Exam 061682RR - COSTS AND DECISION MAKING

Exam: 061682RR - COSTS AND DECISION MAKING

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Questions 1 to 20: Select the best answer to each question. Note that a question and its answers may be split across a page break, so be sure that you have seen the entire question and all the answers before choosing an answer.

1.     Viren Corporation has provided the following data from its activity-based costing system:

The company makes 240 units of product T91H a year, requiring a total of 550 machine hours, 90 orders, and 40 inspection hours per year. The product's direct materials cost is $16.98 per unit, and its direct labor cost is $12.09 per unit. According to the activity-based costing system, the average cost of product T91H is closest to_______per unit.

A. $79.66

B. $29.07

C. $90.81

D. $75.70

2. A disadvantage of the high-low method of cost analysis is that

A. it relies totally on the judgment of the person performing the cost analysis.

B. it uses two extreme data points, which may not be representative of normal conditions.

C. it's too time-consuming to apply.

D. it can't be used when there are a very large number of observations.

3.  Use the following information to answer this question.

Callaham Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $115.80 per unit.

The best estimate of the total contribution margin when 4,300 units are sold is

A. $38,270.

B. $43,430.

C$134,590.

 D. $64,070.

4.  A cost driver is

A. the largest single category of cost in a company.

B. an indirect cost that's essential to the business.

C. a factor that causes variations in a cost.

D. a fixed cost that can't be avoided.

5. At a break-even point of 400 units sold, variable expenses were $4,000, and fixed expenses were $2,000. What will the 401st unit sold contribute to profit?

A. $0

B. $5

C$15

D. $10

6. Use the following information to answer this question.

Harris Company produces a single product. Last year, Harris manufactured 17,000 units and sold 13,000 units. Production costs for the year were as follows:

Sales were $780,000 for the year, variable selling and administrative expenses were $88,400, and fixed selling and administrative expenses were $170,000. There was no beginning inventory. Assume that direct labor is a variable cost.

Under variable costing, the company's net operating income for the year would be_______than under absorption costing.

A. $60,000 higher

B. $60,000 lower

C $108,000 lower

D. $60,000 higher

7. Use the following information to answer this question.

Lifsey Wedding Fantasy Company makes very elaborate wedding cakes to order. The owner of the company has provided the following data concerning the activity rates in its activity-based costing system:

•  The measure of activity for the size-related activity cost pool is the number of planned guests at the wedding reception. The greater the number of guests, the larger the cake.

•  The measure of complexity is the number of tiers in the cake.

•  The activity measure for the order-related cost pool is the number of orders. (Each wedding involves one order.)

•  The activity rates include the costs of raw ingredients, such as flour, sugar, eggs, and shortening. The activity rates don't include the costs of purchased decorations, such as miniature statues and wedding bells, which are accounted for separately.

Data concerning two recent orders are listed here:

Assuming that all of the costs listed above are avoidable costs in the event that an order is turned down, which amount would the company have to charge for the Pyburn wedding cake to just break even?

A. $279.87

B. $338.64

C. $29.92

D. $55.79

8. Last year, Gransky Corporation's variable costing net operating income was $52,100, and its ending inventory increased by 400 units. Fixed manufacturing overhead cost was $7 per unit. What was the absorption costing net operating income last year?

A. $54,900

B. $49,300

C. $2,800

D. $52,100

9. Mardist Corporation has sales of $100,000, variable expenses of $75,000, fixed expenses of $30,000, and a net loss of $5,000. How much would Mardist have to sell to achieve a profit of 10% of sales?

A. $225,500

 B. $180,000

C $187,500

D. $200,000

10. An increase in the activity level within the relevant range results in a/an

A. proportionate increase in total fixed costs.

B. unchanged fixed cost per unit.

C. increase in fixed cost per unit.

D. decrease in fixed cost per unit.

11.  Slosh Cleaning Corporation services both residential and commercial customers. Slosh expects the following operating results next year for each type of customer:

Slosh expects to have $18,000 in fixed expenses next year. What would Slosh's total dollar sales have to be next year to generate a profit of $90,000?

A. $216,000

B. $270,000

C. $300,000

D. $250,000

12. Use the following information to answer this question.

Gargymal Company would like to estimate the variable and fixed components of its electrical costs and has compiled the following data for the past five months of operations.

Using the high-low method of analysis, the estimated fixed cost per month for electricity is closest to which of the following?

A. $1,150.00

B. $1,306.50

C. $1,290.00

D. $870.00

13. Use the following information to answer this question.

Lifsey Wedding Fantasy Company makes very elaborate wedding cakes to order. The owner of the company has provided the following data concerning the activity rates in its activity-based costing system:

•  The measure of activity for the size-related activity cost pool is the number of planned guests at the wedding reception. The greater the number of guests, the larger the cake.

•  The measure of complexity is the number of tiers in the cake.

•  The activity measure for the order-related cost pool is the number of orders. (Each wedding involves one order.)

•  The activity rates include the costs of raw ingredients, such as flour, sugar, eggs, and shortening. The activity rates don't include the costs of purchased decorations, such as miniature statues and wedding bells, which are accounted for separately.

Data concerning two recent orders are listed here:

Suppose the company decides that the present activity-based costing system is too complex and that all costs (except for the costs of purchased decorations) should be allocated on the basis of the number of guests. In that event, what would you expect to happen to the costs of cakes?

A. The costs of all cakes would go down.

B. The cost of cakes for receptions with more than the average number of guests would go down.

C. The cost of cakes for receptions with fewer than the average number of guests would go down.

D. The costs of all cakes would go up.

14. Use the following information to answer this question.

Callaham Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $115.80 per unit.

The best estimate of the total variable cost per unit is

A. $106.90.

B. $100.90.

C. $84.50.

D. $105.70.

15. Murdoch Corporation has provided the following data concerning its only product:

What is the margin of safety in dollars?

A. $5,995,333

B. $8,993,000

C. $6,834,680

D. $2,158,320

16. Daniele Corporation uses an activity-based costing system with the following three activity cost pools:

The Other activity cost pool is used to accumulate costs of idle capacity and organization-sustaining costs. The company has provided the following data concerning its costs:

The distribution of resource consumption across activity cost pools is given below:

                                      Activity Cost Pools

The activity rate for the Fabrication activity cost pool is closest to ___ per machine hour.

A. $1.24

B. $7.44

C. $4.44

D. $3.72

17. Indiana Corporation produces a single product that it sells for $9 per unit. During the first year of operations, 100,000 units were produced, and 90,000 units were sold. Manufacturing costs and selling and administrative expenses for the year were as follows:

What was Indiana Corporation's net operating income for the year using variable costing?

A.   $181,000

B.   $271,000

C.   $281,000

D.   $371,000

18. Bear Publishing sells a nature guide. The following information was reported for a typical month (sales volume is constant each month):

Bear is expecting a 20-cent increase in variable expenses. No other changes are expected or planned. How much contribution margin should Bear expect after the increase?

A. $9,900

B. $4,100

C. Can't be determined

D. $7,700

19.  Rank the following methods of assigning overhead costs from least accurate to most accurate.

A. Plantwide rate, departmental rates, activity-based costing

B. Plantwide rate, activity-based costing, departmental rates

C. Departmental rates, plantwide rate, activity-based costing

D. Activity-based costing, departmental rates, plantwide rate

20. Which of the following is true regarding the contribution margin ratio of a single-product company?

A. As fixed expenses decrease, the contribution margin ratio increases.

B. The contribution margin ratio increases as the number of units sold increases.

C. If sales increase, the dollar increase in net operating income can be computed by multiplying the contribution margin ratio by the dollar increase in sales.

D. The contribution margin ratio multiplied by the variable expense per unit equals the contribution margin per unit.