ACCOUNTING EXAM
Questions 1 and 2 are based on the following information:
Alpha Manufacturing sells specialized shipping containers. The following data represents normal sales for the company:
Selling Price $75
Full Cost 50
Variable Costs 35
1. Alpha is operating near capacity and has been approached by a new customer who wants to order 1,000 units at $65 per unit. Alpha will have to give up sales of 600 units to its current customers to accept this order. How will Alpha's profits change if the order is accepted?
2. Now suppose only $50 per unit were offered for the special order. How would Alpha's profits be affected by accepting this order?
3. Direct Costs:
A. May be engineered or discretionary.
B. Are constant across all levels of output.
C. Can be traced to a specific product.
D. Are never considered in ABC analysis.
E. NONE OF THE ABOVE.
4. The use of a Balanced Scorecard system:
A. Guarantees increased productivity.
B. Guarantees increased profitability.
C. Is a more comprehensive system of evaluation that traditional financial measures.
D. Uses only nonfinancial measures.
E. NONE OF THE ABOVE.
5. The use of departmental versus a uniform overhead allocation rate across all units:
A. Simplifies the management accounting process.
B. Treats some units more fairly than others.
C. Allows for more accurate product costing decisions
D. Treats all overhead costs equally.
E. ALL OF THE ABOVE.
6. Period costs:
A. Consist only of variable costs.
B. Consist only of direct costs.
C. Include all costs that can be traced to a product.
D. Include all costs that cannot be traced to a product.
E. NONE OF THE ABOVE.
7. For a company with a sales volume of 20,000 units, $100,000 of fixed costs and contribution margin $5 per unit, which of the following strategies would result in an increase in profits?
A. Increasing sales volume to 21,000 units and decreasing fixed costs by $10,000.
B. Increasing sales volume to 21,000 units and increasing fixed costs by $10,000.
C. Decreasing sales volume to 15,000 units and increasing the contribution margin to $6.
D. Increasing sales volume to 21,000 units and decreasing the contribution margin to $4.
E. NONE OF THE ABOVE.
8. A negative contribution margin will allow a company to:
A. Earn a profit in all cases.
B. Not earn a profit.
C. Recover all variable costs, but not all fixed costs.
D. NONE OF THE ABOVE.
9. Alpha Co. produces two products: Product A with $2 contribution margin and Product B with a $3 contribution margin. The company feels that increased marketing efforts can result in the sale of an additional 1,000 units for next year. The allocation of marketing efforts between Products A and B that will result in the greatest return would be:
A. It makes no difference, as profits will increase if more of either product is sold.
B. 1,000 units of Product A.
C. 1,000 units of Product B.
D. 500 units of Product A and 500 units of Product B.
E. NONE OF THE ABOVE.
Questions 10 and 11 are based on the following information:
Unit Selling Price $24.00
Variable Costs per unit 12.00
Allocated Fixed Costs per unit 10.00
Total Fixed Costs 84,000.00
10. How many units must be sold to break-even?
11. For next year, if sales are projected to be 10,000 units and variable costs are expected to increase by 5%, what price must the company charge to earn a $10,000 pretax profit?
12. Zeta Products produces products for the aircraft industry. For every hour each machine is continuously used, $2.50 of utility costs are incurred. If the machines are idle, no utility costs are incurred. These utility costs may best be described as:
A. Period Costs.
B. Product Costs.
C. Semi variable costs
D. Fixed costs.
E. NONE OF THE ABOVE.
13. Throughput is defined as sales less:
A. direct labor costs.
B. direct material costs.
C. direct labor and material costs.
D. processing costs.
E. manufacturing costs.
14. Reduced time-to-market, reduced expected service cost, and ease-of-manufacture are critical success factors at which stage of the cost life cycle:
A. R & D stage.
B. marketing stage.
C. design stage.
D. production stage.
E. all of the above answers.
15. The sequence of phases in the product or service's life in the market - from the introduction of the product or service to the growth in sales and finally maturity, decline, and withdrawal from the market is the:
A. sales life cycle.
B. target life cycle.
C. market life cycle.
D. critical life cycle.
E. cost life cycle.
Use the following to answer questions 16 -18:
Clang Co. produces and sells three products (X, Y, and Z). The following data relate to the three products.
|
X
|
Y
|
Z
|
|
Demand in units
|
160
|
150
|
140
|
|
Selling price per unit
|
$130
|
$160
|
$150
|
|
Raw materials costs per unit
|
$ 65
|
$ 80
|
$ 90
|
|
Labor time in minutes per unit
|
16
|
23
|
10
|
16. The total contribution per labor minute for Product X is calculated to be:
17. Between Products X and Y, which one has a higher total contribution per labor minute?
A. Product X.
B. Product Y.
C. Both products' contribution per labor minute are equal.
D. there isn't enough information to answer the question.
18. Which product has the highest total contribution per labor minute?
A. Product X
B. Product Y
C. Product Z
D. more than one of the products have equal total contributions per labor minute.
E. there isn't enough information to answer the question.
19. One limitation of activity-based costing (ABC) is that:
A. it is expensive even though it saves significant time.
B. it is very time-consuming, even though it is equivalent in cost to other costing systems.
C. it is both expensive and time-consuming.
D. the system cannot be used in service industries.
E. ABC has no significant limitations.
20. An activity that is performed to support the production of a different product is a (n):
A. product-sustaining activity.
B. facility-sustaining activity.
C. unit-level activity.
D. performance-level activity.
E. batch-level activity.
21. Using a plant-wide overhead rate based on machine hours to assign manufacturing overhead to a product line that uses relatively low machine hours is likely to:
A. Overapply overhead to the product line.
B. Underapply overhead to the product line.
C. Understate direct labor costs.
D. Overstate direct labor costs.
E. Either over- or under-apply overhead to the product line depending on many other factors.
Use the following to answer questions 22 -25:
Everlast Co. manufactures a variety of drill bits. The company's plant is partially automated. The budget for the year includes $432,000 payroll for 4,800 direct labor-hours. Listed below is cost driver information used in the product-costing system:
|
Overhead Cost Pool
|
Budgeted Overhead
|
Cost Driver
|
Estimated Cost Driver Level
|
|
Machine setups
|
$120,000
|
# of setups
|
120 setups
|
|
Material handling
|
104,400
|
# of barrels
|
8,700 barrels
|
|
Quality control
|
264,000
|
# of inspections
|
1,100 inspections
|
|
Other overhead cost
|
144,000
|
# of machine hours
|
12,000 machine hours
|
|
Total overhead
|
$632,400
|
|
|
A current product order has the following requirements:
Machine setups 8 setups
Material handling 606 barrels
Quality inspections 80 inspections
Machine hours 830 machine hours
Direct labor hour 336 hours
22. What is the total manufacturing overhead for the current product order if the firm uses a plantwide rate based on direct labor-hours?
23. Utilizing ABC, how much machine setup overhead is assigned to the order?
24. Using ABC, how much quality control overhead is assigned to the order:
25. Using ABC, how much total overhead is assigned to the order?
Below are some additional questions on budgeting. The first three are representative of what will be on the exam (single questions) The final question is a comprehensive review of involving multiple calculations from a common set of data - work this one only if you feel you need additional practice.
If you have questions regarding the solutions, please send me an email.
Dr. J.
LeMinton Company expects the following credit sales for the first five months of the year: January, $25,000; February, $40,000; March, $30,000; April, $36,000, May $40,000. Experience has shown that payment for the credit sales is received as follows: 60% in the month of sale, 25% in the first month after sale, 12% in the second month after sale, and the remainder is uncollectible. How much cash can LeMinton Company expect to collect in March as a result of credit sales?
A) $18,000.
B) $28,600.
C) $30,000.
D) $31,000.
E) $32,040.
Blake Company has $15,000 cash at the beginning of June and anticipates $50,000 in cash receipts and $34,500 in cash disbursements. Blake Company requires a minimum cash balance of $10,000 and maintains no more than $20,000 on hand. Any excess cash over the maximum is used to pay down debts. The firm has an agreement with its bank to borrow as needed or repay loans as funds become available. As of May 31, the company owes $15,000 to the bank. The balance of the loan on June 30 will be:
A) $ 4,500.
B) $ 9,500.
C) $15,000.
D) $19,500.
E) None of the above. The firm's expected loan balance on June 30 is $____________________.
Tony's Fashions forecasts sales of $300,000 for the quarter ended December 31. Its gross profit rate is 20% of sales, and its September 30 inventory is $100,000. If the December 31 inventory is targeted at $40,000, budgeted purchases for the quarter should be:
A) $140,000.
B) $160,000.
C) $180,000.
D) $200,000.
E) $240,000.
Use the following to answer the final set of questions:
Information pertaining to Yekstop Corp.'s sales revenue is presented below.
November December January
Cash sales $ 96,000 $125,000 $ 78,000
Credit sales $288,000 $450,000 $234,000
Total sales $384,000 $575,000 $312,000
Management estimated that four percent of credit sales would be uncollectible. Of the collectible credit sales, sixty-five percent would be collected in the month of sale and the remainder in the month following the sale. The firm desires to begin each month with seventy-five percent of the month's projected total sales units on hand. All purchases of inventory were to be on account; thirty percent would be paid in the month of purchase, and the remainder would be paid in the month following the purchase. The purchase costs are approximately sixty percent of the selling prices.
A. Total budgeted cash collections in December are:
A) $556,512.
B) $375,216.
C) $421,728.
D) $464,006.
E) $502,568.
B. Total budgeted cash collections in January are:
A) $556,512.
B) $375,216.
C) $421,728.
D) $464,006.
E) $502,568.
C. Total budgeted purchases in November are:
A) $258,750.
B) $316,350.
C) $384,000.
D) $489,150.
E) $527,250.
D. Total budgeted purchases in December are:
A) $ 86,250.
B) $140,400.
C) $226,650.
D) $258,750.
E) $345,000.
E. Budgeted December cash payments for December inventory purchases are:
A) $ 67,995.
B) $103,500.
C) $158,655.
D) $241,500.
E) $289,440.
F. Budgeted cash payments in November for November inventory purchases are:
A) $ 76,625.
B) $ 94,905.
C) $115,200.
D) $161,280.
E) $221,445.
G. Budgeted cash payments in December for November inventory purchases are:
A) $ 76,625.
B) $ 94,905.
C) $115,200.
D) $161,280.
E) $221,445.
H. Total budgeted cash payments in December for inventory purchases are:
A) $162,950.
B) $226,650.
C) $253,560.
D) $289,440.
E) $316,350.
I. Budgeted January cash payments for December inventory purchases are:
A) $ 67,995.
B) $103,500.
C) $158,655.
D) $241,500.
E) $289,440.