- Zoro, Inc. produces a product that has a variable
cost of $6.00 per unit. The
companyâ€™s fixed costs are $30,000.
The product sells for $10.00 a unit and the company desires to earn
a $20,000 profit. What is the
volume of sales in units required to achieve the target profit?
- Felix Company produces a product that has a
selling price of $12.00 and a variable cost of $9.00 per unit. The companyâ€™s fixed costs are
$60,000. What is the breakeven
point measured in sales dollars?
- Kritzberg Company sells a product at $60 per unit
that has unit variable costs of $40.
The companyâ€™s break-even sales volume is $120,000. How much profit will the company make if
it sells 4,000 units?
- Berkut Company would break even at $600,000 in
total sales. Assuming the company
sells its product for $50 per unit, what is its margin of safety in units
if budgeted sales total $800,000?
- The Euro Company sells two kinds of luggage. The company projected the following cost
information for the two products:
Unit selling price
Unit variable cost
Number of units produced
companyâ€™s total fixed costs are expected to be $280,000. Based on this information, what is the
combined number of units of the two products that would be required to
breakeven? (round your answer to the
nearest whole number)
- Shadow Lake Bottling Company produces a soft
drink that is sold for a dollar.
The company pays $500,000 in production costs, half of which are
fixed costs. General, selling, and
administrative costs amount to $200,000 of which $50,000 are fixed
costs. Assuming production and
sales of 800,000 units, what is the amount of contribution margin per
- Owens Company expects to
incur overhead costs of $10,000 per month and direct production costs of
$125 per unit. The estimated production activity for the upcoming year is
1,200 units. If the company desires to earn a gross margin of $50 per
unit, the sales price per unit would be which of the following amounts?
- Joint products A and B
emerge from common processing that costs $100,000 and yields 2,000 units
of Product A and 1,000 units of Product B. Product A can be sold for $100
per unit. Product B can be sold for $120 per unit. How much of the joint
cost will be assigned to Product A if joint costs are allocated on the
basis of relative sales values?
- The East and West Railroad Company has two divisions, the East Division and
the West Division. The company recently invested $800,000 to maintain its
railroad track. Pertinent data for the two divisions are as follows:
Total Miles Traveled
East Division 800,000 miles
West Division 1,200,000 miles
is the amount of track improvement cost that should be allocated to the West
10. Which of the following costs would NOT be capitalized in the
inventory of a manufacturing company?
to product salespeople
for the manufacturing plant
paid to the production manager
materials used in manufacturing
All of the above
costs would be capitalized in inventory.
11. During its first
year of operations, Martin Company paid $4,000 for direct materials and $8,500
for production workers’ wages. Lease payments and utilities on the production
facilities amounted to $7,500 while general, selling, and administrative
expenses totaled $3,000. The company produced 5,000 units and sold 4,000 units
at a price of $7.50 a unit.
What is the amount of gross margin for the first year?
12. Greenwave Products Co. incurred the following costs in
2006, the companyâ€™s first year of operations: $28,000 for direct materials used
in manufacturing; $42,000 for manufacturing equipment to be straight-line
depreciated over five years with a $2,000 salvage value; $16,000 for office
furniture to be straight-line depreciated over four years with no salvage
value; $14,000 for utilities associated with the manufacturing facility; $4,000
for office utilities; $38,000 for the company presidentâ€™s salary; $24,000 for
the manufacturing managerâ€™s salary; $48,000 for production workersâ€™ wages; and
$22,000 for commissions paid to salespeople. If the company produced 7,625
units during the year and sold 6,400 units for $22 each, what would be the companyâ€™s
gross margin for 2006?
- Creative Construction Company (CCC) expects to
build three new homes during the first quarter of 2008. The estimated direct materials and labor
costs are as follows:
Costs Home 1 Home 2 Home 3
Direct labor $50,000 $40,000 $60,000
Direct materials $60,000 $80,000 $70,000
needs to allocate two major overhead costs for the quarter – $30,000 of
employee health insurance and $168,000 of indirect materials costs between the
three houses. CCC decides to allocate
heath insurance based on labor cost and indirect material based on material
uses a cost-plus pricing strategy to set the selling price of each home. The company would like to have a gross margin
of 20% of total production cost for each home sold. Based on this information, what would be the
estimated selling price for Home 2?
14. Which of the following is an example of a downstream
used in manufacturing
the manufacturing facility
None of the above
- Romo Companyâ€™s manufacturing operation is divided
into two departments. Department A
is an assembly department. The
assembly department uses robotic equipment to construct the companyâ€™s
products. Department B is a
packaging and shipping department.
This department is labor intensive and requires a large number of
workers to prepare the products for delivery. The company has total overhead cost of
$300,000 for the year. Expected machine and labor consumption
patterns are as follows:
Hours Labor Hours Labor Cost
Department A 27,000 6,000 $120,000
Department B 3,000 14,000
Total 30,000 20,000
management places great emphasis on cost control. Managers who are able to minimize their
departmentâ€™s cost are rewarded with bonuses.
Based on this information, what cost driver should the manager of
Department B recommend to allocate total overhead?
16. If a product cost is mistakenly reported as a period
cost, which of the following describes the Income Statement effect during the
year when the misreporting occurs?
Assume all inventory levels do not change (i.e. all inventory produced
Revenues will be
Cost of Goods
Sold will be overstated.
Gross Margin will
and Administrative Expenses will be overstated.
None of the
17. What is the effect
on the financial statements of recording a $100 purchase of raw materials?
Information to Answer
18. Based on the
following cost data, items labeled (a) and (b) in the table below are which of
the following amounts, respectively?
(a) = $3.00; (b) = $3.00
(a) = $2.50;
(b) = $2.00
(a) = $5.00; (b) = $4.00
(a) = $10.00; (b)
19. Quick Change and
Fast Change are competing oil change businesses. Both companies have 5,000
customers and currently make the same amount of profit. The price of an oil change at both companies
is $20. Quick Change pays its employees on a salary basis, and its salary
expense is $40,000. Fast Change pays it employees $8 per customer served.
Suppose Quick Change is able to lure 1,000 customers from Fast Change by
lowering its price to $18 per vehicle. Thus, Quick Change will have 6,000
customers and Fast Change will have only 4,000 customers. Select the correct
statement from the following.
Rev $100,0000 $100,000
Cost ( 40,000) ( 40,000)
NI $ 60,000 $ 60,000
Rev $108,000 $80,000
Cost ( 40,000) ( 32,000)
NI $ 68,000 $48,000
profit will remain the same while Fast Change’s profit will fall.
- Fast Changeâ€™s profit will fall but it will still
earn a higher profit than Quick Change.
- Profits will decline for both Quick Change and
- Quick Changeâ€™s profit will increase, and Fast
Changeâ€™s profit will decrease.
- None of the above.
20. Companies A and B
are in the same industry and are identical except for cost structure. At a
volume of 50,000 units, the companies have equal net incomes. At 60,000 units,
Company Bâ€™s net income would be substantially higher than Aâ€™s. Based on this
Company Bâ€™s cost
structure has more variable costs than Aâ€™s.
Company Aâ€™s cost
structure has higher fixed costs than Bâ€™s.
Company Bâ€™s cost
structure has higher fixed costs than Aâ€™s.
At a volume of
50,000 units, Company Bâ€™s magnitude of operating leverage was lower than Aâ€™s.
All of the above.
21. Based on the income
statements shown below, which division has the cost structure with the lowest
What is this company’s magnitude of
- Production in
2007 for Stowe Snow Mobile was at its highest point in the month of June
when 40 units were produced at a total cost of $600,000. The low point in
production was in January when only 15 units were produced at a cost of
$340,000. The company is preparing a budget for 2008 and needs to project
expected fixed cost for the budget year. Using the high/low method, the
projected amount of fixed cost per month is
- At its $25
selling price, Paciolli Company has sales of $10,000, variable manufacturing
costs of $4,000, fixed manufacturing costs of $1,000, variable selling and
administrative costs of $2,000 and fixed selling and administrative costs
of $1,000. What is the company’s contribution margin per unit?