Caution: The following questions were extracted from past exams.

They are
intended for you to become familiar with the types and formats of questions that
you will be asked on the upcoming exam. Studying ONLY these sample questions
will not adequately prepare you for the exam. You should also review notes,
homework problems, end-of-chapter review questions, and other materials that
your instructor provided you.

QUESTIONS 1 THROUGH 4 ARE BASED ON THE FOLLOWING INFORMATION:

Volunteers Company had the following income statement for the most recent year:

Total Per unit

Sales (15,000 units) $150,000 $10
Less: Variable expenses 90,000 6
Contribution margin 60,000 $ 4
Less: Fixed expenses 50,000
Net income $ 10,000

What will be the operating income, if sales volume increases by 15%?

A.$19,000
B.$11,500
C.$20,450
D.$18,350

Refer to the original data, what will be the operating income (loss), if the selling price
decreases by $3 and the sales volume increases by 50%?
A.$22,500
B.($27,500)
C.$29,750
D.($32,850)

Refer to the original data, volunteers’ breakeven point in units is

A.18,000
B.4,400
C.11,000
D.12,500

Refer to the original data, how many units of the product must be sold for Volunteers to
realize an operating income of $30,000?
A.19,000
B.20,000
C.22,000
D.23,000

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 The Bulldogs Company has the following sales projection for November:

Projected sales for the month $1,000,000

Project sales at breakeven point $800,000

What is Bulldogs’ margin of safety for November?

A.30%
B.80%
C.20%
D.100%

QUESTIONS 6 AND 7 ARE BASED ON THE FOLLOWING INFORMATION

The Tigers Company sells two products with the following data:

Product A Product B Total

Sales $100,000 $100,000 $200,000
Variable costs 70,000 55,000 125,000
Contribution margin $ 30,000 $ 45,000 $ 75,000

Contribution margin ratio 30% 45% 37.5%

The company’s fixed expenses total $45,000 per month.

Based on the current sales mix, the breakeven point for the company is
A. $200,000
B. $175,000
C. $120,000
D. $150,000

Based on the current sales mix, if total sales increase by $30,000 per month, by how much
will the company’s operating income increase?
A.$11,250
B.$60,000
C.$12,500
D.$90,000

For a company that has an operating leverage that is equal to 5, if sales increase 20%
operating income will
A.increase 20%
B.increase 100%
C.decrease 20%
D.decrease 100%

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 If a company decreases the variable expense per unit while other costs and selling price
remain unchanged
A. contribution margin per unit will decrease.
B. contribution margin per unit will increase.
C. breakeven point will increase.
D. net income will decrease.

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

QUESTIONS 11 AND 12 ARE BASED ON THE FOLLOWING INFORMATION:

Gamecocks Store, a retailer, has the following data relating to the month of October:

Sales price $500,000

Cost of goods sold (all variable) 200,000
Variable selling expense 50,000
Fixed selling and administrative expense 100,000

Gamecocks’ gross profit for the month is

A.$250,000
B.$150,000
C.$300,000
D.$180,000

Gamecocks’ contribution margin for the month is

A.$250,000.
B.$150,000
C.$300,000.
D.$180,000.

In an income statement prepared using the absorption costing method, which of the following
terms should appear?

Contribution Gross profit

margin (margin)
A. No Yes
B. No No
C. Yes No
D. Yes Yes

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 Total fixed costs normally would be shown separately under an income statement prepared
under

Absorption Variable
costing costing
A. No No
B. No Yes
C. Yes Yes
D. Yes No

QUESTIONS 15 AND 16 ARE BASED ON THE FOLLOWING INFORMATION:

Gamecocks Store, a retailer, has the following data relating to the month of October:

Sales $500,000 100%

Total variable costs 300,000 60%
Contribution margin 200,000 40%
Fixed selling and administrative expense 100,000
Operating income 100,000

What is the amount of sales that Gamecocks will have to achieve at the break-even point?
A.$500,000
B.$300,000
C.$250,000
D.$180,000

What is the amount of sales that Gamecocks will have to achieve to realize a target net
income of $90,000?
A.$475,000.
B.$725,000
C.$300,000.
D.$190,000.

The term “gross profit” appears on an income statement prepared under which of the costing
methods?
A. Direct costing only.
B. Both direct costing and absorption costing.
C. Absorption costing only.
D. Neither direct costing nor absorption costing.

On an income statement prepared under the variable costing method, total contribution margin
can be obtained by
A. Subtracting cost of goods sold from sales.
B. Adding operating income to total fixed costs.
C. Adding operating income to total variable costs.
D. Subtracting total fixed costs from sales.

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QUESTIONS 19 THROUGH 23 ARE BASED ON THE FOLLOWING INFORMATION.

The 49ers Company makes a single product---a bobbling head miner. The product is sold globally via
the Internet to Charlotte fans all over the world. Data for last month’s operations follow:

Sales price per unit $ 30.00

Variable costs per unit:
Direct materials 10.00
Direct labor 6.00
Variable manufacturing overhead 3.00
Variable selling expense 5.00
Total fixed costs per month:
Factory overhead 44,000
Selling and administrative 36,000

Beginning inventory 0 units

Production 22,000 units
Sales 20,000 units

What is the amount of inventory cost per unit computed under the variable costing method?
A. $30.
B. $25.
C. $22.
D. $19.

What is the amount of inventory cost per unit computed under the absorption costing method?
A.$30.
B.$21
C.$25.
D.$19.

What is the amount of total selling and administrative expenses that would appear on an
income statement prepared using the absorption costing method?
A.$146,000
B.$136,000
C.$240,000
D.$360,000

What is the amount of operating income computed under the variable costing method?
A.$64,000
B.$40,000.
C.$180,000.
D.$120,000.

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What is the amount of operating income computed under the absorption costing method?
A. $44,000.
B. $60,000.
C. $180,000.
D. $120,000.

Which of the following statements is true? In general, when there is an increase in inventory
during a period
A. The amount of operating income computed under absorption costing will be lower than
the amount of operating income computed under direct costing.
B. The amount of operating income computed under absorption costing will be higher than
the amount of operating income computed under direct costing.
C. The amount of contribution margin computed under absorption costing will be lower
than the amount of contribution margin computed under variable costing.
D. The amount of gross margin computed under variable costing will be higher than the
amount of gross margin computed under absorption costing.

Which of the following income statement formats is generally used for external reporting?
A. Variable costing format.
B. Absorption costing format.
C. Flexible budget format.
D. Contribution format.

A “bucket” in which costs are accumulated that relate to a single activity measure in the
activity-based costing system is commonly known as:
A. An activity measure.
B. An activity cost pool.
C. A cost driver.
D. A duration driver.

Which of the following is NOT a limitation of activity-based costing?

A. Maintaining an activity-based costing system is more costly than maintaining a
traditional direct labor-based costing system.
B. Changing from a traditional direct labor-based costing system to an activity-based
costing system changes product margins and other key performance indicators used by
managers. Such changes are often resisted by managers.
C. ABC data can easily be misinterpreted and must be used with care when used in making
decisions.
D. Activity-based management (ABM) can be used in conjunction with ABC to improve
processes and reduce costs.

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QUESTIONS 28 AND 29 ARE BASED ON THE FOLLOWING INFORMATION

Crimson Tide Company has two products: A and B. The annual production and sales of Product A is
500 units and of Product B is 1,000 units. The company has traditionally used direct labor-hours as
the basis for applying all manufacturing overhead to products. Product A requires 0.4 direct labor
hours per unit and Product B requires 0.2 direct labor hours per unit. The total estimated overhead for
next period is $68,000.

The predetermined overhead rate under the traditional costing system is closest to:
A.$11.71 per direct labor hour.
B.$38.69 per direct labor hour.
C.$170.00 per direct labor hour
D.$23.87 per direct labor hour.

The overhead cost per unit of Product B under the traditional costing system is closest to:
A.$2.34.
B.$7.74.
C.$4.77.
D.$34.00.

THE ACTIVITIES IDENTIFIED IN QUESTIONS 30 THROUGH 32 RELATE TO THE

COMMANDORES MANUFACTURING COMPANY, A MANUFACTURER OF A VARIETY
OF PRODUCTS.

Changing machine setting between batches of different products is a(an)

A.Unit-level activity.
B.Batch-level activity.
C.Product-level activity.
D.Organization-sustaining activity

Preparation of the company’s annual report by the accounting department is a(an)

A.Unit-level activity.
B.Batch-level activity.
C.Product-level activity.
D.Organization-sustaining activity.

Making a sales call by a manufacturing representative is a(an)

A.Customer-level activity.
B.Product-level activity.
C.Batch-level activity.
D.Organization-sustaining activity

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QUESTIONS 33 AND 34 ARE BASED ON THE FOLLOWING DATA:

Gators Manufacturing Company uses an activity-based costing system with three activity cost
pools: Order Size; Customer Support; and Other. The company has provided the following data
concerning its costs and its activity based costing system:

Costs:
Manufacturing overhead $600,000
Selling and administrative expenses $300,000
Total $900,000

Distribution of resource consumption:

Activity Cost Pools

Order Customer
Size Support Other Total
Manufacturing overhead 60% 30% 10% 100%
Selling and administrative expenses 50% 45% 5% 100%

The "Other" activity cost pool consists of the costs of idle capacity and organization-sustaining
costs.

How much cost, in total, would be allocated to the “Order Size” activity cost pool?
A.$510,000
B.$600,000
C.$240,000
D.$700,000

How much cost, in total, would be to the “Customer Support” activity cost pool?
A.$400,000
B.$305,000
C.$315,000
D.$700,000

QUESTIONS 35 AND 36 ARE BASED ON THE FOLLOWING QUESTIONS:

The Blue Raiders Company is a wholesale distributor that uses activity-based costing for all of its
overhead costs. The company has identified two activities: Filling Orders activity and Customer
Support activity. The company has the following budgeted data:

Activity Cost Pool Total Cost Total Activity

Filling orders $300,000 30,000 orders
Customer support $100,000 200 customers

What is the activity rate for the “Filling Orders” activity?

A. $500 per customer
B. $1,000 per customer
C. $10 per order
D. $1,000 per order
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What is the activity rate for the “Customer Support” activity?
A.$500 per customer
B.$1,000 per customer
C.$10 per order
D.$1,000 per order

The Rebels Bank & Trusts Company (RBTC) uses an activity-based costing system. For the
year 2007, RBTC has the following activity rates:

Opening accounts $20 per new account

Processing deposits and withdrawals $2 per deposit or withdrawal
Processing other customer transactions $30 per other transaction.

During October 2007, Phillip Fulmer, a new customer, opened an account with the bank
and used the following services:

Made 20 deposits
Made 30 withdrawals
Applied for a $5,000 loan (considered “other transaction.”)

What is the bank’s total cost for servicing Phil during the month of October?
A. $20
B. $30
C. $50
D. $150

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 SUGGESTED ANSWERS

Q A Q A
1 A 28 C
2 B 29 D
3 D 30 B
4 B 31 D
5 C 32 A
6 C 33 A
7 A 34 C
8 B 35 C
9 B 36 A
10 C 37 D
11 C
12 A
13 A
14 B
15 C
16 A
17 C
18 B
19 D
20 B
21 B
22 B
23 A
24 B
25 B
26 B
27 D