Multiple Choice
Use the following data for questions 1 and 2.
Adam Company would like to classify the following costs according to their cost behavior:
1. Which of the following classifications best describes the behavior of Cost C?
A. Mixed
B. Variable
C. Fixed
D. None of these
2. Which of the following classifications best describes the behavior of Cost B?
A. Mixed
B. Variable
C. Fixed
D. None of these
3. Ashley 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 $127.20 per unit.
The best estimate of the total contribution margin when 5,300 units are sold is:
A. $230,020
B. $51,410
C. $146,810
D. $32,330
ACC 241 Practice Questions Exam 2
4. Electrical costs at one of Alex Corporation's factories are listed below:
Management believes that electrical cost is a mixed cost that depends on machine-hours.
Using the high-low method to estimate the variable and fixed components of this cost, these
estimates would be closest to:
A. $7.96 per machine-hour; $11,517 per month
B. $11.13 per machine-hour; $40,510 per month
C. $9.61 per machine-hour; $5,533 per month
D. $0.13 per machine-hour; $40,246 per month
5. 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 multiplied by the variable expense per unit equals the
contribution margin per unit.
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 increases as the number of units sold increases.
6. If company A has a higher degree of operating leverage than company B, then:
A. company A has higher variable expenses.
B. company A's profits are more sensitive to percentage changes in sales.
C. company A is more profitable.
D. company A is less risky.
7. Josh Corporation has a single product whose selling price is $10. At an expected sales level
of $1,000,000, the company's variable expenses are $600,000 and its fixed expenses are
$300,000. The marketing manager has recommended that the selling price be increased by
20%, with an expected decrease of only 10% in unit sales. What would be the company's net
0perating income if the marketing manager's recommendation is adopted?
A. $132,000
B. $290,000
C. $180,000
D. $240,000
8. Monika Corporation produces and sells a single product whose contribution margin ratio is
60%. The company's monthly fixed expense is $420,000 and the company's monthly target
profit is $13,000. The dollar sales to attain that target profit is closest to:
A. $252,000
B. $259,800
C. $721,667
D. $700,000
9. Laura sells three products: R, S, and T. Budgeted information for the upcoming accounting
period follows.
The company's weighted-average unit contribution margin is:
A. $3.00.
B. $3.55.
C. $4.00.
D. $19.35.
E. an amount other than those above.
10. The acceptance of a special order will improve overall net operating income so long as the
revenue from the special order exceeds:
A. the contribution margin on the order.
B. the incremental costs associated with the order.
C. the variable costs associated with the order.
D. the sunk costs associated with the order.
11. Ji Company has 5,000 obsolete desk lamps that are carried in inventory at a manufacturing
cost of $50,000. If the lamps are reworked for $20,000, they could be sold for $35,000.
Alternatively, the lamps could be sold for $8,000 for scrap. In a decision model analyzing
these alternatives, the sunk cost would be:
A. $8,000
B. $15,000
C. $20,000
D. $50,000
12. Karen Company produces a part used in the manufacture of one of its products. The unit
product cost is $18, computed as follows:
An outside supplier has offered to provide the annual requirement of 4,000 of the parts for
only $14 each. It is estimated that 60 percent of the fixed overhead cost above could be
eliminated if the parts are purchased from the outside supplier. Based on these data, the per-
unit dollar advantage or disadvantage of purchasing from the outside supplier would be:
A. $1 disadvantage
B. $1 advantage
C. $2 advantage
D. $4 disadvantage
13. Laura Appliance Company makes and sells electric fans. Each fan regularly sells for $42.
The following cost data per fan is based on a full capacity of 150,000 fans produced each
period.
A special order has been received by Landor for a sale of 25,000 fans to an overseas
customer. The only selling costs that would be incurred on this order would be $4 per fan for
shipping. Landor is now selling 120,000 fans through regular channels each period. What
should Landor use as a minimum selling price per fan in negotiating a price for this special
order?
A. $28
B. $27
C. $31
D. $24
14. Geiger Corporation currently operates two divisions which had operating results last year as
follows:
Since the Troy Division also sustained an operating loss in the prior year, Geiger's president
is considering the elimination of this division. Troy Division's traceable fixed costs could be
avoided if the division were eliminated. The total common corporate costs would be
unaffected by the decision. If the Troy Division had been eliminated at the beginning of last
year, Geiger Corporation's operating income for last year would have been:
A. $15,000 higher
B. $30,000 lower
C. $45,000 lower
D. $60,000 higher
15. Holden Company produces three products, with costs and selling prices as follows:
A particular machine is a bottleneck. On that machine, 3 machine hours are required to
produce each unit of Product A, 1 hour is required to produce each unit of Product B, and 2
hours are required to produce each unit of Product C. In which order should it produce its
products?
A. C, A, B
B. A, C, B
C. B, C, A
D. The order of production doesn't matter.
Problem #1: Cost Behavior
Alex Manufacturing produces metal picture frames. The company's income statements for the
last two years are given below:
The company has no beginning or ending inventories.
Required:
a. Estimate the company's total variable cost per unit and its total fixed costs per year.
b. Compute the company's total contribution margin for this year.
Problem #2: Cost-Volume-Profit Analysis
Josh Corporation sells three products: J, K, and L. The following information was taken from a
recent budget:
Total fixed costs are anticipated to be $2,450,000.
Required:
A. Determine Josh's sales mix.
B. Determine the weighted-average contribution margin.
C. Calculate the number of units of J, K, and L that must be sold to break even.
D. Determine how many units of each product must be sold to earn $60,000 after taxes of 40%.
E. If Josh desires to increase company profitability, should it attempt to increase or decrease the
sales of product K relative to those of J and L? Briefly explain.
Problem #3: Special Order Decision :
The following information relates to the Monika Company for the upcoming year.
The cost of goods sold includes $3,000,000 of fixed manufacturing overhead; the operating
expenses include $450,000 of fixed marketing expenses. A special order offering to buy 50,000
units for $25.00 per unit has been made to Monika. Fortunately, there will be no additional
operating expenses associated with the order and Monika has sufficient capacity to handle the
order.
Required:
a. How much will operating profits increase if Monika accepts the special order?
b. Assume that Monika is operating at full capacity. How much will operating profits change if
Klessig accepts the special order?
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