Question 1

Jasper Company makes two versions of one product, Standard and Deluxe. In November, sales of standard and Deluxe amount to $680,000 and $520,000, respectively. The contribution margin ratio for Standard is 30% and Standard had direct fixed production and administrative costs of $125,000. The contribution margin ratio for Deluxe was 40% and direct fixed costs were $160,000. Common costs that couldn't be allocated in a meaningful way were $100,000.
Prepare a segmented income statement for the month of November.

Accepted Answer

The answer of Jasper Company makes two versions of one...

Question 2

Which of the following does not appear on an income statement prepared using variable costing?

Accepted Answer

A) Gross margin/profit. 
B) Manufacturing margin 
C) Fixed production costs. 
D) Variable production costs.

Question 3

In performing an activity-based costing study for distribution costs, appropriate cost drivers for preparing orders for shipment would include all of the following except the:

Accepted Answer

A) Number of orders shipped. 
B) Time spent packing orders. 
C) Time devoted to selling each product. 
D) Number of items per order.

Question 4

Break-even sales volume in units is determined by:

Accepted Answer

A) Dividing the fixed cost by the difference between the unit selling price and unit variable costs. 
B) Subtracting the fixed cost from the contribution margin. 
C) Dividing the fixed cost by the unit selling price. 
D) Subtracting the variable cost per unit from the unit selling price.

Question 5

Each of the following would affect the break-even point except a change in the:

Accepted Answer

A) Variable cost per unit. 
B) Total fixed costs. 
C) Sales price per unit. 
D) Number of units sold.

Question 6

Segment profitability analysis may be used to evaluate the profitability of:

Accepted Answer

A) Divisions. 
B) Sales territories. 
C) Product lines. 
D) All of these are correct.

Question 7

The Company is planning to sell Product Z for $10 a unit. Variable costs are $6 a unit and fixed costs are $100,000. What must total sales be to break even?

Accepted Answer

A) $266,667 
B) $250,000 
C) $200,000 
D) $166,667

Question 8

When evaluating profitability of a segment, costs that would disappear if the company eliminated the segment are called:

Accepted Answer

A) Direct costs. 
B) Common costs. 
C) Indirect costs. 
D) Fixed costs.

Question 9

The Blue Saints Band is holding a concert in Toronto. Fixed costs relating to staging a concert are $350,000. Variable costs per patron are $5.00. The selling price for a tickets $25.00. The Blue Saints Band has sold 23,000 tickets so far. How many tickets does the Blue Saints Band need to sell to achieve net income of $75,000.

Accepted Answer

A) 21,250 
B) 14,000 
C) 17,500 
D) 17,000

Question 10

The Blue Saints Band is holding a concert in Toronto. Fixed costs relating to staging a concert are $350,000. Variable costs per patron are $5.00. The selling price for a tickets $25.00. The Blue Saints Band has sold 23,000 tickets so far. How many tickets does the Blue Saints Band need to sell to break even?

Accepted Answer

A) 23,000 
B) 20,000 
C) 14,000 
D) 17,500

Question 11

Tress Enterprises manufactures shampoo and conditioner. Last year, Tress sold 120,000 bottles of product. Unit sales of conditioner amounted to 60% of the number of units of shampoo. This trend is expected to continue. The selling price for both products is $12.00, however, the variable cost of a unit of shampoo is $6.00, while the variable cost of a unit of conditioner is $8.00. Fixed costs are expected to be $420,000.
(a) Compute the number of each product sold.
(b) Compute the weighted-average contribution margin per unit.
(c) Compute the overall break-even point in units.
(d) Compute the unit sales of shampoo and conditioner at the break-even point.
(e) Compute the dollar sales of shampoo and conditioner at the break-even point.

Accepted Answer

The answer of Tress Enterprises manufactures shampoo and conditioner. Last...

Question 12

Nolan Company has two segments: Audio and Video. Sales for the Audio Segment were $500,000, and variable costs were 40% of sales. The Video Segment also had sales of $500,000, but variable costs were 60% of sales. Fixed costs directly traceable to the Audio and Video segments were $150,000 and $120,000, respectively. Common fixed costs of $200,000 were arbitrarily allocated equally to each segment. What was the contribution margin of the Audio Segment.

Accepted Answer

A) $50,000 
B) $300,000 
C) $200,000 
D) $150,000

Question 13

Consider the Marshall Company's segment analysis:  Common costs are allocated arbitrarily based on sales dollars. If Marshall eliminates Segment B, what is the impact on the operating loss of the company?

Accepted Answer

A) The loss decreases by $40,000. 
B) The loss increases by $20,000. 
C) The loss decreases by $60,000. 
D) The loss increases by $40,000.

Question 14

The practice of accepting a selling price when there is excess capacity, as long as it exceeds variable cost is called:

Accepted Answer

A) Contribution pricing. 
B) Differential pricing. 
C) Capacity pricing. 
D) Special pricing.

Question 15

Net income reported under absorption costing will exceed net income reported under variable costing for a given period if:

Accepted Answer

A) Production equals sales for that period. 
B) Production exceeds sales for that period. 
C) Sales exceed production for that period. 
D) The variable overhead exceeds the fixed overhead.

Question 16

Westwood Gear, Inc., recently received a special order to manufacture 10,000 units for a Canadian company. This order specified that the selling price per unit should not exceed $50. Since the order was received without the effort of the sales department, no commission would be paid. However, an export handling charge of $5 per unit would be incurred. Management anticipates that acceptance of the order will have no effect on other sales.
The company is now operating at 80 percent of capacity, or 80,000 units, and expects to continue at this level for the coming year without the Canadian order. Unit costs based on estimated actual capacity for the coming year include:  Prepare an analysis showing the effect on profits if the special order is accepted by the company. Based on your analysis, should the order be filled, and why?

Accepted Answer

The answer of Westwood Gear, Inc., recently received a special...

Question 17

Bradley Inc. has the capacity to make 100,000 windows. Bradley is currently operating at 80% capacity. The windows usually sell for $20.00 each. Costs for each window follow:  The Army has offered to buy 10,000 windows for $12.00 each for barracks. Bradley should:

Accepted Answer

A) Reject the offer because it currently does not have enough capacity to accept the order. 
B) Reject the order because the company will lose $20,000 on the order. 
C) Accept the offer because the company will realize $20,000 in additional contribution margin. 
D) Accept the offer because the company will realize $40,000 in additional contribution margin.

Question 18

The Blue Saints Band is holding a concert in Toronto. Fixed costs relating to staging a concert are $350,000. Variable costs per patron are $5.00. The selling price for a tickets $25.00. The Blue Saints Band has sold 23,000 tickets so far. At the current level of sales, what is the margin of safety ratio?

Accepted Answer

A) 20.0% 
B) 23.9% 
C) 15.2% 
D) 31.3%

Question 19

The excess of revenue over variable costs, including manufacturing, selling and administrative, is called:

Accepted Answer

A) Gross margin. 
B) Manufacturing margin. 
C) Contribution margin. 
D) Segment margin.

Question 20

The Company is planning to sell Product Z for $10 a unit. Variable costs are $6 a unit and fixed costs are $100,000. If the company is currently selling 30,000 units, what is the margin of safety in units?

Accepted Answer

A) 5,000 
B) 10,000 
C) 25,000 
D) 20,000

Exam 10: Cost Analysis for Management Decision Making