Part l: True or False Questions (0.4 points each) 1. CVP analysis assumes that costs have been fairly accurately broken down into their 2. On a graph of sales revenue and costs, the fixed cost line is drawn from the point of 3. On a graph of sales revenue and costs, the breakeven point is that point where the 4. When a company incorporates its tax rate into the calculations for CVP analysis, the 5. The amount of cash on hand at the end of an accounting period should agree with the fixed and variable elements. intersection of the horizontal and vertical axes upward and to the right. fixed cost and the sales revenue lines intersect. desired profit before tax is calculated by dividing the after-tax net income by (1-Tax rate). amount of net income for that period. 6. To conserve cash in a business, it is wise to pay accounts payable only after their due date. 7. If annual property taxes were prepaid in January, and if monthly cash budgets were being prepared, one twelfth of the taxes would show as a disbursement for each of the twelve monthly cash budgets 8. Repayment of principal amounts on loans will show as a disbursement on a cash budget. 9. In establishing objectives in budgeting, limiting factors should be considered. 10. Past actual sales records are the foundation on which budgeted sales revenue is built. 11. Variance analysis is a method of analyzing the differences between budgeted figures and actual results. 12. A restaurant budgeted 1,000 customers with an average check of $12.00. Actual customers were 900 with an average check of $12.50. The price variance will be $250 favorable 13. An assumption under CVP analysis is that (a) Fixed costs will remain fixed in the long run (b) All relevant costs can be broken down into their fixed and variable elements (c) Variable costs will change in inverse fashion with sales revenue (d) Total costs will not increase as sales revenue increases 14. A restaurant specializes in a seafood buffet serving dinner only, at a price of $15.75 per person. Its average variable cost is $6.30 per person. The fixed cost is $6,000 per month How many buffet meals must be served monthly to break even? (a) 952 (b) 380 (c) 32 (d) 635 15. A restaurant has sales revenue of $500,000, variable costs of $200,000, and fixed costs of $200,000. The owner wants net income after tax of $40,000. The tax rate is 30%. What is the operating income (before tax)? (a) $ 17,143 (b) $ 40,000 (c) $ 57,143 (d) $133,333 16. A college's food operation has an average meal price of $6.00. Variable costs are $3.75 per meal and fixed costs total $75,000. How many meals must be sold to provide an operating income of $30,000? (a) 13,333 (b) 33,333 (c) 28,000 (d) 46,667 17. Given the facts in the Question 16, how many meals would have to be sold if variable costs increased 20%? (a) 50,000 (b) 23,333 (c) 46,667 (d) 70,000 18. Given the facts in Question 16, how many meals would have to be sold if fixed costs declined by 20%? (a) 40,000 (b) 24,000 (c) 46,667 (d) 70,000 19, A restaurant has a food operation with a 30% variable cost and a bar operation with a 25% variable cost. The food operation produces 60% of total sales revenue and the bar 40%. If the restaurant wanted an extra $7,500 in operating income, by how much would sales revenue have to increase to provide this added profit? (a) $26,786 (b) $23,810 (c) $10,417 (d) $10,714 20. Sales revenue is $250,000, fixed costs are $90,000, profit is $50,000, and sales price per unit is $25.00. Variable cost per unit is (a) $11.00 (b) $15.00 (c) $20.00 (d) $25.00 21. If a company has an income of $5,000 (after depreciation but before income tax) during a particular month, its bank account should have increased by: (a) $5,000, plus depreciation, plus tax (b) $5,000, plus depreciation (c) $5,000, less income tax (d) Probably some amount other than any of the above 22. In cash budgeting, depreciation expense on the income statement is not shown as a cash disbursement on a cash budget because (a) One has a choice of depreciation methods (b) Depreciation is not really a business expense (c) The recording of depreciation expense does not require an outlay of cash (d) Depreciation is only shown as an expense to reduce cash outflow from tax 23. Sales revenue in Month 1 of a new restaurant is forecast to be $60,000 and in Month 2 $75,000. Cost of sales is estimated to be 30% of sales revenue, with half the cost paid for in the month of purchase, the other half in the following month. Month 2's cash disbursement for purchases is (a) $20,250 (b) $18,000 (c) $22,500 (d) $11,250 24. A bank lockbox is used to (a) Avoid having to use bank float (b) Avoid having to use concentration banking (c) Speed up payment of accounts payable (d) Speed up collection of accounts receivable 25. A flexible budget is one (a) Prepared for several possible levels of sales revenue (b) That can be changed by a general manager after preparation by a department (c) That is not part of the master budget (d) That includes only variable costs 26. If restaurant has budgeted 1,000 customers at an average check of $9.00 and actual customers were 800 with an actual average check of $9.50, then (a) Actual sales revenue will be higher than budgeted (b) We can assume that the higher average check is keeping customers away (c) The cause of a significant difference between actual and budgeted figures should be investigated (d) Because of slower service fewer customers could be served 27. A restaurant has 125 seats with an average check of $8.00 and a daily seat turnover of 2.5 It is open 5 days a week and the average check is forecast to increase by 10% in the next year. Next year's budgeted sales revenue will be (a) $286,000 (b) $650,000 (c) $715,000 (d) S 13,750 28. A banquet department's annual budgeted sales revenue was based on 45,000 guests at an average check of $10.00. Actual figures were 47,500 guests at a $9.50 average check. The total budget, price, and sales volume variances respectively are (a) $1,250 Unfavorable, $23,750 Unfavorable, and $22,500 Favorable (b) $1,250 Favorable, $2,750 Favorable, $1,500 Unfavorable (c) $1,250 Favorable, $23,750 Unfavorable, $25,000 Favorable (d) $1,250 Favorable, $23,750 Favorable, and $25,000 Unfavorable 29. Short-term budgets differ from long-term budgets in that a short-term budget (a) Is for a day, week, or month and a long-term one is for six months or a year (b) Is expressed in monetary terms where a long-term budget is generally expressed in the number of customers or some other measure (c) Is usually for a year or less and long-term budgets are in excess of a year (d) Is prepared by an accountant and a long-term budget is prepared by a manager 30. In using the CVP equation, the sales level required in units to breakeven is determined by dividing (a) Fixed costs by contribution margin in dollars (b) Fixed costs plus operating income by 100% minus the variable cost percentage (c) Fixed costs plus net income by the contribution margin percent (d) The sales level in dollars by unit variable cost 1. A 250 room hotel has an annual revenue $8,500,000. Its fixed costs are $3,500,000 a year, and its total variable costs $2,950,000 at an average occupancy of 70 percent. a. What is the hotel's occupancy break-even level in both dollars and occupancy percent? b. If the owner wants to have $900,000 profit for a year after tax rate of 40%, how many fewer or more rooms per night would need to be sold than is the case in part a? and how much less or more revenue per night than in a case of (a)? c. Show the hotel's performance in CVP graph based on answers in part a and b 2. The condensed income statement of the BU hotel is as follows: Income $3,500,000 1,000,000 200,000 4,700,000 500.000 $1,000,000 1,000,000 200,000 Rooms Food Beverage Total Dept Income Other variable Exp* Other Fixed Exp Pretax income Income taxes Net income $5,000,000 3,000,000 500,000 500,000 1,000,000 100,000 2,200,000 600,000 1,600,000 "Rent (10% of room sales) Includes depreciation and amortization of $500,000 a. Compute the CMR for the room department b. Compute the BU Hotel's weighted average CMR c. Compute the BU Hotel's breakeven point d. If the BU Hotel wants to make $1,500,000, what must its room sales equal? Question 3 (1 point each) SHA Hotel budgeted 800 room sales for the week ended March 10. The estimated average price per room was $18.50. The actual average price per room was 10 percent greater than anticipated, while room sales in units were 10 percent less than forecasted. a. what is the budget variance (sales revenue variance)? Is it favorable or unfavorable? b. What is the price variance? Is it favorable or unfavorable? c. What is the sales volume variance? Is it favorable or unfavorable