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1. Globe Company produces two products, A1 and B2. A1 is a high-volume item totaling 20,000 units annually. B2 is a low-volume item totaling only 6,000 units per year. A1 requires one hour of direct labor for completion, while each unit of B2 requires 2 hours. Therefore, total annual direct labor hours are 32,000 (20,000 + 12,000). Expected annual manufacturing overhead costs are $640,000. Globe uses a traditional costing system and assigns overhead based on direct labor hours. Each unit of B2 would be assigned overhead of
D) need more information to compute.
2. R-Ball Corporation manufactures deluxe and standard racquetball racquets.
R-Ball's total overhead costs consist of assembly costs and inspection costs. The
following information is available:
Cost Deluxe Standard Total Cost
Assembly 500 mach. hours 500 mach. hours $30,000
Inspections 350 150 $50,000
2,100 labor hours 1,900 labor hours
R-Ball is considering switching from one overhead rate based on labor hours to activity-based costing. Using activity-based costing, how much assembly cost is assigned to deluxe racquets?
3. Vinnie Morelli Corporation has the following overhead costs and cost drivers. Direct labor hours are estimated at 100,000 for the year.
Activity Cost Pool Cost Driver Est. Overhead Cost Driver Activity
Ordering and Receiving Orders $ 120,000 500 orders
Machine Setup Setups 297,000 450 setups
Machining Machine hours 1,500,000 125,000 MH
Assembly Parts 1,200,000 1,000,000 parts
Inspection Inspections 300,000 500 inspections
If overhead is applied using activity-based costing, the overhead application rate for ordering and receiving is
A) $1.20 per direct labor hour.
B) $240 per order.
C) $0.12 per part.
D) $6,834 per order.
4. Companies that switch to ABC often find they have
A) been overpricing some products.
B) possibly losing market share to competitors.
C) been sacrificing profitability by underpricing some products.
D) all of the above.
5. A company incurs $1,350,000 of overhead each year in three departments: Ordering and Receiving, Mixing, and Testing. The company prepares 2,000 purchase orders, works 50,000 mixing hours, and performs 1,500 tests per year in producing 200,000 drums of Goo and 600,000 drums of Slime. The following data are available:
Department Expected use of Driver Cost
Ordering and Receiving 2,000 $400,000
Mixing 50,000 500,000
Testing 1,500 450,000
Production information for Goo is as follows:
Department Expected use of Driver
Ordering and Receiving 400
Compute the amount of overhead assigned to Goo.
6. An important element of just-in-time processing is
A) dependable suppliers who are willing to deliver on short notice.
B) a specialized workforce.
C) less emphasis on a quality control system.
D) all of the above.
7. A cost which remains constant per unit at various levels of activity is a
A) variable cost.
B) fixed cost.
C) mixed cost.
D) manufacturing cost.
8. A fixed cost is a cost which
A) varies in total with changes in the level of activity.
B) remains constant per unit with changes in the level of activity.
C) varies inversely in total with changes in the level of activity.
D) remains constant in total with changes in the level of activity.
9. If the activity level increases 10%, total variable costs will
A) remain the same.
B) increase by more than 10%.
C) decrease by less than 10%.
D) increase 10%.
10. Changes in activity have a(n) _________ effect on fixed costs per unit.
11. Why is identification of a relevant range important?
A) It is required under GAAP.
B) Cost behavior outside of the relevant range is not linear, which distorts CVP analysis.
C) It directly impacts the number of units of product a customer buys.
D) It is a cost that is incurred by a company that must be accounted for.
12. Fontain, Inc. collected the following production data for the past month:
Units Produced Total Cost
If the high-low method is used, what is the monthly total cost equation?
A) Total cost = $4,400 + $11/unit
B) Total cost = $5,500 + $10/unit
C) Total cost = $0 + $15/unit
D) Total cost = $3,300 + $12/unit
13. At the high level of activity in November, 7,000 machine hours were run and power costs were $12,000. In April, a month of low activity, 2,000 machine hours were run and power costs amounted to $6,000. Using the high-low method, the estimated fixed cost element of power costs is
14. Wynne Company's high and low level of activity last year was 60,000 units of product produced in May and 20,000 units produced in November. Machine maintenance costs were $78,000 in May and $30,000 in November. Using the high-low method, determine an estimate of total maintenance cost for a month in which production is expected to be 45,000 units.
15. Clark Company produces flash drives for computers, which it sells for $20 each. Each flash drive costs $12 of variable costs to make. During April, 1,000 drives were sold. Fixed costs for March were $2 per unit for a total of $1,000 for the month. How much is the contribution margin ratio?
16. If a company had a contribution margin of $500,000 and a contribution margin ratio of 40%, total variable costs must have been
17. A company has contribution margin per unit of $45 and a contribution margin ratio of 40%. What is the unit selling price?
D) Cannot be determined.
18. Disney's variable costs are 30% of sales. The company is contemplating an advertising campaign that will cost $22,000. If sales are expected to increase $40,000, by how much will the company's net income increase?
19. At the break-even point of 2,000 units, variable costs are $55,000, and fixed costs are $32,000. How much is the selling price per unit?
D) Not enough information
20. The break-even point is where
A) total sales equal total variable costs.
B) contribution margin equals total fixed costs.
C) total variable costs equal total fixed costs.
D) total sales equal total fixed costs.
21. Fallow-Hawke is a nonprofit organization that captures stray deer from residential communities. Fixed costs are $10,000. The variable cost of capturing each deer is $10.00 each. Fallow-Hawke is funded by a local philanthropy in the amount of $32,000 for 2008. How many deer can Fallow-Hawke capture during 2008?
22. Variable costs for Foley, Inc. are 25% of sales. Its selling price is $80 per unit. If Foley sells one unit more than break-even units, how much will profit increase?
23. A company requires $1,020,000 in sales to meet its net income target. Its contribution margin is 30%, and fixed costs are $180,000. What is the target net income?
24. Dodge Company produces flash drives for computers, which it sells for $20 each. Each flash drive costs $6 of variable costs to make. During March, 1,000 drives were sold. Fixed costs for March were $4.20 per unit for a total of $4,200 for the month. If variable costs decrease by 10%, what happens to the break-even level of units per month for Dodge Company?
A) It is 10% higher than the original break-even point.
B) It decreases about 12 units.
C) It decreases about 30 units.
D) It depends on the number of units the company expects to produce and sell.
25. For Bobby Company, sales is $1,000,000 (5,000 units), fixed expenses are $300,000, and the contribution margin per unit is $80. What is the margin of safety in dollars?
26. Konerko Company sells two types of computer chips. The sales mix is 30% (Q-Chip) and 70% (Q-Chip Plus). Q-Chip has variable costs per unit of $30 and a selling price of $50. Q-Chip Plus has variable costs per unit of $35 and a selling price of $65. The weighted-average unit contribution margin for Konerko is:
27. Konerko Company sells two types of computer chips. The sales mix is 30% (Q-Chip) and 70% (Q-Chip Plus). Q-Chip has variable costs per unit of $30 and a selling price of $50. Q-Chip Plus has variable costs per unit of $35 and a selling price of $65. Konerko's fixed costs are $540,000. How many units of Q-Chip would be sold at the break-even point?
28. Fields Corporation has two divisions; Sporting Goods and Sports Gear. The sales mix is 65% for Sporting Goods and 35% for Sports Gear. Fields incurs $2,220,000 in fixed costs. The contribution margin ratio for Sporting Goods is 30%, while for Sports Gear it is 50%. What will sales be for the Sporting Goods Division at the break-even point?
29. Dye Company can sell all the units it can produce of either Plain or Fancy but not both. Plain has a unit contribution margin of $96 and takes two machine hours to make and Fancy has a unit contribution margin of $120 and takes three machine hours to make. There are 2,400 machine hours available to manufacture a product. What should Dye do?
A) Make Fancy which creates $24 more profit per unit than Plain does.
B) Make Plain which creates $8 more profit per machine hour than Fancy does.
C) Make Plain because more units can be made and sold than Fancy.
D) The same total profits exist regardless of which product is made.
30. A cost structure which relies more heavily on fixed costs makes the company:
A) more sensitive to changes in sales revenue.
B) less sensitive to changes in sales revenue.
C) either more or less sensitive to changes in sales revenue, depending on other factors.
D) have a lower break-even point.
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