Cost accounting

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Cost accounting

© All Rights Reserved

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You are on page 1of 7

Pre test

1The contribution margin at the break-even point

a. equals total fixed costs.

b. plus total fixed costs equals total revenues.

c. is zero.

d. is greater

than variable

costs.

2 Lassler Company produces two products, X and Y, which account for 60 percent and

40 percent, respectively, of total sales dollars. Contribution margin ratios are 55 percent

for X and 35 percent for Y. Total fixed costs are $145,700. What is Lassler's break-even

point in sales dollars?

ncorrect. SUPPORTING CALCULATIONS:

Average CM rate = (0.6)(0.55) + (0.4)(0.35) = 0.47

$145,700/0.47 = $310,000

3.

a. $500,000

b. $117,000

c. $150,000

d. $175,500

Product 1 has a contribution margin of $6.00 per unit, and Product 2 has a

contribution margin of $7.50 per unit. Total fixed costs are $300,000. Sales mix and

total volume vary from one period to another. Which of the following is true?

4.

a. At a sales volume in excess of 25,000 units of 1 and 25,000 units of 2, operations will be profitable.

b. The contribution margin per unit of direct materials is lower for 1 than for 2.

c. The ratio of contribution to total sales always will be larger for 1 than for 2.

d. The ratio of net profit to total sales for 2 will be larger than the ratio of net profit to total sales for 1.

5.

b. (Total fixed cost + Price)/(Target income Variable cost per unit)

c. (Total fixed cost + Target income)/(Price Variable cost per unit)

d. (Total fixed cost + Total variable cost)/(Target income)

Incorrect. The equation to compute a target profit in terms of units is: (Total fixed cost + Target income)/

(Price Variable cost per unit).

6. The following data pertain to the three products produced by Fenwich Corporation:

Fifty percent of all units sold are Product A, 40 percent are Product B, and 10 percent are Product C.

What is the monthly break-even point for total units?

a. 57,500 units

b. 45,489 units

c. 51,175 units

d. 15,140 units

Average CM per unit = (0.5 $1.26) + (0.4 $2) + (0.1 $3.50) = $1.78

$102,350/$1.78 = 57,500 units

a. a volume of 1,000 units.

b. the origin.

c. a point where profit is greater than zero.

d. the break-even point.

Incorrect. On a profit-volume graph, the profit line intersects the horizontal axis at the break-even point.

How many units need to be sold to produce a before-tax profit of $100,000, using ABC?

a. 12,500 units

b. 14,400 units

c. 81,000 units

d. 28,800 units

[$250,000 + ($1,200 x 80) + ($65 x 2,000) + $100,000]/($40 - $20) = 28,800 units

a. 11,800 units

b. 26,800 units

c. 12,500 units

d. 150,000 units

10 Holding all other things the same, if there was a decrease in the break-even point, then how

have fixed costs changed?

a. Increased

b. Remained the same

c. Decreased

d. Increased first, then decreased

Incorrect. Holding all other things the same, if there was a decrease in the break-even point, then fixed costs must

have decreased.

11. Monroe Industries projected the following information for next year:

a. 12,800 units

b. 26,880 units

c. 4,400 units

d. 13,680 units

($232,000 + $88,000/0.8)/$25 = 13,680 units

Suppose Flyer could reduce setup costs by $400 per setup and could reduce the number of

engineering hours needed to 1,500 hours. How many units must be sold to break even in this case?

a. 27,550 units

b. 20,000 units

c. 17,500 units

d. 10,450 units

[$350,000 + ($1,000 85) + ($60 2,000)]/$20 = 27,550 units

13.

Using cost-volume-profit analysis, we can conclude that a 20 percent reduction in variable costs will

a. reduce the slope of the total cost line by 20 percent.

b. reduce the break-even sales volume by 20 percent.

c. not affect the break-even sales volume if there is an offsetting 20 percent increase in fixed costs.

d. reduce total costs by 20 percent.

ncorrect. Using cost-volume-profit analysis, we can conclude that a 20 percent reduction in variable costs will reduce

the slope of the total cost line by 20 percent.

14

In the cost-volume-profit analysis, income taxes

a. increase the sales volume required to earn a desired profit.

b. are treated as a fixed cost.

c. are treated as a variable cost.

d. increase the sales volume required to break even.

Incorrect. In the cost-volume-profit analysis, income taxes increase the sales volume required to earn a desired profit.

15Holding all other things the same, if there is an increase in the break-even point, then the variable

cost per unit must have changed in what manner?

a. Increased

b. Remained the same

c. It depends on the circumstances.

d. Increased first, then decreased

Incorrect. Variable cost per unit must have increased if there was an increase in the break-even point.

16

A profit-volume graph:

a. is not subject to the same limiting assumptions as cost-volume-profit graphs.

b. illustrates total revenues, total cost, and profits at various sales volumes.

c. illustrates the relationship between volume and profits.

d. measures profit or loss on the horizontal axis.

Incorrect. A profit-volume graph illustrates the relationship between volume and profit

a. The total revenue line typically begins above zero.

b. The slope of the total cost line is dependent on the variable cost per unit.

c. The slope of the total revenue line is the contribution margin per unit.

d. The total cost line normally begins at zero.

18 Warren Company sells its product for $60. In addition, it has a variable cost ratio of 40 percent

and total fixed costs of $10,800. How many units must be sold in order to obtain a before-tax profit

of $14,400?

a. 1,050 units

b. 630 units

c. 400 units

d. 700 units

($10,800 + $14,400)/$36 = 700 units

1-

2-

[$317,600 + ($1,000 60) + ($52 1,200)]/$40 = 11,000 units

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