Midterm1_solution

# Midterm1_solution - Midterm 1 20 multiple-choice questions...

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Midterm 1 Name_________________________________________ 20 multiple-choice questions, 2.5 points each 1. Estimate fixed costs and unit variable costs using the following information month number of units total cost January 500 \$1,900 February 400 \$1,800 March 600 \$2,200 A. unit VC=\$1/unit, FC=\$1,400 B. unit VC=\$2/unit, FC=\$1,000 C. unit VC=\$3/unit, FC=\$400 D. unit VC=\$3/unit, FC=\$600 use the high-low method: unit VC = (\$2,200-\$1,800)/(600-400) = \$2 per unit FC = \$1,800 - \$2*400 = \$1,000 (or = \$2,200 - \$2*600) 2. Wallmart is a small retailer that sell walls. The price is \$1,000 per unit, variable costs are \$400 per unit, and total fixed costs are \$20,000. The tax rate is 50%. How many units does it need to sell to achieve \$4,000 of net income (after taxes)? A. 36.66 (rounded to 37) B. 40 C. 46.66 (rounded to 47) D. 60 First, target net income of \$4,000 => => target operating income (before taxes) = \$4,000/(1-50%) = \$8,000 Second, set up the CVP equation: operating income = (\$1,000 - \$400)*Q - \$20,000 = \$600*Q - \$20,000, where Q is sales in units Third, solve for Q that yields operating income of \$8,000: \$600*Q - \$20,000 = \$8,000 => 600*Q = 28,000 => Q = 28,000/600 = 46.66 (round up to 47 units) 3. Which of the following statements about normal costing is true? A. direct costs and indirect costs are traced using budgeted rates B. direct costs are traced using budgeted rates, and indirect costs are allocated using actual rates C. direct costs are traced using actual rates, and indirect costs are allocated using budgeted rates D. direct and indirect costs are allocated using actual rates First, direct costs are “traced” not “allocated”, and indirect costs are “allocated” not “traced”. This alone rules out A and D. Second, under normal costing, we use actual rates for direct costs (DL and DM), and budgeted rates for indirect costs => answer C. 4. Which of the following groups is most likely to use managerial accounting information? A. creditors of the firms B. shareholders of the firm C. sales managers of the firm D. customers of the firm

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Managerial accounting information serves people inside the firm , and is not shared with outsiders. A, B and D are all outsiders => C is the only sensible answer. 5. The main advantage of using normal costing instead of actual costing is: A. indirect costs are assigned to jobs on a timely basis (and not at the end of the year) B. overallocated overhead under normal costing increases operating income C. the job cost is more accurate under normal costing D. normal costing ensures that actual overhead will not exceed the original budget Answer A: Budgeted indirect-cost rates are known at the beginning of the accounting period, so they can be used to cost jobs in real time. In contrast, actual indirect-cost rates (used in actual costing) are only known at the end of the accounting period, after we know the total overhead costs and the total cost driver amounts for the period. Therefore, actual costing cannot be used to cost
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Midterm1_solution - Midterm 1 20 multiple-choice questions...

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