5D Flashcards

Question 1

Q

Seacraft, Inc., received a request for a competitive bid for the sale of one of its unique boating products with a desired modification. Seacraft is now in the process of manufacturing this product but with a slightly different modification for another customer. These unique products are labor intensive and both will have long production runs. Which one of the following methods should Seacraft use to estimate the cost of the new competitive bid?

Expected value analysis
Learning curve analysis
Regression analysis
Exponential distribution analysis

Answer

A

Learning Curve Analysis

Since the manufacturing processes for these unique products are new, are labor intensive and have long production runs, labor becomes more skilled, and hence more efficient, over time as the new processes are learned.

This increased efficiency reduces the cost.

Thus, the method that should be used to estimate the cost of the second process is learning curve analysis

Question 2

Q

Asta, Inc., is a medical laboratory that performs tests for physicians. Asta anticipates performing between 5,000 and 12,000 tests during the month of April. Compared to industry averages, at the low range of activity Asta has a lower sales price per test, higher fixed costs, and the same breakeven point in number of tests performed. At the high range of activity, Asta’s sales price per test and fixed costs are the same as industry averages, and Asta’s variable costs are lower. At the low range of activity (0 to 4,999 tests performed) fixed costs are $160,000. At the high range of activity (5,000 to 14,999 tests performed) fixed costs are $200,000.

Sales price per test $60
Variable costs per test 20
How is the cost of distilled water used in tests categorized?

Direct material cost
Fixed cost
Overhead cost for testing
General and administrative cost

Answer

A

Distilled water used in tests is a cost of material used directly in production, so it is a direct material cost.

“Fixed cost” is incorrect because more distilled water is used for more tests; it is a variable cost, not a fixed cost.

Question 3

Q

____) also called ___ analysis is a technique to evaluate the relationship between costs, volume of activity, and profit

The key factors in cost-volume-profit analysis are revenues, Direct Material costs, and indirect costs T/

Answer

A

Breakeven (also called cost-volume-profit (CVP

False -Revenue, Fixed Cost & Variable Costs

Question 4

Q

Ratio for Breakeven?

Questions on the CPA Examination often ask for breakeven stated in sales dollars. This can be obtained by computing breakeven in units and multiplying it by the sales price, or it can be computed directly as follows:

                                               FC  Breakeven sales dollars: ----------
                                       P - VC
                                           P

Answer

A

Fixed cost
__________-
Price - Variable cost/unit

Question 5

Q

Management at MDK Corp. is deciding whether to replace a delivery van. A new delivery van costing $40,000 can be purchased to replace the existing delivery van, which cost the company $30,000 and has accumulated depreciation of $20,000. An employee of MDK has offered $12,000 for the old delivery van. Ignoring income taxes, which of the following correctly states relevant costs when making the decision whether to replace the delivery vehicle?

Purchase price of new van, disposal price of old van, gain on sale of old van

Purchase price of new van, purchase price of old van, gain on sale of old van

Purchase price of new van, disposal price of old van

Purchase price of new van, purchase price of old van, accumulated depreciation of old van, gain on sale of old van, disposal price of old van

Answer

A

Purchase price of new van, disposal price of old van

Relevant costs include all expected future costs that will differ among alternatives for a particular decision.

Other costs will not change and are not relevant to the decision.

Purchase price of the new van is relevant because that cost will not be incurred if the van is not replaced.

Disposal price of the old van is relevant because that cash will not be received unless the van is replaced.

Question 6

Q

Critical in management decision making is the understanding that ____are irrelevant.

___costs for decision making are expected future costs that will differ among alternatives available to the firm.

___costs are useful only as they help predict the future.

Answer

A

sunk (past) costs

Relevant

Historical

Question 7

Q

Asta, Inc., is a medical laboratory that performs tests for physicians. Asta anticipates performing between 5,000 and 12,000 tests during the month of April. Compared to industry averages, at the low range of activity Asta has a lower sales price per test, higher fixed costs, and the same breakeven point in number of tests performed. At the high range of activity, Asta’s sales price per test and fixed costs are the same as industry averages, and Asta’s variable costs are lower. At the low range of activity (0 to 4,999 tests performed) fixed costs are $160,000. At the high range of activity (5,000 to 14,999 tests performed) fixed costs are $200,000.

Sales price per test $60
Variable costs per test 20
Depreciation on the laboratory equipment is calculated on the basis of service hours. How is the depreciation on laboratory equipment categorized?

Direct material cost
Direct labor cost
Variable cost
General and administrative cost

Answer

A

Variable

Depreciation based on service hours is a cost that increases directly as production increases, so it is a variable manufacturing cost.

“Direct material cost” and “direct labor cost” are incorrect because this cost is not a material cost nor is it a labor cost.

Question 8

Q

Information related to the revenue and costs of a product is as follows:

Total fixed cost per month $3,600
Desired net income per month 480
Selling price per unit 20
Variable cost per unit 15

What number of units above the breakeven level must be sold to earn the desired level of net income per month?

Answer

A

96

BE: 3600/ (20-15) = 720

Desired level of Net income = (3600+480) / (20-15) = 816.

816 - 720 = 96.

This question asks “Units ABOVE break even level”

Question 9

Q

In the past, four direct labor hours were required to produce each unit of product Y. Material costs were $200 per unit, the direct labor rate was $20 per hour, and factory overhead was three times direct labor cost. In budgeting for next year, management is planning to outsource some manufacturing activities and to further automate others. Management estimates these plans will reduce labor hours by 25%, increase the factory overhead rate to 3.6 times direct labor costs, and increase material costs by $30 per unit. Management plans to manufacture 10,000 units. What amount should management budget for cost of goods manufactured?

Answer

A

$5,060,000

This is easy

The direct materials cost is (Old cost + Expected increase in cost) × Number of units.

($200 (Old cost) + $30 (Increase expected)) × 10,000 = $2,300,000
The direct labor cost is (Old cost - Expected decrease in cost) × Number of units.

Old cost = Labor hours required × Hourly rate = 4 × $20 = $80 (per unit)

Expected decrease in cost = $80 × 25% = $20

($80 (Old cost) - $20 (Decrease expected)) × 10,000 = $600,000

The factory overhead is expected to be 3.6 × Direct labor cost per unit × Number of units.

New direct labor cost per unit is $80 (Old cost) - $20 (Expected decrease) = $60 per unit

3.6 × $60 (Labor cost) = $216 per unit for overhead × 10,000 units = $2,160,000

Direct materials + Direct labor + Factory overhead = Total cost

$2,300,000 + $600,000 + $2,160,000 = $5,060,000

Question 10

Q

When preparing a sales forecast, which of the following factors is not taken into consideration?

Competition
Economic conditions
Customer needs/wants
Industry trends

Answer

A

Competition

Competition is not a factor when preparing a sales forecast. While competitors cannot be ignored, the following are key to preparing a sales forecast: economic conditions, customer needs/wants, industry trends, expected marketing efforts, and the products to be sold.

Question 11

Q

SALES FORECAST

Today, most forecasting is done using computer-based models T/F

This forecast is extremely important since nearly all other parts of the operating and financial budgets are based upon the sales forecast T/F

Question 12

Q

SALES FORECAST

The sales forecast is the projection of both volume and dollar value of sales for a future period. It is based upon

\_\_\_ conditions, 
customer-anticipated product/service \_\_ and \_\_
recent industry \_\_, 
assumed expected _efforts, 
the \_\_(new and old) to be sold

Answer

A

Economic
Needs and Wants
Trends
Marketing
Products

Question 13

Q

SALES FORECAST CONSIDERATIONS

Sales forecasts for each ___and each __ in each division provide a more ___total sales projection
Sales forecasts for various marketing regions—foreign, domestic, regional—provide superior total estimates.
___rates must also be projected
___ conditions need to be predicted
With the introduction of a new product, a firm can often have a competitive advantage with increased market share until the competition can develop similar products. T/F

Answer

A

division , product, more realistic

True

Exchange

Economic

True

Question 14

Q

In order to increase the profit margin for a certain product, a company is planning to purchase a custom- made machine for $5,000,000. It is anticipated that the introduction of the new machine will reduce the product’s variable costs of labor and maintenance by $5.50 per unit and $.95 per unit, respectively. The product manager estimates that 500,000 units of the product will be manufactured and sold each year with a product life cycle of two years, at which time the machine will be discarded with no salvage value.

What is the company’s total cost savings over the product’s life cycle?

Answer

A

The product life cycle describes the period of time over which an item is developed, brought to market and eventually removed from the market.

The full cycle consists of four stages: introduction, growth, maturity and decline.

The company’s total cost savings over the product’s life cycle is $1,450,000, calculated as follows:

Variable cost savings
($5.50 + $.95) × 500,000 units × 2 years
$6,450,000
Initial cost (5,000,000)
Net savings $1,450,000

Question 15

Q

____forecasting focuses on the judgment of experts when historical data is not available and when significant environmental changes cause the trends in the past to be irrelevant in predicting the future.

Answer

A

Qualitative

Question 16

Q

TYPES OF QUALITATIVE FORECASTING

____ method attempts to develop a forecast through a group consensus. Individual experts are asked to respond to an initial questionnaire (the respondants to the questionnaire generate the census)
____is where the forecaster starts with a variety of assumptions and builds multiple forecasts using these various and sometimes conflicting a ssumptions.
____prepared by current customers or test markets can be used to predict sale forecast
Forecasts by ___can be useful when introducing a new product. Most products go through the product life cycle stages of introduction, growth, maturity, and decline.

Answer

A

Delphi method

Scenario building

Surveys

analogy

Question 17

Q

Asta, Inc., is a medical laboratory that performs tests for physicians. Asta anticipates performing between 5,000 and 12,000 tests during the month of April. Compared to industry averages, at the low range of activity Asta has a lower sales price per test, higher fixed costs, and the same breakeven point in number of tests performed. At the high range of activity, Asta’s sales price per test and fixed costs are the same as industry averages, and Asta’s variable costs are lower. At the low range of activity (0 to 4,999 tests performed) fixed costs are $160,000. At the high range of activity (5,000 to 14,999 tests performed) fixed costs are $200,000.

Sales price per test $60
Variable costs per test 20
What is the number of units Asta must sell to achieve a gross profit of $160,000?

Answer

A

9000

At low activity with fixed costs of $160,000, the unit sales necessary for a profit of $160,000 is fixed costs of $160,000 plus the profit of $160,000 (a total of $320,000) divided by unit contribution margin, or $320,000 ÷ $40 = 8,000 tests. This is outside the range within which fixed costs equal $160,000, so this answer is incorrect.

At high activity with fixed costs of $200,000, the unit sales necessary for a profit of $160,000 is fixed costs of $200,000 plus the profit of $160,000 (a total of $360,000) divided by unit contribution margin, or $360,000 ÷ $40 = 9,000 tests. This is the correct answer, since 9,000 tests can be performed with fixed costs of $200,000.

Note: I answered this wrong by answering 4000. This is asking for the total # of units. Not units above BE.

Question 18

Q

At the breakeven point, the contribution margin equals total:

variable costs.
sales revenues.
selling and administrative costs.
fixed costs.

Answer

A

Fixed Costs

Question 19

Q

Asta, Inc., is a medical laboratory that performs tests for physicians. Asta anticipates performing between 5,000 and 12,000 tests during the month of April. Compared to industry averages, at the low range of activity Asta has a lower sales price per test, higher fixed costs, and the same breakeven point in number of tests performed. At the high range of activity, Asta’s sales price per test and fixed costs are the same as industry averages, and Asta’s variable costs are lower. At the low range of activity (0 to 4,999 tests performed) fixed costs are $160,000. At the high range of activity (5,000 to 14,999 tests performed) fixed costs are $200,000.

Sales price per test $60
Variable costs per test 20
How is the cost of electricity to run laboratory equipment categorized?

Answer

A

Overhead

Electricity to run lab equipment is a manufacturing cost, but it is not direct labor or direct material, so “direct material cost” is incorrect. All other production costs are overhead costs, so this is part of manufacturing overhea

Question 20

Q

Using regression analysis, Fairfield Co. graphed the following relationship of its cheapest product line’s sales with its customers’ income levels:

If there is a strong statistical relationship between the sales and customers’ income levels, which of the following numbers best represents the correlation coefficient for this relationship?

-9.00
-0.93
+0.93
+9.00

Answer

A

A negative correlation coefficient means that as one variable increases, the other decreases, so +0.93 and +9.00, which are positive, are incorrect

. The answer choices -9.00 and +9.00 are incorrect because the correlation coefficient must be between -1.0 and 1.0.

Question 21

Q

The following information data pertains to a manufacturing company:

Total sales $80,000
Total variable costs 20,000
Total fixed costs 30,000

What is the breakeven level in sales dollars?

Answer

A

The contribution margin ratio is the contribution margin (sales of $80,000 less variable costs of $20,000, or $60,000) divided by the sales revenue of $80,000, or 0.75.

Breakeven revenue is found by dividing the fixed costs of $30,000 by the contribution margin ratio of 0.75, for breakeven sales revenue of $40,000.

BE Sales Dollars =
FC
____________
(P-VC)/P

30,000/((80000-20000)/80000) = 40,000

Question 22

Q

A vendor offered Wyatt Co. $25,000 compensation for losses resulting from faulty raw materials. Alternately, a lawyer offered to represent Wyatt in a lawsuit against the vendor for a $12,000 retainer and 50% of any award over $35,000. Possible court awards with their associated probabilities are as follows:

   Award    Probability
  -------   -----------
  $75,000       0.6
        0       0.4
Compared to accepting the vendor's offer, the expected value for Wyatt to litigate the matter to verdict provides a:

Answer

A

Here there are two possible outcomes: collecting $25,000, or accepting the lawyer’s offer to represent Wyatt in the lawsuit

If the lawsuit is chosen, Wyatt will lose the $12,000 retainer, but have a 60% probability of winning $75,000 less the lawyer’s contingent fee of 50% of the award above $35,000. The contingent fee would be 50% times ($75,000 − $35,000) which is 0.50 × $40,000, or $20,000.

The value of winning the lawsuit is $75,000 less the contingent fee of $20,000, or $55,000. The expected value of winning the lawsuit is the probability of winning (60%) multiplied by the value of winning ($55,000), or $33,000. However, Wyatt will have to pay the retainer of $12,000, leaving a net expected value of $21,000.

Comparing a gain of $25,000 from accepting the vendor’s offer with an expected value of $21,000 of filing the lawsuit leaves a loss of $4,000 to file the lawsuit, as compared to accepting the vendor’s offer.

Loss of 4k is the answer

Question 23

Q

Box Co. uses regression analysis to estimate the functional relationship between an independent variable (cost driver) and overhead cost. Assume that the following equation is being used:

y = A + Bx
What is the symbol for the independent variable?

Answer

A

X

Linear regression with two variables takes the form y = Bx + A.

A is the y intercept.
B is the slope of the line. (Linear means a straight line, so the slope of the line is the same at any point on the line.)
y is the dependent variable since it is determined based on the other three terms.
x is the independent variable since it is an input to the equation, not based on the other terms.

Question 24

Q

Linear regression with two variables takes the form

y = Bx + A.

A is the y intercept.
B is the ___of the line. (Linear means a straight line, so the slope of the line is the same at any point on the line.)
y is the ____variable since it is determined based on the other three terms.
x is the ____variable since it is an input to the equation, not based on the other terms.

Answer

A

True
Slope
DEPENDENT
INDEPENDENT

Question 25

Q

The cash budget is divided into four main sections:

cash receipts,
cash disbursements
, cash surplus or deficit,
cash financing.

Question 26

Q

The cash budget is divided into four main sections:

cash ___,
cash ___
, cash __ or __,
cash ___.

Answer

A

Receipt
Disbursement
Surplus/deficit
Financing

Question 27

Q

___is the range of production over which cost relationships are valid, i.e., fixed costs remain constant in total and variable costs are constant per unit.

Answer

A

Relevant range

Question 28

Q

Which of the following costs would decrease if production levels were increased within the relevant range?

Total fixed costs
Variable costs per unit
Total variable costs
Fixed costs per unit

Answer

A

Fixed cost per runit

Relevant Range is the range of production over which cost relationships are valid, i.e., fixed costs remain constant in total and variable costs are constant per unit.

Question 29

Q

____: A method that iteratively calculates a weighted average by applying weights to the most recent data observation and to prior-period smoothed weighted averages.

It weights older data heavier than current data. It is used to smooth forecast variation. T/f

Answer

A

Exponential smoothing

False -it weighs current data heavier than old data

Question 30

Q

There are four components that contribute to patterns over time. Each time series of data may be influenced by any or all of the components.

___: This is the long-term movement of the dependent variable over years or decades
___variation: This is movement within the year, such as peak sales periods from selling ski equipment during the winter and Christmas or back-to-school sales.
___variation: This is movement upward and downward over periods longer than a year, such as the business cycle of prosperity, recession, and recovery.
___: This is unpredictable or random movement of the dependent variable.

Answer

A

Trend

Seasonal Variation

Cyclical Variation

Irregular

Question 31

Q

Asta, Inc., is a medical laboratory that performs tests for physicians. Asta anticipates performing between 5,000 and 12,000 tests during the month of April. Compared to industry averages, at the low range of activity Asta has a lower sales price per test, higher fixed costs, and the same breakeven point in number of tests performed. At the high range of activity, Asta’s sales price per test and fixed costs are the same as industry averages, and Asta’s variable costs are lower. At the low range of activity (0 to 4,999 tests performed) fixed costs are $160,000. At the high range of activity (5,000 to 14,999 tests performed) fixed costs are $200,000.

Sales price per test $60
Variable costs per test 20
How is the office manager’s salary categorized?

Variable cost
Direct labor cost
Overhead cost for testing
General and administrative cost

Question 32

Q

Sensitivity analysis in an investment project proposal:

calculates the change in the result due to a potential change in the project’s cash flows.

provides management with a linear equation of trend information from the projected cash flows.

develops probabilities for a variety of results.

develops the discount rate to be used in project evaluation.

Answer

A

calculates the change in the result due to a potential change in the project’s cash flows

Sensitivity analysis is a “what if?” technique that asks how a result will change if the original predicted data changes or if an underlying assumption changes. Estimates and predictions are subject to varying degrees of uncertainty (defined here as the possibility that an actual amount will deviate from an expected amount).

Question 33

Q

Various methods are available to adjust for the levels of risk in different types of projects. The procedures include the following:

Different discount rates
Shorten Payback period
Reduce cash flow estimate
___: which evaluates how outcomes are expected to vary with changes in assumptions. Should focus on areas having the greatest uncertainty and/or largest expected impact.
5/ Probability Distributions
Certainty equivalent: The certain amount that would be acceptable in lieu of the uncertain payoffs from the capital project. To compensate for risk, the certainty equivalent should be ___than the expected value of the capital budget payoffs.

Answer

A

T
T
T
Sensitivity analysis
greater

Question 34

Q

WHEN LEARNING CURVE ANLYSIS APPLIES

Bid Preparation
Financial Planning
PRojection of Labor Requirements
Managerial Considerations.

Answer

A

yeah buddy

Question 35

Q

Asta, Inc., is a medical laboratory that performs tests for physicians. Asta anticipates performing between 5,000 and 12,000 tests during the month of April. Compared to industry averages, at the low range of activity Asta has a lower sales price per test, higher fixed costs, and the same breakeven point in number of tests performed. At the high range of activity, Asta’s sales price per test and fixed costs are the same as industry averages, and Asta’s variable costs are lower. At the low range of activity (0 to 4,999 tests performed) fixed costs are $160,000. At the high range of activity (5,000 to 14,999 tests performed) fixed costs are $200,000.

Sales price per test $60
Variable costs per test 20
Are Asta’s contribution margin and variable costs greater or lower than the industry average at the low activity range?

Answer

A

Compared to industry averages, at the low range of activity Asta has a lower sales price per test, higher fixed costs, and the same breakeven point in number of tests performed.

If Asta has the same breakeven point as the averages but with higher fixed costs, it must have a greater contribution margin per unit to cover those higher fixed costs.

If Asta has the same breakeven point as the averages but with a lower sales price per test, it must have lower variable costs to generate that higher contribution margin to cover the higher fixed costs.

Question 36

Q

401322 Graph question

Question 37

Q

Johnson Co. is preparing its master budget for the first quarter of next year. Budgeted sales and production for one of the company’s products are as follows:

   Month           Sales         Production
  --------        -------        ----------
  January         10,000           12,000
  February        12,000           11,000
  March           15,000           16,000

Each unit of this product requires 4 pounds of raw materials. Johnson’s policy is to have sufficient raw materials on hand at the end of each month for 40% of the following month’s production requirements. The January 1 raw materials inventory is expected to conform with this policy.

How many pounds of raw materials should Johnson budget to purchase for January?

Answer

A

Johnson must budget for purchases to cover (1) 60% of the units produced in January (since 40% was left from December) and (2) 40% of units produced in February.

Raw materials needed for January’s production = 12,000 × 4 lbs. of materials per unit × 60% = 28,800 pounds

Raw materials to cover 40% of February’s needs = 11,000 × 4 lbs. of materials per unit × 40% = 17,600 pounds

Total materials to be purchased in January = 28,800 + 17,600 = 46,400 pounds

Question 38

Q

The master budget is a budget that consolidates all the entity’s budgets into an overall planning and control document, typically for one year T/F

Question 39

Q

State College is using cost-volume-profit analysis to determine tuition rates for the upcoming school year. Projected costs for the year are as follows:

Contribution margin per student $ 1,800
Variable expenses per student 1,000
Total fixed expenses 360,000
Based on these estimates, what is the approximate breakeven point in number of students?

Answer

A

200

Breakeven in units is fixed costs ($360,000) divided by contribution margin per unit ($1,800) for a breakeven point of 200 students. The amount of variable cost is irrelevant for this solution because it has already been taken into account in calculating contribution margin per student.

Question 40

Q

Integrating mechanisms connect the information, tasks, and resources with the work groups in the organization. The major integrating mechanisms include:

general ___systems,
increasing ___potential, and
reducing the need for ___.

Answer

A

management
coordination
coordination

Question 41

Q

Which of the following is not an integrating mechanism?

General personnel systems
General management systems
Increasing coordination potential
Reducing the need for coordination

Answer

A

General Personnel Systems

Integrating mechanisms connect the information, tasks, and resources with the work groups in the organization. The major integrating mechanisms include:

general management systems,
increasing coordination potential, and
reducing the need for coordination.

Question 42

Q

Through the use of decision models, managers thoroughly analyze many alternatives and decide on the “best” alternative for the company. Often the actual results achieved from a particular decision are not what were expected when the decision was made. In addition, an alternative that was not selected may have actually been the best decision for the company. The appropriate technique to analyze the alternatives by using expected inputs and then altering them before a decision is made is:

expected value analysis.
Program Evaluation Review Technique (PERT).
sensitivity analysis.
regression analysis.

Answer

A

sensitivity analysis.

Sensitivity analysis is any process that measures the impact of a change in a single variable or a combination of variables on profits or on some other decision variable.

That is, it is a technique to analyze the alternatives before the decision is made by measuring how changes in the critical assumptions will influence the results.

Question 43

Q

Augusta, Inc., expects manufacturing and sales of 70,000 units of product Maggie, its only product, to occur evenly over a 10-week period. Augusta pays for materials in the week following use. The balance of accounts payable for materials at the beginning of the 10-week period is $40,000. There are no beginning inventories. The following information pertains to product Maggie for the 10-week period:

Sales price $11 per unit
Materials $3 per unit
Manufacturing conversion costs—Fixed $210,000
Variable $2 per unit
Selling and administrative costs—Fixed $45,000
Variable $1 per unit

A special order for 4,000 units would cause a loss of 1,000 regular sales. All cost relationships are unchanged

. If the special order is accepted, what minimum amount of revenue must be generated from the special order so that net income is not reduced?

Answer

A

Variable cost per unit is $3 for materials, $2 for other manufacturing costs, and $1 for selling and administrative, for a total of $6. Since the sales price is $11, the unit contribution margin ($11 − $6) is $5 per unit.

The loss of 1,000 units of regular sales would decrease total contribution margin by 1,000 × $5, or $5,000. The special order would need to generate $5,000 of contribution margin to replace the contribution of the regular units. If we let P equal the price per new unit, this equation is true, where P − 6 is the contribution margin per new unit:

4,000(P − 6) = 5,000
4,000P − 24,000 = 5,000
4,000P = 29,000
P = 29 ÷ 4 = $7.25

If the new units are sold for $7.25 each, and there are 4,000 units, the revenue from the new order will be 4,000 × $7.25, or $29,000.

Question 44

Q

To determine the best cost driver of warranty costs relating to glass breakage during shipments, Wymer Co. used simple linear regression analysis to study the relationship between warranty costs and each of the following variables: type of packaging, quantity shipped, type of carrier, and distance shipped. The analysis yielded the following statistics:

_______________________________ Standard
____________________Coefficient of Error of
Independent Variable Determination Estimate
——————– ————– ——–
Type of packaging 0.60 1.524
Quantity shipped 0.48 1.875
Type of carrier 0.45 2.149
Distance shipped 0.20 4.867

Based on these analyses, the best driver of warranty costs for glass breakage is:

Answer

A

type of packaging.

The independent variable, type of packaging, has the highest coefficient of determination (0.60) and the lowest standard error of estimate (1.524), thus it is the best driver for the dependent variable, warranty costs for glass breaka

Question 45

Q

Which of the following is a technique for assessing the potential effect of risk in a capital budgeting project?

Sensitivity analysis
Adjusting required rate of return
Adjusting estimated future cash inflows
All of the answer choices are correct.

Answer

A

All

Sensitivity analysis involves testing the effects of various assumptions

. Adjusting the required rate of return involves increasing the rate for more risky projects

Similarly, adjusting estimated future cash flows is to make them more conservative for more risky projects.

Thus, all of these are techniques for dealing with risk in capital budgeting projects.

Question 46

Q

____budgeting is where Each year you must start at zero and justify the appropriateness of the item and its cost.

Answer

A

Zero base

Question 47

Q

Budgets may be classified in length as follows:

Long-term budget: approximately____ years
Intermediate budget: approximately __ years
Short-term budget: __years (annual budget)

Answer

A

5-6
2-4
1 year

Question 48

Q

___budgeting is a bottom-up budgeting process where budgets are developed after lower-level managers have provided input in the development of the numbers.

Some of the disadvantages are the fact that the numbers provided by the lower-level managers often contain budgetary slack, leading to negative motivation and the fact that it is more time consuming

Answer

A

Participative

Question 49

Q

Sales price per test $60
Variable costs per test 20
What is Asta’s contribution margin per test?

Question 50

Q

A company forecast first-quarter sales of 10,000 units, second-quarter sales of 15,000 units, third-quarter sales of 12,000 units, and fourth-quarter sales of 9,000 units at $2 per unit. Past experience has shown that 60% of the sales will be in cash and 40% will be on credit. All credit sales are collected in the following quarter, and none are uncollectible. What amount of cash is forecasted to be collected in the second quarter?

Answer

A

26000

econd-quarter cash sales are projected at 15,000 units × 0.60 × $2 per unit, for total collections from cash sales of $18,000.

First-quarter credit sales of 10,000 units × 0.40 at $2 per unit, a total of $8,000, will also be collected in the second quarter. Combining $8,000 collections of receivables with cash sales of $18,000 gives $26,000 total cash receipts in the second quarter.

Question 51

Q

A delivery company is implementing a system to compare the costs of purchasing and operating different vehicles in its fleet. Truck 415 is driven 125,000 miles per year at a variable cost of $0.13 per mile. Truck 415 has a capacity of 28,000 pounds and delivers 250 full loads per year. What amount is the truck’s delivery cost per pound?

Answer

A

The truck has a variable cost of $0.13 per mile × 125,000 miles, or $16,250 per year. It delivers 28,000 pounds × 250 loads, or 7,000,000 pounds a year.

Dividing the annual cost of $16,250 by 7,000,000 pounds delivered each year gives a cost of $0.00232 per pound delivered.

Question 52

Q

A ceramics manufacturer sold cups last year for $7.50 each. Variable costs of manufacturing were $2.25 per unit. The company needed to sell 20,000 cups to break even. Net income was $5,040. This year, the company expects the following changes: sales price per cup to be $9.00; variable manufacturing costs to increase 33.3%; fixed costs to increase 10%; and the income tax rate to remain at 40%. Sales in the coming year are expected to exceed last year’s sales by 1,000 units. How many units does the company expect to sell this year?

Answer

A

22,600

Last year the company had a contribution margin of $5.25 (price of $7.50 less variable costs of $2.25). Breakeven in units (20,000) equals fixed costs divided by the unit contribution margin ($5.25), so fixed costs must have been 20,000 × $5.25, or $105,000.

Net income last year was $5,040. Before-tax income must have been $8,400 ($5,040 ÷ 0.60, the part of income that is not tax). If pre-tax income was $8,400 and fixed costs were $105,000, then the sum, $113,400, was the contribution margin last year.

If the contribution margin per unit was $5.25, then 21,600 units were sold last year. Sales this year are expected to increase by 1,000 units to 22,600 units. The information given about changes to the sales and cost structure for this year is not relevant since the problem states that sales exceed last year’s sales by 1,000 units.

Question 53

Q

Correlation is a term frequently used in conjunction with regression analysis, and is measured by the value of the coefficient of correlation, r. The best explanation of the value r is that it:

interprets variances in terms of the independent variable.

ranges in size from negative infinity to positive infinity.

is a measure of the relative relationship between two variables.

is positive only for downward sloping regression lines.

Answer

A

is a measure of the relative relationship between two variables

Question 54

Q

Correlation refers to the existence of a reliable relationship between two variables:

The dependent variable, the values that we would like to predict

The independent variable, the values that we would like to use in the prediction process

___correlation must exist for regression analysis to be valid.

Answer

A

True

Reliable

Question 55

Q

Which of the following may be used to estimate how inventory warehouse costs are affected by both the number of shipments and the weight of materials handled?

Economic order quantity analysis
Probability analysis
Correlation analysis
Multiple regression analysis

Answer

A

Multiple Regression Analysis

The purpose of regression analysis is to use an independent variable to predict the value of another variable.

Multiple regression involves the analysis of more than two variables. In this situation, we can use multiple regression analysis with the number of shipments and the weight of materials as the independent variables to predict inventory warehouse costs.

Question 56

Q

The purpose of regression analysis is to use an independent variable to predict the value of another variable.

____involves the analysis of more than two variables. In this situation, we can use multiple regression analysis with the number of shipments and the weight of materials as the independent variables to predict inventory warehouse costs.

Answer

A

Multiple regression

Question 57

Q

In business information systems, the term “stakeholder” refers to which of the following parties?

The management team responsible for the security of the documents and data stored on the computers or networks

Information technology personnel responsible for creating the documents and data stored on the computers or networks

Authorized users who are granted access rights to the documents and data stored on the computers or networks

Anyone in the organization who has a role in creating or using the documents and data stored on the computers or networks

Answer

A

Anyone in the organization who has a role in creating or using the documents and data stored on the computers or networks

A “stakeholder” is a broad term, encompassing all those with an interest in preparing or using the information.

The other answer choices describe specific stakeholders, but there are other stakeholders as well.

Question 58

Q

The following information for a company is given:

Fixed cost per month $2,500
Unit selling price 100
Variable cost as a percentage of sales 60%

What amount of annual sales must the company achieve to break even?

Answer

A

75k
The contribution margin is sales price minus variable cost, or $100 less $60. So the unit contribution margin is $40.

Breakeven units equal annual fixed costs divided by the contribution margin or ($2,500 × 12) ÷ 40, which equals $30,000 ÷ 40, or 750 units.

At a selling price of $100 per unit the annual sales revenue must be $75,000.

Question 59

Q

The relevance of a particular cost to a decision is determined by the:

riskiness of the decision.
number of decision variables.
amount of the cost.
potential effect on the decision.

Answer

A

potential effect on the decision.

Relevant costs are the only costs considered in decision making.

Relevant costs are those costs that are affected by the decision being made.

All other costs are considered constant and consequently have no effect on the decision.

Therefore, the relevance of a particular cost to a decision is determined by the potential effect on the decision.

Question 60

Q

___costs are the only costs considered in decision making.

Relevant costs are those costs that are affected by the decision being made.

All other costs are considered constant and consequently have no effect on the decision.

Answer

A

Relevant

T

Question 61

Q

A company has had the following production experience over the last 10 quarters for product P1:

    Quarterly Production        Frequency
    --------------------        ---------
        1,000 units                 2
        1,500 units                 3
        2,000 units                 4
        2,500 units                 1
                                   --
                                   10
Additional information for P1:

Unit variable costs $ 7
Quarterly unavoidable allocated fixed costs 40,000

A unit of P1 can be purchased from an outside supplier for $8.75. If P1 is purchased the plant facilities now used for its manufacture can be used to produce another product that will generate a quarterly contribution margin of $5,500.

Assuming that P1 is to be produced internally, what is the expected quarterly production?

Answer

A

The correct expected sales is 1,700 units, computed as follows:

   Sales  Probability  Expected Value (Units)
   -----  -----------  ----------------------
   1,000      .2                 200
   1,500      .3                 450
   2,000      .4                 800
   2,500      .1                 250
                               -----
                               1,700

Question 62

Q

Midwest Fabricators is building a corporate planning model to predict cash flows. The company maintains end-of-month inventories that cover 20% of the following month’s sales. Merchandise costs average 55% of selling prices, and payment is made at the time of purchase. If S(n) = Sales in month(n), an appropriate notation for total monthly cash payments for merchandise purchases in month(n) would be:

11S(n+1).
11S(n-1).
44S(n) + 0.11S(n+1).
44S(n) + 0.11S(n-1).

Answer

A

0.44S(n) + 0.11S(n+1).

(COG% x Required Purchases) + (COG% x EOM Inventory)
=

(0.55 x 0.80S(n)) + (0.55 x 0.20S(n+1)) = 0.44S(n) + 0.11S(n+1)

Question 63

Q

The following information pertains to Clove Co. for the year ending December 31:

  Budgeted sales                      $1,000,000
  Breakeven sales                        700,000
  Budgeted contribution margin           600,000
  Cashflow breakeven                     200,000 Clove's margin of safety is:

Answer

A

300k

Margin of safety = Budgeted sales - Breakeven sales
= $1,000,000 - $700,000
= $300,000

Question 64

Q

Margin of safety = ?? - ???

Answer

A

Margin of safety = Budgeted sales - Breakeven sale

Answer 59

A

Overhead cost for testing

Lubricant used to maintain production equipment is not material used directly in production, and it is not a labor cost. Since it is a production cost and it is not direct material or direct labor, it must be a manufacturing overhead cost.

Answer 60

A

Since the fixed plant charge will not change due to this decision, it is irrelevant and should not be considered. The direct materials and direct labor costs ($40,000 + $30,000 = $70,000) are relevant costs.

These incremental costs total $70,000 per month to make the product, while they can buy the part for $80,000 per month, an increase in monthly costs of $10,000.

However, the rental income from renting the idle capacity of $5,000 reduces the monthly cost of purchasing the parts, for a net increase in monthly costs of $5,000.

Answer 61

A

95 days

The cash flow cycle is the full cycle of cash inflows adjusted for outflows, calculated as 90 + 65 - 60 = 95 days

Answer 62

A

graph problem

Answer 63

A

80k

Sales - VC - FC = NI

Sales - .6S - 20k = .15S

sales - .6S - .15S = 20k

.25S=20k

S=80k

Answer 64

A

Project A produces taxable income of $450 ($1,000 less $400 less $150). Multiplying taxable income of $450 by a 30% tax rate gives income tax of $135. After-tax cash inflow for Project A is $1,000 sales less cash expenses of $400 and income tax of $135, or $465.

Project B produces taxable income of $550 ($1,500 less $700 less $250). Multiplying taxable income of $550 by a 30% tax rate gives income tax of $165. After-tax cash inflow for Project B is $1,500 sales less cash expenses of $700 and income tax of $165, or $635.

Answer 65

A

Goodness of fit

The coefficient of determination (called R-squared or R2) is a statistical measure of how close the data are to the fitted regression line (i.e., how “good” or well the line fits between the data points).

Answer 66

A

Cost of equipment to be replaced

When preparing an analysis to assist in the decision making, the cost of the equipment to be replaced is not a consideration since it is a past cost and is considered in both the “keep” and “replace” scenarios (making the cost irrelevant).

Answer 67

A

Production of Product Y would be eliminated.

“Production of Product Y would be eliminated” is correct because strategy C allows for the production of 200 units of Product X. Doubling the 200 units to 400 units would result in the use of strategy E, with production of zero units of Product Y.

Answer 68

A

Contribution margin per unit was $10 ($25 sales price less variable costs of $9 and $6).

The contribution margin ratio was 40% ($10 contribution per unit divided by $25 sales revenue per unit).

Additional sales of $30,000 would have increased the contribution margin by $12,000 ($30,000 × 0.40).

The increased contribution margin of $12,000 fails to cover the advertising costs of $15,000, leaving a decrease of $3,000 in pretax profit.

Answer 69

A

A rate for time is developed by estimating all of the costs associated with the time component of the service.

There are two rates utilized for service pricing: time and materials loading charge.

Time is calculated by estimating all the costs associated with time component of the business, adding a desired amount for profit, and dividing the estimated number of hours expected to be worked during the time period.

Answer 70

A

Time:

Material loading charge:

Answer 71

A

$77,500

The company would produce 16,000 finished units, 14,500 to sell and 1,500 more to increase the finished goods inventory from 1,500 to 3,000 units.

They would have to purchase 16,000 units of material, except that the raw material inventory declines by 500 units, from 2,000 units to 1,500 units; therefore, they will only purchase 15,500 units

. At a cost of $5 per unit, the 15,500 units will cost $77,500.

Answer 72

A

Certainty equivalent adjustments

Certainty equivalent adjustments is a risk analysis technique that is based upon utility theory.

A certainty equivalent represents the maximum amount one is willing to pay for some gamble. It is also the minimum premium one is willing to pay to insure against some risk.

Answer 73

A

24k

At sales of $200,000, Cott has a margin of safety of $80,000. Sales would be $120,000 at breakeven.

With sales of $120,000, the contribution margin toward fixed costs and profit is 20% of $120,000, or $24,000.

However, there is zero profit at breakeven, so the contribution margin exactly equals fixed costs, which must be $24,000.

Answer 74

A

Provides budgeted numbers for various activity levels

A flexible budget is developed using the static budget standards for any activity level within the relevant range. Amounts are calculated using the actual output level based on the standard cost and usage per unit for variable items, and the identical dollar amounts for the fixed costs in the static budget are used in the flexible budget

Answer 75

A

8300 unfavorable

Selling price variance for each product = Quantity sold × (Selling price - Estimated price)

Selling price variance for Product A = 8,000 × ($6.20 - $6.00) = $1,600

Selling price variance for Product B = 33,000 × ($7.70 - $8.00) = ($9,900)

Total selling price variance = Selling price variance for Product A + Selling price variance for Product B

Total selling price variance = $1,600 + ($9,900) = ($8,300)

Answer 76

A

750k

The opportunity cost is $750,000, the net present value of project Y that will be lost due to choosing project X.

An opportunity cost is the amount that will be lost (project Y) if the course of action under consideration (project X) is pursued.

Answer 77

A

Exponetial Smoothing
Exponential smoothing is a statistical method that is useful as a sales forecasting technique.

Linear programming is a model for the allocation of scarce resources.

Queuing theory relates to the balancing of the cost of waiting with the cost of service; for example, the cost of lost sales resulting from long lines at the cash register versus the cost of opening another cash register.

Cost-volume-profit analysis is a model used to aid decision making relating to product lines, pricing of products, marketing strategy, and utilization of production facilities.

Answer 78

A

I only

Since demand exceeds supply, the company will keep increasing production with a constant number of assembly hours. Increased production requires more units of raw material (components).

Answer 79

A

$300

The relevant costs associated with the special order are the prime costs of $150 (direct material and direct labor), variable overhead of $60 ($300 − $150 − $90 fixed overhead), and the additional variable manufacturing cost of $40, for a total cost of $250.

Including a 20% markup would set the sales price of $300 ($250 × 1.20).

Answer 80

A

(Current balance - Prior balance) / Prior balance

Answer 81

A

percentage of variation in the dependent variable explained by the variation in the independent variables.

Answer 82

A

Expected Value

Expected value is the mean or average value of a random variable over the possible outcomes. It is calculated by weighting the value of each possible outcome by its probability and summing over all values.

An objective function is an equation to be minimized or maximized subject to certain constraints. It is not an average.

The coefficient of variation and standard deviation are measures of dispersion, not a weighted average of several amounts.

Answer 83

A

The special-order price per unit exceeds the variable costs.

Assuming that the special order does not encroach on existing sales, the order will be accepted as long as the special-order pricing exceeds the variable costs. It is assumed that fixed costs have already been allocated to the existing production quantities.

Answer 84

A

AP

Other financial statement accounts would then be forecasted as a percentage of sales.

Of the answers given, only accounts payable would fluctuate in proportion to sales (as sales increase, the trade accounts payable necessary to support inventory and overhead costs would increase also).

Answer 85

A

10,500
Product A Product B Total
——— ——— —–
Selling price $18 $22
Variable costs 12 14
— —
Contribution Marg $ 6 $ 8
Mix in units 4 1
— —
Total CM of mix $24 $ 8 $32

Therefore, the contribution margin of a “bundle” (4 units of Product A and 1 unit of Product B) is $32.

Number of bundles to
produce a particular profit = (FC + NI) / Contribution margin
= ($38,400 + $28,800) / $32
= 2,100 bundles

Every bundle = 4 units of A sold. 2100 x 4 = 8400.

8400 + 2100 = 10,500

Answer 86

A

Units produced = Unit sales + Increase in inventory
= 53,000 + 6,000
= 59,000 units of Nous

Purchases of Loire = Production requirement - Decrease in inventory
= (59,000 x 4) - 50,000
= 236,000 - 50,000
= 186,000 kilos of Loire

Answer 87

A

Prime cost consists of direct material and direct labor. Both of these are variable costs, so total variable cost is $8 per unit ($6 + $1 + $1).

Current unit sales = $900,000 / $20 per unit = 45,000

Total fixed costs = (45,000 x $7) + (45,000 x $3)
= $315,000 + $135,000
= $450,000
Breakeven units = Total fixed costs / (Selling price - Variable cost)

               = $450,000 / ($20 - $8)
               = $450,000 / $12
               = 37,500 units

Answer 88

A

The general inventory reconciliation formula is useful here:

Beginning inventory + Purchases - Uses = Ending inventory

Beginning inventory = 10% of January’s planned production
= 0.10 x (200,000 pairs of skates x 8 wheels per pair)
= 160,000 wheels

Ending inventory = 10% of February’s planned production
= 0.10 x (250,000 pairs of skates x 8 wheels per pair)
= 200,000 wheels

Production uses
for January = 200,000 pairs of skates x 8 wheels per pair
= 1,600,000 wheels
The necessary January purchases can then be calculated:

Purchases = Ending inventory - Beginning inventory + Uses
= 200,000 wheels - 160,000 wheels + 1,600,000 wheels
= 1,640,000 wheels

Answer 89

A

30,125

Credit Sales:

July: $30,000 x 0.75 = $22,500
Aug.: $15,000 x 0.75 = 11,250
Sept.: $35,000 x 0.75 = 26,250

September Cash Collection:

Sept. Cash Sales $35,000 x 0.25 = $ 8,750
Sept. Credit Sales $26,250 x 0.60 = 15,750
Aug. Credit Sales $11,250 x 0.30 = 3,375
July Credit Sales $22,500 x 0.10 = 2,250
Total Collection $30,125

Answer 90

A

Since the coefficient of determination (R2) is greater for machine hours than for direct materials weight (0.7 instead of 0.5), there is a stronger relationship between machine hours (the independent variable) and the resulting cost than there is between the resulting cost and direct materials weight. Thus, the resulting cost can be best estimated by substituting machine hours for X in the equation Y = 2,500 + 5.0X.

Answer 91

A

Forecast Fargo’s sales volume

The development of the budget begins with the forecasting of sales, since for most companies sales is a limiting factor—a combination of capacity and potential market share

Answer 92

A

budget

standard

Answer 93

A

traditional or incremental

Zero base

Answer 94

A

enterprise

master budget

Answer 95

A

5-6
2-4
1

Answer 96

A

The needs of the organization’s internal parties

Financial accounting is primarily focused upon providing information to external users of financial information such as stockholders, creditors, and government agencie

Answer 97

A

integrated planning

Integrated planning

Answer 98

A

costs and benefits

true

Answer 99

A

Pooled

Sequential

Reciprocal

Answer 100

A

General Management System

Increase Coordination Potential

Reduce need for coordination

Answer 101

A

Sept cash sales = 825k x .2 = 165k
Sept Credit Sales = 825k x .8 x .4 = 264k
Aug Cred Sales = 750k x .8 x .57 = 342k

Budget Cash Receipt: 771k

The company’s total cash receipts from sales and collections on account that would be budgeted for the month of September would be $771,000.

This response recognizes that 20% of the September sales are cash sales that would be collected in the month and 40% of the September credit sales (80% of the total sales) would be collected in the month, and 57% of the August credit sales (80% of the total sales) would be collected in September

Answer 102

A

Salary exp - 250k x 1.05=262,500
Health Cost: 100k x 1.05 = 105k
Dep Exp: 65k
Interest exp: 37,750

BudgetT: 470,250

The expected inflation rate of 5% will affect items where the costs are being incurred due to activities taking place during the year, as opposed to being related to past actions or decisions.

Answer 103

A

sales forecast

False -more realistic

True

False - yes they do

Answer 104

A

A flexible budget would include $112,000

DM 80k____8_____48k
DL: 60k____6_____36k
VOH:22.2k__2.22__13,320
FOH: 14.8k__NA___14.8k

Overhead costs are 40% fixed ($37,000 × 40% = $14,800).

Flex Budget: 112,120

Answer 105

A

Standard costing system,

True

Answer 106

A

Ideal

Attainable

Answer 107

A

Purchases = Cost of goods sold + Ending inventory – Beginning inventory. Since ending inventory is 10% of next month’s sales, the unit purchases for January are:

20k units + (.1 x 25k units) - (.1 x 20k units) = 20,500 units

20,500 units x 3/unit = 61,500

Answer 108

A

Cash

A cash budget is the last budget to be prepared in the budgeting process because the other steps must be completed before the effects of each part on cash can be estimated.

Answer 109

A

sales forecast
finished goods 
budget
true
true
Cash

Answer 110

A

Components for July sales ($8,000) would have been purchased in May and assembled in June; 75% of that $8,000 would have been paid in May, the month of purchase. This is a May payment of $6,000.

Components for June sales ($7,000) would have been purchased in April and assembled in May; 25% of that $7,000 would have been paid in May, the month following the month of purchase. This is a May payment of $1,750.

Combining the $6,000 paid in May for July sales and the $1,750 paid in May for June sales gives total May cash payments of $7,750.

Answer 111

A

a formal quantitative expression of an enterprise’s plans.

Answer 112

A

Sales, production, direct materials purchases, cash disbursements

The order of the master budget would be as follows:

Sales budget
Production budget
Direct materials, direct labor, and manufacturing overhead budgets
Selling and administrative budgets
Budgeted income statement
Cash budget
Budgeted balance sheet

Answer 113

A

Ending inventory = Production costs + Beginning inventory
COGS (Cost of goods sold)

= $60,000 + $5,000 - $55,000
= $10,000

Note: Direct labor would have already been included in the total production costs.

Answer 114

A

move cash from countries that lack exchange controls that restrict the repatriation of dividends and capital.

All of the answer choices are objectives of transfer pricing except that cash is moved from countries with (not without) exchange controls to countries without exchange controls.

Answer 115

A

Performance
taxation &amp; tariffs
Exchange rates
cash
competitive

Answer 116

A

Production budget, material purchases budget, budgeted income statement, budgeted balance sheet

The sequence “production budget, material purchases budget, budgeted income statement, budgeted balance sheet” is correct because you cannot budget material purchases until you know the expected production.

Answer 117

A

Units needed for sales: 1000
Plus: Units needed for end inv: 100
Less: units already in inventory at Beg of yr: (85)

1,015

Answer 118

A

profit-based price

A transfer price is the internal price charged by a selling department, division, or subsidiary of a company for a raw material, component, finished good, or service to a buying department, division, or subsidiary of the same company.

Answer 119

A

Chips: Sales + desired end inv - beg inv
=80k+18k-15k
=83k

Potato: production need + desired end inv - beg inv
=(83k x 5) + 23k - 27k
=411k potatoes

Answer 120

A

Performance & capital

Answer 121

A

The contribution margin per test is sales price less variable cost, or $40 ($60 - $20).

The breakeven point is fixed costs divided by unit contribution margin. At the high activity range, breakeven is $200,000 ÷ $40 = 5,000 tests.

5k is the answer

Answer 122

A

costs, volume of activity, and profit.

Answer 123

A

Opportunity cost is the cost of a foregone alternative, the result of scarcity and choice.

Whenever a choice is made to use scarce resources in one way, other uses are “foregone”; opportunity cost is the benefit given up by not using resources in the alternative way.

Answer 124

A

increasing the total cost.

The relevant range is the production range within which fixed costs are unchanged and variable costs are constant on a per-unit basis.

Since additional variable costs will be incurred for each additional unit, with no change in total fixed costs, the total costs will increase.

Answer 125

A

Revenue per unit is given in the problem as $100 per unit.

Direct material costs per unit       $10
Direct labor costs per unit            7
Delivery costs per unit                5
Sales commissions at 10% of sales     10
Total variable costs per unit        $32

Indirect factory costs $ 6,800
Administrative costs 37,200
——-
Total fixed costs $44,000

Breakeven in units = FC ÷ (P - V) = $44,000 ÷ ($100 - $32) = 647 units

Answer 126

A

decreases total costs.

In a normal flexible budget situation (where both variable and fixed costs are present), a decrease in the level of production would be accompanied by a decrease in total costs.

Answer 127

A

controllable or budget variance.

volume variance.

Answer 128

A

The company’s operating income will decrease by $6,000 if they discontinue the tables line and do not replace it.

Op income from chairs: 30k
FC: Unavoidable: (10.8k)
Op Income: Chairs: 19.2k

Op Loss: T&C: (30k-4800) = 25.2k

Decrease by 6k (19.2k - 25.2k)

Answer 129

A

future time to produce units.

Learning curve analysis applies a mathematical formula to estimate future time to produce units.

Answer 130

A

Learning curves

Answer 131

A

In this question, the fixed costs are a sunk cost that cannot be changed whether this special order is accepted or not. The relevant costs for this job include the variable costs of $33,000 plus the external design cost of $7,750 for a total of $40,750.

Historical or past (sunk) costs are irrelevant to the actual decision because the past costs will not be changed (recovered) by future action.

Relevant costs are expected future costs that are important or pertinent to the decision under consideration and will be affected by the decision.

Answer 132

A

At full operating capacity, Division A would be losing sales to the outside market if it chose to sell Product X to Division B. Therefore, the transfer pricing should be equal to Product X’s market price of $25.

Answer 133

A

time series analysis.

Time series analysis focuses on evaluation of trends over time. It may entail several components including seasonal variation and secular trends.

Answer 134

A

Relevant cost

Relevant cost is best for decision making because relevant cost includes only future costs that differ between alternatives being considered.

Answer 135

A

Contribution margin (price minus variable cost) indicates profitability potential per unit of product. When this value is multiplied times the number of units that can be produced per hour, we can determine profit potential per hour for various products that might be produced.

Thus, contribution margin per hour of manufacturing capacity is very relevant in a short-run situation in which the entire manufacturing capacity is expected to be utilized.

Answer 136

A

Only incremental costs, whether fixed or variable, are relevant in decision making.

Incremental costs represent the difference in the total cost between two alternatives.

It is these future incremental costs that are important (“relevant”) to the decision-making process, the act of choosing between/among alternative courses of action

Answer 137

A

14
The contribution margin is the difference between the revenue for the components and the variable cost of the components.

The variable cost to produce these components is $9 per unit ($3 direct material + $3 direct labor + $3 variable overhead), or $9,000 total ($9 per unit × 1,000 units).

$5,000 (Contribution margin) = Revenue - $9,000

Revenue = $5,000 + $9,000 = $14,000

$14,000 revenue for $1,000 units = $14 per unit

Answer 138

A

They rely on the forecasting of future data.

Answer 139

A

The coefficient of determination (r2) is a ratio that indicates the proportion of variance in the dependent variable determined by the independent variable using the regression equation.

r-squared

Answer 140

A

Regression

True

Answer 141

A

Simple

Multiple

Answer 142

A

___Linearity
residuals, residuals
Independence
Normal Distribution

Answer 143

A

regression analysis.

Regression analysis can be used to develop simple regression equations of the type y = a + b(x), where a represents the constant (i.e., fixed) cost and b represents the variable rate.

This is what is needed for preparation of flexible budgets.

Answer 144

A

Total fixed costs do not change, and operating income increases.

In this question, the fixed costs are a sunk cost that cannot be changed whether this special order is accepted or not.

Since the special order will produce a gross profit of 10%, the price received for the order is more than the additional variable costs (the relevant costs) associated with the order.

The price received for the order less additional variable costs that would not otherwise be incurred will equal the increase in pretax operating income.

Answer 145

A

y=mx + b

If maintenance activity (x) in a month is 420 hours, then maintenance costs for the month would be:

y = 684.65 + 7.2884(420)
= 684.65 + 3061.13
= 3745.78

Answer 146

A

Operational planning results in budget data.

Operational planning results in budget data to be used in planning day-to-day operations

Operational planning is long-range in focus. is FALSE bc operational are only on an annual basis -not long range.

Answer 147

A

mission

False -strategic planning

Answer 148

A

39,000

Breakeven package units = Fixed costs ÷ Contribution margin per package = $312,000 ÷ $24 = 13,000 package units

Since there are 3 units of Product 1 in each package, sales of Product 1 will be 3 × 13,000 packages, or 39,000 units of Product 1.

Answer 149

A

It works equally well for services as well as goods.

Outsourcing is the purchasing of goods and services as opposed to producing them in-house.

Often it is a cost-saving decision, is easily done, can be either be domestic or international, and relates to services as well as component goods.

Answer 150

A

Regular intervals

Regular intervals are not a time series analysis. The trick to time series analysis is to determine how much of each component influences the series.

The four components are: trend, seasonal variation, cyclical variation, and irregular.

Answer 151

A

trend
Seasonal Variation
Cyclical Variation
Irregular

Answer 152

A

demand per year in units.

In the economic order quantity formula,
D signifies the demand per year in units;
S is the setup or ordering cost per order;
C is the cost per unit; and i is the carrying cost, expressed as a percentage of inventory cost (C times i is the carrying cost per unit).

Answer 153

A

Cash management objectives include the following:

Having enough cash on hand to meet the needs of the company
Investing idle cash to maximize the wealth of the stockholders

Answer 154

A

Cash management

Answer 155

A

If production remains at 10,000 units, profits will decrease by $100,000.

The new contribution margin will be sales price less variable cost, or $85 − (120% × $50) = $25 per unit.

If production remains at 10,000 units, the contribution margin will be 10,000 × $25, or $250,000.

Before the increase in variable costs, the contribution margin was 10,000 × $35 ($85 − $50), or $350,000.

With no change in fixed costs, a decrease in the contribution margin from $350,000 to $250,000 will reduce profits by $100,000.

Answer 156

A

First convert all information into cost per unit. Direct material is already given at $1 per unit.

Direct labor per unit would be $100 per hour divided by 500 units, or $0.20 per unit. No variable overhead is provided.

Fixed cost is generally not relevant and should be ignored in the breakeven calculation unless there is an incremental increase due to the new product. In this example, fixed costs increase by $10,000 ($2 per unit × 5,000).
Selling price per unit is $4 per unit ($4,000 ÷ 1,000).

The breakeven formula is Fixed cost ÷ (Price per unit – Variable cost per unit) = ($55,000 + $10,000) ÷ [$4 − ($1 + $0.20)] = 23,215 units (rounded).

Answer 157

A

Many managers overlook the fact that, while not profitable, a segment that is covering costs that will need to be reallocated to other product lines should be retained.

Segments should not be discontinued immediately as long as the segment’s margin over direct division costs is positive; however, a more productive use of this capacity could be found in the future.

Answer 158

A

Variable Rate per order = Change in cost / Change in orders

(4320 - 3120) / (1800 - 1200)

2 per order

Answer 159

A

II and III

Answer 160

A

Opportunity costs are the earnings that could have been received had the storage been used in their best alternative use, such as foregone rental income.

The company could have earned $10,000 renting out the space, and they have lost that opportunity by using the space for production.

It may have been the correct decision, however, because they could earn more by producing in the space than by renting the space.

Even if it is the correct decision, they have still lost the opportunity to earn the $10,000 from rental.

Answer 161

A

180k

Here there are two possible outcomes:

$250,000 profit with an 80% probability gives an expected value of 0.8 × $250,000, or $200,000.

Zero profit with a 20% probability gives an expected value of -$100,000 (the cost of preparing the bid) for an expected value of -$20,000.

Summing an expected value of $200,000 with an expected loss of $20,000 gives a net expected value of $180,000.

Answer 162

A

has more independent variables.

Regression analysis seeks to identify change in a dependent variable (such as cost) related to change in an independent variable (such as a cost driver).

Simple regression estimates a relationship between one dependent variable and one independent variable.

On the other hand, multiple regression estimates a relationship between one dependent variable and two or more independent variables.

Thus, multiple regression has more independent variables than does simple regression.

Answer 163

A

19,250

Prior variable cost per unit x (1 + 33.33)% = $2.25 per unit x 1.3333
= $3.00 per unit

Last year’s fixed costs = 20,000 units x ($7.50 - $2.25)
= $105,000

The projected fixed costs are 10% more than the prior year.
Projected fixed costs = $105,000 x 1.10
= $115,500

Breakeven in units = FC ÷ (P - V) = $115,500 ÷ ($9 - $3) = 19,250 units

Answer 164

A

The value of the next best use of the space

Opportunity costs are the earnings that could have been received had the storage been used in their best alternative use, such as rental income that is forgone.

Answer 165

A

Participation of stakeholders and affected departments

Integrated planning provides for the participation of stakeholders with affected departments within an organization. This participation helps the organization to examine costs and benefits of a plan of action.

Answer 166

A

Overhead cost for testing

Answer 167

A

$50,000

Variable costs = Breakeven sales - Fixed costs
= $800,000- $100,000
= $700,000

Variable cost rate = Variable Costs / Breakeven Sales
= $700,000 / $800,000
= .875

Projected profit = Sales - Variable costs - Fixed costs
= $1,200,000 - .875(1,200,000) - $100,000
= $1,200,000 - $1,050,000 - $100,000
= $50,000

Answer 168

A

zero.

Opportunity cost is the net benefit lost or given up when a resource is used for one purpose rather than an alternative.

However, if there is no alternative use, the opportunity cost is zero because there is no benefit to be lost if the factory is used in making a component part.

Answer 169

A

0.11.

The correlation coefficient is a measure of the closeness of data points to the regression line.

The closer to zero, the poorer the fit.

Hence, - 0.11 is the closest to zero and thus the weakest association to the regression line

Answer 170

A

$20,000

The special order would increase profit by $50 a unit ($130 − $80) times 200 units for two months, or $20,000.

Answer 171

A

net benefit given up from the best alternative use of the capacity.

Opportunity cost is the “lost opportunity” or benefit foregone by using a resource for one purpose rather than using it for alternative use.

Thus, the opportunity cost of making a component part in a factory with no excess capacity would be the net benefit given up by using the capacity to make the component part.

Answer 172

A

The margin of safety is the current sales ($200,000) less breakeven sales ($150,000), or $50,000.

Answer 173

A

Contribution margin ratio = Gross profit ÷ Sales = 75% (0.75)

Breakeven point in dollars = Fixed costs ÷ CM ratio = $30,000 ÷ 0.75 = $40,000

Answer 174

A

Capital asset ratio

All of the answer choices (free cash flow, additional funds needed formula, and capital intensity ratio) are ratios used in the planning process, except for the capital asset ratio, which does not exist.

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