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

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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 be: A) \$30.80 B) \$37.10 C) \$31.54 D) \$51.80

Use the following

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 by 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

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
produced:

 Direct material \$44,000 Direct labor 20,000 Manufacturing overhead 60,000 Total \$124,000

The
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.

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

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 Less: 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?

A)
Sales

B)
Cost of ingredients

C)
Salaries

D)
All three components have equal
importance.

 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 point? 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 units B) 16,000 units C) 21,000 units D) 25,000 units
 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

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

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

Unit
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 Variable costs 262,500 45,000 307,500 Direct fixed costs 62,500 25,000 87,500 Segment margin 200,000 20,000 220,000 Allocated fixed costs 137,500 35,000 172,500 Net Income \$62,500 (\$15,000) \$47,500

Western
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

Anderson
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 150,000 Direct labor 125,000 Variable manufacturing overhead 235,000 Fixed manufacturing overhead 110,000 Net income \$180,000

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 true? A) Total fixed costs will decrease. B) Fixed cost per unit will decrease. 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 charge? A) \$13.50 B) \$14.55 C) \$12.75 D) \$10.95

Use the following

Taylor’s
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 finance.yahoo.com and determine which of the following statements is incorrect: 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 Microsoft. 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.

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