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. 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. $870.00

B. $1,306.50

C. $1,150.00

D. $1,290.00

2. A cost driver is

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

B. a factor that causes variations in a cost.

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

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

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. $134,590.

B. $38,270.

C. $64,070.

D. $43,430.

4. 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 variable cost per machine hour for electricity is closest to which of the following?

A. $2.50

B. $0.40

C. $1.68

D. $0.98

5. 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.

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.

The contribution margin per unit was

A. $25.70.

B. $17.50.

C. $32.50.

D. $27.30.

7. Green Company's variable expenses are 75% of sales. At a sales level of $400,000, the company's degree of operating leverage is 8. At this sales level, fixed expenses are

A. $100,000.

B. $50,000.

C. $75,000.

D. $87,500.

8. A company increased the selling price for its product from $5 to $6 per unit when total fixed expenses increased from $100,000 to $200,000 and variable expense per unit remained unchanged. How would these changes affect the break-even point?

A. The effect can't be determined from the information given.

B. The break-even point in units would remain unchanged.

C. The break-even point in units would decrease.

D. The break-even point in units would increase.

9. 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 the company charges $556.96 for the Smith wedding cake, what would be the overall margin on the order?

A. $460.30

B. $96.66

C. $152.45

D. $165.41

10. 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. $29.92

B. $55.79

C. $279.87

D. $338.64

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

What is the margin of safety in dollars?

A. $6,834,680

B. $8,993,000

C. $5,995,333

D. $2,158,320

12. 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 the company charges $556.96 for the Smith wedding cake, what would be the overall margin on the order?

A. $460.30

B. $165.41

C. $152.45

D. $96.66

13. 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

14. 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. $200,000

B. $180,000

C. $225,500

D. $187,500

15. Which statement is true for a company that uses variable costing?

A. Profit fluctuates with sales.

B. The unit product cost changes because of changes in the number of units manufactured.

C. Any underapplied overhead is included in the product cost.

D. Product costs include variable administration costs.

16. 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 absorption costing, the carrying value on the balance sheet of the ending inventory for the year would be

A. $0.

B. $170,000.

C. $190,800.

D. $230,800.

17. 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. $7,700

B. $4,100

C. Can't be determined

D. $9,900

18. 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. $15

C. $10

D. $5

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

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

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

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

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

20. 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. $250,000

B. $270,000

C. $216,000

D. $300,000

End of exam