Deck 7: Job Costing Systems

Question 1

Southampton Electronics manufactures a range of portable heaters. Most of the output is exported. $\begin{array}{lrr} \text { Sales. } & \text { 12,000 units } \\ \text { Selling price. } & \text { £25 per unit} \\ \text { Contribution margin ratio. } &40\%\\ \text { Margin of safety percentage. } &30\%\\\end{array}$


-
The break-even level in sales pounds is:

A)£210,000
B)£120,000
C)£180,000
D)£ 84,000

Answer 1

£210,000

Question 2

Newham Textiles manufactures and sells T-shirts imprinted with college names and slogans. Last year, the shirts sold for £7.50 each, and the variable expense was £2.25 per unit.
The company needed to sell 20,000 shirts to break even. The net operating income last year was £8,400. Donnelly's expectations for the coming year include the following:
* The selling price of the T-shirts will be £9.00.
* Variable expenses will increase by one third.
* Fixed expenses will increase by 10 selling price

-If Newham wishes to earn £22,500 in net operating income for the coming year, the company's sales volume in pounds must be:

A)£213,750
B)£257,625
C)£207,000
D)£229,500

Answer 2

£207,000

Question 3

Southampton Electronics manufactures a range of portable heaters. Most of the output is exported. $\begin{array}{lrr} \text { Sales. } & \text { 12,000 units } \\ \text { Selling price. } & \text { £25 per unit} \\ \text { Contribution margin ratio. } &40\%\\ \text { Margin of safety percentage. } &30\%\\\end{array}$


-
Net operating income at sales of 12,000 units is:

A)£ 0
B)£36,000
C)£120,000
D)£300,000

Answer 3

£36,000

Question 4

The break-even point can be calculated with the following formula: Total fixed expenses/(Variable expense per unit  Selling price per unit)

Question 5

Everton Furniture Company produces two kinds of chairs: an oak model and a chestnut wood model. The oak model sells for £60 and the chestnut wood model sells for £100. The variable expenses are as follows:

-Expected sales in units next year are: 5,000 oak chairs and 1,000 chestnut chairs. Fixed expenses are budgeted at £135,000 per year. The yearly break-even point in total sales for the expected sales mix is:

A)£270,000.
B)£300,000.
C)£485,000.
D)£500,000.

Question 6

Southampton Electronics manufactures a range of portable heaters. Most of the output is exported. $\begin{array}{lrr} \text { Sales. } & \text { 12,000 units } \\ \text { Selling price. } & \text { £25 per unit} \\ \text { Contribution margin ratio. } &40\%\\ \text { Margin of safety percentage. } &30\%\\\end{array}$


-
The variable expense per unit is:

A)£10.00 per unit
B)£17.50 per unit
C)£ 7.50 per unit
D)£15.00 per unit

Question 7

Newham Textiles manufactures and sells T-shirts imprinted with college names and slogans. Last year, the shirts sold for £7.50 each, and the variable expense was £2.25 per unit.
The company needed to sell 20,000 shirts to break even. The net operating income last year was £8,400. Donnelly's expectations for the coming year include the following:
* The selling price of the T-shirts will be £9.00.
* Variable expenses will increase by one third.
* Fixed expenses will increase by 10 selling price

-needed next year to maintain the same contribution margin ratio as last year is

A)£ 9.00
B)£ 8.25
C)£10.00
D)£ 9.75

Question 8

The European Electronics Company has 3 divisions. The following budgeted data is available. $\begin{array}{lccc}&\text { German}&\text { Italian }&\text {Sweden }\\ \text { Sales } &\text { 2,500 units } &\text { 2,500 units} &\text { 2,500 units } \\ \text {Selling price } &\text { £ 80 per unit } &\text {£85 per unit } &\text { £ 90 per unit } \\ \text { Variable expense } &\text { £ 35 per unit } &\text { £ 40 per unit } &\text { £ 38 per unit } \\ \text {Fixed expense } &\text {£ 37,500 } &\text {£ 40,000 } &\text { £ 50,000 } \\\end{array}$



-
Italian Division: If the sales volume decreases by 25%, the variable expense per unit increases by 15%, and all other data remain as in the budget, net operating income will be:

A)£34,890
B)£33,125
C)£54,875
D)£60,870

Question 9

The European Electronics Company has 3 divisions. The following budgeted data is available. $\begin{array}{lccc}&\text { German}&\text { Italian }&\text {Sweden }\\ \text { Sales } &\text { 2,500 units } &\text { 2,500 units} &\text { 2,500 units } \\ \text {Selling price } &\text { £ 80 per unit } &\text {£85 per unit } &\text { £ 90 per unit } \\ \text { Variable expense } &\text { £ 35 per unit } &\text { £ 40 per unit } &\text { £ 38 per unit } \\ \text {Fixed expense } &\text {£ 37,500 } &\text {£ 40,000 } &\text { £ 50,000 } \\\end{array}$



-Sweden Division: If the sales volume decreases by 25%, the variable expense per unit increases by 15%, and all other data remain as in the budget, net operating income will be:

A)£35,631
B)£36,875
C)£36,813
D)£45,875

Question 10

If a company decreases the variable expense per unit while increasing the total fixed expenses, the total expense line relative to its previous position will

A)shift downward and have a steeper slope.
B)shift downward and have a flatter slope.
C)shift upward and have a flatter slope.
D)shift upward and have a steeper slope.

Question 11

The margin of safety can be defined as the amount by which sales can decrease before losses are incurred by the company.

Question 12

Sweden Division: If the unit contribution margin is increased by 10%, the total fixed expense is decreased by 20%, and all other data remain as in the budget, net operating income will be:

A)£103,500
B)£103,000
C)£ 98,000
D)£ 99,750

Question 13

German Division: If the sales volume decreases by 25%, the variable expense per unit increases by 15%, and all other data remain as in the budget, net operating income will be:

A)£37,031
B)£46,875
C)£56,719
D)£61,875

Question 14

Newham Textiles manufactures and sells T-shirts imprinted with college names and slogans. Last year, the shirts sold for £7.50 each, and the variable expense was £2.25 per unit.
The company needed to sell 20,000 shirts to break even. The net operating income last year was £8,400. Donnelly's expectations for the coming year include the following:
* The selling price of the T-shirts will be £9.00.
* Variable expenses will increase by one third.
* Fixed expenses will increase by 10 selling price

-The number of T-shirts the company must sell to break even in the coming year is:

A)17,500
B)19,250
C)20,000
D)22,000

Question 15

The European Electronics Company has 3 divisions. The following budgeted data is available. $\begin{array}{lccc}&\text { German}&\text { Italian }&\text {Sweden }\\ \text { Sales } &\text { 2,500 units } &\text { 2,500 units} &\text { 2,500 units } \\ \text {Selling price } &\text { £ 80 per unit } &\text {£85 per unit } &\text { £ 90 per unit } \\ \text { Variable expense } &\text { £ 35 per unit } &\text { £ 40 per unit } &\text { £ 38 per unit } \\ \text {Fixed expense } &\text {£ 37,500 } &\text {£ 40,000 } &\text { £ 50,000 } \\\end{array}$



-
Italian Division: If the unit contribution margin is increased by 10%, the total fixed expense is decreased by 20%, and all other data remain as in the budget, net operating income will be:

A)£107,500
B)£102,000
C)£ 94,000
D)£ 91,750

Question 16

Newham Textiles manufactures and sells T-shirts imprinted with college names and slogans. Last year, the shirts sold for £7.50 each, and the variable expense was £2.25 per unit.
The company needed to sell 20,000 shirts to break even. The net operating income last year was £8,400. Donnelly's expectations for the coming year include the following:
* The selling price of the T-shirts will be £9.00.
* Variable expenses will increase by one third.
* Fixed expenses will increase by 10 selling price

-Sales for the coming year are expected to exceed last year's by 1,000 units. If this occurs, Newham's sales volume in the coming year will be:

A)22,600 units.
B)21,960 units.
C)23,400 units.
D)21,000 units.

Question 17

During March, Adams Company had sales of £5,000,000, variable expenses of £3,000,000, and fixed expenses of £1,500,000. Assume that cost behaviour and unit selling price remain unchanged during Aril. In order for the company to realise net operating income of £300,000 for April, sales would have to be

A)£3,750,000.
B)£4,050,000.
C)£4,500,000.
D)£4,800,000.

Question 18

Everton Furniture Company produces two kinds of chairs: an oak model and a chestnut wood model. The oak model sells for £60 and the chestnut wood model sells for £100. The variable expenses are as follows:

-
Expected sales in units next year are: 5,000 oak chairs and 1,000 chestnut chairs. Fixed expenses are budgeted at £135,000 per year. The company's overall contribution margin ratio for the expected sales mix is:

A)40%.
B)45%.
C)50%.
D)60%.

Question 19

The following information pertains to Mete Co.
Mete's break-even point in sales pounds is
$\begin{array}{lrr} \text { Sales.} &£ 400,000\\ \text { Variable expenses. } &80,000\\ \text { Fixed expenses } &20,000\end{array}$

A)£ 20,000.
B)£ 25,000.
C)£ 80,000.
D)£100,000.

Question 20

The European Electronics Company has 3 divisions. The following budgeted data is available. $\begin{array}{lccc}&\text { German}&\text { Italian }&\text {Sweden }\\ \text { Sales } &\text { 2,500 units } &\text { 2,500 units} &\text { 2,500 units } \\ \text {Selling price } &\text { £ 80 per unit } &\text {£85 per unit } &\text { £ 90 per unit } \\ \text { Variable expense } &\text { £ 35 per unit } &\text { £ 40 per unit } &\text { £ 38 per unit } \\ \text {Fixed expense } &\text {£ 37,500 } &\text {£ 40,000 } &\text { £ 50,000 } \\\end{array}$



-German Division: If the unit contribution margin is increased by 10%, the total fixed expense is decreased by 20%, and all other data remain as in the budget, net operating income will be:

A)£102,500
B)£105,000
C)£ 90,000
D)£ 93,750

Question 21

Which of the following formulas is used to calculate the break-even point in terms of sales pounds

A)Fixed expenses/Unit contribution margin
B)Variable expenses/Contribution margin ratio
C)Fixed expenses/Contribution margin ratio
D)Net operating income/Unit contribution margin

Question 22

The management accountant at Essex Engineering has prepared the budget for 2003. All managers are concerned about the possibility of recession in Europe.

-
In the last financial year nearly 80% of total output was exported to Europe.
If fixed expenses increased £31,500, the break-even sales in units would be

A)34,500 units.
B)80,500 units.
C)69,000 units.
D)94,500 units.

Question 23

Manchester Shoes sells a range of umbrellas. All of the products have the same selling price and variable cost per unit. The following data has been prepared by the management accountant. $\begin{array}{lrr}&\text { standard }&\text { Deluxe }\\ \text {Selling price. } &£ 40 &£ 55 \\ \text { Variable production cost.} &£ 10& £ 16\\ \text {Variable selling and administrative expense. } & £ 15 &£ 12\\ \text { Expected monthly sales in units. } &600 & 1,200 \\\end{array}$



-
In the last financial year nearly 80% of total output was exported to Europe.
The number of units the company would have to sell to earn a net operating income of £150,000 is

A)100,000 units.
B)120,000 units.
C)112,000 units.
D)145,000 units.

Question 24

Kendall Company has sales of 1,000 units at £60 a unit. Variable expenses are 30% of the selling price. If total fixed expenses are £30,000, the degree of operating leverage is

A)1.50.
B)5.00.
C)1.67.
D)3.50.

Question 25

If sales volume increases and all other factors remain constant, then the:

A)contribution margin ratio will increase
B)break-even point will decrease.
C)margin of safety will increase.
D)net operating income will decrease.

Question 26

Cardiff Electronics Company had the following income statement for the most recent year.
Given this data, the unit contribution margin was:
$\begin{array}{lrr} \text { Sales (17,000 units) } &£ 357,000 \\ \text { Less: Variable expenses.} &225,000\\ \text {Contribution margin. } &102,000\\ \text {Less: Fixed expenses. } &68,000\\ \text { Net Income. } &£ 34,000\\\end{array}$

A)£ 2.
B)£15.
C)£ 6.
D)£ 4.

Question 27

The management accountant at Essex Engineering has prepared the budget for 2003. All managers are concerned about the possibility of recession in Europe.

-In the last financial year nearly 80% of total output was exported to Europe.
The break-even sales in units is

A)30,000 units.
B)91,000 units.
C)60,000 units.
D)70,000 units.

Question 28

The company's total monthly fixed expense is £13,800. The break-even in sales pounds for the expected sales mix is (rounded)

A)£36,800.
B)£30,000.
C)£28,105.
D)£31,222.

Question 29

Kent Company prepared the following table detailing its operating percentages for last year.
Kent's sales totaled £2,000,000 last year. At what sales level would the company break even?

A)£1,900,000
B)£1,666,667
C)£1,250,000
D)£833,333

Question 30

Sinclair Company's single product has a selling price of £25 per unit. Last year the company reported a profit of £20,000 and variable expenses totaling £180,000. The product has a 40% contribution margin ratio. Because of competition, Sinclair Company will be forced in the current year to reduce its selling price by £2.00 per unit. How many units must be sold in the current year to earn the same profit as was earned last year

A)15,000 units
B)12,000 units
C)16,500 units
D)12,960 units

Question 31

The following information pertains to Sisk Co.: $\begin{array}{lrr} \text {Sales (25,000 units). } &£ 500,000\\ \text { Manufacturing expenses: } &\\ \text { Variable. } &170,000\\ \text { Fixed. } &35,000\\ \text { Selling and general expenses: } &\\ \text { Variable. } &5,000\\\text {Fixed. } &30,000\end{array}$

Sisk's break-even point in number of units is

A)4,924.
B)5,000.
C)6,250.
D)9,286.

Question 32

Rider Company sells a single product. The product has a selling price of £40 per unit and variable expenses of £15 per unit. The company's fixed expenses total £30,000 per year. The company's break-even point in terms of total pound sales is

A)£100,000.
B)£80,000.
C)£60,000.
D)£48,000.

Question 33

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/(P-V).
B)F/(P-V).
C)V/(P-V).
D)F/[Q(P-V)].

Question 34

Iverson Company's variable expenses are 60% of sales. At a £400,000 sales level, the degree of operating leverage is 5. If sales increase by £40,000, the new degree of operating leverage will be (rounded)

A)3.67.
B)2.86.
C)5.25.
D)5.00.

Question 35

Manchester Shoes sells a range of umbrellas. All of the products have the same selling price and variable cost per unit. The following data has been prepared by the management accountant. $\begin{array}{lrr}&\text { standard }&\text { Deluxe }\\ \text {Selling price. } &£ 40 &£ 55 \\ \text { Variable production cost.} &£ 10& £ 16\\ \text {Variable selling and administrative expense. } & £ 15 &£ 12\\ \text { Expected monthly sales in units. } &600 & 1,200 \\\end{array}$



-The company's total monthly fixed expense is £13,800. If the expected monthly sales in units were divided equally between the two models (900 Standard and 900 Deluxe), the break-even level of sales would be

A)lower than with the expected sales mix.
B)higher than with the expected sales mix.
C)the same as with the expected sales mix.
D)cannot be determined with the available data.

Question 36

Reynold Electronics sells a single product for £25. The variable expense per unit is £15 and the fixed expense per unit is £5 at the current level of sales. The company's net operating income will increase by £5 if one more unit is sold

Question 37

All other things the same, which of the following would be true of the contribution margin and variable expenses of a capital-intensive company with fixed costs and low variable costs as compared to a labour-intensive company with low fixed costs and high variable costs

A)Contribution Margin - HIGHER; Variable Costs - HIGHER
B)Contribution Margin - LOWER; Variable Costs - HIGHER
C)Contribution Margin - HIGHER; Variable Costs - LOWER
D)Contribution Margin - LOWER; Variable Costs - LOWER

Question 38

Solen Company's break-even-point in sales is £900,000, and its variable expenses are 75% of sales. If the company lost £32,000 last year, sales must have amounted to

A)£868,000.
B)£804,000.
C)£772,000.
D)£628,000.

Question 39

James Company has a margin of safety percentage of 20%. The
Break-even point is £200,000 and the variable expenses are 45% of
Sales. Given this information, the net operating income is

A)£27,500.
B)£18,000.
C)£22,500.
D)£22,000.

Question 40

Fawn Company's margin of safety is £90,000. If the company's sales drop by £80,000, it will still have positive net operating income.

Question 41

Turner Company's contribution margin ratio is 15%. If the degree of operating leverage is 12 at the £150,000 sales level, net operating income at the £150,000 sales level must equal

A)£1,500.
B)£2,700.
C)£2,160.
D)£1,875.

Question 42

The margin of safety is

A)the excess of budgeted or actual sales over budgeted or actual variable expenses.
B)the excess of budgeted or actual sales over budgeted or actual fixed expenses.
C)the excess of budgeted or actual sales over the break-even volume of sales.
D)the excess of budgeted net operating income over actual net operating income.

Question 43

The contribution margin ratio is 25% for Grain Company and the break-even point in sales is £200,000. If Grain Company's target net operating income is £60,000, sales would have to be

A)£260,000.
B)£440,000.
C)£280,000.
D)£240,000.

Question 44

Incremental analysis is an analytical approach that focuses only on those items of revenue and cost that will change as a result of a decision

Question 45

Two companies with identical levels of sales and profits can be expected to have the same margin of safety percentage.

Question 46

The degree of operating leverage is computed by dividing sales by the contribution margin

Question 47

Moon Company sells its product for £6 a unit. Next year, fixed expenses are expected to be £200,000 and variable expenses are estimated at £4 a unit. How many units must Moon sell to generate net operating income of £40,000

A)50,000 units
B)60,000 units
C)100,000 units
D)120,000 units

Question 48

Southwest Industries produces a sports glove that sells for £15 per pair. Variable expenses are £8 per pair and fixed expenses are £35,000 annually.
The break-even point for Southwest industries is

A)8,000 pairs.
B)5,000 pairs.
C)4,375 pairs.
D)2.333 pairs.

Question 49

The degree of operating leverage in a company is smallest at the break-even point and increases as sales rise.

Question 50

Rothe Company manufactures and sells a single product that it sells for £90 per unit and has a contribution margin ratio of 35%. The company's fixed expenses are £46,800. If Rothe desires a monthly target net operating income equal to 15% of sales, sales will have to be (rounded)

A)1,486 units.
B)3,467 units.
C)1,040 units.
D)2,600 units.

Question 51

Assuming no change in the level of fixed expenses, the addition to a company's sales mix of a product with a low contribution margin that increases the total contribution margin could also increase the break-even point expressed in pounds.

Question 52

Last year Easton Company reported sales of £720,000, a contribution margin ratio of 30% and a net loss of £24,000. Based on this information, the break-even point was

A)£640,000.
B)£880,000.
C)£744,000.
D)£800,000.

Question 53

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

A)(Sales - Fixed expenses)/Sales
B)(Sales - Cost of goods sold)/Sales
C)(Sales - Variable expenses)/Sales
D)(Sales - Total expenses)/Sales

Question 54

Southwest Industries produces a sports glove that sells for £15 per pair. Variable expenses are £8 per pair and fixed expenses are £35,000 annually.
The contribution margin ratio is closest to

A)46.7%.
B)53.3%.
C)33.3%.
D)42.9%.

Question 55

The Herald Company manufactures and sells a single product that 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 pounds, sales in units will have to be (rounded)

A)2,500 units.
B)5,000 units.
C)1,666 units.
D)1,000 units.

Question 56

Garth Company sells a single product. If the selling price per unit and the variable expense per unit both increase by 10% and fixed expenses do not change, then

A)Contribution margin per unit - INCREASES; Contribution margin ratio - INCREASES; Break-even in Units - DECREASES
B)Contribution margin per unit - NO CHANGE; Contribution margin ratio - NO CHANGE; Break-even in Units - NO CHANGE
C)Contribution margin per unit - NO CHANGE; Contribution margin ratio - INCREASES; Break-even in Units - NO CHANGE
D)Contribution margin per unit - INCREASES; Contribution margin ratio - NO CHANGE; Break-even in Units - DECREASES

Question 57

The variable expense per unit is £12 and the selling price per unit is £40. Then the contribution margin ratio is 70%

Question 58

The larger the contribution margin ratio, the smaller the amount of sales required to cover a given amount of fixed expenses.

Question 59

On a CVP graph for a profitable company, the total revenue line will be steeper than the total expense line.

Question 60

The contribution margin ratio is 30% for the Honeyville Company and the break-even point in sales is £150,000. If the company's target net operating income is £60,000, sales would have to be

A)£200,000.
B)£350,000.
C)£250,000.
D)£210,000.

Question 61

List the limitations of the Cost-Volume-profit graph.

Question 62

Long Company's variable expenses are 60% of sales. A £1,200 increase in the company's fixed expenses will increase the break-even point in sales by £3,000

Question 63

The following information relates to a month's production of WER Ltd, a small manufacturing company mass-producing a single product.
Materials £4.00
Labour per unit £6.00
Fixed costs per month £40,000
Production capacity per month 10,000 units
Selling price per unit £17.00
Current level of sales per month 7,000 units
Required
a) Calculate the break-even point in units and
Calculate the current level of profit per month
b) The Marketing Manager of ABC Ltd. suggests that the company should increase the product's selling price to £20 and upgrade the quality of the product by spending an additional £2.00 per unit on materials. Fixed costs would be increased by £2,000. It is estimated that sales per month would drop to 6,500 units.
What would be the effect on ABC Ltd's profitability of implementing the above policy?

Question 64

The impact on net operating income of a given pound change in sales can be computed by applying the contribution margin ratio to the pound change in sales

Question 65

Cajan Ham - Cost, Profit, Break Even Graph
The above (rough) graph shows, in a picture form, marginal cost and break-even information about the production and sale of a single product.
A ?
B ?
C 500 units - the current sales this year
D 300 units
E 100 units - the forecast sales next year
F ?
G £300,000
H £100,000
REQUIRED
Explain the point indicated by A on the graph.
Explain the distance indicated by B on the graph.
Explain the distance indicated by F on the graph.

Question 66

Explain the advantages and limitations of using the variable costing approach to decision making. When is it useful, when is it not?

Question 67

A company produces and sells two products with the following details:
Product X Product Y
Selling Price £1 £1
Variable costs £0.45 £0.60
Fixed costs £1,212,000 per period
Total sales revenue is currently generated by the two products in the following proportions:
Product X 70 per cent
Product Y 30 per cent
Required: Calculate the break-even sales units per period, based on the sales mix assumed above.

Question 68

The break-even point in units is calculated using

A)fixed expenses and the contribution margin ratio.
B)variable expenses and the contribution margin ratio.
C)fixed expenses and the unit contribution margin.
D)variable expenses and the unit contribution margin.

Question 69

The following graph shows, in a picture form, marginal cost and break-even information about the production and sale of a single product.
A ?
B ?
C 500 units - the current sales this year
D 300 units
E 100 units - the forecast sales next year
F ?
G £300,000
H £100,000
From the information given about the graph above calculate the following:
The selling price per unit
The variable cost per unit
The contribution per unit
The break-even point in units
The margin of safety in units at the present level of sales
The margin of safety in units at the forecast level of sales
In view of the likely deterioration of sales for next year give some ideas as to what management could do about the situation (other than launch a new product).
In view of the forecast reduction in sales Cajan Ham have decided to launch a new product. The product would be made separately from the present product. The forecast financial details are as follows:
Selling price £25
Variable cost £15
Annual Fixed costs £1,000,000
Forecast sales £2,000,000
Required
a. Calculate the break-even point in number of units sold.
b. Calculate the break-even point in £'s of sales.
c. What unit level of sales would Cajam Ham have to achieve to enable them to achieve a profit of £150,000?
d. What limitations are there to the break-even analysis you have just carried out?

Question 70

Contribution margin is the amount remaining after

A)variable expenses have been deducted from sales revenue.
B)fixed expenses have been deducted from sales revenue.
C)fixed expenses have been deducted from variable expenses.
D)cost of goods sold has been deducted from sales revenues.

Question 71

Mark Company currently sells a video recorder with a selling price of £300 per unit. The variable expense per unit is £175 and fixed expenses are £100,000. If the company reduces variable expenses by £20 per unit and increases the fixed expenses by £10,000, the break-even point will increase

Question 72

Using your own words, analyse the situation that Prem Narayan finds himself in, and suggest a solution.