Deck 12: Pricing and Profitability Analysis

Question 1

Anderson Company manufactures a variety of toys and games. John Boone, president, is disappointed in the sales of a new board game. The game sold only 10,000 units in the current year when 30,000 were projected. Sales for the following year look no better. At $100 per game, it is not a hot seller. Direct costs of the board game are $56 variable cost and $100,000 fixed. John is considering several options. Option One: Cut the price to $70 and perhaps sell 15,000 units. Option Two: Cut the price to $60, reduce material costs by $10, and cut advertising by $60,000. Anticipated volume for this option is 10,000 units. Option Three: Cut the price to $80 and include a $10 mail-in rebate offer. It is anticipated that 15,000 units could be sold and only 30 percent of the rebate coupons would be redeemed. Option Four: Cut the price to $60 per game and possibly sell 20,000 units.

-Refer to the figure.Which option is preferred?

A)Option One
B)Option Two
C)Option Three
D)Option Four

Answer 1

Option Three

Question 2

The following information pertains to three different products being sold by Andy Company: $\begin{array}{ccccc}\text { Product }& \text { Old Price } &\text { New Price } & \text { Old Quantity } & \text { New Quantity }\\\hline\text { A } & \$ 10.00 & \$ 11.00 & 2,000 & 1,900 \\\text { B } & 20.00 & 18.00 & 4,000 & 4,600 \\\text { C } & 30.00 & 33.00 & 6,000 & 5,500 \\\text { D } & \$ 40.00 & \$ 38.00 & 8,000 & 10,000\end{array}$

Which product has an elastic demand curve?

A)Product A
B)Product B
C)Product C
D)Product D

Answer 2

Product D

Question 3

Which of the following markets is characterized by the following: many buyers and sellers,a homogeneous product,easy entry into and exit from the industry,and all firms are price takers?

A)perfectly competitive market
B)monopolistic competition
C)monopoly
D)oligopoly

Answer 3

A

Question 4

What is the definition of markup?

A)The markup is a percentage applied to base cost.
B)The markup is an absolute rule.
C)A major advantage of markup pricing is that standard markups are easy to apply.
D)The markup can be calculated using a variety of bases.

Question 5

Which of the following markets is characterized by the following: many firms in the industry,a somewhat unique product,fairly easy entry into the industry,and spending for differentiation of the product?

A)perfectly competitive market
B)monopolistic competition
C)monopoly
D)oligopoly

Question 6

Which of the following is NOT an example of a market structure?

A)barrier market and oligopoly
B)perfectly competitively and monopoly
C)barrier market and monopoly
D)perfectly competitive and supply

Question 7

Anderson Company manufactures a variety of toys and games. John Boone, president, is disappointed in the sales of a new board game. The game sold only 10,000 units in the current year when 30,000 were projected. Sales for the following year look no better. At $100 per game, it is not a hot seller. Direct costs of the board game are $56 variable cost and $100,000 fixed. John is considering several options. Option One: Cut the price to $70 and perhaps sell 15,000 units. Option Two: Cut the price to $60, reduce material costs by $10, and cut advertising by $60,000. Anticipated volume for this option is 10,000 units. Option Three: Cut the price to $80 and include a $10 mail-in rebate offer. It is anticipated that 15,000 units could be sold and only 30 percent of the rebate coupons would be redeemed. Option Four: Cut the price to $60 per game and possibly sell 20,000 units.

-Refer to the figure.What is the profit or loss from Option Two?

A)$40,000
B)($100,000)
C)$100,000
D)$600,000

Question 8

Which type of expenses does a monopoly usually incur that are different from the other types of market structures?

A)marketing costs such as advertising,positioning,discounting,and coupons
B)costs of differentiation such as advertising,rebates,coupons
C)administrative expenses
D)legal and lobbying expenditures

Question 9

Anderson Company manufactures a variety of toys and games. John Boone, president, is disappointed in the sales of a new board game. The game sold only 10,000 units in the current year when 30,000 were projected. Sales for the following year look no better. At $100 per game, it is not a hot seller. Direct costs of the board game are $56 variable cost and $100,000 fixed. John is considering several options. Option One: Cut the price to $70 and perhaps sell 15,000 units. Option Two: Cut the price to $60, reduce material costs by $10, and cut advertising by $60,000. Anticipated volume for this option is 10,000 units. Option Three: Cut the price to $80 and include a $10 mail-in rebate offer. It is anticipated that 15,000 units could be sold and only 30 percent of the rebate coupons would be redeemed. Option Four: Cut the price to $60 per game and possibly sell 20,000 units.

-Refer to the figure.What is the profit or loss from Option Three?

A)($60,000)
B)$110,000
C)$215,000
D)$1,200,000

Question 10

Anderson Company manufactures a variety of toys and games. John Boone, president, is disappointed in the sales of a new board game. The game sold only 10,000 units in the current year when 30,000 were projected. Sales for the following year look no better. At $100 per game, it is not a hot seller. Direct costs of the board game are $56 variable cost and $100,000 fixed. John is considering several options. Option One: Cut the price to $70 and perhaps sell 15,000 units. Option Two: Cut the price to $60, reduce material costs by $10, and cut advertising by $60,000. Anticipated volume for this option is 10,000 units. Option Three: Cut the price to $80 and include a $10 mail-in rebate offer. It is anticipated that 15,000 units could be sold and only 30 percent of the rebate coupons would be redeemed. Option Four: Cut the price to $60 per game and possibly sell 20,000 units.

-Refer to the figure.What customer type has the least total cost per case?

A)local pharmacies
B)drugstore chains
C)supermarket chains
D)gas station chains

Question 11

Anderson Company manufactures a variety of toys and games. John Boone, president, is disappointed in the sales of a new board game. The game sold only 10,000 units in the current year when 30,000 were projected. Sales for the following year look no better. At $100 per game, it is not a hot seller. Direct costs of the board game are $56 variable cost and $100,000 fixed. John is considering several options. Option One: Cut the price to $70 and perhaps sell 15,000 units. Option Two: Cut the price to $60, reduce material costs by $10, and cut advertising by $60,000. Anticipated volume for this option is 10,000 units. Option Three: Cut the price to $80 and include a $10 mail-in rebate offer. It is anticipated that 15,000 units could be sold and only 30 percent of the rebate coupons would be redeemed. Option Four: Cut the price to $60 per game and possibly sell 20,000 units.

-Refer to the figure.What is the total cost per case for drugstore chains?

A)$2.17 per case
B)$2.20 per case
C)$2.35 per case
D)$2.45 per case

Question 12

Which of the following correctly describes the slope of the demand and supply curves?

$\begin{array}{llcc}&\underline{ \text { Demand Curve } }&& \underline{ \text {Supply Curve }} \\\end{array}$

A) $\begin{array}{llcc} \text { upward sloping } && \text { downward sloping} \\\end{array}$
B) $\begin{array}{llcc} \text { no slope} &&&&&& \text {upward sloping } \\\end{array}$
C) $\begin{array}{llcc} \text { downward sloping } && \text {no slope } \\\end{array}$
D) $\begin{array}{llcc} \text { downward sloping } && \text { upward sloping } \\\end{array}$

Question 13

Anderson Company manufactures a variety of toys and games. John Boone, president, is disappointed in the sales of a new board game. The game sold only 10,000 units in the current year when 30,000 were projected. Sales for the following year look no better. At $100 per game, it is not a hot seller. Direct costs of the board game are $56 variable cost and $100,000 fixed. John is considering several options. Option One: Cut the price to $70 and perhaps sell 15,000 units. Option Two: Cut the price to $60, reduce material costs by $10, and cut advertising by $60,000. Anticipated volume for this option is 10,000 units. Option Three: Cut the price to $80 and include a $10 mail-in rebate offer. It is anticipated that 15,000 units could be sold and only 30 percent of the rebate coupons would be redeemed. Option Four: Cut the price to $60 per game and possibly sell 20,000 units.

-Refer to the figure.What is the profit or loss from Option One?

A)$110,000
B)$210,000
C)$950,000
D)($1,050,000)

Question 14

What is the impact of expenses related to specific market structure types?

A)Monopolistic competition and oligopolies are the only structures where costs of differentiation have an impact.
B)Both monopolies and monopolistic competition structures normally must expend legal and lobbying costs.
C)In perfect competition and monopolistic competition,differentiation costs have an impact.
D)In perfect competition and oligopolies,there are no special expenses related to the structure of the organization.

Question 15

What is the definition of oligolopoly?

A)a structure that has many buyers and sellers,but the products are differentiated on some basis
B)a structure where customers are willing to pay a little more for the unique feature that appeals to them
C)a structure that combines perfect competition and monopoly,but is closer to a competitive situation
D)a structure characterized by very few sellers and high barriers to entry

Question 16

Which of the following markets is characterized by the following: only a few firms in the industry,a fairly unique product,difficult entry into the industry,and spending for differentiation of the product?

A)perfectly competitive market
B)monopolistic competition
C)monopoly
D)oligopoly

Question 17

The following information pertains to four different products being sold by Andy Company: $\begin{array}{ccccc}\text { Product }& \text { Old Price } &\text { New Price } & \text { Old Quantity } & \text { New Quantity }\\\hline\text { A } & \$ 10.00 & \$ 11.00 & 2,000 & 1,900 \\\text { B } & 20.00 & 18.00 & 4,000 & 4,600 \\\text { C } & 30.00 & 33.00 & 6,000 & 5,500 \\\text { D } & \$ 40.00 & \$ 38.00 & 8,000 & 10,000\end{array}$
Which product has an inelastic demand curve?

A)Product A
B)Product B
C)Product C
D)Product D

Question 18

Anderson Company manufactures a variety of toys and games. John Boone, president, is disappointed in the sales of a new board game. The game sold only 10,000 units in the current year when 30,000 were projected. Sales for the following year look no better. At $100 per game, it is not a hot seller. Direct costs of the board game are $56 variable cost and $100,000 fixed. John is considering several options. Option One: Cut the price to $70 and perhaps sell 15,000 units. Option Two: Cut the price to $60, reduce material costs by $10, and cut advertising by $60,000. Anticipated volume for this option is 10,000 units. Option Three: Cut the price to $80 and include a $10 mail-in rebate offer. It is anticipated that 15,000 units could be sold and only 30 percent of the rebate coupons would be redeemed. Option Four: Cut the price to $60 per game and possibly sell 20,000 units.

-Refer to the figure.What customer type is the most profitable?

A)local pharmacies
B)drugstore chains
C)supermarket chains
D)gas station chains

Question 19

Which of the following markets is characterized by the following: a single firm in the industry,a unique product,and difficult entry into the industry?

A)perfectly competitive market
B)monopolistic competition
C)monopoly
D)oligopoly

Question 20

Anderson Company manufactures a variety of toys and games. John Boone, president, is disappointed in the sales of a new board game. The game sold only 10,000 units in the current year when 30,000 were projected. Sales for the following year look no better. At $100 per game, it is not a hot seller. Direct costs of the board game are $56 variable cost and $100,000 fixed. John is considering several options. Option One: Cut the price to $70 and perhaps sell 15,000 units. Option Two: Cut the price to $60, reduce material costs by $10, and cut advertising by $60,000. Anticipated volume for this option is 10,000 units. Option Three: Cut the price to $80 and include a $10 mail-in rebate offer. It is anticipated that 15,000 units could be sold and only 30 percent of the rebate coupons would be redeemed. Option Four: Cut the price to $60 per game and possibly sell 20,000 units.

-Refer to the figure.What is the profit per case for drugstore chains?

A)$2.15 per case
B)$2.20 per case
C)$2.35 per case
D)$4.50 per case

Question 21

After the tornado in Lethbridge,Alberta,businesses were trying to sell lumber for 50 percent above their regular prices.What is this an example of?

A)predatory prices
B)price discrimination
C)price gouging
D)penetration pricing

Question 22

What is the definition of target costing?

A)Target costing is a method of determining the cost of a product or service based on the price that customers are willing to pay.
B)The cost is calculated by subtracting the desired profit from the target price.
C)Target costing is an interactive process.
D)Target costing is cost driven.

Question 23

Farr Company had the following information: $\begin{array}{lrr}\text {Revenues}&&\$400,000\\\text {Cost of goods sold:}\\\text { Direct materrals } & \$ 100,000 \\\text { Direct labour } & 50,000 & \\\text { Overhead } & \underline{50,000 }& \underline{200,000} \\\text { Gross profit } & & \$ 200,000 \\\text { Selling and administrative expenses } & & \underline{75,000}{} \\\text { Operating income } & &\underline{ \$ 125,000}\end{array}$ What is the markup based on prime costs?

A)50.0%
B)133.3%
C)166.7%
D)300.0%

Question 24

What is the term for pricing a new product at a low initial price to build market share quickly?

A)penetration pricing
B)predatory pricing
C)price skimming
D)target costing

Question 25

Which of the following product life-cycle stages involves revenues for the entire industry decreasing?

A)introduction
B)growth
C)maturity
D)decline

Question 26

Refer to the figure.What is the markup based on materials?

A)42.9%
B)71.4%
C)185.7%
D)400.0%

Question 27

Perry Products is thinking of expanding its product line.The company's current income statement is as follows: $\begin{array}{lrr}\text { Revenues } & & \$ 600,000 \\\text { Cost of goods sold: } && \\\text { Direct materials } & \$ 250,000 \\ \text { Direct labour } & 100,000 \\\text { Overhead } & \underline{80,000} & \underline{430,000}\\\text { Gross profit }& & 170,000 \\\text { Gross profit } & & \underline{ 70,000 }\\\text { Selling and administrative } & & \underline{ \$ 100,000}\end{array}$ The cost of the new product is $95 per unit made up of $50 of direct materials,$35 of direct labour and $10 of overhead per unit.What is the bid price assuming Perry utilizes a markup on direct materials?

A)$19.77
B)$70
C)$119
D)$133

Question 28

Gage Company had the following information: $$\begin{array} { l r } \text { Revenues }& \$ 600,000 \\\text { Cost of goods sold } & 60 \% \\\text { Selling and adrinistrative expenses } & \$ 130,000\end{array}$$ What is the markup on cost of goods sold?

A)0.1833
B)0.3611
C)0.6667
D)0.7667

Question 29

Farr Company had the following information: $\begin{array}{lrr}\text {Revenues}&&\$400,000\\\text {Cost of goods sold:}\\\text { Direct materrals } & \$ 100,000 \\\text { Direct labour } & 50,000 & \\\text { Overhead } & \underline{50,000 }& \underline{200,000} \\\text { Gross profit } & & \$ 200,000 \\\text { Selling and administrative expenses } & & \underline{75,000}{} \\\text { Operating income } & &\underline{ \$ 125,000}\end{array}$ What is the markup based on cost of goods sold?

A)37.5%
B)50.0%
C)62.5%
D)100.0%

Question 30

What is the term for charging different prices to different customers for essentially the same product?

A)gouging
B)price discrimination
C)skimming
D)penetration pricing

Question 31

Which of the following product life-cycle stages is characterized by rapid increases in sales and production?

A)introduction
B)growth
C)maturity
D)decline

Question 32

Which of the following product life-cycle stages comes first?

A)introduction
B)growth
C)development
D)decline

Question 33

Steele Corporation has the following information for January,February,and March: $\begin{array}{lccc} & \text { January } & \text { February } &\text { March }\\ \text { Units produced } & 10,000 & 10,000&10,000 \\\text { Units sold } & 7,000 & 8,500 &10,500\\\end{array}$


$\begin{array}{lr}\text { Production costs per unit (based on 10,000 units) are as follows: }\\\text { Direct materials } & \$ 12 \\\text { Direct labour } & 8 \\\text { Variable factory overhead } & 6 \\\text { Fixed factory overhead } & 4 \\\text { Variable selling and admin. expenses } & 10\\\text { Fixed selling and admin. expenses }&4\end{array}$ There were no beginning inventories for January,and all units were sold for $50.Costs are stable over the three months.
What is the February ending inventory for Steele Corporation using the absorption costing method?

A)$39,000
B)$45,000
C)$135,000
D)$300,000

Question 34

The majority of the product cost is "locked in" during which of the following product life-cycle stages?

A)introduction
B)growth
C)development
D)decline

Question 35

Price skimming occurs in which of the following life-cycle stages?

A)introduction
B)growth
C)maturity
D)decline

Question 36

The Robinson-Patman Act allows price discrimination under which of the following circumstances?

A)if revenues justify it
B)if the competitive situation demands it
C)if the costs remain the same for all customers
D)if the other customers are not aware

Question 37

Which of the following is said to occur when firms with market power price products "too high"?

A)predatory prices
B)price discrimination
C)price gouging
D)penetration pricing

Question 38

Refer to the figure.What would be the price for a product that has a cost of $500,assuming that the markup is based on cost of goods sold?

A)$625
B)$708
C)$834
D)$2,000

Question 39

What is the term for charging a higher price at the beginning of a product's life cycle?

A)penetration pricing
B)predatory pricing
C)price skimming
D)target costing

Question 40

On the international market,which of the following is called dumping?

A)price discrimination
B)predatory pricing
C)price skimming
D)penetration pricing

Question 41

Which of the following costs are excluded from inventory under absorption costing?

A)direct materials
B)direct labour
C)fixed selling expenses
D)fixed factory overhead

Question 42

What is the equivalent of gross margin on a variable costing income statement?

A)gross profit
B)contribution margin
C)net income
D)territory margin

Question 43

When monthly production volume is constant and sales volume is less than production,how will net income determined with variable costing procedures compare to net income determined with absorption costing?

A)Net income determined with variable costing will always be greater than net income determined using absorption costing.
B)Net income determined with variable costing will always be less than net income determined using absorption costing.
C)Net income determined with variable costing will be equal to net income determined using absorption costing.
D)Net income determined with variable costing will be equal to contribution margin per unit times units sold.

Question 44

The following information pertains to Stark Corporation: $\begin{array}{lr} \text { Beginning inventory} &0 \text { units }\\ \text { Ending inventory} &5,000 \text { units }\\ \text { Direct labour per unit } &\$20\\ \text { Direct materials per unit} &16\\ \text {Variable overhead per unit } &4\\ \text {Fixed overhead per unit } &10\\ \text { Variable selling costs per unit } &12\\ \text {Fixed selling costs per unit } &16\\\end{array}$
What is the value of ending inventory using the variable costing method?

A)$200,000
B)$250,000
C)$310,000
D)$390,000

Question 45

Steele Corporation has the following information for January,February,and March: $\begin{array}{lrrr}&\underline{\text { January}}&\underline{\text { February }} &\underline{\text { March }}\\\text { Units produced } & 10,000 & 10,000 & 10,000 \\\text { Units sold } & 7,000 & 8.500 & 10,500\end{array}$
Production costs per unit (based on 10,000 units)are as follows:
$\begin{array}{lr} \text { Direct materials} &\$12\\ \text {Direct labour } &8\\ \text {Variable factory overhead } &6\\ \text { Fixed factory overhead } &4\\ \text { Variable selling and admin. expenses } &10\\ \text { Fixed selling and admin. expenses } &4\\\end{array}$
There were no beginning inventories for January,and all units were sold for $50.Costs are stable over the three months.
What is the January ending inventory for Steele Corporation using the variable costing method?

A)$78,000
B)$90,000
C)$108,000
D)$260,000

Question 46

The following information pertains to Mayberry Corporation: $\begin{array}{llr} \text { Beginning inventory } &1,000 \text { units }\\ \text { Endling inventory} &6,000 \text { units }\\ \text {Direct labour per unit } &\$40\\ \text { Direct materials per unit } &20\\ \text { Variable overhead per unit } &10\\ \text {Fixed overhead per unit } &30\\ \text { Variable selling and admin. costs per unit } &6\\ \text { Fixed selling and admin. costs per unit } &14\\\end{array}$

What is the value of the ending inventory using the absorption costing method?

A)$240,000
B)$360,000
C)$420,000
D)$600,000

Question 47

The following information pertains to Stark Corporation:
$\begin{array}{lr}\text { Beginning inventory } & 0 \text { units } \\\text { Ending inventory } & 5,000 \text { units } \\\text { Direct labour per unit } & \$ 20 \\\text { Direct materials per unit } & 16 \\\text { Variable overhead per unit } & 4 \\\text { Fixed overhead per unit } & 10 \\\text { Variable selling costs per unit } & 12 \\\text { Fixed selling costs per unit } & 16\end{array}$

-Refer to the figure.What is the value of ending inventory using the absorption costing method?

A)$200,000
B)$250,000
C)$310,000
D)$390,000

Question 48

The following information pertains to Mayberry Corporation: $\begin{array}{lr} \text { Beginning inventory} &1,000 \text { units }\\ \text { Ending inventory} &6,000 \text { units }\\ \text { Direct labour per unit } &\$40\\ \text { Direct materials per unit} &20\\ \text {Variable overhead per unit } &10\\ \text {Fixed overhead per unit } &30\\ \text { Variable selling and admin. costs per unit } &6\\ \text {Fixed selling and admin costs ner unit. } &14\\\end{array}$

What is the value of the ending inventory using the variable costing method?

A)$240,000
B)$350,000
C)$360,000
D)$420,000

Question 49

Eastwood Company has the following information for the current year: $\begin{array}{llr} \text { Selling price } & \$ 150 \text { per unit }\\ \text { Variable production costs} & \text { \( \$ 40 \) per unit produced}\\ \text { Variable selling and admin. expenses} & \text { \( \$ 16 \) per unit sold }\\ \text { Fixed production costs} & \text { \( \$ 200,000 \) }\\ \text {Fixed selling and admin. expenses } & \text { \( \$ 140,000 \) }\\ \text {Units produced } & \text { 10,000 units }\\ \text {Units sold } & \text { 8.000 units }\end{array}$


There were no beginning inventories.
What is the net income for Eastwood using the absorption costing method?

A)$452,000
B)$480,000
C)$600,000
D)$1,200,000

Question 50

What is a disadvantage of absorption costing?

A)It is not a useful format for decision making.
B)It encourages the dumping of inventory.
C)It reports a lower net income when production is less than sales.
D)It is difficult to gather the fixed and variable costing information.

Question 51

Eastwood Company has the following information for the current year: $\begin{array}{llr} \text { Selling price} &\$ 150 \text { per unit}\\ \text { Variable production costs} & \$ 40 \text { per unit produced}\\ \text {Variable selling and admin. expenses } &\$ 16 \text { per unit sold}\\ \text { Fixed production costs} &\$ 200,000\\ \text {Fixed selling and admin. expenses } &\$ 140,000\\ \text { Units produced }&10,000 \text { units}\\\text { Units sold }&8.000 \text { units}\end{array}$
There were no beginning inventories.
What is the ending inventory for Eastwood using the absorption costing method?

A)$80,000
B)$120,000
C)$180,000
D)$300,000

Question 52

When production is less than sales volume,how will net income under absorption costing compare to profits using variable costing procedures?

A)Net income under absorption costing will be greater than profits using variable costing procedures.
B)Net income under absorption costing will be less than profits using variable costing procedures.
C)Net income under absorption costing will be equal to profits using variable costing procedures.
D)Net income under absorption costing will be randomly different than profits using variable costing procedures.

Question 53

Ramon Company reported the following units of production and sales for June and July the current year: $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Units }$
$\begin{array}{lrr} \underline{\text {Month}}& \underline{\text {Producer}}& \underline{\text {Sold}}\\\text { June } & 100,000 & 90,000 \\\text { July } & 100,000 & 105,000\end{array}$
Net income under absorption costing for June was $40,000; net income under variable costing for July was $50,000.Fixed manufacturing costs were $600,000 for each month.
How much was net income for July using absorption costing?

A)$20,000
B)$40,000
C)$50,000
D)$80,000

Question 54

Generally,how will inventory values calculated using variable costing compare to inventory values calculated using absorption costing?

A)Inventory values calculated using variable costing will be equal to inventory values calculated using absorption costing.
B)Inventory values calculated using variable costing will be less than inventory values calculated using absorption costing.
C)Inventory values calculated using variable costing will be greater than inventory values calculated using absorption costing.
D)Inventory values calculated using variable costing will be twice as much as inventory values calculated using absorption costing.

Question 55

What is the primary difference between variable and absorption costing?

A)inclusion of fixed selling expenses in product costs
B)inclusion of variable factory overhead in period costs
C)inclusion of fixed selling expenses in period costs
D)inclusion of fixed factory overhead in product costs

Question 56

The following information pertains to Mayberry Corporation: $\begin{array}{lr}\text { Beginning inventory } & 1,000 \text { units } \\\text { Ending inventory } & 6,000 \text { units } \\\text { Direct labour per unit } & \$ 40 \\\text { Direct materials per unit } & 20 \\\text { Variable overhead per unit } & 10 \\\text { Fixed overhead per unit } & 30 \\\text { Variable selling and admin. costs per unit } & 6 \\\text { Fixed selling and admin. costs per unit } & 14\end{array}$ How would absorption costing net income compare to variable costing net income?

A)It would be $150,000 greater.
B)It would be $150,000 less.
C)It would be $240,000 less.
D)It would be $240,000 greater.

Question 57

Toshi Company incurred the following costs in manufacturing desk calculators: $\begin{array}{lr} \text { Direct materials} &\$14\\ \text {Indirect materials (variable) } &4\\ \text {Direct labour } &8\\ \text {Indirect labour (variable)} &6\\ \text { Other variable factory overhead } &10\\ \text {Fixed factory overhead} &28\\ \text {Variable selling expenses}&20\\ \text {Fixed selling expenses}&14 \end{array}$
During the period,the company produced and sold 1,000 units.
What is the inventory cost per unit using variable costing?

A)$42
B)$52
C)$62
D)$70

Question 58

Toshi Company incurred the following costs in manufacturing desk calculators: $\begin{array}{llr} \text { Direct materials} &\$14\\ \text { Indirect materials (variable)} &4\\ \text { Direct labour } &8\\ \text {Indirect labour (variable) } &6\\ \text { Other variable factory overhead } &10\\ \text { Fixed factory overhead} &28\\ \text { Variable selling expenses} &20\\ \text { Fixed selling expenses } &14\\\end{array}$
During the period,the company produced and sold 1,000 units.
What is the inventory cost per unit using absorption costing?

A)$32
B)$70
C)$84
D)$104

Question 59

The following information pertains to Stark Corporation:
$\begin{array}{lr}\text { Beginning inventory } & 0 \text { units } \\\text { Ending inventory } & 5,000 \text { units } \\\text { Direct labour per unit } & \$ 20 \\\text { Direct materials per unit } & 16 \\\text { Variable overhead per unit } & 4 \\\text { Fixed overhead per unit } & 10 \\\text { Variable selling costs per unit } & 12 \\\text { Fixed selling costs per unit } & 16\end{array}$

-Refer to the figure.How would absorption costing net income compare to the variable costing net income?

A)Absorption costing net income would be $50,000 greater than the variable costing net income.
B)Absorption costing net income would be $50,000 less than the variable costing net income.
C)Absorption costing net income would be $70,000 greater than the variable costing net income.
D)Absorption costing net income would be $70,000 less than the variable costing net income.

Question 60

When is net income the largest?

A)Absorption costing net income exceeds variable costing net income when units produced and sold are equal.
B)Variable costing net income exceeds absorption costing net income when units produced exceed units sold.
C)Absorption costing net income exceeds variable costing net income when units produced are less than units sold.
D)Absorption costing net income exceeds variable costing net income when units produced are greater than units sold.

Question 61

Nauman Company has the following information pertaining to its two divisions for the current year: $\begin{array}{lrr}&\text { Division } X&\text { Division } Y\\\text { Variable selling and admin. expenses } & \$ 70,000 & \$ 90,000 \\\text { Direct fixed manufacturing expenses } & 35,000 & 100,000 \\\text { Sales } & 200,000 & 400,000 \\\text { Direct fixed selling and admin. expenses } & 30,000 & 70,000 \\\text { Variable manufacturing expenses } & 40,000 & 100,000\end{array}$ Common expenses are $24,000 for the current year.

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What is the net income for Nauman Company?

A)$41,000
B)$65,000
C)$300,000
D)$325,000

Question 62

Taylor Company’s budgeted sales were 10,000 units at $200 per unit. Actual sales were 9,200 units at $210 per unit.

-Refer to the figure.What is Taylor's price volume variance?

A)$8,000 (U)
B)$68,000 (U)
C)$160,000 (U)
D)$168,000 (U)

Question 63

Assume the following information for a product line:
$\begin{array}{llr} \text { Sales } &\$500,000\\ \text {Variable manufacturing expenses } &100,000\\ \text { Direct fixed manufacturing expenses} &75,000\\ \text { Variable selling and administrative expenses} &50,000\\ \text { Direct fixed selling and admin, expenses } &60,000\\\end{array}$


-Refer to the figure.What is the segment margin of the product line?

A)$215,000
B)$325,000
C)$350,000
D)$400,000

Question 64

Steele Corporation has the following information for January, February, and March:
$\begin{array}{lccc} & \text { January } & \text { February } & \text {March}\\ \text { Units produced } & 10,000 & 10,000 &10,000\\ \text { Units sold } & 7,000 & 8,500&10,500 \\\end{array}$


$\begin{array}{lr}\text { Production costs per unit (based on 10,000 units) are as follows: }\\\text { Direct materials } & \$ 12 \\\text { Direct labour } & 8 \\\text { Variable factory overhead } & 6 \\\text { Fixed factory overhead } & 4 \\\text { Variable selling and admin. expenses } & 4 \\\text { Fixed selling and admin. expenses } &\end{array}$

-Refer to the figure.What is the February contribution margin for Steele Corporation using the variable costing method?

A)$119,000
B)$170,000
C)$204,000
D)$240,000

Question 65

Division B earns a contribution margin of $200,000 and has a divisional margin of $70,000.If Division B is closed,all of the direct divisional expenses and $110,000 of common expenses can be eliminated.What effect will closing the division have on the firm's operating income?

A)Operating income will decrease by $40,000.
B)Operating income will increase by $40,000.
C)Operating income will decrease by $90,000.
D)Operating income will increase by $90,000.

Question 66

What are common segment costs when contrasted with direct segment costs?

A)costs of all segments such as direct labour
B)costs related to more than one segment and not directly traceable to a particular segment
C)costs incurred at one level for the benefit of one segment
D)costs incurred by all segments and are directly traceable to all segments

Question 67

Taylor Company’s budgeted sales were 10,000 units at $200 per unit. Actual sales were 9,200 units at $210 per unit.

-Refer to the figure.What is Taylor's sales price variance?

A)$8,000 (U)
B)$68,000 (U)
C)$92,000 (F)
D)$100,000 (U)

Question 68

Consider the following portion of a segmented income statement for the year just ended.Assume that the fixed expenses of Division X include $30,000 of direct expenses and that the discontinuance of the department will not affect the sales of the other departments nor reduce the common expenses. $\begin{array}{lr}&\text { Division } X\\\text { Sales } & \$ 100,000 \\\text { Variable manufacturing costs } & \$ 60,000 \\\text { Gross profit } & \$ 40,000\\\text {Fixed expenses (direct and allocated) }&50,000\\\text {Operating income (loss)}&\$(10,000)\end{array}$ What would be the effect on the firm's operating income if Division X were discontinued?

A)decrease $10,000
B)increase $10,000
C)decrease $40,000
D)decrease $100,000

Question 69

Steele Corporation has the following information for January, February, and March:
$\begin{array}{lccc} & \text { January } & \text { February } & \text {March}\\ \text { Units produced } & 10,000 & 10,000 &10,000\\ \text { Units sold } & 7,000 & 8,500&10,500 \\\end{array}$


$\begin{array}{lr}\text { Production costs per unit (based on 10,000 units) are as follows: }\\\text { Direct materials } & \$ 12 \\\text { Direct labour } & 8 \\\text { Variable factory overhead } & 6 \\\text { Fixed factory overhead } & 4 \\\text { Variable selling and admin. expenses } & 4 \\\text { Fixed selling and admin. expenses } &\end{array}$

-Refer to the figure.There were no beginning inventories for January,and all units were sold for $50.Costs are stable over the three months. What is the March ending inventory for Steele Corporation using the variable costing method?

A)$15,000
B)$104,000
C)$120,000
D)$260,000

Question 70

Eastwood Company has the following information for the current year:
$\begin{array}{llcc} \text { Selling price } & \text { \$ 150 per unit } \\ \text { Variable production costs} & \text { \$ 40 per unit producer } \\ \text { Variable selling and admin. expenses} & \text { \$ 16 per unit sold } \\ \text { Fixed production costs } & \text { \$ 200,000 } \\ \text { Fixed selling and admin. expenses } & \text {\$ 140,000 } \\ \text { Units produced} & \text { 10,000 units} \\ \text {Units sold } & \text { 8.000 units } \\\end{array}$
There were no beginning inventories.

-Refer to the figure.What is the net income for Eastwood using the variable costing method?

A)$412,000
B)$480,000
C)$600,000
D)$1,200,000

Question 71

What are the total allocated fixed costs for the current year?

A)$50,000
B)$30,000
C)$20,000
D)$80,000

Question 72

Consider the following portion of a segmented income statement for the year just ended.Assume that the fixed expenses of Division X include $30,000 of direct expenses and that the discontinuance of the department will not affect the sales of the other departments nor reduce the common expenses. $\begin{array}{lr}&\text { Division } X\\\text { Sales } & \$ 100,000 \\\text { Variable manufacturing costs } & \$ 60,000 \\\text { Gross profit } & \$ 40,000\\\text {Fixed expenses (direct and allocated) }&50,000\\\text {Operating income (loss)}&\$(10,000)\end{array}$ What is X's divisional segment margin?

A)$(10,000)
B)$10,000
C)$40,000
D)$100,000

Question 73

Why is determining the profit of a segment harder than the company as a whole?

A)Because of the need to allocate the assets
B)Because of the need to allocate the contribution margin
C)Because of the need to allocate revenues
D)Because of the need to allocate expenses

Question 74

Eastwood Company has the following information for the current year:
$\begin{array}{llcc} \text { Selling price } & \text { \$ 150 per unit } \\ \text { Variable production costs} & \text { \$ 40 per unit producer } \\ \text { Variable selling and admin. expenses} & \text { \$ 16 per unit sold } \\ \text { Fixed production costs } & \text { \$ 200,000 } \\ \text { Fixed selling and admin. expenses } & \text {\$ 140,000 } \\ \text { Units produced} & \text { 10,000 units} \\ \text {Units sold } & \text { 8.000 units } \\\end{array}$
There were no beginning inventories.

-Refer to the figure.What is the cost of ending inventory for Eastwood using the variable costing method?

A)$80,000
B)$120,000
C)$180,000
D)$300,000

Question 75

Barmore Company has the following information pertaining to its two divisions for the current year:
$\begin{array}{lrr}&\text { Division } A&\text { Division } B\\\text { Variable selling and admin. expenses } & \$ 35,000 & \$ 45,000 \\\text { Direct fixed manufacturing expenses } & 17,500 & 50,000 \\\text { Sales } & 100,000 & 200,000 \\\text { Direct fixed selling and admin. expenses } & 15,000 & 35,000 \\\text { Variable manufacturing expenses } & 20,000 & 50,000\end{array}$ Common expenses are $12,000 for the current year.

-Refer to the figure.What is the net income for Barmore Company?

A)$20,500
B)$32,500
C)$150,000
D)$300,000

Question 76

Assume the following information for a product line:
$\begin{array}{llr} \text { Sales } &\$500,000\\ \text {Variable manufacturing expenses } &100,000\\ \text { Direct fixed manufacturing expenses} &75,000\\ \text { Variable selling and administrative expenses} &50,000\\ \text { Direct fixed selling and admin, expenses } &60,000\\\end{array}$


-Refer to the figure.What is the contribution margin of the product line?

A)$215,000
B)$325,000
C)$350,000
D)$400,000

Question 77

Ramon Company reported the following units of production and sales for June and July: $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$ $\quad$$\text { Units }$
$\begin{array}{llr}\text { Month } & \text { Produced } & \text { Sold } \\\hline \text { June } & 100,000 & 90,000 \\\text { July } & 100,000 & 105,000\end{array}$ Net income under absorption costing for June was $40,000; net income under variable costing for July was $50,000.Fixed manufacturing costs were $600,000 for each month.
How much was net income for June using variable costing?

A)($40,000)
B)($20,000)
C)$40,000
D)$20,000

Question 78

Barmore Company has the following information pertaining to its two divisions for the current year:
$\begin{array}{lrr}&\text { Division } A&\text { Division } B\\\text { Variable selling and admin. expenses } & \$ 35,000 & \$ 45,000 \\\text { Direct fixed manufacturing expenses } & 17,500 & 50,000 \\\text { Sales } & 100,000 & 200,000 \\\text { Direct fixed selling and admin. expenses } & 15,000 & 35,000 \\\text { Variable manufacturing expenses } & 20,000 & 50,000\end{array}$ Common expenses are $12,000 for the current year.

-Refer to the figure.What is the segment margin for Division B?

A)$20,000
B)$55,000
C)$105,000
D)$155,000

Question 79

Nauman Company has the following information pertaining to its two divisions for the current year: $\begin{array}{lrr}&\text { Division } X&\text { Division } Y\\\text { Variable selling and admin. expenses } & \$ 70,000 & \$ 90,000 \\\text { Direct fixed manufacturing expenses } & 35,000 & 100,000 \\\text { Sales } & 200,000 & 400,000 \\\text { Direct fixed selling and admin. expenses } & 30,000 & 70,000 \\\text { Variable manufacturing expenses } & 40,000 & 100,000\end{array}$ Common expenses are $24,000 for the current year.

-
What is the segment margin for Division Y?

A)$40,000
B)$210,000
C)$240,000
D)$310,000

Question 80

Redding Company has two divisions with the following segment margins for the current year: Northern,$200,000; Southern,$400,000.Common expenses of the company are $50,000.What is Redding Company's net income?

A)$150,000
B)$550,000
C)$600,000
D)$650,000