Quiz 3 Managerial Accounting Study Guide

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Quiz #3 – Managerial Accounting - Chapters 6, 7, 8 and 9 This Quiz contains 30 multiple choice questions. You will have 3 hours to complete this exam. 77. Offshore Company makes 2 different types of boats, sail and fishing boats. The company consists of two different departments, design & engineering and production. The company has decided to allocate overhead costs in each of the two cost pools. Data on estimated overhead follows: Estimated Sail Fish Activity: Driver Overhead Cost Estimate Estimate Design # of designs $180,000 22 designs 23 designs Production Labor hours $994,000 4,500 hours 2,500 hours What overhead rates will be used in each department to assign costs to the sail boats? Design Production A. $8,182 $220.89 B. $88,000 $639,000 C. $4,000 $142.00 D. $4,000 $220.89 78. Offshore Company makes 2 different types of boats sail and fishing boats. The company consists of two different departments, design & engineering, and production. The company has decided to allocate overhead costs in each of the two cost pools. Data on estimated overhead follows: Estimated Sail Fishing Activity: Driver Overhead Cost Estimate Estimate Design # of designs $180,000 22 designs 18 designs Production Labor hours $945,000 4,000 hours 3,500 hours If the company produces and sells 22 sail boats, and each sail boat requires 180 labor hours, how much overhead will be assigned to each sail boat produced? A. $27,180 B $22,680 C $36,900 D. $32,400 79. Mementos Gift Shop produces vases. Utility costs are allocated to products based on the amount of time spent on the pottery wheel. Utility costs of $3,000 per month are budgeted and the store anticipates spending 7,500 minutes on the pottery wheel each month. If a vase uses 18 minutes on the pottery wheel how much of the utility costs will be allocated to each vase? A. $72.00 B. $4.50 C. $45.00 D. $7.20

80. Bristle Company produces brooms. Utility costs are allocated to products based on a percentage of material costs. Utility costs of $15,000 per month are budgeted and the store anticipates spending $30,000 in materials. By the end of the month, it was determined that actual utility costs were $14,500. If the company spends $6.50 per broom for materials, how much of the utility costs will be allocated to each broom? A. $0.50 B. $0.48 C. $3.14 D. $3.25 81. AC Consulting Company has purchased a new $15,000 copier. This overhead cost will be shared by the purchasing, accounting, and information technology departments since those are the only departments which will be able to access the machine. The company has decided to allocate the cost based on the number of copies made by each department. The copier is estimated to provide 1 million copies over its life. Each department has estimated the number of copies which will be made in their department over the life of the copier. Department Copies Purchasing 350,000 Accounting 200,000 Information Tech 400,000 How much overhead will be allocated each time a copy is made if cost allocations are computed to 4 significant digits? A. $63.3333 B. $0.0158 C. $66.6667 D. $0.0150 82. AC Consulting Company has purchased a new $18,038 copier. This overhead cost will be shared by the purchasing, accounting, and information technology departments since those are the only departments which will be able to access the machine. The company has decided to allocate the cost based on the number of copies made by each department. Each department has estimated the number of copies which will be made over the life of the copier. Department Copies Purchasing 250,000 Accounting 300,000 Information Tech 425,000 If cost allocations are computed to 4 significant digits and the purchasing department makes 58,000 copies this year, how much overhead will be allocated to purchasing? A. $4,185 B. $4,624 C. $77,750

D. $1,073

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83. Sierra Company allocates the estimated $200,000 of its accounting department costs to its production and sales departments since the accounting department supports the other two departments particularly with regard to payroll and accounts payable functions. The costs will be allocated based on the number of employees using the direct method. Information regarding costs and employees follows: Department Employees Accounting 4 Production 36 Sales 12 How much of the accounting department costs will be allocated to the production and sales departments? Employees Department A. $150,000 $50,000 B. $180,000 $60,000 C. $1,800,000 $600,000 D. $22,222 $66,667 84. Road Masters Trucking Company allocates the rent costs and dispatcher’s salaries to their different service departments on the basis of miles driven. Estimated costs and miles driven are summarized below: Rent $20,000 Dispatcher salaries $45,000 Local Delivery 620,000 miles Long-Haul 1,450,000 miles If cost allocations are computed to 4 significant digits, how much of the rent and salaries costs will be allocated to the long-haul department? Rent Salaries A. $14,065 $31,465 B. $31,465 $14,065 C. $6,000 $13,500 D. $13,500 $6,000 85. The Dennison Company makes alarm clocks. Information on the product is as follows: Sales $180,000 Direct materials 60,000 Direct labor 20,000 Overhead costs are allocated at the rate of 120% of material costs. How much are total company profits? A. $28,000 B. $37,000

C. $100,000 D. $40,000 86. The building maintenance department for Jones Manufacturing Company budgets annual costs of $4,200,000 based on the expected operating level for the coming year. The costs are allocated to two production departments. The following data relate to the potential allocation bases: Production Dept. 1 Production Dept. 2 Square footage 15,000 45,000 Direct labor hours 25,000 50,000 If Jones assigns costs to departments based on square footage, how much total costs will be allocated to Production Department 1? A. $1,400,000 B. $1,050,000 C. $1,575,000 D. $2,100,000 87. The building maintenance department for Jones Manufacturing Company budgets annual costs of $4,200,000 based on the expected operating level for the coming year. The costs are allocated to two production departments. The following data relate to the potential allocation bases: Production Dept. 1 Production Dept. 2 Square footage 15,000 45,000 Direct labor hours 25,000 50,000 If Jones assigns costs to departments based on direct labor hours, how much total costs will be allocated to Production Department 2? A. $1,400,000 B. $1,050,000 C. $2,800,000 D. $2,100,000

88. Sweet Products produces mint syrup used by gum and candy companies. Recently, the company has had excess capacity due to a foreign supplier entering its market. Sweet Products is currently bidding on a potential order from Red Sugar Candy for 5,000 cases of syrup. The estimated cost of each case is $27.50, as follows: direct material, $10; direct labor, $5; and manufacturing overhead, $12.50. The overhead rate of $2.50 per direct labor dollar is based on estimated annual overhead of $1,500,000 and estimated direct labor of $600,000, composed of $400,000 of variable costs and $1,100,000 of fixed costs. The largest fixed cost relates to depreciation of plant and equipment. With respect to overhead, how much is the variable cost of producing a case of syrup? A. $13.33 B. $15.00 C. $18.33 D. $17.50 89. Sweet Products produces mint syrup used by gum and candy companies. Recently, the company has had excess capacity due to a foreign supplier entering its market. Sweet Products is currently bidding on a potential order from Red Sugar Candy for 5,000 cases of syrup. The estimated cost of each case is $27.50, as follows: direct material, $10; direct labor, $5; and manufacturing overhead, $12.50. The overhead rate of $2.50 per direct labor dollar is based on estimated annual overhead of $1,500,000 and estimated direct labor of $600,000, composed of $400,000 of variable costs and $1,100,000 of fixed costs. The largest fixed cost relates to depreciation of plant and equipment. Should Sweet Products bid on the Red Sugar Candy business at $20 per case? A. No, because the incremental loss will be $7.50 per case. B. Yes, because the incremental profit will be $1.67 per case. C. No, because there are too many qualitative considerations. D. Yes, because the incremental profit will be $2.50 per case. 90. Kind, Meek, and Clean, attorneys-at-law, specialize in three areas: criminal, civil, and family law. When specifications for a new computer system were established, the partners agreed to allocate usage based on each department’s needs. Criminal law division needed 60% of the capacity, civil law 25%, and family law 15%. Variable costs for the computer department would be allocated on the number of computer minutes each division used. The computer department’s budgeted fixed costs are $700,000, and the budgeted variable costs $150,000. The firm estimates that 400,000 minutes of computer time will be used year. The criminal law division actually used 190,000 minutes of computer time. How much total computer department costs will be allocated to the criminal law division? (Compute cost allocation rates to 3 significant digits.) A. $403,750 B. $510,000 C. $90,000 D. $491,250

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91. Kind, Meek, and Clean, attorneys-at-law, specialize in three areas: criminal, civil, and family law. When specifications for a new computer system were established, the partners agreed to allocate usage based on each department’s needs. Criminal law division needed 60% of the capacity, civil law 25%, and family law 15%. Variable costs for the computer department would be allocated on the number of computer minutes each division used. The computer department’s budgeted fixed costs are $700,000, and the budgeted variable costs $150,000. The firm estimates that 400,000 minutes of computer time will be used year. If the family law division uses 57,000 minutes of computer time, what is the total amount of computer department costs that will be allocated to the family law division? (Compute cost allocation rates to 3 significant digits.) A. $127,500 B. $105,000 C. $126,375 D. $121,125 92. Kind, Meek, and Clean, attorneys-at-law, specialize in three areas: criminal, civil, and family law. When specifications for a new computer system were established, the partners agreed to allocate usage based on each department’s needs. Criminal law division needed 60% of the capacity, civil law 25%, and family law 15%. Variable costs for the computer department would be allocated on the number of computer minutes each division used. The computer department’s budgeted fixed costs are $700,000, and the budgeted variable costs $150,000. The firm estimates that 400,000 minutes of computer time will be used year. What amount of the computer department’s fixed costs will be allocated to the civil and family law divisions, respectively? (Compute cost allocation rates to 3 significant digits.) A. $37,500 and $22,500 B. $175,000 and $105,000 C. $233,333 and $233,333 D. $212,500 and $ 127,500 93. Maintenance costs at Winter Company are allocated to the production departments based on area occupied. Maintenance costs of $300,000 are budgeted to maintain a 60,000 square foot production area. If the finishing department occupies 25,000 square feet, how much of the maintenance department costs will be allocated to the finishing department? A. $125,000 B. $175,000 C. $100,000 D. $5,000

94. Manufacturing overhead is allocated to products based on the number of machine hours required. In a year when 20,000 machine hours were anticipated, costs were budgeted at $125,000. If a product requires 7,000 machine hours, how much manufacturing overhead will be allocated to this product? A. $50,000 B. $1,120 C. $41,667 D. $43,750 96. Mexican Spices Company makes two types of salsa, hot and mild. Information for the two flavors appears below: Hot Mild Sales $400,000 $600,000 Direct materials $100,000 $200,000 Direct labor $50,000 $150,000 Labor hours 5,000 10,000 Mexican Spices incurred $240,000 in overhead costs for the period. Assume that Mexican Spices allocates the overhead costs to the products based on the labor cost. How much is the overall profit for Mexican Spices? $500,000 $260,000 $700,000 $520,000

97. Mexican Spices Company makes two types of salsa, hot and mild. Information for the two flavors appears below: Hot Mild Sales $400,000 $600,000 Direct materials $100,000 $200,000 Direct labor $50,000 $150,000 Labor hours 5,000 10,000 Mexican Spices incurred $240,000 in overhead costs for the period. Assume that Mexican Spices allocates the overhead costs to the products based on the direct material cost. How much overhead is assigned to Hot? A . $80,000 B. $60,000 C. $100,000 D. $40,000 98. The production departments at Kelley Corporation occupy a total area of 500,000 square feet. Heating costs total $600,000 and are allocated based on the area that each department occupies. The finishing department occupies 30,000 square feet and the packaging department occupies 20,000 square feet. What amount of heating cost will be allocated to the finishing and packaging departments, respectively? A. $360,000 and $240,000 B. $300,000 and $300,000 C. $36,000 and $24,000 D. $32,727 and $21,818 99. Maintenance cost is allocated to the three producing departments based on the machine hours used in each department. The maintenance cost for June was $200,000. The three departments had the following usage for June: Department Machine hours used Direct labor hours used Assembly 600 2,000 Fabrication 600 5,000 Testing 800 3,000 How much maintenance cost should be allocated to the fabrication department for June? A. $60,000 B. $100,000 C. $66,667 D. $6,000 100. Kitchen Excellence Company produces baked goods. Utility costs are allocated to the products based on the baking time required for the product. Utility costs of $315,000 are budgeted in a period when 450,000 total minutes of baking time and 100,000 minutes of cooling time are anticipated. If a batch of rolls bakes for 45 minutes, and then cools for 15 minutes, what amount of utility utilities cost will be allocated to the rolls?

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A. $34.36 B. $64.29 C. $31.50 D. $25.77 101. Ring Company allocates the net cost of the company cafeteria to production departments using the direct method based on the number of employees in each department. The four production departments in the company have the following number of employees: molding, 25; polishing, 35; engraving, 30; and packaging, 10. There are 5 employees in the cafeteria. The cafeteria’s net costs total $130,100. When the cafeteria’s costs are allocated, what is the amount per employee that will be allocated to each of the production departments? A. $26,020 B. $1,239 C. $260 D. $1,301 102. Ring Company allocates the net cost of the company cafeteria to production departments using the direct method based on the number of employees in each department. The four production departments in the company have the following number of employees: molding, 25; polishing, 35; engraving, 30; and packaging, 10. There are 5 employees in the cafeteria. The cafeteria’s net costs total $130,100. What amount of the cafeteria’s net cost will be allocated to the molding department? A. $30,975 B. $32,525 C. $6,500 D. $1,301 103. Ring Company allocates the net cost of the company cafeteria to production departments using the direct method based on the number of employees in each department. The four production departments in the company have the following number of employees: molding, 25; polishing, 35; engraving, 30; and packaging, 10. There are 5 employees in the cafeteria. The cafeteria’s net costs total $130,100. What amounts will be allocated to the packaging department? A. $1,301 B. $12,390 C. $13,010 D. $26,020

104. Ring Company allocates the net cost of the company cafeteria to production departments using the direct method based on the number of employees in each department. The four production departments in the company have the following number of employees: molding, 25; polishing, 35; engraving, 30; and packaging, 10. There are 5 employees in the cafeteria. The cafeteria’s net costs total $130,100. What is the total amount of the cafeteria’s costs that will be allocated to the production departments? A. $123,905 B. $26,000 C. $130,100 D. Some other answer. 105. Memphis Manufacturing has two service departments, maintenance and personnel, and three production departments, fabrication, assembly, and packaging. Service costs are allocated to producing departments using the direct method. Information on overhead in each department and possible allocation bases appears below: Maintenanc e Personnel Fabrication Assembly Packaging Cost $180,000 $224,000 Machine Hours 10,000 30,000 50,000 Employees 8 4 40 30 30 How much maintenance cost will be allocated to assembly? A. $20,000 B. $50,000 C. $60,000 D. $100,000 106. Memphis Manufacturing has two service departments, maintenance and personnel, and three production departments, fabrication, assembly, and packaging. Service costs are allocated to producing departments using the direct method. Information on overhead in each department and possible allocation bases appears below: Maintenance Personnel Fabrication Assembly Packaging Cost $180,000 $224,000 Machine Hours 10,000 30,000 50,000 Employees 8 4 40 30 30 How much maintenance cost will be allocated to packaging? A. $20,000 B. $50,000 C. $60,000 D. $100,000

107. Memphis Manufacturing has two service departments, maintenance and personnel, and three production departments, fabrication, assembly, and packaging. Service costs are allocated to producing departments using the direct method. Information on overhead in each department and possible allocation bases appears below: Maintenance Personnel Fabrication Assembly Packaging Cost $180,000 $224,000 Machine Hours 10,000 30,000 50,000 Employees 8 4 40 30 30 How much personnel cost will be allocated to fabrication? A. $56,000 B. $89,600 C. $82,963 D. $67,200 112. Rand, Land, and Stan, CPA’s, has three divisions: audit, tax, and business consulting. When the specifications for the new computer system were established, the audit division needed 50% of the capacity, the tax division required 30%, and business consulting required 20%. The fixed computer department costs are allocated based on these percentages. The variable costs of the computer department are allocated based on the minutes of computer time that each department uses. The computer division budget for fixed costs is $450,000, and the budget for variable costs is $145,600. The company anticipates using 520,000 minutes of computer time. If the business consulting division uses 80,000 minutes of computer time, what is the total amount of computer department costs that will be allocated to the business consulting division? A. $22,400 B. $90,000 C. $166,768 D. $112,400

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113. Elrod Electronics is a manufacturer of data storage devices. Elrod consists of two service departments, maintenance and computing, and two production departments, assembly and testing. Maintenance costs are allocated on the basis of square footage occupied, and computing costs are allocated on the basis of the number of computer terminals. The following data relate to allocations of service department costs: Maintenance Computing Assembly Testing Service department costs $600,000 $900,000 Square footage 20,000 30,000 90,000 60,000 Terminals 10 30 20 60 How much service department costs will be allocated to the assembly department using the direct method? A. $585,000 B. $360,000 C. $900,000 D. $690,000 114. Elrod Electronics is a manufacturer of data storage devices. Elrod consists of two service departments, maintenance and computing, and two production departments, assembly and testing. Maintenance costs are allocated on the basis of square footage occupied, and computing costs are allocated on the basis of the number of computer terminals. The following data relate to allocations of service department costs: Maintenance Computing Assembly Testing Service department costs $600,000 $900,000 Square footage 20,000 30,000 90,000 60,000 Terminals 10 30 20 60 How much service department costs will be allocated to the testing department using the direct method? A. $675,000 B. $1,035,000 C. $915,000 D. $630,000

116. Velvet Company allocates costs from the payroll department (S1) and the maintenance department (S2) to the molding (P1), finishing (P2), and packaging (P3) departments. Payroll department costs are allocated based on the number of employees in the department and maintenance department costs are allocated based on the number of square feet which the production department occupies within the factory. Information about the departments is presented below: Number of Number of Square Department Costs Employees Feet Occupied Payroll (S1) $150,000 2 2,000 Maintenance (S2) $220,000 8 64,000 Molding (P1) 75 100,000 Finishing (P2) 50 60,000 Packaging (P3) 25 40,000 Velvet uses the direct method to allocate costs. Round all answers to the nearest dollar. When the payroll department costs are allocated, what is the amount per employee that will be charged to each of the departments? A. $937.50 B. $15,000 C. $6.67 D. $1,000

127. Bangor Company makes products C and D. Information for overhead costs and for the two products appears below. The company makes 50,000 units of product C each year and 20,000 units of product D. Activity Driver Total Overhead Cost Prod C Usage Prod D usage Setups # of setups $200,000 500 setups 1,500 setups Ordering parts # of parts $300,000 60,000 parts 40,000 parts Machining MH $600,000 12,000 MH 6,000 MH Inspections # of Insp $400,000 10,000 Insp 40,000 Insp Shipping # of shipments $300 ,000 10,000 Ship 10,000 Ship Total overhead $1 ,800,000 * MH – Machine Hours Insp – Inspections Ship - Shipments Assume that all overhead is assigned to products using machine hours. How much overhead would be assigned to each unit of Product C? A. $100,000 per unit B. $24 per unit C. $150 per unit D. $33.33 per unit 131. Bangor Company makes products C and D. Information for overhead costs and for the two products appears below. The company makes 50,000 units of product C each year and 20,000 units of product D. Activity Driver Total Overhead Cost Prod C Usage Prod D usage Setups # of setups $200,000 500 setups 1,500 setups Ordering parts # of parts $300,000 60,000 parts 40,000 parts Machining MH $600,000 12,000 MH 6,000 MH Inspections # of Insp $400,000 10,000 Insp 40,000 Insp Shipping # of shipments $300 ,000 10,000 Ship 10,000 Ship Total overhead $1 ,800,000 * MH – Machine Hours Insp – Inspections Ship - Shipments Assume that activity based costing is used, with each activity in its own cost pool. What is the rate per inspection that should be used to assign inspection cost to Product D? A. $10 per inspection B. $40 per inspection C. $8 per inspection D. $16 per inspection 132. Bangor Company makes products C and D. Information for overhead costs and for the two products appears below. The company makes 50,000 units of product C each year and 20,000 units of product D. Activity Driver Total Overhead Cost Prod C Usage Prod D usage Setups # of setups $200,000 500 setups 1,500 setups Ordering parts # of parts $300,000 60,000 parts 40,000 parts

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Machining MH $600,000 12,000 MH 6,000 MH Inspections # of Insp $400,000 10,000 Insp 40,000 Insp Shipping # of shipments $300 ,000 10,000 Ship 10,000 Ship Total overhead $1 ,800,000 * MH – Machine Hours Insp – Inspections Ship - Shipments What will the total overhead cost of product C be if all overhead is assigned using ABC and each activity above is treated as a separate pool? A. $159.33 per unit B. $100 per unit C. $47 per unit D. $17.20 per unit 46. Walter Jewelry Company produces a bracelet which normally sells for $79.95. The company produces 1,500 units annually but has the capacity to produce 2,000 units. A special order for manufacturing and selling 200 bracelets at $49.95 has been received which would not disrupt current operations. Current costs for the bracelet are as follows: Direct materials $17.00 Direct labor 14.50 Variable overhead 4.00 Fixed overhead 5.00 Total $40.50 In addition, the customer would like to add a monogram to each bracelet which would require an additional $2 per unit in additional labor costs and Walter Jewelry would also have to purchase a piece of equipment to create the monogram which would cost $1,600. This equipment would not have any other uses. With regard to this special order, only A. incremental revenues will exceed incremental costs by $2,490. B. incremental revenues will exceed incremental costs by $890. C. incremental revenues will exceed incremental costs by $2,890 D. incremental revenues will exceed incremental costs by $1,290

47. NY Memorabilia Company produces a souvenir plate which normally sells for $79.95. The company produces 1,500 plates annually but has the capacity to produce 2,000 plates. A special order for manufacturing and selling 200 plates at $49.95 has been received which would not disrupt current operations. Current costs for the plate are as follows: Direct materials $17.00 Direct labor 14.50 Variable overhead 4.00 Fixed overhead 5.00 Total $40.50 In addition, the customer would like to add a date to each plate which would require an additional $2 per plate in additional labor costs and NY Memorabilia Company would also have to purchase a piece of equipment to create the date which would cost $1,200. This equipment would not have any other uses. Which statement is true with regard to this special order? A. Incremental revenues will exceed incremental costs by $2,490. B. Incremental revenues will exceed incremental costs by $890. C. Incremental revenues will exceed incremental costs by $2,890. D. Incremental revenues will exceed incremental costs by $1,290. 48. Rockwell Company owns a single restaurant which has a cantina primarily used to seat patrons while they wait on their tables. The company is considering eliminating the cantina and adding more dining tables. Segmented contribution income statements are as follows and fixed costs applicable to both segments are allocated on the basis of sales. Restaurant Cantina Total Sales $800,000 $200,000 $1,000,000 Variable costs 475,000 160,000 635,000 Direct fixed costs 50,000 15,000 65,000 Allocated fixed costs 212 ,500 37 ,500 250 ,000 Net Income $ 62 ,500 ($12 ,500) $50 ,000 What financial effect will occur to profit if Rockwell eliminates the cantina but no more dining customers are served? A. Net income will increase by $12,500 B. Net income will decrease to $37,500. C. Net income will decline by $25,000 D. Net income will be $25,000

49. Hydra Company has two locations, downtown and at a suburban mall. During March, the company reported total net income of $337,000 and sales of $1.2 million. The contribution margin in the downtown store was $320,000 (40% of sales). The contribution margin in the mall store is $200,000. Total fixed costs are $90,000 in the downtown store and $93,000 in the mall location. How much are sales at the mall location? A. $400,000 B. $800,000 C. $666,667 D. Not enough information is provided to answer. 50. Collegebooks Company has two locations, downtown and on campus. During March, the company reported net income of $164,000 and sales of $1.2 million. The contribution margin in the downtown store was $320,000 (32% of sales). The contribution margin in the campus store is $110,000. Direct fixed costs are $90,000 in the downtown store and $93,000 in the campus location. How much are total variable costs? A. $410,000 B. $3,750,000 C. $192,000 D. $853,000 51. Ricket Company has 1,500 obsolete calculators that are carried in inventory at a cost of $13,200. If these calculators are upgraded at a cost of $9,500, they could be sold for $22,500. Alternatively, the calculators could be sold “as is” for $9,000. What is the net advantage or disadvantage of reworking the calculators? A. $13,000 advantage B. $4,000 advantage C. $9,200 disadvantage D. $200 disadvantage 52. BigByte Company has 12 obsolete computers that are carried in inventory at a cost of $13,200. If these computers are upgraded at a cost of $7,500, they could be sold for $15,300. Alternatively, the computers could be sold “as is” for $9,000. What is the net advantage or disadvantage of reworking the computers? A. $6,300 advantage B. $1,200 disadvantage C. $5,400 disadvantage D. $3,000 advantage

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53. The following are production and cost data for two products, buckets and pails. Buckets Pails Contribution margin per unit $450 $280 Machine set-ups needed per unit 20 14 The company can only perform 14,000 set-ups each period yet there is unlimited demand for each product. What is the maximum contribution margin for the year? A. $315,000 B. $35,000 C. $280,000 D. $595,000 54. The following are production and cost data for two products, A and B. Product A Product B Contribution margin per unit $450 $340 Machine set-ups needed per unit 25 20 The company can only perform 12,000 set-ups each period yet there is unlimited demand for each product. What is the maximum contribution margin for the year? A. $216,000 B. $204,000 C. $420,000 D. $18,050,000 55. Central Apparel Company owns two stores and management is considering eliminating the east store due to declining sales. Contribution income statements are as follows and common fixed costs are allocated on the basis of sales. West East Total Sales $420,000 $90,000 $510,000 Variable costs 210,000 45,000 255,000 Direct fixed costs 50,000 25,000 75,000 Allocated fixed costs 110 ,000 35 ,000 145 ,000 Net Income $ 50 ,000 ($15 ,000) $35 ,000 Central’s management feels that if they eliminate the east store, that sales in the west store will increase by 20%. If the east store is closed, what effect will occur to the overall company net income? A. Increase by $25,000 B. Increase by $22,000 C. Increase by $12,000 D. Increase by $15,000

56. Explorer Company manufactures two products, hard-tops and covers for its convertible vehicles. Data for each follows: Hard-top Covers Direct labor hours required per unit 4 8 Contribution margin per unit $240 $390 Only 4,200 direct labor hours are available per month. How many units of each product should Explorer make in order to maximize profits? Hard-tops Covers A. 4,200 400 B . 1,050 0 C. 1,050 250 D. 0 250 57. Urban Athletics Company has two store locations, north and south. During October, the company reported net income of $192,000 on sales of $905,000. Sales in the north store were $680,000 and variable costs in the south store were 60% of sales. The contribution margin in the north store was $204,000. If total direct costs are $50,000, how much will allocated fixed costs be? A. $102,000 B. $2,000 C. $52,000 D. $30,000 58. The Abbott Company currently makes 10,000 units annually of a part it utilizes in the products it manufactures. Current costs for the part are as follows: Direct materials $16.25 Direct labor 11.85 Variable manufacturing overhead 6.30 Fixed manufacturing overhead 10.20 Total $44.60 If the company decides to buy the part the empty warehouse space could be rented for $35,000 annually. In addition, half of the fixed manufacturing overhead costs would be avoided if the company decides to buy the part. The company has an offer from a manufacturer to produce the part for $42 per unit. If the company decides to accept the offer the net advantage or disadvantage to the company’s annual net income would be: A. An advantage of $10,000. B. An advantage of $35,000. C. A disadvantage of $25,000. D. An advantage of $26,000.

59. Manor Homes plans to discontinue a segment which last year generated a contribution margin of $65,000 and incurred $40,000 in fixed costs. If the segment is discontinued, half of the fixed costs will not be avoided. If Manor Homes decides to discontinue this segment the overall effect on profits will be: A. a decrease of $65,000. B. a decrease of $25,000. C. a decrease of $45,000. D. an increase of $45,000. 60. Rumper Company has 2,000 obsolete ratchers in its inventory which have a cost of $22 each. If the ratchers are reworked they could be sold for $37 each. If sold as-is, the revenue would be only $10 each. If Rumper Company decides to rework the ratchers, how much should the company be willing to invest to ensure that no additional loss occurs on the sale of the ratchers? A. $44,000 B. $54,000 C. $20,000 D. $22,000 61. Wester Company sells product Z for $23 per unit. Unit product costs are as follows: Direct materials $4 Direct labor 5 Manufacturing overhead 12 Total $21 A special order to purchase 20,000 units was recently received. There is enough capacity to fill the order and filling this order would not disrupt current operations. Wester Company would incur an additional $3 per unit for shipping costs. Half of the manufacturing overhead costs are fixed and would be incurred no matter how many units are produced. In negotiating a price, how much is the minimum acceptable selling price? A. $18 B. $19 C. $22 D. $15

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62. Rogertree Company manufactures a number of products from the same raw material. Joint processing costs total $10,000 per month. Product A could be sold at the cut-off point for $18,000 per month or it can be further processed at a cost of $9,000 per month and then sold for $35,000. Rogertree Company should: A. Further process product A because its incremental revenues will exceed incremental costs by $8,000. B. Further process product A because its incremental revenues will exceed incremental costs by $26,000. C. Sell as-is because the incremental loss is $2,000 if processed further. D. Further process product A because its incremental revenues will exceed incremental costs by $16,000. 63. Tilma Company sells product X for $23 per unit. Unit product costs are as follows: Direct materials $4 Direct labor 5 Manufacturing overhead 12 Total $21 A special order to purchase 20,000 units was recently received. There is enough capacity to fill the order and filling this order would not disrupt current operations. Tilma Company would incur an additional $3 per unit for shipping costs. 40% of the manufacturing overhead costs are fixed and would be incurred no matter how many units are produced. In negotiating a price, how much is the minimum acceptable selling price? A. $19.20 B. $19.00 C. $16.80 D. $12.00 64. Meadows Company manufactures a number of products from the same raw material. Joint processing costs total $10,000 per month. Product Z could be sold at the cut-off point for $18,000 per month or it can be further processed at a cost of $9,000 per month and then sold for $26,000. Meadows Company should: A. further process product Z because its incremental revenues will exceed incremental costs by $7,000. B. further process product Z because its incremental revenues will exceed incremental costs by $17,000. C. sell product Z at the split-off point because its incremental costs will exceed incremental revenues by $1,000. D. sell product Z at the split-off point because its incremental costs will exceed incremental revenues by $7,000.

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65. Hardline Flooring produced 2,500 yards of its economy-grade carpet. In the coloring process, there was a pigment defect and the resulting color appeared to be faded. The carpet normally sells for $15 per yard, with $8 of variable cost per yard and $4 of fixed cost per yard assigned to the carpet. The company realizes that it cannot sell the carpet for $15 per yard through its normal channels, unless the coloring process is repeated. The incremental cost of the process is $3 per yard. Reliable Home Solutions is willing to buy the carpet in its current faded condition for $10 per yard. Should Hardline repeat the coloring process or sell the carpet to Reliable Home Solutions and what is the benefit? A. Repeat coloring for $5,000 benefit. B. Sell as is to Reliable for $17,500 benefit. C. Repeat coloring for $30,000 benefit. D. Sell as is to Reliable for $5,000 benefit. 67. Wharton Company has the capacity to produce 50,000 units per year. The company sells each unit for $125. Budgeted information is as follows: Revenues $5,612,000 Direct materials $1,932,000 Direct labor 552,000 Manufacturing overhead (fixed) 276,000 Manufacturing overhead (variable) 552 ,000 3 ,312,000 Total $2 ,300,000 A special order has been received for 5,000 units to be sold for $80 per unit. The company would incur an additional $60,000 in total fixed costs in order to lease a special machine in order to make a slight modification to the original product. Should the company accept the special order? A. No, accepting this order would decrease profits to $2,263,600. B. No, total costs would increase by $303,600. C. Yes, the revenue will increase substantially. D. Yes, profit will increase by $36,400. 68. Phillips Manufacturing Corporation produces a single product, a utility bench. Budgeted amounts for the coming year are as follows: Revenues (20,000 units at $12 each) $240,000 Direct material $40,000 Direct labor 70,000 Variable manufacturing overhead 50,000 Fixed manufacturing overhead 30 ,000 190 ,000 Net income $ 50 ,000

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Gypsum Company has offered to purchase 2,000 units of a special edition of the utility bench from Phillips at a price of $12.50 per unit. This special edition will have additional variable costs of $0.35 per unit. Phillips has the capacity to produce this order and it will not affect any of its other operations. How much is the incremental revenue associated with accepting this special order? A. $8,300 B. $25,000 C. $165,000 D. $9,000 69. Phillips Manufacturing Corporation produces a single product, a utility bench. Budgeted amounts for the coming year are as follows: Revenues (20,000 units at $12 each) $240,000 Direct material $40,000 Direct labor 70,000 Variable manufacturing overhead 50,000 Fixed manufacturing overhead 30 ,000 190 ,000 Net income $ 50 ,000 Gypsum Company has offered to purchase 2,000 units of a special edition of the utility bench from Phillips at a price of $12.50 per unit. This special edition will have additional variable costs of $0.35 per unit. Phillips has the capacity to produce this order and it will not affect any of its other operations. What is the incremental cost of accepting the special order? A. $16,000 B. $46,000 C. $16,700 D. $19,000 70. Phillips Manufacturing Corporation produces a single product, a utility bench. Budgeted amounts for the coming year are as follows: Revenues (20,000 units at $12 each) $240,000 Direct material $40,000 Direct labor 70,000 Variable manufacturing overhead 50,000 Fixed manufacturing overhead 30 ,000 190 ,000 Net income $ 50 ,000

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Gypsum Company has offered to purchase 2,000 units of a special edition of the utility bench from Phillips at a price of $12.50 per unit. This special edition will have additional variable costs of $0.35 per unit. Phillips has the capacity to produce this order and it will not affect any of its other operations. What is the incremental profit (loss) associated with the special order? A. $8,300 B. $9,000 C. ($21,000) D. ($11,700) 71. Core Manufacturing makes a single product. Budget information regarding the current period is given below: Revenue (100,000 units at $8.00) $800,000 Direct materials $170,000 Direct labor 125,000 Variable manufacturing overhead 235,000 Fixed manufacturing overhead 110 ,000 640 ,000 Net income $160 ,000 Deer Company approaches Core with a special order for 15,000 units at a price of $8.50 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, Core is operating at capacity and will incur an additional $55,000 in fixed manufacturing overhead if the order is accepted. What is the incremental revenue associated with accepting the special order? A. ($7,000) B. $927,500 C. $47,500 D. $127,500 72. Core Manufacturing makes a single product. Budget information regarding the current period is given below: Revenue (100,000 units at $8.00) $800,000 Direct materials $170,000 Direct labor 125,000 Variable manufacturing overhead 235,000 Fixed manufacturing overhead 110 ,000 640 ,000 Net income $160 ,000

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Deer Company approaches Core with a special order for 15,000 units at a price of $8.50 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, Core is operating at capacity and will incur an additional $55,000 in fixed manufacturing overhead if the order is accepted. What is the incremental cost associated with accepting the special order? A. $134,500 B. $79,500 C. $7,000 D. $55,000 73. Core Manufacturing makes a single product. Budget information regarding the current period is given below: Revenue (100,000 units at $8.00) $800,000 Direct materials $170,000 Direct labor 125,000 Variable manufacturing overhead 235,000 Fixed manufacturing overhead 110 ,000 640 ,000 Net income $160 ,000 Deer Company approaches Core with a special order for 15,000 units at a price of $8.50 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, Core is operating at capacity and will incur an additional $55,000 in fixed manufacturing overhead if the order is accepted. What is the incremental income (loss) associated with accepting the special order? A. $48,000 B. $134,500 C. ($7,000) D. ($23,500) 74. Costa Company has a capacity of 40,000 units per year and is currently selling 35,000 for $400 each. Barton Company has approached Costa about buying 2,000 units for only $300 each. The units would be packaged in bulk, saving Costa $20 per unit when compared to the normal packaging cost. Normally, Costa has a variable cost of $280 per unit. The annual fixed cost of $2,000,000 would be unaffected by the special order. What would be the impact on profits if Costa were to accept this special order? A. Profits would decrease $200,000 B. Profits would increase $40,000 C. Profits would increase $60,000 D . Profits would increase $80,000

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75. Costa Company has a capacity of 40,000 units per year and is currently selling all 40,000 for $400 each. Barton Company has approached Costa about buying 2,000 units for only $300 each. The units would be packaged in bulk, saving Costa $30 per unit when compared to the normal packaging cost. Normally, Costa has a variable cost of $280 per unit. The annual fixed cost of $1,800,000 would be unaffected by the special order. What would be the impact on profits if Costa were to accept this special order? A. Profit would increase by $600,000. B. Profit would increase $100,000. C. Profit will increase by $40,000. D. Profit will decrease by $140,000 . 76. Green Company has a capacity of 60,000 units per year and is currently selling all 60,000 for $500 each. General Company has approached Green about buying 5,000 units for only $470 each. Green has a normal variable cost of $420 per unit, including $50 per unit in direct labor. Green could produce the special order on an overtime shift. This would result in direct labor being paid overtime at 150% of the normal pay rate. Additionally, $60,000 in additional fixed costs would be associated with the order. What will be the impact on profits of accepting the order? A. Profit would increase by $65,000. B. Profit will increase by $250,000. C. Profit will increase by $125,000. D. Profit will increase by $60,000. 77. Knox Company sells its single product for $55 per unit. Unit product costs are as follows: Direct materials $14 Direct labor 20 Manufacturing overhead 3 Total $37 A special order to purchase 15,000 units was recently received. There is enough capacity to fill the order and filling this order would not disrupt current operations. Knox Company would incur an additional $2 per unit for additional labor costs due to a slight modification the buyer wants made to the original product. One-third of the manufacturing overhead costs is fixed and would be incurred no matter how many units are produced. In negotiating a price, how much is the minimum acceptable selling price? A. $34 B. $39 C. $38 D. $36

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84. The Pure 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. $14.55 B. $13.50 C. $10.95 D. $12.75 85. The Floss Company uses cost-plus pricing with a 40% mark-up. The company is currently selling 20,000 units annually. Each unit has a variable cost of $10. In addition the company incurs $100,000 in fixed costs annually. What price per unit is the company charging? A. $14 B. $17 C. $15 D. $21 86. Great Company produces 100,000 units of product C at a total cost of $3.5 million. Total fixed costs are $1.5 million. If the company increases production by 20% and uses a 30% markup the price per unit will be: A. $32.50 B. $42.25 C. $45.50 D. $54.40 87. A company has $30 per unit in variable costs and $1,200,000 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. $54.00 B. $58.80 C. $16.80 D. Not enough information is provided.

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88. A company has a total cost of $40.00 per unit at a volume of 120,000 units. The variable cost per unit is $25.00. What would the price be if the company expected a volume of 110,000 units and used a markup of 50%? A. $41.36 B. $62.05 C. $37.50 D. $60.00

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93. A manufacturing company produces 60,000 units of product A at a total cost of $2 million. Total fixed costs are $1.2 million. If the company increases production by 20% and uses a 50% markup, how much would the price per unit be? A. $95.40 B. $80.00 C. $53.33 D. $45.00 94. 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. 50% B. 100% C. 4% D. 200% 102. A company believes it can sell 2,000,000 units of its proposed new can opener at a price of $16.00 each. If the company desires to make a profit of $3,000,000 on the can opener, what is the target cost per can opener? A. $14.50 B. $16.00 C. $17.50 D. Not enough information is provided.

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103. A company believes it can sell 5,000,000 of its proposed new optical mouse at a price of $11.00 each. There will be $8,000,000 in fixed costs associated with the mouse. If the company desires to make a profit $2,000,000 on the mouse, what is the target variable cost per mouse? A. $11.00 B. $10.60 C. $9.40 D. $9.00 104. A company believes it can sell 8,000 units of its proposed new garage door opener at a price of $100 each. If the company desires to make a profit of 30% of selling price on the garage door opener, what is the target cost per opener? A. $130 B. $110 C. $70 D. $30 105. Amazer believes it can sell 50,000 of its proposed new EZ-Phones at a price of $250 each. If the company desires to make a profit of 20% of selling price on the EZ-Phone, what is the target variable cost per EZ-Phone? A. $200 B. $300 C. $208.33 D. There is not enough information to answer. 107. The Tile Company requires a 60% profit margin on its single product. At a price of $78 per unit the company expects to sell 16,000 units. The company’s target cost should be: A. $31.20 B. $48.75 C. $130.00 D. $46.80

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108. The Jar Company requires a 40% profit margin on its single product. At a price of $56 per unit the company expects to sell 20,000 units. The company’s target cost should be: A. $33.60 B. $40.00 C. $56.00 D. $78.40 109. A new product is being designed by an engineering team at Golem Security. Several managers and employees from the cost accounting department and the marketing department are also on the team to evaluate the product and determine the cost using a target costing methodology. An analysis of similar products on the market suggests a price of $135 per unit. The company requires a profit of 30 percent of selling price. How much is the target cost per unit? A. $175.50 B. $81.00 C. $40.50 D. $94.50 110. Seeking Sound, is designing a portable recording studio to be sold to consumers. The team developing the product includes representatives from marketing, engineering, and cost accounting. The recording studio set will include sound-canceling monitor headphones, audio recording and enhancement software, several instrumental and vocal microphones, and portable folding acoustic panels. With this set of features, the team believes that a price of $6,500 will be attractive in the marketplace. Seeking Sound seeks to earn a per unit profit of 30 percent of selling price. How much is the target cost per unit? A. $1,950 B. $8,450 C. $4,550 D. $6,500 111. Seeking Sound is designing a portable recording studio to be sold to consumers. The team developing the product includes representatives from marketing, engineering, and cost accounting. The recording studio set will include sound-canceling monitor headphones, audio recording and enhancement software, several instrumental and vocal microphones, and portable folding acoustic panels. With this set of features, the team believes that a price of $6,500 will be attractive in the marketplace. Seeking Sound seeks to earn a per unit profit of 30 percent of selling price. The team has estimated that the fixed production costs associated with the product will be $1,500,500 and variable costs to produce and sell the item will be $2,250 per unit. In light of this, how many units must be produced and sold to meet the target cost per unit? A. 357 B. 353 C. 769 D. 652

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101. A company with $2,000,000 in operating assets is considering purchasing a machine that costs $300,000 and which is expected to reduce operating costs by $60,000 each year. The payback period for this machine in years is closest to: A. 2 years. B. 5 years. C. 6.7 years. D. 15 years. 102. The Diamond Oaks Company is deciding whether to purchase a machine for $80,000 which will yield the following cost savings: Year 1 $25,000 Year 2 $40,000 Year 3 $45,000 The expected rate of return on this project is closest to: A. 12%. B. 14%. C. 16%. D. 18%. 103. Barcelona Company is considering a project with a 5-year life and which would require a $325,000 investment in equipment with no salvage value. The project would provide net income each year as follows for the life of the project: Sales $225,000 Variable costs 80,000 Fixed costs 95 ,000 175 ,000 Income before taxes $ 50 ,000 The income tax rate is 30%. Depreciation is included in the fixed costs amount. The company’s required rate of return is 8%. How much is the payback period for this project? A. 3.25 years. B. 6.5 years. C. 2.83 years. D. 9.29 years. 104. The Higston Company has just purchased a piece of equipment at a cost of $500,000. This equipment will reduce operating costs by $100,000 each year for the next eight years. This equipment replaces old equipment that was sold for $10,000 cash. Ignoring income taxes, the new equipments has a pay-back period of: A. 4.9 years. B. 5 years. C. 5.1 years. D. 4.8 years.

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120. A proposed project will cost $600,000 and will provide operating cash flows of $150,000 in Year 1, $300,000 in Year 2, $500,000 in Year 3The company’s hurdle rate is 15%. How much is the net present value of the project? A. $86,020 B. $23,013 C. $66,373 D. $50,000 121. A proposed project will cost $684,805 and will provide returns of $150,000 in Year 1, $300,000 in Year 2, and $400,000 in Year 3. There will not be any cash flows associated with the project after Year 3. If taxes are ignored, what is the internal rate of return for the project? A. 14% B. 10% C. 8% D. 12% 122. An investment of $250,000 will generate cash flows of $110,000 per year in Years 1 and 2 and $40,000 in Year 3. If the company’s required rate of return is 8%, what is the net present value of the investment? A. $28,443 B. $227,904 C. $22,096 D. ($22,085)

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123. A project that costs $100,000 yields a cash flow of $18,000 per year for 9 years. What is the net present value of the project using a 16% cost of capital? A. $162,000 B. $62,000 C. ($17,083) D. $82,917 124. A project has an initial cash outflow of $20,000 and annual inflows of $6,000 per year for 4 years. What is the net present value using a 10% cost of capital? A. $4,000 B. $908 C. ($981) D. ($4,000) 125. An investment of $100,000 promises returns of $40,000 per year for each of the next three years. If taxes are ignored and the required rate of return is 14%, what is the net present value of the project? A. $92,864 B. $20,000 C. ($7,136) D. ($19,000) 126. An investment of $36,510 promises to return $8,000 each year for the next 7 years. If taxes are ignored, what is the internal rate of return? A. less than 9% B. 10% C. 12% D. More than 14% 127. A proposed project is expected to generate returns of $50,000 per year for each of the next four years. If the project will cost $145,685 and taxes are ignored, what is the internal rate of return? A. Less than 10% B. More than 16% C. 11% D. 14% 128. A proposed project will require an initial investment of $1,000,000 and will generate returns of $250,000 per year for five years. If taxes are ignored, what is the internal rate of return? A . Less than 9% B. 11% C. 13% D. Over 15%

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129. An investment is expected to generate returns of $60,000 per year for each of the next six years. If the initial amount invested is $240,000 and taxes are ignored, which of the following is closest to the internal rate of return? A. 15% B. 13% C. 10% D. 7% 130. An investment of $773,640 is expected to generate cash flows of $200,000 in Year 1, $300,000 in Year 2, and $500,000 in Year 3. What is the internal rate of return? A. Less than 8%. B. Between 8% and 11%. C. Between 11% and 14%. D. Greater than 14%. 131. Cornerstone Company had revenues of $275,000 and expenses of $100,000 last year. Cornerstone was taxed at a rate of 40%. If the company’s expenses included $25,000 of depreciation, what was the company’s after-tax cash flow? A. $130,000 B. $105,000 C. $120,000 D. $145,000 132. After deducting taxes at 30%, annual cash basis income is estimated at $30,000. Depreciation expense is $8,000 per year on a machine with a 6-year life and the depreciation tax shield is $3,200. How much is ‘annual incremental operating cash flows?’ A. $33,200 B. $38,000 C. $22,000 D. $26,800

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67. Carraba Company gathered the following data about the two products that it produces: Current Sales Estimated Added Sales Value if Product Value Processing Costs Processed Further A $10,000 $3,000 $14,000 B 11,000 2,000 12,000 Which of the products should be processed further? A. Product A because profits increase by $1,000 whereas product B creates a decrease in profit. B. Product B because profits increase by $1,000 which exceeds the increase of product A. C. Both products because revenue will increase by $4,000 for product A and by $1,000 for product B. D. Both products because profits for product A will be $11,000 and profits for product B will be $10,000. 68. Wood You sells unfinished ladders for $20 each. Budgeted sales for 2011 is 5,400 ladders. Each ladder requires 23 linear feet of wood to produce. The cost of wood is $0.25 per linear foot. Direct labor is $3.00 per ladder. Variable overhead and fixed overhead costs per unfinished ladder are $1.00 and $0.50 respectively. Wood You is considering whether it should paint the ladders so it can sell them for $25.00 each. It estimates it will sell 40% of the budgeted ladders as painted with the others unfinished. The direct costs of painting each ladder are $3.00. How much is the incremental effect on profit if the company paints the ladders? A. $7,560 B. $10,800 C. $4,320 D. ($5,400)

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