Question 1 The Mondale Company produces 20,000 units per year of a part that it needs for its final product. The total cost per unit of making this...
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Question 1

The Mondale Company produces 20,000 units per year of a part that it needs for its final product.

The total cost per unit of making this part is $30. Included in this cost are direct materials, $15; direct labor, $9; and manufacturing overhead (variable), $3. Similar parts are available on the market at prices ranging from $25 to $31. Assuming a sufficient supply of a part of similar quality, what is the maximum price Mondale should pay to buy the part rather than make it?


A. $27


B. $26


C. $30


D. $28

 


Question 2

Richmond Company is considering eliminating one of its products, product A, which costs $60,000 a year to produce but only provides $55,000 in revenues. Careful analysis shows that two-thirds of the cost could be eliminated by dropping product A. What would be the effect on net income of eliminating product A?



A. $15,000 decrease


B. $ 5,000 decrease


C. $15,000 increase


D. $ 5,000 increase

 


Question 3

When using differential analysis to decide whether to eliminate certain products, segments, or customers, costs must be reclassified into those that would be eliminated or changed by the elimination and those that would not.



True


False

 


Question 4

Department 2 of Simmons, Inc. has revenues of $300,000, variable expenses of $180,000, and allocated, indirect fixed expenses of $150,000. If the department is eliminated, what will be the effect on net income?



A. $ 30,000 increase


B. $ 30,000 decrease


C. $120,000 decrease


D. $150,000 decrease

 


Question 5

A high price is not necessarily the price that will maximize income.



True


False

 


Question 6

Differential analysis:



A. compares two courses of action by determining net income for each.


B. is an analysis of the different costs and benefits from alternative solutions to a problem.


C. would be used to review past performance.


D. is a procedure employing the gross margin to determine the best selling price.

 


Question 7

Lucas Company produces 16,000 units, operating at 80 percent of capacity. Spielberg Corp. offers to buy 4,000 units at $20 per unit. Coppola, Inc. wants 3,000 units at $25 per unit. If Lucas' variable costs are $10 per unit, which offer should it accept and what will be the effect on net income?



A. Spielberg, $80,000 increase


B. Coppola, $75,000 increase


C. Spielberg, $40,000 increase


D. Coppola, $45,000 increase

 


Question 8

Strauss Manufacturing Company manufactures a part that it uses in the manufacture of another product. The variable costs of producing this part are $5.50. Fixed overhead costs of $2.25 per unit are applied to this part and would continue to be incurred. It could purchase this part for $5.25. The net advantage (disadvantage) of making this part is:



A. $1.50


B. ($0.25)


C. $0.25


D. ($1.50)


Question 9

The Sidney Company faces a make-or-buy decision concerning a part it manufactures in-house. The product can be manufactured internally with materials costs of $24 per unit, labor of $9, fixed overhead of $6.50, and variable overhead of $6. At what dollar amount would Sidney be indifferent to making or buying this part if the fixed overhead costs would be unaffected?



A. $43.50


B, $33.00

C. $39.00


D. $24.00

 


Question 10

Sunk costs are:



A. costs such as the previous year's wages.


B. All of the other answers are correct.


C. past costs.


D. irrelevant for decision making.

 


Question 11

When differential analysis is applied to pricing decisions, the price selected should be the price that will result in the greatest TOTAL contribution margin.



True


False

 


Question 12

In the contribution margin income statement, contribution margin is equal to net revenues less variable costs of the units sold.



True


False

 


Question 13

The Schraeger Company has estimated that sales for next quarter would be 30,000 units. The company has a beginning finished goods inventory of 2,000 units and wishes to have finished goods inventory of 5,000 units at the end of the quarter. How many units must the company produce in order to have its desired ending inventory?



A. 33,000 units


B. 30,000 units


C. 37,000 units


D. 27,000 units

 


Question 14

A budget variance is the difference between the actual expense incurred and the amount budgeted at:



A. All of the other answers are incorrect.


B. the actual level of activity achieved.


C. the expected level of activity.


D. the normal level of activity.

 


Question 15

Financial budgets do not aid management in planning.



True


False

 


Question 16

The goal sought in the preparation of a flexible budget is to indicate the costs expected to be incurred at varying levels of output.



True


False

 


Question 17

The cornerstone of the budgeting process is the sales budget because:



A. information about future sales is the most readily available.


B. the sales force must gather their budget's data from their customers.


C. it is the most complex.


D. all other budgets flow from the determination of future sales units and dollars.

 


Question 18

The accountant's role in the participatory budgeting process is:



A. to prepare the budget.


B. to impose the budget on unwilling employees.


C. as a compiler, rather than a prepare of budgets.


D. none (no role)

 


Question 19

Which of the following would be a factor to be considered in formulating a sales budget?



A. The demand for the product


B. Level of advertising


C. Economic indicators


D. All of the other answers are correct.

 


Question 20

Participatory budgeting:



A. uses information provided by employees.


B. involves employees at various levels in the organization.


C. can help motivate employees to achieve the organization's goals.


D. All of the other answers are correct.

 


Question 21

Budgets are used in performance evaluation.



True


False

 


Question 22

Suzi Co. forecasts monthly production of 10,000 units. The materials cost breakdown is as follows:


     Materials............3 pounds per unit at $2 per pound


In September Suzi produced 9,000 units. If 27,500 pounds of material at a cost of $2.50 per pound were used in production, compute the materials budget variance.



A. $14,750 unfavorable


B. $13,750 favorable


C. $14,750 favorable


D. $1,000 favorable

 


Question 23

Budgets are:



A. based on past experience adjusted for future expectations.


B. usually not very reliable for evaluation purposes.


C. based only on the future, ignoring past experience.


D. usually not adjusted for future economic conditions.

 


Question 24

Crandell Co. forecasts monthly production of 20,000 units at a cost of $20 each. The cost breakdown is as follows:



In September, Crandell produced 18,000 units at a cost of $397,500. If payroll for September amounted to $150,000 at an hourly rate of $5, compute the labor budget variance.



A. $6,000 favorable


B. $24,000 unfavorable


C. $6,000 unfavorable


D. $30,000 favorable

 


Question 25

Sales for next quarter are budgeted at 100,000 units. Finished goods inventory at the end of this quarter is 20,000 units. Planned production for next quarter is 140,000 units. What will be the budgeted finished goods inventory at the end of the next quarter?



A. 20,000 units


B. 60,000 units


C. 40,000 units


D. 50,000 units

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