Professional Documents
Culture Documents
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Managerial Accounting
Name:
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Acct 2301
Spring 2007
Exam 1 Solutions
1. St. Augustine Company incurred the following costs during 2006 (its first year of
operations):
Advertising
$ 5,000
Plant supervisor salary
$60,000
Plant utilities
$12,000
Rent on administration building
$24,000
Direct materials
$85,000
Rent of manufacturing equipment
$ 8,000
During 2006, the company produced 50,000 units and sold 42,000 units for $5
each. What was the companys net income for year ended December 31, 2006?
a. $16,000
Net Income = Sales COGS S, G, & A
b. $42,400
Sales = 42,000 * $5 = $210,000
c. $71,400
COGS:
d. $210,000
1st find total Product Cost = $60,000 + 12,000 + 85,000 +
8,000 = $189,000
2nd find Cost per unit = $165,000 / 50,000 = $3.3
COGS = $3.3 * 42,000 = $138,600
S,G, & A = 5,000 & 24,000
e. None of the above
$210,000 138,600 5,000 24,000 = $42,400
2. Which of the following would immediately cause net income to be lower?
a. Paid administrative salaries of $2,500
b. Paid $1,600 cash for raw material cost
c. Depreciated production equipment for $3,000
d. Purchased $5,000 of merchandise inventory
e. None of the above
3. During its first year of operations, Corvallis Company incurred the following
costs: direct materials - $15,000 ; production workerswages - $25,000 ; sales
commission - $12,000 ; advertising - $2,500 ; rent on the manufacturing plant $11,000 ; depreciation of plant equipment - $9,000. The company produced
12,000 units and of these sold 8,000. What is the average production cost per
unit?
a. $3.34
Total Product Cost = $15,000 + 25,000 + 11,000 + 9,000 =
$60,000
b. $4.25
Cost per unit = $60,000 / 12,000 = $5
c. $5.00
d. $7.50
e. None of the above
4. Birmingham Company provided the following information regarding its first year
of operations:
Administrative salaries & other admin costs
$ 25,000
Depreciation on production equipment
$ 5,000
Indirect materials
$ 1,500
Marketing & distribution costs
$ 22,500
Plant supervisory salaries
$ 15,500
Production wages and salaries
$ 33,000
Production materials
$ 20,000
Rent on production facilities
$ 5,000
Sales revenues
$115,000
Sales salaries & other selling costs
$ 37,000
Units produced
Units sold
10,000
9,000
What was Birminghams cost of goods sold for the first year?
a. $148,050
Total product cost = 5,000 + 1,500 + 15,500 + 33,000 +
20,000 + 5,000 = $80,000
b.
c.
d.
e.
$ 80,000
Cost per unit = $80,000 / 10,000 = $8
$ 72,000
COGS = $8 * 9,000 = $72,000
$ 67,500
None of the above
5. The fixed cost per unit is $10 per unit when 10,000 units are produced. What is
the fixed cost per unit when 12,500 units are produced (assuming this is within
the relevant range)?
a. $8
Total fixed cost = $10 * 10,000 = $100,000
b. $10
FC per unit @ 12,500 units = $100,000 / 12,500 = $8
c. $12
d. $14
e. None of the above
6. The companys total cost is $80,000 when 8,000 units are produced. Of this
amount, variable costs are $48,000. What is the total cost when 10,000 units are
produced?
a. $100,000
TC = FC + VC
b. $ 92,000
$80,000 = FC + $48,000
c. $ 80,000
FC = $32,000
d. $ 60,000
VC / unit = $48,000 / 8,000 = $6
e. None of the above
@ 10,000 units:
TC = FC + VC
TC = $32,000 + ($6 * 10,000)
TC = $92,000
7. The amount paid by a manufacturing company for a factory building is considered
a(n)
a. Sunk cost
b. Opportunity cost
c. Period cost
d. Mixed cost
e. All of the above
8. Alans Lawn Care incurs significant gasoline costs. This cost would be classified
as a variable cost if it:
a. Varies inversely with the number of hours the lawn equipment is operated
b. Varies directly with the number of hours the lawn equipment is
operated
c. Is not affected by the number of hours the lawn equipment is operated
d. A and B
e. A and C
9. The activity director for Cedar Grove Hotel is planning an activity. She is
considering alternative ways to set up the activitys cost structure. Select the
incorrect statement from the following.
$90,000
(30,000)
( 8,000)
$52,000
(14,000)
(10,000)
( 8,000)
$20,000
b.
c.
d.
e.
$24,000
FC = $120,0000 80,0000 = $40,000
$80,000
($60 * 5,000) ($40 * 5,000) - $40,000 =
$10,000
300,000 200,000 40,000 = $60,000
None of the above
18. Zhang Company plans to introduce a new product. A market research specialist
claims that 20,000 units can be sold at a $100 selling price. The company desires
a profit margin of 20% of sales. The company has fixed costs of $700,000. The
company needs to have a variable cost per unit of
a. $50
($100 * 20,000) 20,000X 700,000 = (.2 * $2,000,000)
b. $45
20,000X = $900,000
c. $40
$900,000 / 20,000
d. $30
X = $45
e. None of the above
19. Bulls Eye Industries makes a product that sells for $25 a unit. The product has a
$5 per unit variable cost and total fixed costs of $9,000. At budgeted sales of
1,000 units, what is the companys margin of safety in sales dollars?
a. $20,000
BE = FC / CM per unit
b. $13,750
$9,000 / $20
c. $11,250
BE = 450
d. $10,000
Budgeted = 1000
e. None of the above MOS = 1000 450 = 550 units * $25 = $13,750
20. Rotimi Company has a variable cost ratio equal to 40% of sales. The company is
considering a proposal that will increase sales by $10,000 and total fixed costs by
$4,000. By what amount will net income increase?
a. $6,000
Sales
$10,000
b. $4,000
(VC)
( 4,000)
c. $2,000
CM
$ 6,000
d. $0
(FC)
( 4,000)
e. None of the above
NI
$ 2,000
21. Parr Incorporated makes three separate products. The following monthly data are
provided:
Product X
Product Y
Product Z
Sales price per unit
$20
$50
$80
Variable cost per unit
$ 8
$15
$22
# of units sold
300
500
200
CM per unit $12
$35
$58
Sales Mix
30%
50%
20%
$3.60
$17.5
$11.60
Total Weighted-Ave CM = 3.60+17.50+11.60 = $32.70
If the company has total fixed costs of $163,500, what is the companys
breakeven point (if the same sales/product mix is required)?
a.
b.
c.
d.
e.
3,000 units
BE = FC / CM per unit
4,000 units
$163,500 / 32.70 = 5,000 units
5,000 units
6,000 units
None of the above
22. Dress for Success produces a mans suit that sells for $200. Although the
companys production capacity is 3,000 suits per year, only 2,500 suits are
currently being produced and sold. The production costs for 2,500 suits are as
follows:
Unit-level material cost
$200,000/2,500 = 80
Unit-level labor cost
$100,000/2,500 = 40
Unit-level overhead
$ 50,000/2,500 = 20
Batch-level set-up cost (500 units per batch)
$ 6,000/5 = 1,200
Product-level costs
$ 15,000
Allocated facility-level costs
$ 50,000
BizDress has offered to purchase 500 suits as a one-time special purchase at a
price of $140. If the company accepts the special offer,
Revenue from offer $140 * 500
$70,000
Unit-level material $80 * 500
(40,000)
Unit-level labor $40 * 500
(20,000)
Unit-level OH $20*500
(10,000)
Batch level
( 1,200)
$ (1,200)
a.
b.
c.
d.
e.
23. The Mannix Company manufactures and sells two lines of china. During the
most recent accounting period, the Faux line and the Traditional line sold 15,000
and 2,000 units, respectively. The companys most recent operating results are as
follows:
Traditional
Faux
Sales
$800,000
$200,000
Unit level materials
(200,000)
( 20,000)
Unit level labor
(300,000)
(140,000)
Product level
(100,000)
( 25,000)
Company wide facility level ( 50,000)
( 50,000)
Net Income
$150,000
($35,000)
If the company stops providing the Faux service,
Lost Revenue $200,000
$6
$4
$2
$50,000
$75,000
$40,000
The company expects an annual need for 5,000 switches. If the company makes
the product, it will have to utilize factory space currently being leased for $3,000
a month. Ignore qualitative considerations. If the company decides to make the
parts, total costs will be
Make:
Unit-level
$12 * 5,000 $60,000
Batch-level
50,000
Product-level
75,000
Opportunity Cost $3,000 * 12 36,000
Total Relevant Costs
$221,000
Buy: 5,000 * $40 = $200,000
$221,000 200,000 = $21,000
a.
b.
c.
d.
e.
25. Reavis Manufacturing Company was started on January 1, 2006, when it acquired
$80,000 cash by issuing common stock. Reavis immediately purchased office