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Chapter 5 (1-70) Chapter 7(71-96) Chapter 8 (97-133) Chapter 6 (134-203

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### The difference between total sales in dollars and total variable expenses is called

The contribution margin

### With regard to the CVP graph, which of the following statements is not correct?

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

### 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?

C. Option C (Increase-No Change)

### Which of the following formulas is used to calculate the contribution margin ratio?

(Sales - Variable expenses) Sales

### 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?

Option B (decrease-no change)

### The break-even point in unit sales is found by dividing total fixed expenses by

the contribution margin per unit.

### Break-even analysis assumes that:

the average variable expense per unit is constant

### 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

F (P-V). F divided by (p-v)

### The break-even point in unit sales increases when variable expenses

increase and the selling price remains unchanged

### The margin of safety percentage is computed as

(Total sales - Break-even sales) Total sales

margin of safety

### The degree of operating leverage can be calculated as:

contribution margin divided by net operating income

### 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?

Option C (Higher-Lower)

\$27,500

### A company has provided the following data Sales----3,000 units Sales Price----- \$70 per unit Variable Price -----\$50 per unit Fixed Cost ------\$25,000 If the sales volume decreases by 25%, the variable cost per unit increases by 15%, and all other factors remain the same, net operating income will:

decrease by \$31,875.

\$405,000

\$6 per unit

\$13.30

\$173,600

\$34,500

\$28,800

\$19,500

\$440,000

\$350,000

2,600 units

5,000 units

50,000 units

\$24,000

\$1,875

3.91

25%

\$16,000 increase

\$11,420

\$22,840

\$9,960

15,000 units

\$31,200

### Loren Company's single product has a selling price of \$15 per unit. Last year the company reported total variable expenses of \$180,000, fixed expenses of \$90,000, and a net operating income of \$30,000. A study by the sales manager discloses that a 15% increase in the selling price would reduce unit sales by 10%. If her proposal is adopted, net operating income would

increase by \$28,500

### Data concerning Runnells Corporation's single product appear below: Per Unit Percent of Sales Selling Price \$160 100% Variable Expense 80 50% Contribution Margin 80 50 The company is currently selling 6,000 units per month. Fixed expenses are \$424,000 per month. The marketing manager believes that a \$7,000 increase in the monthly advertising budget would result in a 100 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change?

Increase of \$1,000

### Weinreich Corporation produces and sells a single product. Data concerning that product appear below Per Unit Percent of Sales Selling Price \$180 100% Variable Expense 90 50% Contribution Margin 90 50% The company is currently selling 2,000 units per month. Fixed expenses are \$131,000 per month. The marketing manager believes that an \$18,000 increase in the monthly advertising budget would result in a 170 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change?

Decrease of \$2,700

### Data concerning Lancaster Corporation's single product appear below: Per Unit Percent of Sales Selling Price \$200 100% Variable Expense 60 30% Contribution Margin 140 70 Fixed expenses are \$105,000 per month. The company is currently selling 1,000 units per month. Management is considering using a new component that would increase the unit variable cost by \$44. Since the new component would increase the features of the company's product, the marketing manager predicts that monthly sales would increase by 400 units. What should be the overall effect on the company's monthly net operating income of this change?

Increase of \$5,600

### Ribb Corporation produces and sells a single product. Data concerning that product appear below: Per Unit Percent of Sales Selling Price \$190 100% Variable Expense 57 30% Contribution Margin 133 70% Fixed expenses are \$913,000 per month. The company is currently selling 9,000 units per month. Management is considering using a new component that would increase the unit variable cost by \$6. Since the new component would increase the features of the company's product, the marketing manager predicts that monthly sales would increase by 400 units. What should be the overall effect on the company's monthly net operating income of this change?

Decrease of \$3,200

### Data concerning Moscowitz Corporation's single product appear below Per Unit Percent of Sales Selling Price \$160 100% Variable Expense 96 60% Contribution Margin 64 40% Fixed expenses are \$375,000 per month. The company is currently selling 8,000 units per month. The marketing manager would like to cut the selling price by \$15 and increase the advertising budget by \$23,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 3,100 units. What should be the overall effect on the company's monthly net operating income of this change?

Increase of \$8,900

### Montgomery Corporation produces and sells a single product. Data concerning that product appear below Per Unit Percent of Sales Selling Price \$240 100% Variable Expense 144 60% Contribution Margin 96 40% Fixed expenses are \$239,000 per month. The company is currently selling 3,000 units per month. The marketing manager would like to cut the selling price by \$12 and increase the advertising budget by \$12,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 500 units. What should be the overall effect on the company's monthly net operating income of this change

Decrease of \$6,000

### Data concerning Knipp Corporation's single product appear below: Per Unit Percent of Sales Selling Price \$230 100% Variable Expense 46 20% Contribution Margin 184 80%

Increase of \$9,800

### Mowrer Corporation produces and sells a single product. Data concerning that product appear below Per Unit Percent of Sales Selling Price \$120 100% Variable Expense 48 60% Contribution Margin 72 40% Fixed expenses are \$567,000 per month. The company is currently selling 9,000 units per month. The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of \$11 per unit. In exchange, the sales staff would accept a decrease in their salaries of \$84,000 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 600 units. What should be the overall effect on the company's monthly net operating income of this change?

Increase of \$21,600

120,000 units

43,000 units

37,500 units

\$570,000

4,400 units

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### Personnel administration is an example of (an):

Organization-sustaining activity.

### Which of the following activities would be classified as a batch-level activity?

Setting up equipment

Option D
Product/batch

### A duration driver is:

A measure of the amount of time required to perform an activity.

### A transaction driver is

A simple count of the number of times an activity occurs.

### Which of the following is not a limitation of activity-based costing

More accurate product costs may result in increasing the selling prices of some products.

### An activity-based costing system that is designed for internal decision-making will not conform to generally accepted accounting principles because:

. all of the above are reasons why an activity-based costing system that is designed for internal decision-making will not conform to generally accepted accounting principles

### Designing a new product is an example of (an):

Product-level activity.

### Property taxes are an example of a cost that would be considered to be

Organization-sustaining.

### McCaskey Corporation uses an activity-based costing system with the following three activity cost pools: Activity Cost Pool Total Activity Fabrication..............................40,000 Machine Hours Order Processing.....................500 Orders Other..........................................Not Applicable The Other activity cost pool is used to accumulate costs of idle capacity and organization-sustaining costs. The company has provided the following data concerning its costs: Wages and salaries.............\$420,000 Deprecition.........................\$100,000 Occupancy...........................\$120,000 Total......................................\$640,000 The distribution of resource consumption across activity cost pools is given below The activity rate for the Fabrication activity cost pool is closest to

\$1.65 per machine-hour

\$560 per order

### Zee Corporation has provided the following data concerning its overhead costs for the coming year: The activity rate for the Assembly activity cost pool is closest to A. \$2.70 per labor-hour B. \$4.25 per labor-hour C. \$4.05 per labor-hour D. \$8.10 per labor-hour

\$4.25 per labor-hour

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### Which of the following represents the normal sequence in which the indicated budgets are prepared?

Production, Cash, Income Statement

### Which of the following is not a benefit of budgeting?

It reduces the need for tracking actual cost activity.

### Self-imposed budgets typically are:

subject to review by higher levels of management in order to prevent the budgets from becoming too loose

### Which of the following represents the correct order in which the indicated budget documents for a manufacturing company would be prepared?

Selling and administrative expense budget, cash budget, budgeted income statement, budgeted balance sheet

### National Telephone company has been forced by competition to put much more emphasis on planning and controlling its costs. Accordingly, the company's controller has suggested initiating a formal budgeting process. Which of the following steps will NOT help the company gain maximum acceptance by employees of the proposed budgeting system

Implementing the change quickly.

### A continuous (or perpetual) budget

is a plan that is updated monthly or quarterly, dropping one period and adding another.

### Which of the following statements is not correct?

The cash budget must be prepared prior to the sales budget because managers want to know the expected cash collections on sales made to customers in prior periods before projecting sales for the current period.

### Budgeted production needs are determined by

adding budgeted sales in units to the desired ending inventory in units and deducting the beginning inventory in units from this total.

### The budgeted amount of raw materials to be purchased is determined by.

adding the desired ending inventory of raw materials to the raw materials needed to meet the production schedule and subtracting the beginning inventory of raw materials

### Which of the following is not correct regarding the manufacturing overhead budget?

Total budgeted cash disbursements for manufacturing overhead is equal to the total of budgeted variable and fixed manufacturing overhead

\$119,000

\$103,500

\$254,000

75,000 units

665,720 units

\$6,000 increase

165,000 pounds

A. \$122,752.00

\$31,584.00

\$102,870

\$27.30

\$18.70

\$59,080

\$100,650

\$64,000

\$21,000

\$17,000

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