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 2nd quarter earnings that caused the stock to fall 29% to all time lows. Although sales were up 1.2% to $953.2 million gross profit fell 16.6% to $360.3 million. Assuming Radio Shacks store count and fixed costs were the same in the 2nd quarter of 2011 and 2012, which of the following statements is the best explanation for the decrease in the 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)

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

$10.95