Exam
Exam Practice 1
1. During its first year of operations, Beta Company paid $15,000
for direct material, $16,000 in wages for production workers, and
$20,000 wages for administrative and sales personnel. Lease
payments and utilities on the administrative building and
production facilities amounted to $5,000 and $7,000, respectively.
General, selling, and administrative expenses were $6,000. The
company owns a delivery car and manufacturing equipment. The
annual depreciation on the car is $ 1,000. The original cost of the
equipment is $10,000 and has a salvage value of $2,000 after 4
years. The company produced 5,000 units and sold 4,000 units at a
price of $15.00 a unit. The average cost to produce one unit is
which of the following amounts?
A. $8.00
B. $10.00
C. $9.20
D. $11.50
Depreciation on Equipment= (10,000 2,000) / 4 = 2,000
Product cost = 15,000 + 16,000 + 7000 + 2,000 = $ 40,000
Average product cost = $40,000 / 5,000 units = $ 8
COGS = $8 x 4,000 units = $ 32,000
End Inv = $8 x 1,000 units = $ 8,000
Chapter 1
2. During 2010, Eddy Co. paid $16,000 for direct material,
$17,000 in wages for production workers, and $24,000 in wages
for sales personnel. Lease payments and utilities on the
production facilities amounted to $7,000. General, selling, and
administrative expenses were $6,000. The company owns a
manufacturing equipment. The original cost of the equipment is
$30,000 and has a salvage value of $5,000 after 5 years.
Depreciation on sales car equals $6,000. The company produced
5,000 units and sold 3,000 units at a price of $10.00 a unit. The
cost of goods sold is which of the following amounts?
Equipment Depreciation = (30,000 5,000) / 5 = 5,000
A. $64,000
Product cost = 16,000 + 17,000 + 7000 + 5000 = $ 45,000
B. $32,000
Average product cost = $45,000 / 5,000 units = $ 9
C. $27,000
COGS = 3000 units x $9 = 27,000
D. $45,000
Relevant Information for 1
Chapter Special Decisions
3.
What is the effect on the financial statements of
recording a $10,000 payment for sales personnel in cash?
Assets = Liab. + Equity
A)
/
+-
n/a
n/a
B)
-
n/a
-
C)
-
n/a
-
D)
+/-
n/a
Rev. - Exp. = Net Inc.
n/a
n/a
n/a
+
-
+
-
n/a
n/a
n/a
n/a
n/a
n/a
Period Cost: Expense Immediately on IS
IS + Expenses & - NI
BS - Cash & - Equity (RE)
4. What is the effect on the financial statements of
recording a $100 purchase of raw materials?
A)
B)
C)
D)
Assets = Liab. + Equity
/
+
n/a
n/a
n/a
n/a
+/n/a
n/a
Rev. - Exp. = Net Inc.
+
n/a
n/a
+
n/a
n/a
n/a
n/a
n/a
n/a
Purchase Raw Material Product Cost
Inventory Asset
+ Inventory - Cash
5. The following information relates to Minimart's
2010 accounting period:
Based on the information relating to Minimart, what
is the companys cost of goods sold for 2010?
A.
B.
C.
D.
33,000
36,000
57,000
65,000
Product Cost = 17,000+33,000+3,000+4,000 = 57,000
Average cost / unit = $57,000 / 4,000 units = $14.25
COGS = $14.25 x 4,000 units = $57,000
6. The following information relates to Minimart's
2009 accounting period:
Based on this information, what is the company's
net income for 2010?
Sales Revenue
105,000
A. $15,000
- COGS
(57,000)
B. $35,000
Gross Margin
48,000
- G,S&A (25,000+5,000)
(30,000)
C. $18,000
Income
18,000
D. $21,000
7. Which of the following transactions would
reduce net income for the period?
a. Paid $1,600 cash for raw material cost
b. Paid administrative salaries of $2,500
c. Depreciated production equipment for $3,000
d. Purchased $5,000 of merchandise inventory
Period Cost: Expense Immediately on IS
IS + Expenses & - NI
Product Cost: Expense only when sold
No Effect on IS
8. Which of the following transactions would
cause net income for the period to be
understated?
a. Misclassifying period cost and considering it
product cost
b. Misclassifying product cost and considering it
period cost
c. All of the above
d. None of the above
Misclassification
Correct
GSA
Product
Misclassified
Product (Capitalize)
Period (Expense Immediately)
Assets
Profit
Balance Sheet
Tax
+ Inventory
+ NI
+ Equity
+Tax
- Inventory
-NI
-Equity
-Tax
10. Based on the following cost data, items labeled
(a) and (b) in the table below are which of the
following amounts, respectively?
a. (a) = $3.00; (b) = $3.00
b. (a) = $5.00; (b) = $2.00
c. (a) = $2.50; (b) = $2.00
d. (a) = $5.00; (b) = $4.00
(a) VC/unit = $5
(b) FC/unit = $6,000/3,000 = $2
11. Two different costs incurred by Ramirez
Company exhibit the following behavior pattern per
unit: Cost # 1 and Cost # 2 exhibit which of the
following cost behavior patterns, respectively?
a. Fixed / Fixed
b. Variable / Variable
c. Fixed / Variable
d. Variable / Fixed
12. Based on the income statements shown below,
which division has the cost structure with the
lowest leverage?
Operating operating Leverage = CM/NI =
4
9
2
a. Bottled Water
b. Fruit Juices
c. Soft Drinks
d. The three divisions have identical operating
leverage.
13. The following income statement is provided
for Barron Company in 2009:
What amount was the company's contribution
margin?
Sales Revenue
50,000
Minus VC:
a. $11,000
COGS
20,000
Supplies
5,000
b. $25,000
25,000
c. $26,000
Contribution Margin
25,000
d. $30,000
14. Refreshing Drink Company bottles a soft drink
that is sold for a dollar. The company pays
$500,000 in production costs, half of which are
fixed costs. General, selling, and administrative
costs amount to $200,000 of which $50,000 are
fixed costs. Assuming production and sales of
500,000 units, what is the amount of contribution
margin per unit?
A) $0.20
SP = $1
B) $0.125
VC = ($250,000 + $150,000) / 500,000 units
VC = $0.8
C) $0.50
CM = $1 $0.8 = $0.2
D) None of the above
15. The magnitude of operating leverage for
Perkins Corporation is 3.4 when sales are
$100,000. If sales increase to $110,000, profits
would be expected to increase by what percent?
a. 34%
b. 2.9%
c. 60%
d. 37%
%+profit = %+sales x operating leverage factor
= 10% x 3.4 =34%
16. Handy Hiking produces backpacks. In 2008, its
highest and lowest production levels occurred in
July and January, respectively. In July, it produced
4,000 backpacks at a total cost of $110,000. In
January, it produced 2,500 backpacks at a total
cost of $87,500. Using the high/low method, the
average variable cost of producing a backpack
was:
a. $31.25
b. $30.38
c. $15.00
d. $0.067
High
Low
Difference
Backpacks
4000
2500
1500
Cost $
110,000
87,500
$22,500
Unit VC
= $22,500 / 1500 = $15 / backpack
17. Handy Hiking produces backpacks. In 2008, its
highest and lowest production levels occurred in
July and January, respectively. In July, it produced
4,000 backpacks at a total cost of $110,000. In
January, it produced 2,500 backpacks at a total
cost of $87,500. Using the high/low method, the
total fixed cost of producing a backpack was:
a. $1,500
Backpacks
Cost $
b. $22,500 High
4000
110,000
Low
2500
87,500
c. $50,000
Difference
1500
$22,500
d. $109,733 Unit VC
= $22,500 / 1500 = $15 / backpack
Fixed cost
= 110,000 (4000 x 15)
= 110,000 60,000 = $50,000
18. On the break-even graph:
a. The total cost line starts from the origin
b. Total revenue = Fixed cost
c. Contribution margin = Total revenue
d. Loss area is on the left of the break-even point
Break-even Graph
Dollars
400,000
300,000
Revenue
BEP
Total Cost
200,000
Fixed Cost
100,000
-
5,000
10,000
Units Sold
Loss Area
Profit Area
19. CMA, Inc. produces a product that has a
variable cost of $2.50 per unit. The company's
fixed costs are $30,000. The product is sold for
$5.00 per unit and the company desires to earn a
target profit of $10,000. What amount of sales
that will be necessary to earn the desired profit?
a. $80,000
b. $200,000CM = Unit SP Unit VC = $5 - $2.5 = $2.5
Unit
Units to earn desired profit (U) = (FC + Target Profit) / Unit CM
c. $60,000
= ($30,000 + $10,000) / $2.5 = 16,000 units
Sales
d. $100,000 necessary to earn desired profit = unit selling price
= units to earn profit x
= 16,000 x $5 = $80,000
or
CM ratio = $2.5/ $5 = 50%
Sales necessary to earn desired profit =
= (FC + Target Profit) / CM ratio
= $40,000 / .5 = $80,000
20. A product has a contribution margin ratio
of 60% and selling price of $10 per unit. Fixed
costs are $15,000. Assuming the company
increases the selling price to $14 and doubles
fixed costs, what is the breakeven point in
units?
A)
B)
C)
D)
1,500 units
2,500 units
3,000 units
5,000 units
VC/unit = $10 X 40% = $4
New CM/Unit = $14 - $4 = $10
BEP (U) = $30,000 / $10 = 3000 units
21. Barker Company's break-even point is 10,000
units. Its product sells for $25 and has a $10
variable cost per unit. What is the company's total
fixed cost amount?
a. $250,000
BEP (U) = FC / Unit CM
b. $100,000
10,000 = FC / 15
FC = 10,000 x $15 = $150,000
c. $150,000
d. Fixed costs cannot be computed with the
information provided.
22. For 2010, Hyper Company sold 80,000 units at
a selling price of $20 per unit. Variable cost per
unit was $12, and Hyper's net income for the year
was $40,000. What was the amount of Hyper's
fixed costs?
a. $640,000
b. $800,000
c. $1,560,000
d. $600,000
Revenue
Variable Cost
CM
Fixed Cost
Income
Unit
20
12
8
Total
1,600,000
(960,000)
640,000
?
40,000
24. Berkut Company makes a product that sells
for $20 a unit. The product has a $5 per unit
variable cost and total fixed costs of $9,000. At
budgeted sales of 1,000 units, the margin of
safety ratio is:
A) 64%
CM = $20 $5 = $15
B) 55%
BEP = $9,000 / $15 = 600 units
Margin of safety = (1000 600) / 1000= 40%
C) 40%
D) None of the above.