215,000

### Management of Modugno Corporation is considering whether to purchase a new model 370 machine costing \$441,000 or a new model 240 machine costing \$387,000 to replace a machine that was purchased 7 years ago for \$429,000. The old machine was used to make product M25A until it broke down last week. Unfortunately, the old machine cannot be repaired. Management has decided to buy the new model 240 machine. It has less capacity than the new model 370 machine, but its capacity is sufficient to continue making product M25A. Management also considered, but rejected, the alternative of simply dropping product M25A. If that were done, instead of investing \$387,000 in the new machine, the money could be invested in a project that would return a total of \$430,000. In making the decision to invest in the model 240 machine, the opportunity cost was: A. \$430,000 B. \$441,000 C. \$387,000 D. \$429,000

A. \$430,000
The \$430,000 return from alternative investment is an opportunity cost.

### The wages of factory maintenance personnel would usually be considered to be: A. Option A Indirect Labor: No, Manufacturing Overhead: Yes B. Option B Indirect Labor: Yes, Manufacturing Overhead: No C. Option C Indirect Labor: Yes, Manufacturing Overhead: Yes D. Option D Indirect Labor: No, Manufacturing Overhead: No

C. Option C Indirect Labor: Yes, Manufacturing Overhead: Yes

B. Fixed Cost

### Last month, when 10,000 units of a product were manufactured, the cost per unit was \$60. At this level of activity, variable costs are 50% of total unit costs. If 10,500 units are manufactured next month and cost behavior patterns remain unchanged the: A. total variable cost will remain unchanged. B. fixed costs will increase in total. C. variable cost per unit will increase. D. total cost per unit will decrease.

D. total cost per unit will decrease.

### Gambarini Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for \$197.80 per unit. The best estimate of the total monthly fixed cost is: A. \$541,800 B. \$1,192,100 C. \$1,099,200 D. \$1,145,650

A. \$541,800
Variable cost of sales per unit = Change in cost  Change in activity
= (\$567,700 - \$486,600)  (7,000 units - 6,000 units)
= \$81,100  1,000 units
= \$81.10 per unit

### Maintenance costs at a Tierce Corporation factory are listed below: Management believes that maintenance cost is a mixed cost that depends on machine-hours. Using the high-low method to estimate the variable and fixed components of this cost, these estimates would be closest to: A. \$14.54 per machine-hour; \$52,671 per month B. \$9.27 per machine-hour; \$19,076 per month C. \$0.11 per machine-hour; \$52,591 per month D. \$9.27 per machine-hour; \$19,071 per month

B. \$9.27 per machine-hour; \$19,076 per month
Variable cost per unit = Change in cost  Change in activity
= \$649  70 machine-hours
= \$9.27 per machine-hour

Fixed cost = Total cost - Variable cost element
= \$52,986 - (\$9.27 per machine-hour  3,658 machine-hours)
= \$52,986 - \$33,910
= \$19,076

### Babuca Corporation has provided the following production and total cost data for two levels of monthly production volume. The company produces a single product. The best estimate of the total monthly fixed manufacturing cost is: A. \$1,424,400 B. \$1,506,400 C. \$932,400 D. \$1,465,400

C. \$932,400
Direct materials is a variable cost.
Direct labor is usually a variable cost, but it doesn't hurt to check.
Variable cost per unit = Change in cost  Change in activity
= (\$94,500 - \$81,000)  (7,000 units - 6,000 units)
= \$13,500  1,000 units
= \$13.50 per unit

Fixed cost = Total cost - Variable cost element
= \$94,500 - (\$13.50 per unit  7,000 units)
= \$94,500 - 94,500
= \$0

Variable cost per unit = Change in cost  Change in activity
= (\$1,015,000- \$1,003,200)  (7,000 units - 6,000 units)
= \$11,800  1,000 units
= \$11.80 per unit

Fixed cost = Total cost - Variable cost element
= \$1,015,000 - (\$11.80 per unit  7,000 units)
= \$1,015,000 - \$82,600
= \$932,400

Total fixed cost per month = \$0 + \$932,400 = \$932,400

### Inspection costs at one of Krivanek Corporation's factories are listed below: Management believes that inspection cost is a mixed cost that depends on units produced. Using the high-low method, the estimate of the fixed component of inspection cost per month is closest to: A. \$8,743 B. \$8,887 C. \$8,683 D. \$6,869

D. \$6,869
Variable cost per unit = Change in cost  Change in activity
= \$293  93 units
= \$3.15 per unit

Total fixed cost = Total cost - Variable cost element
= \$9,036 - (\$3.15 per unit  688 units)
= \$9,036 - \$2,167
= \$6,869

C. period cost.

### Which one of the following costs should NOT be considered a direct cost of serving a particular customer who orders a customized personal computer by phone directly from the manufacturer? A. the cost of the hard disk drive installed in the computer. B. the cost of shipping the computer to the customer. C. the cost of leasing a machine on a monthly basis that automatically tests hard disk drives before they are installed in computers. D. the cost of packaging the computer for shipment.

C. the cost of leasing a machine on a monthly basis that automatically tests hard disk drives before they are installed in computers.

### 1. The difference between total sales in dollars and total variable expenses is called: A. net operating income. B. net profit. C. the gross margin. D. the contribution margin.

D. the contribution margin.

### 2. With regard to the CVP graph, which of the following statements is not correct? A. The CVP graph assumes that volume is the only factor affecting total cost. B. The CVP graph assumes that selling prices do not change. C. The CVP graph assumes that variable costs go down as volume goes up. D. The CVP graph assumes that fixed expenses are constant in total within the relevant range.

C. The CVP graph assumes that variable costs go down as volume goes up.

### Which of the following formulas is used to calculate the contribution margin ratio? A. (Sales - Fixed expenses) divided by Sales B. (Sales - Cost of goods sold) divided by Sales C. (Sales - Variable expenses) divided by Sales D. (Sales - Total expenses) divided by Sales

C. (Sales - Variable expenses) divided by Sales

### The break-even point in unit sales is found by dividing total fixed expenses by: A. the contribution margin ratio. B. the variable expenses per unit. C. the sales price per unit. D. the contribution margin per unit.

D. the contribution margin per unit.

### Break-even analysis assumes that: A. total costs are constant. B. the average fixed expense per unit is constant. C. the average variable expense per unit is constant. D. variable expenses are nonlinear.

C. the average variable expense per unit is constant.

### The break-even point in unit sales increases when variable expenses: A. increase and the selling price remains unchanged. B. decrease and the selling price remains unchanged. C. decrease and the selling price increases. D. remain unchanged and the selling price increases.

A. increase and the selling price remains unchanged.

### The margin of safety percentage is computed as: A. Break-even sales divided by Total sales. B. Total sales - Break-even sales. C. (Total sales - Break-even sales) divided by Break-even sales. D. (Total sales - Break-even sales) divided by Total sales.

D. (Total sales - Break-even sales) divided by Total sales.

### The amount by which a company's sales can decline before losses are incurred is called the: A. contribution margin. B. degree of operating leverage. C. margin of safety. D. contribution margin ratio.

C. margin of safety.

### 9. The degree of operating leverage can be calculated as: A. contribution margin divided by sales. B. gross margin divided by net operating income. C. net operating income divided by sales. D. contribution margin divided by net operating income.

D. contribution margin divided by net operating income.

### East Company manufactures and sells a single product with a positive contribution margin. If the selling price and the variable expense per unit both increase 5% and fixed expenses do not change, what is the effect on the contribution margin per unit and the contribution margin ratio? A. Option A: Contribution Margin Per Unit: No Change, Contribution margin ratio: No change B. Option B: Contribution Margin Per Unit: Increase, Contribution margin ratio: Increase C. Option C: Contribution Margin Per Unit: Increase, Contribution margin ratio: No change D. Option D: Contribution Margin Per Unit: Increase, Contribution margin ratio: Decrease

Option C: Contribution Margin Per Unit: Increase, Contribution margin ratio: No change

### Brasher Company manufactures and sells a single product that has a positive contribution margin. If the selling price and variable expenses both decrease by 5% and fixed expenses do not change, then what would be the effect on the contribution margin per unit and the contribution margin ratio? A. Option A: Contribution Margin Per Unit: Decrease, Contribution margin ratio: Decrease B. Option B: Contribution Margin Per Unit: Decrease, Contribution margin ratio: No Change C. Option C: Contribution Margin Per Unit: No change, Contribution margin ratio: Decrease D. Option D: Contribution Margin Per Unit: No change, Contribution margin ratio: no change

B. Option B: Contribution Margin Per Unit: Increase, Contribution margin ratio: Increase

### If Q equals the level of output, P is the selling price per unit, V is the variable expense per unit, and F is the fixed expense, then the break-even point in units is: A. Q divided by (P-V). B. F divided by (P-V). C. V divided by (P-V). D. F divided by [Q(P-V)].

B. F divided by (P-V).

### All other things the same, which of the following would be true of the contribution margin and variable expenses of a company with high fixed costs and low variable costs as compared to a company with low fixed costs and high variable costs? A. Option A: Contibution Margin: Higher, Variable Costs: Higher B. Option B: Contibution Margin: Lower, Variable Costs: Higher C. Option C: Contibution Margin: Higher, Variable Costs: Lower D. Option D: Contibution Margin: Lower, Variable Costs: Lower

C. Option C: Contibution Margin: Higher, Variable Costs: Lower

### The following data were supplied by Reader Corporation: Sales: \$600,000 Variable Expenses: \$420,000 Fixed Expenses: \$141,000 The contribution margin is: A. \$420,000 B. \$54,000 C. \$474,000 D. \$180,000

D. \$180,000
Contribution margin = Sales - Variable expenses
= \$600,000 - \$420,000 = \$180,000

### Pedulla Inc, which produces and sells a single product, has provided its contribution format income statement for February. If the company sells 2,900 units, its net operating income should be closest to: A. \$35,581 B. \$44,800 C. \$31,900 D. \$58,000

B. \$44,800
Selling price per unit = \$226,200  2,600 units = \$87 per unit
Variable expense per unit = \$114,400  2,600 units = \$44 per unit

### The contribution margin ratio is 25% for Grain Company and the break-even point in sales is \$200,000. To obtain a target net operating income of \$60,000, sales would have to be: A. \$260,000 B. \$440,000 C. \$280,000 D. \$240,000

B. \$440,000
Dollar sales to break even = Fixed expenses  CM ratio
\$200,000 = Fixed expenses  0.25
Fixed expenses = \$200,000  0.25 = \$50,000

Dollar sales to attain a target profit = (Target profit + Fixed expenses)  CM ratio
= (\$60,000 + \$50,000)  0.25 = \$440,000

C. \$115,480

### Pool Company's variable expenses are 36% of sales. Pool is contemplating an advertising campaign that will cost \$20,000. If sales increase by \$80,000, the company's net operating income should increase by: A. \$28,800 B. \$64,000 C. \$8,800 D. \$31,200

D. \$31,200
CM ratio = 1 - Variable expense ratio
= 1 - 0.36
= 0.64
Increase in net operating income = CM ratio x Increase in sales - Increase in fixed expenses
= (0.64 x \$80,000) - \$20,000= \$51,200 - \$20,000 = \$31,200

### Data concerning Homme Corporation's single product appear below: The company is currently selling 2,000 units per month. Fixed expenses are \$130,000 per month. This question is to be considered independently of all other questions relating to Homme Corporation. Refer to the original data when answering this question. The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of \$14 per unit. In exchange, the sales staff would accept a decrease in their salaries of \$24,000 per month. (This is the company's savings for the entire sales staff.) The marketing manager predicts that introducing this sales incentive would increase monthly sales by 100 units. What should be the overall effect on the company's monthly net operating income of this change? A. decrease of \$45,800 B. increase of \$154,200 C. increase of \$22,600 D. increase of \$2,200

D. increase of \$2,200

### 20. The Herald Company manufactures and sells a single product which sells for \$50 per unit and has a contribution margin ratio of 30%. The company's monthly fixed expenses are \$25,000. If Herald desires a monthly target net operating income equal to 20% of sales dollars, sales in units will have to be (rounded): A. 2,500 units B. 5,000 units C. 1,666 units D. 1,000 units

B. 5,000 units
Selling price = \$50 per unit
CM ratio = 0.30
Fixed expenses = \$25,000
Target profit = 0.20 x Dollar sales
Dollar sales to attain a target profit = (Target profit + Fixed expenses) divided by CM ratio
Dollar sales = [(0.20 x Dollar sales) + \$25,000] divided by 0.30
0.30 x Dollar sales = (0.20  Dollar sales) + \$25,000
0.10 x Dollar sales = \$25,000
Dollar sales = \$25,000 divided by 0.10 = \$250,000
Unit sales equals Dollar sales divided by Selling price equals \$250,000 divided by \$50 per unit equals 5,000 units

### Scheidel Enterprises, Inc. produces and sells a single product whose selling price is \$190.00 per unit and whose variable expense is \$81.70 per unit. The company's monthly fixed expense is \$682,290. Assume the company's monthly target profit is \$21,000. The unit sales to attain that target profit are closest to: A. 8,608 units B. 6,494 units C. 6,268 units D. 3,702 units

B. 6,494 units

Unit CM = Selling price per unit - Variable expenses per unit
= \$190.00 per unit - \$81.70 per unit = \$108.30 per unit

Unit sales to attain a target profit = (Target profit + Fixed expenses) divided by Unit CM
= (\$682,290 + \$21,000) divided by\$108.30 per unit
= \$703,290 divided by \$108.30 per unit = 6,494 units

### Smith Company sells a single product at a selling price of \$30 per unit. Variable expenses are \$12 per unit and fixed expenses are \$41,400. Smith's break-even point is: A. 1,380 units B. 2,300 units C. 3,450 units D. 6,900 units

B. 2,300 units

Unit CM = Selling price per unit - Variable expenses per unit
= \$30 per unit - \$12 per unit = \$18 per unit
Unit sales to break even = Fixed expenses  Unit CM
= \$41,400 divided by \$18 per unit
2,300 units

### Smotherman Corporation produces and sells a single product. Data concerning that product appear below: Selling price per unit: \$140.00 Vairable expense per unit: \$44.80 Fixed expense per month: \$164,696 The break-even in monthly dollar sales is closest to: A. \$307,160 B. \$164,640 C. \$514,640 D. \$242,200

D. \$242,200
Unit CM = Selling price per unit - Variable expenses per unit
= \$140.00 per unit - \$44.80 per unit = \$95.20 per unit
CM ratio = Unit CM divided by Unit selling price = \$95.20 per unit divided by \$140.00 per unit = 0.68

Dollar sales to break even = Fixed expenses divided byCM ratio
= \$164,696 divided by 0.68 = \$242,200

### A company using lean production methods likely would show approximately the same net operating income under both absorption and variable costing because: A. ending inventory would be valued in the same manner for both methods under lean production. B. production is geared to sales under lean production and thus there would be little or no ending inventory. C. under lean production fixed manufacturing overhead costs are charged to the period incurred rather than to the product produced. D. there is no distinction made under lean production between fixed and variable costs.

B. production is geared to sales under lean production and thus there would be little or no ending inventory.

### All other things equal, if a division's traceable fixed expenses decrease: A. the division's segment margin will increase. B. the overall company net operating income will decrease. C. the division's contribution margin will increase. D. the division's sales volume will increase.

A. the division's segment margin will increase.

D. \$125

D. \$90

### A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

What is the total period cost for the month under variable costing?

A. \$185,000
B. \$117,600
C. \$273,200
D. \$302,600

### Cockriel Inc., which produces a single product, has provided the following data for its most recent month of operations: Number of units produced: 8000 Variable costs per unit: Direct Materials: \$14 Direct Labor \$22 Variable manufacturing overhead: \$1 Variable selling and admin expense: \$6 Fixed Costs: Fixed manufacturing overhead: \$88,000 Fixed selling and admin expense: \$608,000 There were no beginning or ending inventories. The variable costing unit product cost was: A. \$42 B. \$43 C. \$37 D. \$48

C. \$37
Direct materials: \$14
Direct Labor \$22
Variable costing unit product cost: \$37

### The ARB Company has two divisions: Electronics and DVD/Video Sales. Electronics has traceable fixed expenses of \$146,280 and the DBD/Video Sales has traceable fixed expenses of \$81,765. If ARB Company has a total of \$322,490 in fixed expenses, what are its common fixed expenses? A. \$94,445 B. \$322,490 C. \$228,045 D. \$47,223

A. \$94,445
Common fixed expenses = Total fixed expenses - Traceable fixed expenses
= \$322,490 - (\$146,280 + \$81,765) =\$94,445

Example: