COST- Reviewer - Lecture notes 4 PDF

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Wenna Corporation has the following sales mix for its three products: A, 20%; B, 35%; and C, 45%. Fixed costs total $400,000 and the weighted-average contribution margin is $100. How many units of product A must be sold to break-even? a. cannot be determined based on the information given. b. 20, c....

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1. Wenna Corporation has the following sales mix for its three products: A, 20%; B, 35%; and C, 45%. Fixed costs total $400,000 and the weighted-average contribution margin is $100. How many units of product A must be sold to break-even? a. b. c. d.

cannot be determined based on the information given. 20,000 4.000 800

2. A company manufactures a single product that sells for P30. If the company has fixed costs of P150,000 and a contribution margin of 40%, the break-even point in sales dollars is: a. P275,000 b. P250,000 c. P375,000 d. P525,000

3. Introducing income taxes into cost-volume-profit analysis a. decreases the contribution margin percentage b. raises the break-even point. c. lowers the break-even point. d. increases unit sales needed to earn a particular target profit.

4. The following is last month's contribution format income statement: sales 12,000 units 1,200,000 variable expenses (700,000) contribution margin 500,000 fixed expenses (300,000) net operating income 200,000

What is the company's margin of safety percentage to the nearest whole percent? a. 17% b. 42% c. 40% d. 20%

5. Lamar & Co., makes and sells two types of shoes, Plain and Fancy. Data concerning these products are as follows: a. Plain Fancy

Unit selling price Variable cost per unit

$20.00 $35.00 12.00 24.50

Sixty percent of the unit sales are Plain, and annual fixed expenses are $45,000.

Assuming that the sales mix remains constant, the total number of units that the company must sell to break even is: a. b. c. d.

4737 5000 2647 2432

6. Assuming no change in sales volume, an increase in a firm's per-unit contribution margin would: a. decrease net income. b. have no effect on net income. c. increase net income. d. increase fixed costs.

7. If the sales mix shifts toward higher contribution margin products, the break-even point a. remains constant b. increases c. decreases d. it is impossible to tell without more information

8. The following information pertains to Kathryn Co.: Sales (50,000 units)................................................. $1,000,000 Direct materials and direct labor........................... 300,000 Factory overhead: Variable....................................................... .. 40,000 Fixed.......................................................................... 70,000 Selling and general expenses: Variable..................................................................... 10,000 Fixed.......................................................................... 60,000 How much was Kathryn's break-even point in number of units? a. b. c. d.

35% 59% 66% 65%

9. Peaches Corporation sells a product for $230 per unit. The product's current sales are 13,400 units and its break-even sales are 10,720 units. The margin of safety as a percentage of sales is closest to a. 75% b. 25% c. 80% d. 20%

10. Which of the following would take place if a company were able to reduce its variable cost per unit? a. CM: Increase; BEP: Increase b. CM: Decrease; BEP: Increase c. CM: Increase; BEP: Decrease d. CM: Decrease; BEP: Decrease 11. If current sales are $1,000,000 and break-even sales are $600,000, the margin of safety ratio is: a. 60% b. 100% c. 40% d. 6%

12. Which of the following calculations can be used to measure a company's degree of operating leverage? a. Sales ÷ net income. b. Contribution margin ÷ sales. c. Contribution margin ÷ net income. d. Sales ÷ contribution margin. 13. If the fixed cost attendant to a product increases while the variable cost and sales price remain constant, the contribution margin and break-even point will: a. CM:increase , BEP: increase b. CM: increase; BEP: decrease c. CM: not change; BEP: increase d. CM: not change; BEP: not change 14. A company has fixed costs of P900 and a per-unit contribution margin of P3. Which of the following statements is (are) true? a. Statements "A" and "C" are true. b. Once the break-even point is reached, the company will make money at the rate of P3 per unit. c. Each unit "contributes" P3 toward covering the fixed costs of P900. d. The situation described is not possible and there must be an error.

15. If a company has a degree of operating leverage of 3.0 and sales increase by 25%, then: a. total variable costs will increase by 75% b. total variable costs will not change c. profit will increase by 30% d. profit will increase by 75%

16. Which of the following best describes the impact of an increase in fixed cost? a. The increase in fixed cost will result in an increase in selling more units. b. The increase in fixed cost will cause an increase in variable cost. c. The increase in fixed cost causes net income to decrease and the break-even point to increase. d. The increase in fixed cost causes net income to decrease and the break-even point to decrease.

17. Which of the following would produce the largest increase in the contribution margin per unit? a. A 15% decrease in selling price. b. A 7% increase in selling price. c. A 17% decrease in fixed cost. d. A 14% increase in variable cost.

18. A company that desires to lower its break-even point should strive to: a. increase fixed costs. b. reduce variable costs. c. sell more units. d. decrease selling prices.

19. Kind Hearts Company has sales of 1,000 units at P60 a unit. Variable expenses are 30% of the selling price. If total fixed expenses are P30,000, the degree of operating leverage is: a. 5.0 b. 1.67 c. 3.50 d. 1.50

20. At a sales level of P90,000, Sweet Blend Company's contribution margin is P24,000. If the degree of operating leverage is 6 at a P90,000 sales level, net operating income must equal: a. 11,000 b. 15,000 c. 4,000 d. 20,000

21. Orion recently reported sales revenues of $800,000, a total contribution margin of $300,000, and fixed costs of $180,000. If sales volume amounted to 10,000 units, the company's variable cost per unit must have been: a. $50 b. $32 c. $92 d. $12

22. Assume the following cost information for Fanny Company: Selling price Variable costs Total fixed costs Tax rate

P120 per unit P80 per unit P80,000 40%

What minimum volume of sales dollars is required to earn an aftertax net income of P30,000? a. b. c. d.

P330,000 P165,000 P390,000 P465,000

23. The following information relates to Paloma Company: Sales revenue

$10,000,000

Contribution margin

4,000,000

Net income

1,000,000

If a manager at Paterno desired to determine the percentage impact on net income of a given percentage change in sales, the manager would multiply the percentage increase/decrease in sales revenue by: a. b. c. d.

0.40 2.50 4.0 0.25%

24. All other things being equal, a company that sells multiple products should attempt to structure its sales mix so the greatest portion of the mix is composed of those products with the highest: a. variable cost b. selling price c. fixed cost d. contribution margin

1. All of the following are examples of non-value-added activities except: a. handling b. assembling c. expediting d. reworking

2. At the break-even point, fixed costs are always a. less than the contribution margin. b. equal to the contribution margin. c. more than the contribution margin. d. more than the variable cost. 3. Chandra, Inc., has identified the following selected quality costs: Warranty costs: P72,000 Employee training: P28,000 Repair of units prior to shipment to customers: P14,000 Quality engineering: P61,000 Product inspection during manufacturing: P35,000 Travel to customer sites to perform repairs: P6,200How much is the company's total prevention cost? a. P 35,000 b. P 100,000 c. P 96,000 d. 89,000 4. Charrisse, Inc., has identified the following selected quality costs:Warranty costs: P72,000Employee training: P28,000Repair of units prior to shipment to customers: P14,000Quality engineering: P61,000Product inspection during manufacturing: P35,000Travel to customer sites to perform repairs: P6,200 How much is the company’s total appraisal cost? a. P 100,000 b. P 96,000 c. P 35,000 d. P 89,000 5. Advantages that result from reducing raw materials inventory include all of the following except: a. A decreased possibility of not being able to produce a unit when required b. A need for less storage space c. A reduced risk of obsolescence d. a reduced risk of damaged materials

6. Statement 1: Budgetary slack is an effective motivator for employees because it reduces employee frustration when goals cannot be achieved. Statement 2: Top management can reduce slack by using a bonus system to link performance to the budget. a. Only Statement 2 is true. b. Both statements are true. c. Neither statements are true. d. Only Statement 1 is true. 7. In a decentralized company in which divisions may buy goods from one another, the transfer pricing system should be designed primarily to a. aid in the appraisal and motivation of managerial performance. b. minimize the degree of autonomy of division managers. c. allow division managers to buy from outsiders. d. increase the consolidated value of inventory. 8. The Asian Division of a multinational manufacturing organization would likely be classified as a a. cost center b. revenue center c. investment center d. profit center 9. As a general rule, the best transfer price to use to transfer the costs of a service center to an operating department is a. One that is based on budgeted variable cost b. One that is based on budgeted total cost. c. The price charged by an outside company for the same service. d. The price that encourages goal congruence 10. As the variable cost increases but the selling price remains constant, the a. Degree of operating leverage declines b. Breakeven point goes down c. Margin of safety stays constant d. Contribution margin ratio goes up

11. Baste Co. has two service departments (A and B) and two producing departments (X and Y). Data provided are as follows: Service Depts. Operating Depts. A B X Y ------- ------ ------ -----Direct costs P200 P400 Services performed by Dept. A 20% 40% 40% Services performed by Dept. B. 30% 60% 10% Baste uses the direct method to allocate service department costs. The service department cost allocated to Department X is a. P300 b. P443 c. P320 d. P280 12. Cost accounting is directed toward the needs of a. External users b. Stockholders c. Internal users d. Regulatory agencies 13. Distinguishing a product by adding additional features or value is part of which of the following competitive strategies?

a. b. c. d.

Yes No Yes Yes

i. Differentiation Yes Yes Yes Yes No Yes No No

Cost leadership

Confrontation

14. Wonderful Land and Recreation Company provides the following ABC costing information: Activities Labor hours Gas Invoices Total costs

Total Costs P320,000 P36,000 P40,000 P396,000

Activity-cost drivers 8,000 hours 6,000 gallons 2,500 invoices

The above activities used by their three departments are: Lawn Department Bush Department Plowing Department Labor hours

2,500 hours

1,200 hours

4,300 hours

Gas

1,500 gallons

800 gallons

3,700 gallons

Invoices 1,600 invoices 400 invoices 500 invoices How much of the total costs will be assigned to the Lawn Department? a. P200,000 b. P134,600 c. P100,000 d. P49,200 15. If a company has a degree of operating leverage of 3.0 and sales increase by 25%, then: a. Profit will increase by 75% b. Total variable costs will increase by 75% c. Profit will increase by 30% d. Total variable costs will not change 16. Introducing income taxes into cost-volume-profit analysis a. Lowers the break-even point b. Increases unit sales needed to earn a particular target profit c. Decreases the contribution margin percentage d. Raises the break-even point. 17. Juan makes all sales on account, subject to the following collection pattern: 30% are collected in the month of sale; 60% are collected in the first month after sale; and 10% are collected in the second month after sale. If sales for October, November, and December were P70,000, P80,000, and P60,000, respectively, what were the firm's budgeted collections for December? a. P73,000 b. P74,000. c. P18,000 d. P66,000. 18. Manufacturing cycle efficiency is a measure of a. Effectiveness. b. Bottlenecks. c. Efficiency d. Quality. 19. Mia Division has net income of P240,000 on sales of P3,200,000. If the investment is P1,600,000 what is ROI? a. 7.5% b. 15.0% c. 10.0% d. 2.0%

20. The following information applies to Micro Lab, which supplies microscopes to laboratories throughout the country. Micro Lab purchases the microscopes from a manufacturer which has a reputation for very high quality in its manufacturing operation. Annual demand (weekly demand=1/52 of annual demand) 20,800 units Orders per year 20 Lead time in days 15 days Cost of placing an order P100 What is the reorder point? a. 857 units b. 2,080 units c. 1,560 units d. 1,040 units 21. Chronologically, the last part of the master budget to be prepared would be the a. production budget b. cash budget c. capital budget d. pro-forma financial statements 22. For Raw Material B, a company maintains a safety stock of 5,000 pounds. Its average inventory (taking into account the safety stock) is 8,000 pounds. What is the apparent order quantity? a. 16,000 lbs. b. 21,000 lbs. c. 10,000 lbs. d. B. 6,000 lbs. 23. La Essenza has two divisions: the Cologne Division and the Bottle Division. The Bottle Division produces containers that can be used by the Cologne Division. The Bottle Division's variable manufacturing cost is P2, shipping cost is P0.10, and the external sales price is P3. No shipping costs are incurred on sales to the Cologne Division, and the Cologne Division can purchase similar containers in the external market for P2.60. The Bottle Division has sufficient capacity to meet all external market demands in addition to meeting the demands of the Cologne Division. Using the general rule, the transfer price from the Bottle Division to the Cologne Division would be: a. 2.90. b. 2.60. c. 2.00. d. 2.10.

24. Lorry's Custom Jewelry sells a single product. 700 units were sold resulting in P7,000 of sales revenue, P2,800 of variable costs, and P1,200 of fixed costs.If sales increase by P25,000, operating income will increase by: a. P10,000 b. P15,000 c. P22,200 d. None of these answers are correct. 25. The Glossy Mane Hair Salon uses an activity-based costing system in its beauty salon to determine the cost of services. The salon has determined the costs of services by activity as follows: (Activity - Activity Rate) 1. Hairwashing – P2.50; 2. Conditioning – P3.00; 3. Chemical Treatment – P 25.00; 4. Styling – P 10.00. Determine the cost of services for a hair cut if it includes 1 haiwashing and 1 conditioning? a. 2.00 b. 5.50 c. 10.00 d. 3.00 26. The Shiny Mane Hair Salon uses an activity-based costing system in its beauty salon to determine the cost of services. The salon has determined the costs of services by activity as follows: (Activity - Activity Rate) 1. Hairwashing – P2.50; 2. Conditioning – P3.00; 3. Chemical Treatment – P 25.00; 4. Styling – P 10.00. Determine the cost of services for a hair cut if it includes 1 haiwashing and 1 conditioning?Determine the cost of services for a perm if it includes 2 hairwashing, 3 conditioning; 1 chemical treatment and 1 styling? a. P54.00 b. P49.00 c. P29.00 d. P 5.50 27. What is “balanced” in the balanced scorecard approach? a. The emphasis on financial and non-financial performance measurements b. The number of defects found on each product c. The amount of costs allocated to products d. The number of products produced 28. Which of the following is a primary element of a cost management system? 1. Information; 2. Reporting; 3. Motivation; 4. Evaluation a. 1. Yes; 2. No; 3. No; 4. Yes b. 1. Yes; 2. Yes; 3.yes; 4. No c. 1. Yes; 2. Yes; 3. Yes; 4. Yes d. 1. No; 2. Yes; 3. Yes; 4. No

29. Which of the following is not a primary goal of a cost management system? a. measure performance b. develop organizational strategies c. improve understanding of activities d. use cost drivers to develop product costs 30. Which one of the following characteristics would likely be associated with a just-in-time inventory method? a. Ending inventory of work in process that would allow several production runs b. Minimal finished goods inventory on hand c. An understanding with customers that they may come to the showroom and select from inventory on hand d. A backlog of inventory orders not yet shipped

1. A cash budget is NOT prepared until a company has a. prepared the pro forma balance sheet. b. determined that enough cash is available to meet dividend payments. c. prepared its purchases budget. d. obtained a commitment from its bank that cash will be available as needed.

2. An imposed budget a. is best for planning purposes. b. can lead to poor performance. c. eliminates the need for a sales forecast. d. is the same as a static budget.

3. At the breakeven point, fixed cost is always a. more than the contribution margin. b. less than the contribution margin. c. equal to the contribution margin. d. more than the variable cost.

4. Contribution margin is 30% of sales; profit, P80,000; sales, P600,000. Fixed costs are a. P160,000 b. P90,000 c. P100,000 d. P180,000

5. Dover Inc. has projected sales to be: February, P10,000; March, P9,000; April, P8,000; May, P10,000; and June, P11,000. Dover has 30% cash sales and 70% sales on account. Accounts are collected 40% in the month following the sale and 55% collected the second month. Total cash receipts in May would be a. P8,150 b. P8,705 c. some other number d. P3,000

6. Garmon Company budgeted purchases of P200,000. Cost of sales was P240,000 and the desired ending inventory was P84,000. The beginning inventory was a. P40,000 b. P124,000 c. P64,000 d. P84,000

7. Holcim estimates its supplies purchases to be P21,000 in August and P28,000 in September. Holcim pays 70% of its accounts in the month of purchase with the remainder paid the following month. September payments would be a. P19,600 b. P14,700 c. P25,900 d. P23,100

8. If a company has a degree of operating leverage of 2.0 and sales increase by 25%, then a. Profit will increase by 50%. b. Profit will increase by 20%. c. Total variable costs will increase by 50%. d. Total variable costs will not change.

9. In CVP analysis, when the number of unit changes, which one of the following will remain the same? a. Total sales revenues b. Total variable costs c. Total contribution margin d. Total fixed cost

10. Inventory policy is most critical in the budgeting of a. expenses b. purchases c. sales d. cost of goods sold

11. It is a formal written statement of management’s plans for the future, packaged in financial terms. a. budget b. cost of production report c. responsibility report d. performance report

12. Memoir Company budgeted sales of 18,000 units. The budgeted beginning inventory was 3,000 units and the budgeted ending inventory was 5,000 units. Budgeted production is a. 23,000 units b. 16,000 units c. 20,000 units d. 21,000 units

13. Redwood Company budgeted purchases of 20,000 units. The budgeted beginning inventory was 4,800 units and the budgeted ending inventory was 6,000 units. Budgeted sales were a. 21,200 units b. 26,000 units c. 18,800 units d. 24,800 units

14. Sales is P200,000; fixed costs, P108,000; profit, P12,000. Margin of safety is a. P33,3333 b. Answer not given c. P100,000 d. P20,000

15. Selling price is P100; unit variable cost is P68; and, fixed costs are P400,000. Unit sales to earn a P120,000 profit is a. 13,700 b. 5,200 c. 7,647...