Joan Merton, a college student is contemplating the following options for her 3-month

MGMT640 Section 1121

Final Exam

Summer 2014


Name: __________________________ Date: ___________________


The Final Exam is individual work. All work on the exam should be from
your own efforts, with no assistance from classmates, family, friends or
others. By proceeding with this exam,
you are agreeing not to share the exam content or your responses with anyone,
including future students of MGMT640. Your completed
exam is due by 7:00PMon Sunday, August 10, 2014
(upload to your Assignments Folder).


refer to the Syllabus for the policy regarding late submissions. 
There will be no make-up exams except for
documented emergencies.


You are not required to submit your working. However, complete working showing formulas
and calculationsmay be considered for partial credit for incorrect answers.


Identify the letter of the choice that best
completes the statement or answers the question.


1. Joan
Merton, a college student is contemplating the following options for her 3-month
summer break:(1)
Take a summer course which will cost $700 and work half-time making $1,000
per month.

(2) Work full time at the local dinner making
$2,000 per month.

(3) Take the summer class at a cost of $700
and not work during the summer.


Joan’s incremental profit or loss if she
chooses option 1 over option 2 would be:

A) ($4,100)
B) ($3,700)
C) ($5,300)
D) ($2,500)


2. Sybarix,
Inc., a manufacturing company produces 80,000 units of product X at a total
cost of $2.4 million. Total fixed
costs are $1.4 million. If the company
increases production by 25% and uses a 19% markup, the price per unit will
A) $30.80
B) $37.10
C) $31.54
D) $51.80

Use the following
to answer questions 3-4:


XTZ Company’s
market for the Model 55 has changed significantly, and XTZ 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. XTZ could
sell these units in their current state for $100 each. It will cost XTZ $10 per unit to complete
these units so that they can be sold for $125 each.


3. 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 employeewants)
have on net income?
A) Net
income will increase by $35 per unit for each unit discarded.
B) Net income will decrease by $100
per unit for each unit discarded.
C) Net
income will decrease by $115 per unit for each unit discarded.
D) It
will have no effect on net income.
4. When
the incremental revenues and expenses are analyzed, the company is better off
A) $125 per unit if they complete
the units.
B) $25
per unit if they sell the units in their current state.
C) $10
per unit if they sell the units in their current state.
D) $15
per unit if they complete the units.
5. A
company using activity based pricing marks up the direct cost of goods by 40%
plus charges customers for indirect costs based on the activities utilized by
the customer. Indirect costs are
charged as follows: $6.00 per order
placed; $3.00 per separate item ordered; $28.00 per return. A customer places 10 orders with a total
direct cost of $2,000, orders 300 separate items, and makes 5 returns. What will the customer be charged?
A) $3,000
B) $3,900
C) $5,330
D) $5,750
6. 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 8,000 machine hours,
how much manufacturing overhead will be allocated to this product?
A) $41,667
B) $43,750
C) $50,000
D) $53,560

Use the following
information to answer questions 7-8:

The Sunrise
Hotel has 200 rooms. Each room rents at $110 per night and variable costs total
$27 per room per night of occupancy. Fixed costs total $76,000 per month.


7. If the
hotel spends an additional $20,000 in the month of February on advertising
they feel that they can expect occupancy rate to increase by 10%. What would
be the financial impact of spending this additional money on advertising for
the month of February (28 days)?
A) Total
fixed costs will increase by $10,500.
B) Net income will increase by $26,480.
C) Net
income will increase by $16,320.
D) Total
fixed costs will remain the same.
8. If 75%
of the rooms are occupied each night in the month of February (28 days) what
will total costs be for the month?
A) $155,680
B) $173,600.
C) $197,400.
D) $189,400.


9. 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

Manufacturing overhead
Total $124,000

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.

is the amount of avoidable costs if Jones buys rather than makes the

A) $60,000
B) $96,000
C) $124,000
D) $100,000




10. Below is a performance report that
compares budgeted and actual profit of Boyles Beer

for the month of April:


Budget Actual Difference
Sales $200,000 $202,000 $2,000
Cost of ingredients $162,000 $166,000 $4,000
Salaries $31,000 $31,200 $200
Controllable Profit $47,000 $44,800 -$2,200


In evaluating the department in
terms of its increase in sales and expenses, what will be

most important to investigate?



Cost of ingredients


All three components have equal


11. K-Henry’s
Dull Diner has a contribution margin ratio of 17%. If fixed costs are $176,800, how many
dollars of revenue must K-Henry’s generate in order to reach the break-even
A) $1,040,000
B) $ 262,880
C) $1,060,800
D) $1,105,000


12. New
Insights, Inc. is looking to achieve a net income of 15 percent of
sales. Here’s the firm’s profile: Unit
sales price is $10; variable cost per unit is $6; total fixed costs are
$40,000. What is the level of sales in
units required to achieve a net income of 15 percent of sales?
A) 12,000
B) 16,000 units
C) 21,000
D) 25,000


13. At Joshua’s
Apparel, the break-even point is 2,400 units.
If fixed costs total $300,000 and variable costs are $25 per unit,
what is the selling price per unit?
A) $210
B) $180
C) $5
D) $150


14. Which of the following situations will most
likely violate cost-volume-profit

assumptions about fixed costs?

A) When production volume increases beyond the
capacity of the plant, a second shift will be added instead of building a new
B) The company’s raw material supplier typically
allows volume discounts when larger amounts of the raw material are
C) Fixed costs per unit decrease as volume
D) As
volume increases, per unit fixed manufacturing overhead remain constant.

15. One Small Grill Company is a start up with
the following profile:

selling price = $220; Variable cost per unit = $140; Fixed Costs = $38,000;

Tax rate = 40%. How
many units should Small Grill sell to achieve an after-tax target

income of $6,000?

A) 200
B) 460
C) 230
D) 600


16. Western
Apparel Company owns two stores and management is considering eliminating the
East store due to declining sales.
Segmented contribution income statements are as follows and common
fixed costs are allocated on the basis of sales.

West East Total
Sales $525,000 90,000 $615,000
262,500 45,000 307,500
fixed costs
62,500 25,000 87,500
200,000 20,000 220,000
fixed costs
137,500 35,000 172,500
$62,500 ($15,000) $47,500

feels that if they eliminate the East store that sales in the West store will
decline by 25%. If they close the East
store, overall company net income will:

A) decline
by $90,000.
B) decline by $62,000.
C) decline
by $85,625.
D) decline
by $20,000.
17. JungleGym,
a best-selling toy has a selling price of $15. If the contribution margin ratio is 40% and
if the fixed costs are $60,000, how many JungleGyms must the company sell to
realize a profit of $450,000?
A) 30,000
B) 34,000
C) 85,000
D) 100,000

Information for Questions 18


Manufacturing makes a single product.
Budget information regarding the current period is given below:


(100,000 units at $8.00)
manufacturing overhead
manufacturing overhead

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.


18. What
is the incremental income (loss) associated with accepting the special order?
A) ($14,000)
B) $36,000
C) ($23,500)
D) $27,000
19. Auto
Zone believes it can sell 3,750,000 of a new vehicle charger for $10
each. There will be $3,850,000 in
fixed costs associated with the charger.
If the company desires to make a profit of $2,000,000 on the charger,
what is the target variable cost per charger?
A) $7.25
B) $9.00
C) $6.57
D) $8.44
20. On
July 26, 2012, radio Shack announced disappointing 2nd quarter
earnings that caused the stock to fall 29% to all time lows. Although sales were up 1.2% to $953.2
million gross profit fell 16.6% to $360.3 million. Assuming Radio Shack’s store count and
fixed costs were the same in the 2nd quarter of 2011 and 2012,
which of the following statements is the best explanation for the decrease in
the firm’s profitability?
A) Opportunity
costs decreased.
B) Margin
of safety decreased.
C) Contribution margin decreased.
D) Selling
price decreased.


21 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
A) Total
fixed costs will decrease.
B) Fixed cost per unit will
C) Total
fixed costs will increase.
D) Fixed
cost per unit will increase.
22. The Dynamics
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
A) $13.50
B) $14.55
C) $12.75
D) $10.95

Use the following
to answer question 23:

Treasures has collected the following information over the last six months.


Month Units produced Total costs
March 10,000 $25,600
April 12,000 26,200
May 18,000 27,600
June 13,000 26,450
July 12,000 26,000
August 15,000 26,500
23. Using
the high-low method, what is the variable cost per unit?
A) $0.25
B) $2.56
C) $0.22
D) $2.00
24. During
2013, Teko Inc. reported revenues of $925,400 and profits of $88,500. Fixed costs were $456,250 and 37,016 units
were sold. If costs and prices are
expected to stay the same in 2014, and Teko Inc. expects to sell 40,000
units, what will be the company’s budgeted profit?
A) $95,457
B) $525,000
C) $132,414
D) $667,957
25. Visit and determine which of the following statements is
A) The current
market cap of Microsoft is more than double that of Facebook.
B) The
current price per share of Apple is over two times the price per share of
C) The current ratio of Facebook
in the most current quarter is over two times greater than the current ratio
of Google.
D) Return
on equity for the most recent quarter for Microsoft is greater than return on
equity for Google.