Question 1

Contemporary Corp. sells a single product for $80. Variable costs are 40%% of the selling price, and the company has fixed costs that amount to $500,000. Current sales total 18,000 units. In order to produce a target profit of $22,000, Contemporary's dollar sales must total:

Accepted Answer

A) $36,667. 
B) $833,333. 
C) $870,000. 
D) $1,250,000. 
E) $1,305,000.

Question 2

Many firms are moving toward flexible manufacturing systems and adopting the just-in-time (JIT) philosophy.
Required:
A. How is cost behaviour altered in the typical flexible manufacturing environment as compared to a traditional manufacturing system? What is the impact on the break-even point? Explain.
B. One of the assumptions underlying cost-volume profit analysis is that sales volume and production volume are equal. Stated another way, inventories are assumed to remain constant. Is this assumption likely to be violated under an ongoing JIT philosophy? Explain.

Accepted Answer

The answer of Many firms are moving toward flexible manufacturing...

Question 3

OakWoods Corporation, which uses throughput costing, began operations at the start of the 2012 fiscal year. Planned and actual production equaled 50,000 units, and sales totalled 45,000 units at $80 per unit. Cost data for 2012 were as follows: $\begin{array}{lr}
\text { Direct materials (per unit) }&\$25\
\text { Conversion cost: }\
\text { Direct labour } & 220,000 \
\text { Variable manufacturing overhead } & 340,000 \
\text { Fixed manufacturing overhead } & 525,000 \
\text { Selling and administrative costs: } & \
\text { Variable (per unit) } &10 \
\text { Fixed }& 230,000
\end{array}$ The company classifies direct materials as a throughput cost.
Required:
A. What is meant by the term "throughput costing"?
B. Compute the cost of the company's year-end inventory.
C. Prepare OakWoods' income statement for the year in good form using throughput costing.

Accepted Answer

The answer of OakWoods Corporation, which uses throughput costing, began...

Question 4

The contribution-margin ratio is defined as:

Accepted Answer

A) the difference between the selling price and the variable cost per unit. 
B) fixed cost per unit divided by variable cost per unit. 
C) variable cost per unit divided by the selling price. 
D) unit contribution margin divided by the unit selling price. 
E) unit contribution margin divided by fixed cost per unit.

Question 5

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:

Accepted Answer

A) selling price. 
B) variable cost. 
C) contribution margin. 
D) fixed cost. 
E) gross margin.

Question 6

The computation of absorption costing gross profit always involves subtracting:

Accepted Answer

A) all current-year fixed manufacturing overhead. 
B) some, but not all, current-year fixed manufacturing overhead. 
C) all fixed manufacturing overhead applied to units sold in the current year. 
D) no fixed manufacturing overhead. 
E) variable cost of goods sold.

Question 7

Bowmanville Manufacturing Company is studying the profitability of a change in operation and has gathered the following information: $\begin{array} { | l | c | c | } 
\hline & \begin{array} { c } 
\text { Current } \
\text { Operation }
\end{array} & \begin{array} { c } 
\text { Anticipated } \
\text { Operation }
\end{array} \
\hline \text { Fixed costs } & \text { S38,000 } & \$ 48,000 \
\hline \text { Selling price } & \text { S16 } & \$ 22 \
\hline \text { Variable cost } & \text { S10 } & \$ 12 \
\hline \text { Sales (units) } & 9,000 & 6,000 \
\hline
\end{array}$ Should Bowmanville make the change?

Accepted Answer

A) Yes, the company will be better off by $6,000. 
B) No, because sales will drop by 3,000 units. 
C) No, because the company will be worse off by $4,000. 
D) No, because the company will be worse off by $22,000. 
E) It is impossible to judge because additional information is needed.

Question 8

Bonsai Company incurred the following costs during the past year when planned production and actual production each totaled 20,000 units: $\begin{array} { l r } 
\text { Direct materials used } & \$ 400,000 \
\text { Direct labour } & 320,000 \
\text { Variable manufacturing overhead } & 260,000 \
\text { Fixed manufacturing overhead } & 200,000 \
\text { Variable selling and administrative costs } & 80,000 \
\text { Fixed selling and administrative costs } & 70,000
\end{array}$ If Bonsai uses variable costing, the total inventoriable costs for the year would be:

Accepted Answer

A) $720,000. 
B) $800,000. 
C) $980,000. 
D) $1,060,000. 
E) $1,330,000.

Question 9

Skinner Manufacturing reported sales revenue of $3,800,000, variable costs of $800,000, and fixed costs of $300,000. If these data are based on the sale of 20,000 units, the break-even point in units would be:

Accepted Answer

A) 1,714 units. 
B) 2,000 units. 
C) 2,222 units. 
D) 4,571 units. 
E) 5,333 units.

Question 10

Which of the following methods defines product cost as the unit-level cost incurred each time a unit is manufactured?

Accepted Answer

A) Throughput costing. 
B) Indirect costing. 
C) Process costing. 
D) Absorption costing. 
E) Back-flush costing.

Question 11

A recent income statement of Toronto Corporation reported the following data: units sold 10,000; sales revenue $9,500,000; variable costs $4,000,000; fixed costs $1,600,000. If Dagwood wanted to earn a target net profit of $1,150,000, it would have to sell:

Accepted Answer

A) 2,091 units. 
B) 2,895 units. 
C) 3,481 units. 
D) 5,000 units. 
E) 6.875 units.

Question 12

The budget of Nightingale Company for the upcoming year revealed the following figures: sales revenue $900,000; contribution margin $604,000; net income $58,000. If the company's break-even sales total $800,000, Nightingale's safety margin would be:

Accepted Answer

A) $58,000. 
B) $100,000. 
C) $196,000. 
D) $296,000. 
E) $742,000.

Question 13

WenWen Company makes and sells two types of peanut butter, Smooth and Chunky. Data concerning these products are as follows: $\begin{array} { l c c } 
& \text { Smooth } & \text { Chunky } \
\text { Unit selling price } & \$ 40.00 & \$ 55.00 \
\text { Variable cost per unit } & 16.00 & 24.50
\end{array}$ Forty percent of the unit sales are Chunky, and annual fixed expenses are $159,600. Assuming that the sales mix remains constant, the total number of units that the company must sell to break even is:

Accepted Answer

A) 2,928. 
B) 5,233. 
C) 5,720. 
D) 6,000. 
E) 6,650.

Question 14

WenWen Company makes and sells two types of peanut butter, Smooth and Chunky. Data concerning these products are as follows: $\begin{array} { l c c } 
& \text { Smooth } & \text { Chunky } \
\text { Unit selling price } & \$ 40.00 & \$ 55.00 \
\text { Variable cost per unit } & 16.00 & 24.50
\end{array}$ Forty percent of the unit sales are Chunky, and annual fixed expenses are $159,600. The weighted-average unit contribution margin is:

Accepted Answer

A) $24.00. 
B) $26.60. 
C) $27.90. 
D) $30.50. 
E) $54.50.

Question 15

Robertson Company, which began business at the start of 2012, had the following data: Planned and actual production: 40,000 units
Sales: 37,000 units at $15 per unit
Production costs: Variable, $4 per unit; Fixed, $260,000
Selling and administrative costs: Variable $1 per unit; Fixed $32,000
The gross margin that Robertson would disclose on its 2012 absorption-costing income statement is:

Accepted Answer

A) $97,500. 
B) $147,000. 
C) $166,500. 
D) $370,000. 
E) $403,500.

Question 16

Discuss a company's choice to use either absorption or variable costing is as their costing system for internal decision making. Why do many firms maintain accounting records under both systems?

Accepted Answer

The answer of Discuss a company's choice to use either...

Question 17

Beach Craft Corporation has fixed manufacturing cost of $12 per unit. Consider the three independent cases that follow.
Case A: Absorption- and variable costing net income each totalled $240,000 in a period when the firm produced 18,000 units.
Case B: Absorption-costing net income totalled $320,000 in a period when finished-goods inventory levels rose by 7,000 units.
Case C: Absorption-costing net income and variable-costing net income respectively totalled $220,000 and $250,000 in a period when the beginning finished-goods inventory was 14,000 units.
Required:
A. In Case A, how many units were sold during the period?
B. In Case B, how much income would Beach Craft report under variable costing?
C. In Case C, how many units were in the ending finished-goods inventory?

Accepted Answer

The answer of Beach Craft Corporation has fixed manufacturing cost...

Question 18

Which of the following statements pertain to variable costing?

Accepted Answer

A) This method must be used for external financial reporting. 
B) Fixed manufacturing overhead is attached to each unit produced. 
C) The income statement discloses a company's gross margin. 
D) Variable manufacturing overhead is immediately expensed. 
E) Fixed not fixed manufacturing overhead is not applied to work in process as a product cost.

Question 19

All of the following are inventoried under variable costing except:

Accepted Answer

A) direct materials. 
B) direct labour. 
C) variable manufacturing overhead. 
D) fixed manufacturing overhead. 
E) variable manufacturing overhead and fixed manufacturing overhead.

Question 20

The following information relates to Paterno Company: $\begin{array} { | l | r | } 
\hline \text { Sales revenue } & \$ 10,000,000 \
\hline \text { Contribution margin } & 4,000,000 \
\hline \text { Net income } & 1,000,000 \
\hline
\end{array}$ 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:

Accepted Answer

A) 0.25. 
B) 0.40. 
C) 2.50. 
D) 4.00. 
E) 10.00.

Exam 7: Cost-Volume-Profit Analysis, Absorption and Variable Costing