Use the following to answer questions 1-2:
manufactures and sells T-shirts imprinted with college names and slogans. Last
year, the shirts sold for $7.50 each, and the variable expense was $2.25 per
The company needed to sell
20,000 shirts to break even. The net operating income last year was $8,400.
Donnelly’s expectations for the coming year include the following:
* The selling price of the
T-shirts will be $9.00.
* Variable expenses will
increase by one third.
* Fixed expenses will increase
by 10 percent.
1. The number of T-shirts Donnelly Corporation
must sell to break even in the coming year is:
B) 20,000. C)
22,000. D) 19,250.
2. If Donnelly Corporation wishes to earn
$22,500 in net operating income for the coming year, the company’s sales volume
in dollars must be:
B) $213,750. C)
$257,625. D) $207,000.
7. Assume a company sells a single product. If Q
equals the level of output, P is the selling price per unit, V is the variable
expense per unit, and F is the fixed expense, then the break-even point in
sales dollars is:
B) F/[Q(P-V)/P]. C)
F/(P-V). D) F/[Q(P-V)].
18. The contribution margin ratio is 30% for the
Honeyville Company and the break-even point in sales is $150,000. If the
company’s target net operating income is $60,000, sales would have to be:
B) $350,000. C)
$250,000. D) $200,000.
Use the following to answer questions
Jackson Company’s operating
results for last year are given below:
27. If the company’s fixed expenses decrease by
20% next year, the break-even point will change from its previous level by:
A) 150 unit increase. C) 150 unit decrease.
B) no change in the break-even point. D) 360 unit decrease.
28. If the company wants to increase its total
contribution margin by 40% over last year, it will need to increase its sales
B) $38,400. C)
$24,960. D) $17,160.
29. Korn Company sells two products, as follows:
expenses total $300,000 annually. The expected sales mix in units is 60% for
product Y and 40% for product Z. How much is Korn’s expected break-even sales
C) $544,000 D)
31. At a sales level of $190,000, Bliss Company’s
gross margin is $15,000 less than its contribution margin, its net operating
income is $30,000, and its selling and administrative expense is $70,000. At this
sales level, its contribution margin would be:
B) $ 85,000. C)
$160,000. D) $100,000.
Use the following to answer questions 9-11:
Janos Company, which has only
one product, has provided the following data concerning its most recent month
The company produces the same
number of units every month, although the sales in units vary from month to
month. The company’s variable costs per unit and total fixed costs have been
constant from month to month.
9. What is the net operating income for the
month under absorption costing?
B) $8,800 C)
$24,800 D) $1,700
10. What is the net operating income for the
month under variable costing?
B) $1,700 C)
11. What is the unit product cost for the month
under absorption costing?
A) $72 B) $89 C) $80 D) $63
18. The Jung
Corporation’s production budget calls for the following number of units to be
produced each quarter for next year:
of product requires three pounds of direct material. The company’s policy is to
begin each quarter with an inventory of direct materials equal to 30% of that
quarter’s direct material requirements. Budgeted direct materials purchases for
the third quarter would be:
A) 89,400 pounds. B)
114,600 pounds. C) 29,800 pounds. D)
19. Which of the following statements is not
A) The sales budget generally is accompanied by a
computation of expected cash receipts for the forthcoming budget period.
B) The cash budget must be prepared prior to the
sales budget since managers want to know the expected cash collections on sales
made to customers in prior periods before projecting sales for the current
C) The sales budget is constructed by multiplying
the expected sales in units by the sales price.
D) The sales budget is often the starting point
in preparing the master budget.
Use the following to answer questions 20-22:
The Yost Company makes and sells
a single product, Product A. Each unit of Product A requires 1.2 hours of labor
at a labor rate of 8.40 per hour. Yost Company needs to prepare a Direct Labor
Budget for the second quarter.
20. The budgeted direct labor cost per unit of
Product A would be:
B) $9.60. C)
$10.08. D) $8.40.
21. If the budgeted
direct labor cost for May is $161,280, then the budgeted production of Product
A for May would be:
A) 19,200 units. B)
23,040 units. C) 16,800 units. D)
22. The company has budgeted to produce 20,000
units of Product A in June. The finished goods inventories on June 1 and June
30 were budgeted at 400 and 600 units, respectively. Budgeted direct labor
costs incurred in June would be:
B) $207,648. C)
$199,584. D) $168,000.
23. Budgeted production needs are determined by:
A) adding budgeted sales in units to the
beginning inventory in units and deducting the desired ending inventory in
units from this total.
B) adding budgeted sales in units to the desired
ending inventory in units.
C) deducting the beginning inventory in units
from budgeted sales in units.
D) adding budgeted sales in units to the desired
ending inventory in units and deducting the beginning inventory in units from
28. George Company has no beginning inventory and
manufactures a single product. If the number of units produced exceeds the
number of units sold, then net operating income under the absorption method for
the year will:
A) be equal to the net operating income under
variable costing less total fixed manufacturing costs.
B) be greater than the net operating income
under variable costing.
C) be equal to the net operating income under
variable costing plus total fixed manufacturing costs.
D) be equal to the net operating income under
Use the following to answer questions 29-31:
Last year, Krepps Company
manufactured 20,000 units and sold 15,000 units. Production costs for the year
were as follows:
Sales totaled $825,000 for the
year, variable selling and administrative expenses totaled $108,000, and fixed
selling and administrative expenses totaled $165,000. There was no beginning
inventory. Assume that direct labor is a variable cost.
29. Under absorption costing, the ending
inventory for the year would have a cost of:
B) $248,250. C)
$216,000. D) $0.
30. Under variable costing, the company’s net
operating income for the year would be:
A) $60,000 lower than under absorption costing.
B) $60,000 higher than under absorption costing.
C) $101,250 lower than under absorption costing.
D) $101,250 higher than under absorption costing.
31. The contribution margin per unit would be:
B) $25.60. C)
$19.00. D) $31.00.
32. Routsong Company had the following sales and
production data for the first four years of operation:
price per unit, variable costs per unit, and total fixed costs are the same in each
year. Which of the following statements is not correct?
A) Under absorption costing, net operating income
in Year 2 would be greater than the net operating income in Year 2 under
B) The total net operating income for all four
years combined would be the same under variable and absorption costing.
C) Because of the changes in production levels,
under variable costing the per unit inventory cost will change each year.
D) Under variable costing, net operating income
for Year 1 and Year 2 would be the same.
33. Shocker Company’s sales budget shows
quarterly sales for the next year as follows:
policy is to have a finished goods inventory at the end of each quarter equal
to 20% of the next quarter’s sales. Budgeted production for the second quarter
of the next year would be:
A) 8,400 units.
B) 8,800 units. C)
8,000 units. D) 7,200 units.
34. Shown below is the sales forecast for Cooper
Inc. for the first four months of the coming year.
average, 50% of credit sales are paid for in the month of the sale, 30% in the
month following sale, and the remainder is paid two months after the month of
the sale. Assuming there are no bad debts, the expected cash inflow in March
A) $122,000. B)
$108,000. C) $119,000.
Use the following to answer questions
36, 37, 38, and 39:
Company is a retail sporting goods store. Facts regarding Kelly’s operations
are as follows:
– Sales, all on account, are budgeted at $220,000 for
November and $200,000 for December.
– Collections are expected to be 60% in the month of
sale and 40% in the month following the sale.
– The cost of goods sold is 75% of sales.
– A total of 80% of the merchandise sold in a month is
purchased in the month prior to the month of sale and 20% is purchased in the
month of sale. Payment for purchased merchandise is made in the month following
– Other expenses [selling and administrative] to be
paid in cash each month are $22,600.
– Monthly depreciation is $18,000.
The budgeted cash
The projected balance
The projected balance
The net income for