Managerial Accounting question bank



Managerial Accounting

  1. Zoro, Inc. produces a product that has a variable
    cost of $6.00 per unit. The
    company’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?
  2. Felix Company produces a product that has a
    selling price of $12.00 and a variable cost of $9.00 per unit. The company’s fixed costs are
    $60,000. What is the breakeven
    point measured in sales dollars?
  3. Kritzberg Company sells a product at $60 per unit
    that has unit variable costs of $40.
    The company’s break-even sales volume is $120,000. How much profit will the company make if
    it sells 4,000 units?

  1. 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?
  2. The Euro Company sells two kinds of luggage. The company projected the following cost
    information for the two products:


Tote Bag

Unit selling price



Unit variable cost


$ 80

Number of units produced
and sold



company’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)

  1. 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
  2. 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?

  1. 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?

  1. 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?

Commissions paid
to product salespeople

Utility expenses
for the manufacturing plant

Monthly salary
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 company’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 president’s salary; $24,000 for
the manufacturing manager’s salary; $48,000 for production workers’ 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 company’s
gross margin for 2006?

  1. 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

Research and
development (R&D)

Direct materials
used in manufacturing

Depreciation for
the manufacturing facility

Salaries for
production supervisors

None of the above

  1. Romo Company’s manufacturing operation is divided
    into two departments. Department A
    is an assembly department. The
    assembly department uses robotic equipment to construct the company’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:

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
department’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
was sold).

Revenues will be

Cost of Goods
Sold will be overstated.

Gross Margin will
be unaffected.

Selling, General,
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?


Item A

Item B

Item C

Item D

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)
= $4.00

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.

Quick Fast

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

Quick Change’s
profit will remain the same while Fast Change’s profit will fall.

    1. Fast Change’s profit will fall but it will still
      earn a higher profit than Quick Change.
    2. Profits will decline for both Quick Change and
      Fast Change.
    3. Quick Change’s profit will increase, and Fast
      Change’s profit will decrease.
    4. 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 B’s net income would be substantially higher than A’s. Based on this

Company B’s cost
structure has more variable costs than A’s.

Company A’s cost
structure has higher fixed costs than B’s.

Company B’s cost
structure has higher fixed costs than A’s.

At a volume of
50,000 units, Company B’s magnitude of operating leverage was lower than A’s.

All of the above.

21. Based on the income
statements shown below, which division has the cost structure with the lowest
operating leverage?



What is this company’s magnitude of
operating leverage?

  1. 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
  2. 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?


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