Exam

Name___________________________________

MULTIPLE CHOICE. Choose the one alternative that best completes the statement or answers the question.

1) Assembly department of Zahra Technologies had 100 units as work in process at the beginning of 1)
the month. These units were 45% complete. It has 200 units which are 20% complete at the end of
the month. During the month, it completed and transferred 500 units. Direct materials are added at
the beginning of production. Conversion costs are allocated evenly throughout production. Zahra
uses weighted-average process-costing method. What is the total equivalent units in ending
inventory for assignment of direct materials cost?
A) 100 units B) 200 units C) 160 units D) 40 units

2) Which of the following companies is most likely to use process costing? 2)

A) Dental Bright Inc., a company manufacturing and selling toothpaste on a large scale
B) Grimpy Corp., a company manufacturing furniture for customers as per their requirements
C) Effel & Associates, a consulting firm providing various audit and related services
D) Crimpson Color, a company selling customized garments for niche customers

3) Hyde's Headphones sells deluxe headphones for $75 each. Unit variable expenses total $45. The 3)
breakeven sales in units is 2,400 and budgeted sales in units is 4,200. What is the margin of safety in
dollars?
A) $24 B) $135,000 C) $1,800 D) $495,000

4) Blue Technologies manufactures and sells DVD players. Great Products Company has offered Blue 4)
Technologies $22 per DVD player for 10,000 DVD players. Blue Technologies' normal selling price
is $30 per DVD player. The total manufacturing cost per DVD player is $18 and consists of variable
costs of $14 per DVD player and fixed overhead costs of $4 per DVD player. (NOTE: Assume excess
capacity and no effect on regular sales.)

How much are the expected increase (decrease) in revenues and expenses from the special sales
order?
A) Expected increase in revenues $300,000; expected increase in expenses $140,000
B) Expected increase in revenues $220,000; expected increase in expenses $140,000
C) Expected increase in revenues $220,000; expected increase in expenses $120,000
D) Expected increase in revenues $220,000; expected increase in expenses $40,000

5) Franklin Producers sells its core product for $8 per unit and has variable costs of $6 per unit. Total 5)
fixed costs are $28,000. Suppose variable costs increase by 20% due to an increase in the cost of
direct materials. What will be the effect on the breakeven point in units?
A) Increase from 14,000 units to 35,000 units B) Decrease from 4,667 units to 3,889 units
C) Decrease from 2,000 units to 1,842 units D) Decrease from 14,000 units to 4,118 units

6) The Swivel Chair Company manufacturers a standard recliner. During February, the firm's 6)
Assembly Department started production of 145,000 chairs. During the month, the firm completed
183,000 chairs and transferred them to the Finishing Department. The firm ended the month with
24,000 chairs in ending inventory. All direct materials costs are added at the beginning of the
production cycle. Weighted-average costing is used by Swivel. Of the 145,000 units Swivel started
during February, how many were finished during the month?
A) 121,000 B) 218,200 C) 217,000 D) 183,500

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 7) Relevant information in a make-or-buy decision of a part include which of the following? 7)
A) Some portion of fixed costs that would be saved if the product is outsourced
B) Annual plant insurance costs
C) The portion of fixed costs that would be incurred whether the product is made or purchased
D) Management consultant fees to restructure the organization framework of the company and
improve overall strategic planning

8) Apex Company produces artificial Christmas trees. A local shopping mall recently made a special 8)
order offer; the shopping mall would like to purchase 200 extra-large white trees. Apex Company
is currently producing and selling 20,000 trees; the company has the excess capacity to handle this
special order. The shopping mall has offered to pay $120 for each tree. An accountant at Apex
Company provides an estimate of the unit product cost as follows:

Direct materials $50.00

Direct labor (variable) $3.50
Variable manufacturing overhead $1.00
Fixed manufacturing overhead $4.00
Total unit cost $14.50

This special order would require an investment of $10,000 for the molds required for the
extra-large trees. These molds would have no other purpose and would have no salvage value. The
special order trees would also have an additional variable cost of $5.00 per unit associated with
having a white tree. This special order would not have any effect on the company's other sales. If
the special order is accepted, the company's operating income would increase (decrease) by
A) $2,300 decrease. B) $2,100 increase.
C) $13,100 increase. D) $13,100 decrease.

9) Which of the following would be a consideration for "sell as is or process further" decisions? 9)
A) Revenue generated if sold "as is" B) Costs involved in further processing
C) Revenue generated if "further processed" D) All of the above

10) Harvey Automobiles uses a standard part in the manufacture of several of its trucks. The cost of 10)
producing 40,000 parts is $120,000, which includes fixed costs of $60,000 and variable costs of
$60,000. The company can buy the part from an outside supplier for $3.00 per unit, and avoid 30%
of the fixed costs.

Assume that factory space freed up by purchasing the part from an outside source can be used to
manufacture another product that can be sold for $12,000 profit. If Harvey Automobiles makes the
part, what will its operating income be?
A) $54,000 greater than if the company bought the part
B) $150,000 greater than if the company bought the part
C) $30,000 less than if the company bought the part
D) $30,000 greater than if the company bought the part

11) Job costing is ________. 11)

A) used to calculate equivalent units
B) used by businesses to price unique products for different jobs
C) used by businesses to price identical products
D) used to calculate the percentage of work completed

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12) Process costing is ________. 12)
A) used by businesses to price identical products
B) used by businesses when manufacturing goods above normal capacity
C) used by businesses to price unique products or identical products produced in batches
D) used to enhance employees' job satisfaction

13) Matthew's Fish Fry has a monthly target operating income of $7,200. Variable expenses are 60% of 13)
sales and monthly fixed expenses are $1,800. What is the monthly margin of safety as a percentage
of target sales in dollars?
A) 400.00% B) 120.00% C) 80.00% D) 40.00%

14) The use of high technology equipment to manufacture products instead of highly skilled labor 14)
usually results in ________.
A) higher discretionary fixed costs B) higher discretionary variable costs
C) higher operating leverage D) lower risk

15) If the selling price per unit is $25.00, the variable expense per unit is $6.25, and the breakeven sales 15)
in dollars is $465,200, what are total fixed expenses?
A) $1,395,600 B) $348,900 C) $992 D) $18,608

16) A product costs $100 to manufacture and $40 to market and $20 to distribute (ship to customers.) 16)
R&D costs are allocated at $30 per unit. Based on a targeted rate of return, manager uses a
mark-up of 60%. What is the markup component based on a Cost-Plus pricing approach?
A) $114 B) $96 C) $84 D) $60

17) Assembly department of Zahra Technologies had 200 units as work in process at the beginning of 17)
the month. These units were 45% complete. It has 300 units which are 35% complete at the end of
the month. During the month, it completed and transferred 500 units. Direct materials are added at
the beginning of production. Conversion costs are allocated evenly throughout production. Zahra
uses weighted-average process-costing method. Calculate the total equivalent units in ending
inventory for assignment of conversion costs?
A) 195 units B) 300 units C) 105 units D) 200 units

18) Bear Country Granola is considering selling premium granola. It already sells regular for 18)
$6.75/pound and would sell premium granola for $9.50/pound. The cost for organic grains for the
premium granola would be $1.15/pound. A cost that would not be considered in this decision
would be
A) the cost of further processing the regular granola into premium granola.
B) the extra revenue generated by selling premium.
C) the cost of refining the regular granola.
D) any of the above would be considered.

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19) Moon Appliance manufactures a variety of appliances which all use Part B89. Currently, Moon 19)
Appliance manufactures Part B89 in its internal manufacturing process. Moon Appliance produces
9,000 units of Part B89 annually. The annual costs to product Part B89 at the level of 9,000 units
include:

Direct materials $3.00

Direct labor $8.00
Variable manufacturing overhead $4.00
Fixed manufacturing overhead $3.00
Total cost $18.00

All of the fixed manufacturing overhead costs would continue whether Part B89 is made internally
or purchased from an outside supplier. Moon Appliance has no alternative use for its
manufacturing facilities. Nadal Parts Company has offered to sell 9,000 units of Part B89 to Moon
Appliance for $20.00 per unit. What should Moon Appliance do?
A) Make the part and save $9 per unit.
B) Buy from Nadal Parts Company and lose $2 per unit.
C) Make the part and save $5 per unit.
D) Make the part and save $13 per unit.

20) Which of the following would most likely be the user of financial accounting information? 20)
A) department manager B) distribution manager
C) factory shift supervisor D) current shareholder

21) In a sell or process further decision, the company should process further if 21)
A) the extra cost of processing further is less than the extra revenue.
B) the extra cost of processing further is greater than the extra revenue.
C) the extra cost of processing further is the same as the extra revenue.
D) the extra revenue from processing further is less than the extra cost.

22) Tom's Taxidermy expects to sell 800 units of its specialty preservation product. The managerial 22)
accountant reported that manager must sell 400 units of specialty product to breakeven. Compute
the margin of safety in units.
A) 200 units B) 400 units C) 300 units D) 100 units

23) Which of the following statements is true? 23)

A) In a process-costing system, each unit uses approximately the same amount of resources.
B) In a process-costing system, individual jobs use different quantities of production resources.
C) In a job-costing system, overheads are allocated to all units equally.
D) In a job-costing system, average production cost is calculated for all units produced.

24) The cost-plus pricing approach is generally in the form ________. 24)
A) Prospective selling price - Cost base = Markup component
B) Variable cost + Fixed cost + Contribution margin = Prospective selling price
C) Cost base + Gross margin = Prospective selling price
D) Cost base + Markup component = Prospective selling price

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25) Presented below are the production data for the first six months of the year for the mixed costs 25)
incurred by Venus Company.

Month Cost Units

January $5,210 4,100
February $4,800 3,200
March $6,780 5,470
April $10,250 8,200
May $5,900 5,030
June $7,370 6,570

Venus Company uses the high-low method to analyze mixed costs.

What is the estimated total cost at an operating level of 6,300 units?

A) $8,179 B) $6,867 C) $7,875 D) $9,450

26) Paula has the following information to evaluate—her current salary of $55,000 versus total 26)
revenues of $120,000 and expenses of $75,000 from starting a new business. How much is the
opportunity cost associated with starting the new business?
A) $55,000 B) $45,000 C) $120,000 D) $75,000

27) Sophia's Delivery Service charges a $55 service fee. The variable cost per service run is $22. The 27)
company's fixed expenses amount to $6,200. If the operating income equals fixed expenses, what is
the breakeven point in sales revenue for Sophia's Delivery Service?
A) $10,285 B) $6,200 C) $10,340 D) $4,140

28) Contessa Corporation has fixed expenses of $200,000, and a unit sales price of $70. Its variable cost 28)
per unit is $50. If it sells 8,500 posters, its operating income is a
A) loss of $30,000. B) gain of $370,000.
C) gain of $225,000. D) gain of $820,000.

29) Mama's Favorite Appliances manufactures two products: Food Processors and Espresso Machines. 29)
The following data are available:

Food Processors Espresso Makers

Sales price $125 $225
Variable costs $50 $150

The company can manufacture two food processors per machine hour and three espresso machines
per machine hour. The company's production capacity is 1,200 machine hours per month.

What is the contribution margin per machine hour for espresso machines?
A) $1,125 B) $150 C) $225 D) $75

30) The manager at Tom's Taxidermy expects to sell 800 units at $30 each unit. In order for the manager 30)
to breakeven, the manager must sell 400 units. What is the margin of safety in dollars?
A) $12,000 B) $24,000 C) $14,000 D) $16,000

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31) Four Guys Company has in its inventory 5,000 damaged televisions that cost $50,000. The 31)
televisions can be sold in their present condition for $32,000, or repaired at a cost of $43,000 and
sold for $76,000. What is the opportunity cost of selling the televisions in their present condition?
A) $82,000 B) $119,000 C) $75,000 D) $33,000

32) A product costs $600 to manufacture and $10 to market and $30 to distribute (ship to customers.) 32)
R&D costs are allocated at $20 per unit. Based on a targeted rate of return, manager uses a
mark-up of 20%. What is the markup component based on a Cost-Plus pricing approach?
A) $122 B) $132 C) $120 D) $128

33) If both fixed expenses and the selling price per unit increase while variable costs per unit are 33)
unchanged, which of the following statements is true?
A) Breakeven point in units decreases.
B) Breakeven point in units remains unchanged.
C) Breakeven point in units increases.
D) Breakeven point in units could increase, decrease, or remain the same.

34) Matthew's Fish Fry has a monthly target operating income of $7,200. Variable expenses are 60% of 34)
sales and monthly fixed expenses are $1,800. What is Matthew's operating leverage factor at the
target level of operating income?
A) 0.80 B) 0.75 C) 1.25 D) 5.00

35) Xtech Games Inc. has a new video game cassette for the upcoming holiday season. It is trying to 35)
determine the target cost for the game if the selling price per unit will be set at $70, the going price
for video games, and the firm wants to earn a target operating income of 30% of sales. What will be
the target cost per unit for the new game?
A) $70 B) $21 C) $30 D) $49

36) ABC Toys manufactures and sells wooden toys for $15 each. The company has the capacity to 36)
produce 25,000 toys in a year, but is currently produces and sells 20,000 toys per year. The
company currently incurs the following costs at its current production level of 20,000 toys:

Variable manufacturing costs $70,000

Fixed manufacturing costs $90,000
Variable selling and administrative costs $75,000
Fixed selling and administrative costs $50,000

A retailer is interested in purchasing the excess capacity of 5,000 toys if it can receive a special
price. This special order would not affect ABC Toys' regular sales or its cost structure. ABC Toys'
profits would increase from this special order if the special order price per toy is greater than
A) $5.80. B) $8.00. C) $14.25. D) $7.25.

37) Management at the Forrest Company currently sells its products for $225 per unit and is 37)
contemplating a 40% increase in the selling price for the next year. Variable costs are currently 25%
of sales revenue and are not expected to change in dollar amount on a per unit basis next year (the
company will still pay the same variable cost per unit). Fixed expenses are $120,750 per year.

If fixed costs were to decrease 10% during the current year and the new selling price goes into
effect, how many units will need to be sold to breakeven?
A) 908 units B) 420 units C) 132,825 units D) 358 units

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38) Assembly department of Zahra Technologies had 200 units as work in process at the beginning of 38)
the month. These units were 45% complete. It has 300 units which are 25% complete at the end of
the month. During the month, it completed and transferred 600 units. Direct materials are added at
the beginning of production. Conversion costs are allocated evenly throughout production. Zahra
uses weighted-average process-costing method. What is the number of equivalent units of work
done during the month with regards to direct materials?
A) 600 units B) 900 units C) 1100 units D) 700 units

39) Management accounting ________. 39)

A) provides information about the company as a whole
B) focuses on estimating future revenues, costs, and other measures to forecast activities and
their results
C) provides information that is generally available only on a quarterly or annual basis
D) reports information that has occurred in the past that is verifiable and reliable

40) Cedar Mills Incorporated has a predicted operating income of $72,000. Its total variable expenses 40)
are $20,000 and its total fixed expenses are $32,000. It has a unit contribution margin of $10. Cedar
Mills' breakeven sales in units is
A) 8,400 units. B) 12,400 units. C) 3,200 units. D) 4,000 units.

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Answer Key
Testname: UNTITLED1

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