Professional Documents
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1 A company has $27 per unit in variable costs and $1,000,000 per year in fixed costs.
Demand is estimated to be 100,000 units annually. What is the price if a markup of
40% on total cost is used to determine the price?
A) $51.80
B) $37
C) $27
D) $37.80
2 True or False: Firms that have high levels of fixed costs have low operating leverage
A) True
B) False
RNO Company's market for the Model 55 has changed significantly, and RNO has had to
drop the price per unit from $265 to $125. There are some units in the work in process
inventory that have costs of $150 per unit associated with them. RNO could sell these
units in their current state for $100 each. It will cost RNO $10 per unit to complete these
units so that they can be sold for $125 each.
5 A new employee looks at the analysis and exclaims, “We'll lose money with either of
these alternatives! Let's just throw these units in the trash!” Suppose the alternative to
trashing is choosing the more profitable of the two alternatives (that the new employee
looked at and did not like). What effect will the trashing option (that the new employee
wants) have on net income?
A) Net income will increase by $35 per unit for each unit discarded.
B) Net income will decrease by $115 per unit for each unit discarded.
C) It will have no effect on net income.
D) Net income will decrease by $265 per unit for each unit discarded.
6 When the incremental revenues and expenses are analyzed, the company is better off by
A) $10 per unit if the sell the units in their current state.
B) $25 per unit if they sell the units in their current state.
C) $15 per unit if they complete the units.
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Each Question 2 points. Maximum Points 100
9 Indirect costs occur because resources are shared by more than cost object.
A) True
B) False
10 How many joint products can come from a set of common inputs?
A) no more than four
B) only two or three
C) It depends on the process involved.
D) One
13 The most difficult part of determining the profit maximizing price is determining profit
at a given level of unit sales.
A) True
B) False
14 A company using activity based pricing marks up the direct cost of goods by 30% plus
charges customers for indirect costs based on the activities utilized by the customer.
Indirect costs are charged as follows: $8.00 per order placed; $4.00 per separate item
ordered; $30.00 per return. A customer places 10 orders with a total direct cost of
$3,000, orders 300 separate items, and makes 5 returns. What will the customer be
charged?
A) $5,330
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Each Question 2 points. Maximum Points 100
B) $3,000
C) $5,759
D) $3,900
16 One of the reasons that companies allocate costs is to reduce the frivolous use of
common resources.
A) True
B) False
17 The more costs that are allocated to a cost plus contract, the more the supplier will be
paid under the contract.
A) True
B) False
18 Go back to the original data. If the hotel spends an additional $10,000 in the month of
February on advertising they feel that they can expect occupancy rate to increase by 5%.
What would be the financial impact of spending this additional money on advertising
for the month of February (28 days)?
19 If 80% of the rooms are occupied each night in the month of February (28 days) what
will total costs be for the month?
A) $86,560.
B) $173,600.
C) $71,680.
D) $155,680.
3
Each Question 2 points. Maximum Points 100
20 If the hotel is able to increase occupancy to 90% by how much will total costs increase
for the month of February (28 days)?
A) $7,168.
B) $8,960.
C) $17,360.
D) $15,568.
21 Cost allocation methods that provide the most accurate full cost for financial reporting
also provide the most accurate information for making decisions within the company.
A) True
B) False
22 Jones Company manufactures widgets. Old Ham Company has approached Jones with
a proposal to sell the company one of the components used to make widgets at a price of
$100,000 for 50,000 units. Jones is currently making these components in its own
factory. The following costs are associated with this part of the process when 50,000
units are produced:
The manufacturing overhead consists of $32,000 of costs that will be eliminated if the
components are no longer produced by Jones. The remaining manufacturing overhead
will continue whether or not Jones makes the components.
What is the amount of avoidable costs if Jones buys rather than makes the components?
A) $60,000
B) $96,000
C) $124,000
D) $100,000
23 K-Henry's Dull Diner has a contribution margin ratio of 16%. If fixed costs are
$176,800, how many dollars of revenue must K-Henry's generate in order to reach the
break-even point?
A) $282,880
B) $1060,800
C) $208,476
D) $1,105,000
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Each Question 2 points. Maximum Points 100
25 Conan Company's monthly activity level ranged from a low of 17,000 units in May to a
high of 26,000 units in October. Average production was 20,000 units per month.
Utilities cost was $8,250 in May and $10,500 in October. The variable utility cost per
unit, to the nearest cent, is:
A) $0.49.
B) $0.47.
C) $0.25.
D) $0.40.
26 Which of the following is not a term used to describe the additional costs incurred as a
result of selecting one decision alternative over another?
A) sunk costs
B) incremental costs
C) relevant costs
D) differential costs
27 A retailer purchased some trendy clothes that have gone out of style and must be
marked down to 20% of the original selling price in order to be sold. Which of the
following is a sunk cost in this situation?
A) the original selling price
B) the original purchase price
C) the anticipated profit
D) the current selling price
28 A company has a total cost of $50.00 per unit at a volume of 100,000 units. The
variable cost per unit is $20.00. What would the price be if the company expected a
volume of 120,000 units and used a markup of 50%?
A) $75.00
B) $62.50
C) There is not enough information in the problem to answer
D) $67.50
29 Sunk costs:
A) would include the cost of your tuition after the refund deadline has passed.
B) Are costs that have been incurred in the past.
C) are not relevant for decision making
D) All of the above are correct.
30 At Caleb's Tights, the break-even point is 2,000 units. If fixed costs total $300,000 and
variable costs are $30 per unit, what is the selling price per unit?
A) $210
B) $180
C) $5
D) $150
5
Each Question 2 points. Maximum Points 100
31 The margin of safety is the difference between the current level of sales and break-even
sales.
A) True
B) False
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Each Question 2 points. Maximum Points 100
35 What, if any information given was not relevant to the profit maximization decision?
A) The variable costs per unit
B) The quantities demanded
C) All of the information was relevant
D) The selling prices
E) The total fixed costs
36 A company should never accept any orders below its normal selling price.
A) True
B) False
37 The value of benefits foregone by selecting one decision alternative over another is a(n)
A) differential revenue.
B) sunk cost.
C) opportunity cost.
D) incremental benefit.
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Each Question 2 points. Maximum Points 100
Dye Company approaches Anderson with a special order for 15,000 units at a price of
$7.50 per unit. Variable costs will be the same as the current production and accepting
the special order will not have any impact on the rest of the company's orders. However,
Anderson is operating at capacity and will incur an additional $50,000 in fixed
manufacturing overhead if the order is accepted.
38 What is the incremental income (loss) associated with accepting the special order?
A) ($14,000)
B) $36,000
C) ($23,500)
D) $27,000
39 What is the incremental revenue associated with accepting the special order?
A) $170,000
B) $112,500
C) $70,000
D) $120,000
41 The price which maximizes revenues is the price that should be selected.
A) True
B) False
42 Which of the following is a direct cost in relation to the cost of teaching the managerial
accounting course you are currently taking?
A) The cost of the registration system that allowed you to enroll in the class
B) The cost of the paper that you receive as handouts for the class
C) The cost of the financial aid department that helps you fund the cost of taking the
class
D) The cost of the room you are using for the class
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Each Question 2 points. Maximum Points 100
43 Paul's Pizza produced and sold 2,000 pizzas last month and had fixed costs of $6,000. If
production and sales are expected to increase by 10% next month, which of the
following statements is true?
A) Total fixed costs will decrease.
B) Fixed cost per unit will decrease.
C) Total fixed costs will increase.
D) Fixed cost per unit will increase.
44 Total fixed costs divided by the contribution margin ratio equals the breakeven point.
A) True
B) False
45 The Dynamaco Company uses cost-plus pricing with a 50% mark-up. The company is
currently selling 100,000 units at $12 per unit. Each unit has a variable cost of $6. In
addition, the company incurs $200,000 in fixed costs annually. If demand falls to
80,000 units and the company wants to continue to earn a 50% return, what price should
the company charge?
A) $12.75
B) $14.55
C) $13.50
D) $10.95
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Each Question 2 points. Maximum Points 100
47 Using the high-low method, what is the variable cost per unit?
A) $0.25
B) $2.56
C) $0.22
D) $2.00
49 A manufacturing company produces and sells 20,000 units of a single product. Total
products costs are $14 per unit. If total sales were $560,000 what markup percentage is
the company using?
A) 100%
B) 4%
C) 200%
D) 50%
50 The high-low method fits a straight line to the data points that represent the highest and
lowest levels of activity.
A) True
B) False
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