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ACC 241 Exam 2 Review 40 Questions with Verified Answers
All else being equal, which of the following would not cause the contribution margin to decrease? - CORRECT ANSWER A decrease in variable costs per unit. Given breakeven sales in units of 28,000 and a unit contribution margin of $4, how many units must be sold to reach a target operating income of $4,000? - CORRECT ANSWER FC @ BE = CM @ BE FC = 28,000 x 4 = $112, FC + TP / CM = $112,000 + 4,000 / $4 = 29, Last month Kelly Company had a $30,000 loss on sales of $250,000. Fixed costs are $60,000 a month. What sales revenue is needed for Kelly to break even? - CORRECT ANSWER Contribution margin ratio is ($60,000 - $30,000)/$250,000 = 12% Break-even sales is $60,000/0.12 = $500,000. At a break-even point of 400 units sold, variable expenses were $4,000 and fixed expenses were $2,000. What will the 401st unit sold contribute to profit? - CORRECT ANSWER Break-even point (units) = Fixed expenses / Contribution margin per unit Substituting:400=$2,000 / Contribution margin per unit Contribution margin per unit = $ Last year, Danielle Company reported $750,000 in sales (25,000 units) and a net operating income of $25,000. At the break-even point, the company's total contribution margin equals $500,000. Based on this information, the company's: - CORRECT ANSWER **Paper
If the dollar contribution margin per unit is increased by 10%, total fixed cost is decreased by 20%, and all other factors remain the same, net operating income will: - CORRECT ANSWER **Paper Spencer Corporation has a single product whose selling price is $10. At an expected sales level of $1,000,000, the company's variable expenses are $600, and its fixed expenses are $300,000. The marketing manager has recommended that the selling price be increased by 20%, with an expected decrease of only 10% in unit sales. What would be the company's net operating income if the marketing manager's recommendation is adopted? - CORRECT ANSWER Present sale in Units = 100,000 ($1,000,000 / 10) Decrease in unit sale = 10% Expected unit sales = 90, Expected sales = 90,000 x 12 (10 + 20%)= $1,080, Variable cost = 540,000 (90,000 x 6) Expected Contribution = $540,000 (1,080,000 - 540,000) Less Fixed cost = 300, Net profit = $240, If the contribution margin ratio is 32%, target operating income is $60,000, and the sales revenue needed to achieve the target operating income is $400,000, what are total fixed expenses? - CORRECT ANSWER S- VC= CM - FC = P .32(400,000) - FC = $60, 128,000 - FC = $60, 128,000 - 60,000 = 68,000 FC
If a trucking company was operating at capacity of service, but had an opportunity to fill a one-time high volume special order, which of the following ramifications could occur? - CORRECT ANSWER lost revenues from regular customers questions from regular customers about commitment to service long-term revenue loss from customers who change service to competitors Tyler Sailmakers manufactures sails for sailboats. The company has the capacity to produce 15,000 sails per year, but is currently producing and selling 10, sails per year. The following information relates to current production: **Paper If a special sales order is accepted for 5,000 sails at a price of $225 per unit, and fixed costs remain unchanged, how would operating income be affected? (NOTE: Assume regular sales are not affected by the special order.) - CORRECT ANSWER **Paper To maximize net income in a situation involving scarce resources, a company should: - CORRECT ANSWER Manufacture products that generate the greatest overall contribution margin per unit of scarce resource Adam Corp produces three products, and is currently short on machine hours since one of its two machines is down - only 360 hours are available this month. The selling price, costs, labor requirements, and demand of the three products are as follows: **Paper How many of each product should be sold while the machine is down to maximize profit? - CORRECT ANSWER **Paper The contribution margin per machine hour is $2 for A, $4 for B, and $3 for C. Profit will be maximized by prioritizing B, then C, then A. Filling the 400 demand for B will leave 360 - 400/.25 = 260 machine hours. Filling the 210 demand for C
will leave 260 - 210 / 1 = 50 machine hours, which allows for production of 50/. = 66 units of A. Eric, Inc. currently manufactures 2,000 subcomponents in one of its factories. The unit costs to produce the subcomponents are: The unit costs to produce are: **Paper Due to a labor strike, Eric is considering purchasing the subcomponents from an outside supplier for $250 per unit rather than paying the 10% increase in direct labor costs demanded by the union. If Eric purchases the subcomponent from the outside supplier, how much will profit differ from what it would be if it manufactured the subcomponents with the increase in direct labor cost? - CORRECT ANSWER **Paper Cost will be $250 / 2,000 = $500,000 if purchased from the outside supplier, and ($60 + $110 + $75) / 2,000 = $490,000 if manufactured, so profit is $10,000 less if purchased from the outside supplier. The income statement for Sweet Dreams Company is divided by its two product lines, blanketsand pillows, as follows: **Paper If Sweet Dreams can eliminate fixed costs of $50,000 and increase the sale of blankets by 3,000 units at a selling price of $20 per unit and a contribution margin of $5 per unit, then dropping the pillows should result in which of the following? - CORRECT ANSWER **Paper It costs Michelle, Inc. $35 per unit to manufacture 1,000 units per month of a product that it can sell for $50 each. Alternatively, Michelle could process the units further into a more complex product, which would cost an additional $ per unit. Michelle could sell the more complex product for $75 each. How would processing the product further affect Michelle's profit? - CORRECT ANSWER Incremental revenue $25,000 - Incremental cost $30,000 = $(5,000)
= NPV 2,335,
Stratford Company purchased a machine with an estimated useful life of seven years. The machine will generate cash inflows of $90,000 each year over the next seven years. If the machine has no salvage value at the end of seven years, and assuming the company's discount rate is 10%, what is the purchase price of the machine if the net present value of the investment is $170,000? - CORRECT ANSWER The machine's positive net present value means that the present value of the $90,000 annual cash inflows exceeds the purchase price by $170,000. The present value of the annual cash flows discounted at 10% is $438,120 ($90,000 x 4.868); therefore the purchase price of the machine is $268,120 ($438,120 - $170,000). fixed costs - CORRECT ANSWER costs that do not change in total despite wide changes in volume variable costs - CORRECT ANSWER costs that are incurred for every unit of volume- change in direct proportion to changes in volume committed fixed costs - CORRECT ANSWER locked in to these costs because of previous management decisions discretionary fixed costs - CORRECT ANSWER result of annual management decisions - companies have more control over these in the long run relevant range - CORRECT ANSWER is the band of volume when total fixed costs and variable cost per unit remains the same (range of volume in which costs behave a certain way) high low method - CORRECT ANSWER this method fits a mixed cost line through the highest and lowest volume data points absorption costing - CORRECT ANSWER all direct materials, direct labor, and MOH costs are treated as inventoriable product costs; also known as "traditional" or "full costing"
variable costing - CORRECT ANSWER only variable manufacturing costs are treated as inventoriable product costs contribution margin - CORRECT ANSWER is equal to sales revenue minus variable expenses- shows managers how much profit has been made on sales before considering fixed costs contribution margin ratio - CORRECT ANSWER percentage of each sales dollar thats available for covering fixed expenses and generating a profit (based on sales revenue (dollars) rather than sales units operating leverage - CORRECT ANSWER the relative amount of fixed and variable costs that make up a company's total costs margin of safety - CORRECT ANSWER excess of expected sales over breakeven sales contribution margin income statement - CORRECT ANSWER separates costs on the income statement by COST BEHAVIOR rather than function; "ready to use" relevant information - CORRECT ANSWER expected future data, differs among alternatives irrelevant information - CORRECT ANSWER costs that do not affect your decision; i.e. sunk costs
