MGMT 640 Final Exam
1) Management accounting plays a role in
A planning new products.
B evaluating operational processes.
C controlling costs.
D all of the above.
2) Management accounting, managers are more concerned with receiving information that is:
A completely objective and verifiable.
B completely accurate and precise.
C relevant, flexible, and immediately available.
D relevant, completely accurate, and precise.
3) Which one of the following costs should NOT be considered a direct cost of serving a particular customer who orders a customized personal computer by phone directly from the manufacturer?
A the cost of the hard disk drive installed in the computer.
B the cost of shipping the computer to the customer.
C the cost of leasing a machine on a monthly basis that automatically tests hard disk drives before they are installed in computers.
D the cost of packaging the computer for shipment.
4) At its present level of operations, a small manufacturing firm has total variable costs equal to 65% of sales and total fixed costs equal to 20% of sales. If sales change by $1.00, operating income will change by
D An answer can’t be determined from this information.
5) ACME company has the following production costs for May:
units produced 2,000
Direct Material $20,000
Direct Labor 4,000 hrs @ $15 per hour
In June they plan to produce 3,000 units. What is their production cost per unit for May and total production costs for June?
A $49; $140,500
B $49; $147,000
C $43; $86,000
D $43; $129,000
6. The goal of managerial accounting is to provide information that managers need for
C. decision making.
D. All of the above answers are correct.
7. Shareef’s Window Company is in the process of preparing a production cost budget for August. Actual costs in July for 120 windows were:
Materials cost $ 4,800
Labor cost 3,000
Other fixed costs 3,200
The company is currently producing and selling 144 windows annually and each window is sold for $140.00. The company is considering lowering the price to $125.00 for which management estimates this will increase sales to 200 windows. Materials and labor are the only variable costs. Under what situation should the company lower the price of its windows?
A. If total revenue exceeds totals costs under the new pricing
B. If incremental revenue exceeds the old revenue
C. If incremental profit is a positive number
D. If incremental costs decrease
8. Which of the following is not usually a responsibility of the controller?
A. preparing budgets and performance reports
B. filing tax returns
C. managing cash and marketable securities
D. providing information for management decisions
9. A company purchases machinery costing $50,000 in October of 2006. Five years later they discover a better, more efficient machine they could purchase to replace the existing machine. The new machine costs $90,000 and the company has determined that they would be able to sell the original machine for $30,000. In making the decision about buying the new machine, how much are total sunk costs?
10. Mixed costs are the same as:
A. Semivariable costs
B. Step costs
C. Total production costs
D. Discretionary fixed costs
E. A & C only
11. The Contribution margin ratio is found by:
A. Subtracting total fixed costs from sales and dividing this by the number of units produced.
B. Adding total variable costs and fixed costs and dividing by the selling price per unit
C. Taking the selling price per unit and subtracting variable costs from it and dividing by the selling price per unit.
D. Dividing total fixed and variable costs by the selling price per unit.
E. B & C only.
12. John’s Camera is currently selling cameras at a price of $100. The cameras have a variable cost of $75 per camera and John’s Camera has a total fixed cost of $100,000. John’s Camera is currently selling 5,000 units of cameras. John’s Camera is considering changing its production process. With the change in production, John’s Camera will lower its fixed to $80,000 but raise its variable costs to $90 per unit. Should John’s Camera go forward with the change in production process?
A. Yes, because the new production process lowers fixed costs by $20,000
B. Yes, because the new production process raises the contribution margin
C. No, because the new production process leads to a decline in profits by $55,000.
D. No, because the new production process raises the variable costs by $15 per unit.
13. A company sells two products – X and Y. Product X is sold at a price of $50 and has a variable cost of $25. Product Y is sold at a price of $25 and has a variable cost of $20. Product X and Y are sold in equal amounts. How many units of Product X must be sold in order to breakeven if the company has $100,000 in fixed costs?
14. Cost-Volume Profit analysis cannot be performed when:
a. Costs can be accurately separated into fixed and variable components.
b. Fixed and variable costs change over different activity levels.
c. Contribution margin is based on the difference between selling price and variable costs.
d. Breakeven point is calculated based upon the fixed costs divided by the contribution margin.
15. A company produces products A, B, and C. The company has excess capacity. Products A, B, and C have a contribution margin of 10, 15, and 20, respectively. Products A, B, and C have a contribution margin per hour of 10, 5, and 6.67 respectively. Assume that the scarce resource for the firm is time, that is if an hour more is spent on producing one more product, there would be an hour less spent on producing another product. The company should produce:
a. Product A because it has the highest contribution margin per hour.
b. Product C because it has the highest contribution margin.
c. Either Product A or C because they have the highest contribution margin or contribution margin per hour.
d. The answer cannot be determined because we do not know the number of available machine hours.
16. A company is using the high-low method and has determined the following production for the months of January, February, March, and April of 6,000, 5,000, 5,550, and 2,000, respectively. During the same months, the costs were $500,000, 400,000, 425,000, and 200,000. The fixed costs are:
17. Three cost incurred by the Kenyon Company are summarized below:
1,000 Units 2,000 Units
Cost A $10,000 $9,000
Cost B $21,000 $21,000
Cost C $16,000 $32,000
Which of these costs are variable?
A. A, B and C
B. A and C
C. A Only
D. C Only
18: 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:
Information for questions 19 and 20: Briar Tek has fixed costs of $700,000. Selling price per unit is $180 and Variable cost per unit is $110.
19: How many units must Briar Tek Sell to earn a profit of $560,000?
20: A new employee suggests that Briar Tek sponsor a little league baseball team as a form of advertising. The cost to sponsor the team is $3,500. How many more units must be sold to cover this cost?
21. When activity based costing is implemented, the initial outcome is normally that:
A. the cost of all products will be higher.
B. The cost of all products will be lower
C. The cost of low volume products will be higher and the cost of high volume products will be lower
D. The cost of low volume products will be lower and the cost of high volume products will be higher.
22. Which of the following is likely to occur when more overhead cost pools are used?
A. Product costs will be more accurate.
B. Recordkeeping will be more expensive.
C. Decisions such as product pricing will be improved.
D. All of the above are true.
23. Tyler’s 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 division has estimated the number of copies which will be made over the life of the copier.
Information Tech 425,000
Note: Cost allocations are computed to 4 significant digits. Resulting values are rounded to the whole dollar.
If the purchasing department makes 140,260 copies this year what will be their allocated overhead?
24. Which of the following costs are always incremental and relevant in decision analysis?
A. opportunity costs and joint costs
B. joint costs and avoidable costs
C. avoidable costs and opportunity costs
D. sunk costs and avoidable costs
25. The Tobias 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 $19,500. Alternatively, the computers could be sold “as is” for $9,000. What is the net advantage or disadvantage of re-working the computers?
A. $12,000 advantage
B. $1,200 disadvantage
C. $10,200 disadvantage
D. $3,000 advantage
26. One of the shortcomings of traditional managerial accounting systems is that
a. very little emphasis is put on reducing costs.
b. too much effort is focused on product quality.
c. not enough focus is put on activities that drive costs.
d. too much emphasis is put on costs.
27. Fast Delivery Company delivers packages and business documents for local businesses located in the Houston metropolitan area. If the company decided to adopt an ABC costing system to accumulate costs for its service, what would be an appropriate cost driver to use for the cost of the packaging envelopes provided to customers?
a. Number of miles to be driven in the delivery
b. Number of customers
c. Amount of fuel used in the truck
d. Number of packages
28. Match a potential cost driver with an appropriate activity pool on the right.
a. Number of setups: material receiving costs
b. Number of inspections: machine setup costs
c. Number of receipts: factory costs
d. Number of machine hours: factory costs
29. 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
30. 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?
31: When considering a process that involves a resource constraint, the optimal decision
- minimizes the break-even point.
- minimizes the contribution margin per unit of output.
- maximizes the contribution margin per unit of the constraint.
- minimizes total fixed costs.
32: A company has $25 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?
33: The price which maximizes revenues is the price that should be selected.
34: A manufacturing company produces and sells 20,000 units of a single product. Total production costs are $14/unit. If the total sales are $560,000 what mark up percentage is the company using?
35: 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%?
C) There is not enough information in the problem to answer
36: Which of the following are relevant in deciding whether to accept or reject a special order?
A. The impact the order will have on existing business.
B. The price that will be charged on the special order.
C. The incremental cost of filling the special order.
D. All of the above.
37: Contreras Company has a capacity of 40,000 units per year and is currently selling all 40,000 for $400 each. Buerhle Company has approached Contreras about buying 2,000 units for only $300 each. The units would be packaged in bulk, saving Contreras $20 per unit when compared to the normal packaging cost.
Normally, Contreras 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 Contreras were to accept this special order?
A. Profits would decrease $200,000
B. Profits would decrease $160,000
C. Profits would increase $60,000
D. Profits would increase more than $60,000
38: The Radek Company uses cost-plus pricing with a 30% mark-up. The company is currently selling 80,000 units at $65 per unit. Each unit has a variable cost of $47. In addition, the company incurs $240,000 in fixed costs annually. If demand falls to 40,000 units and the company wants to continue to charge the same price what profit margin percent will the company earn?
39: Shavon company has total fixed costs of $6,000,000 and total variable cost of $3,000,000 at a volume level of 300,000 units. What price would be charged if the company used cost plus pricing and a markup of 25%?
40: What is the basic premise of target costing?
A. Products should be designed to meet customer needs at a price customers are willing to pay that allows the company to make a reasonable profit.
B. Products should be designed to include as many features as possible.
C. Products should be designed based on what features are technologically possible, and then marketed to customers at a price that covers the costs of design.
D. Customers are generally willing to pay for whatever companies design, so cost should not be a factor in the design process.