1 Amanda Deleon, a college student is contemplating the following options for her 3 month summer break (1) Take a summer course which will cost $800 and work half time making $1,500 per month (2) Work full time at the local dinner making $3,000 per month (3) Take the summer class at a cost of $800 and not work during the summer Amandas incremental profit or loss if she chooses option 1 over option 2 would be A) ($4,100) B) ($2,500) C) ($5,300) D) ($3,700) 2 Ronodex, Inc , a manufacturing company produces 80,000 units of product A 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 40 markup, the price per unit will be A) $31 54 B) $37 10 C) $30 80 D) $51 80 Use the following to answer questions 3 4 NTN Company's market for the Model 55 has changed significantly, and NTN 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 NTN could sell these units in their current state for $100 each It will cost NTN $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 employee wants) have on net income A) Net income will increase by $35 per unit for each unit discarded B) Net income will decrease by $115 per unit for each unit discarded C) It will have no effect on net income D) Net income will decrease by $100 per unit for each unit discarded 4 When the incremental revenues and expenses are analyzed, the company is better off by A) $15 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 $125 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) $31,120 C) $43,750 D) $50,000 Use the following information to answer questions 7 8 The EconoPrice 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 $16,320 C) Net income will increase by $26,480 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) $189,400 B) $173,600 C) $197,400 $155,680 9 Johnson 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 Famous 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 Sales Cost of ingredients Salaries All three components have equal importance 11 Fatimas Diner has a contribution margin ratio of 17 If fixed costs are $176,800, how many dollars of revenue must Fatimas generate in order to reach the break even point A) $282,880 B) $1,040,000 C) $1,060,800 D) $1,105,000 12 New Visions, Inc is looking to achieve a net income of 15 percent of sales Heres the firms 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) 21,000 units C) 16,000 units D) 20,000 units 13 At Ziks 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 plant B) The companys 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 Neighborhood Grill Company is a start up with the following profile Unit selling price $200 Variable cost per unit $100 Fixed Costs $36,000 Tax rate 25 How many units should Neighborhood Grill sell to achieve an after tax target income of $6,000 A) 200 B) 460 C) 440 D) 300 16 Northern Apparel Company owns two stores and management is considering eliminating the South store due to declining sales Segmented contribution income statements are as follows and common fixed costs are allocated on the basis of sales North South Total Sales $475,000 120,000 $595,000 Variable costs 242,500 69,000 311,500 Direct fixed costs 72,500 35,500 108,000 Segment margin 160,000 15,500 175,500 Allocated fixed costs 104,500 48,000 152,500 Net Income $55,500 ($32,500) $23,000 Northern feels that if they eliminate the South store, sales in the North store will decline by 20 If they close the South store, overall company net income will A) decline by $90,000 B) decline by $85,625 C) decline by $62,000 D) decline by $20,000 17 Forest Park, 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 Forest Parks 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 3,500,000 of a new vehicle charger for $8 each There will be $3,000,000 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) $9 40 20 On July 26, 2012, Radio Shack announced disappointing 2 nd 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 Shacks store count and fixed costs were the same in the 2 nd quarter of 2011 and 2012, which of the following statements is the best explanation for the decrease in the firms 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 Synergy 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 to answer question 23 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 2014, 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 2015, and Teko expects to sell 40,000 units, what will be the companys budgeted profit A) $95,457 B) $132,414 C) $525,000 D) $667,957

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1. Amanda Deleon, a college student is contemplating the following options for her 3-month summer break: (1) Take a summer course which will cost $800

1.	Amanda Deleon, a college student is contemplating the following options for her 3-month summer break: (1) Take a summer course which will cost $800 and work half-time making $1,500 per month. (2) Work full time at the local dinner making $3,000 per month. (3) Take the summer class at a cost of $800 and not work during the summer. Amandas incremental profit or loss if she chooses option 1 over option 2 would be:
	A)	($4,100)
	B)	($2,500)
	C)	($5,300)
	D)	($3,700)

2.	Ronodex, Inc., a manufacturing company produces 80,000 units of product A 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 40% markup, the price per unit will be:
	A)	$31.54
	B)	$37.10
	C)	$30.80
	D)	$51.80

Use the following to answer questions 3-4:

NTN Company's market for the Model 55 has changed significantly, and NTN 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. NTN could sell these units in their current state for $100 each. It will cost NTN $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 employee wants) have on net income?
	A)	Net income will increase by $35 per unit for each unit discarded.
	B)	Net income will decrease by $115 per unit for each unit discarded.
	C)	It will have no effect on net income.
	D)	Net income will decrease by $100 per unit for each unit discarded.

When the incremental revenues and expenses are analyzed, the company is better off by

$15 per unit if they complete the units.

$25 per unit if they sell the units in their current state.

$10 per unit if they sell the units in their current state.

$125 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)	$31,120
	C)	$43,750
	D)	$50,000

Use the following information to answer questions 7-8:

The EconoPrice 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 $16,320.
	C)	Net income will increase by $26,480.
	D)	Total fixed costs will remain the same.

If 75% of the rooms are occupied each night in the month of February (28 days) what will total costs be for the month?

$189,400

$173,600.

$197,400

$155,680.

Johnson 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?

$60,000

$96,000

$124,000

$100,000

10. Below is a performance report that compares budgeted and actual profit of Famous 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?

Sales

Cost of ingredients

Salaries

All three components have equal importance.

11.	Fatimas Diner has a contribution margin ratio of 17%. If fixed costs are $176,800, how many dollars of revenue must Fatimas generate in order to reach the break-even point?
	A)	$282,880
	B)	$1,040,000
	C)	$1,060,800
	D)	$1,105,000

12.	New Visions, Inc. is looking to achieve a net income of 15 percent of sales. Heres the firms 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)	21,000 units
	C)	16,000 units
	D)	20,000 units

13.	At Ziks 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 plant.
B)	The companys 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. Neighborhood Grill Company is a start up with the following profile:

Unit selling price = $200; Variable cost per unit = $100; Fixed Costs = $36,000;

Tax rate = 25%. How many units should Neighborhood Grill sell to achieve an

after-tax target income of $6,000?

200

460

440

300

16.

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

		North		South		Total
Sales	$475,000		120,000		$595,000
Variable costs	242,500		69,000		311,500
Direct fixed costs	72,500		35,500		108,000
Segment margin	160,000		15,500		175,500
Allocated fixed costs	104,500		48,000		152,500
Net Income	$55,500		($32,500)		$23,000

Northern feels that if they eliminate the South store, sales in the North store will decline by 20%. If they close the South store, overall company net income will:

decline by $90,000.

decline by $85,625.

decline by $62,000.

decline by $20,000.

17.	Forest Park, 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 Forest Parks 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 3,500,000 of a new vehicle charger for $8 each. There will be $3,000,000 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)	$9.40

20.	On July 26, 2012, Radio Shack announced disappointing 2^nd 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 Shacks store count and fixed costs were the same in the 2^nd quarter of 2011 and 2012, which of the following statements is the best explanation for the decrease in the firms 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 Synergy 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?

$13.50

$14.55

$12.75

$10.95

Use the following to answer question 23:

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 2014, 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 2015, and Teko expects to sell 40,000 units, what will be the companys budgeted profit?
	A)	$95,457
	B)	$132,414
	C)	$525,000
	D)	$667,957