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Questions
Q:
A formal statement of future plans, usually expressed in monetary terms, is a:
A. Variance report.
B. Position statement.
C. Budget.
D. Prospectus.
E. Variance analysis.
Q:
Production budgets should always show both budgeted units of product and costs.
Q:
A company's history indicates that 20% of its sales are for cash and the rest are on credit. Collections on credit sales are 20% in the month of the sale, 50% in the next month, and 30% the following month. Projected sales for January, February, and March are $75,000, $92,000 and $60,000, respectively. The March expected cash receipts from all current and prior credit sales are $80,500.
Q:
The financial budgets include the cash budget and the capital expenditures budget.
Q:
Financial budgets are normally completed after preparation of operating and capital expenditure budgets.
Q:
The budgeted balance sheet is prepared from data contained in the previously prepared components of the master budget.
Q:
A cash budget is a plan that includes the expected cash receipts and cash expenditures during each of the periods that it covers.
Q:
Part of the cash budget is based on information taken from the capital expenditures budget.
Q:
If budgeted beginning inventory is $8,300, budgeted ending inventory is $9,400, and cost of goods sold is expected to be $10,260, then budgeted purchases should be $9,160.
Q:
A manufacturing budget should include a list of equipment to be scrapped and additional equipment to be purchased if the proposed production budget is carried out.
Q:
The selling expenses budget is normally prepared before the sales budget because selling expenses affect the amount of sales.
Q:
Traditional budgeting is generally better than activity-based budgeting when attempting to reduce costs by eliminating non-value-added activities.
Q:
Activity-based budgeting is a budget system based on expected activities and their activity levels, which helps management plan for the resources required.
Q:
A master budget refers to a company's sales budget that includes all of its segments or departments.
Q:
The budget process is a continuous activity of planning, revising, and evaluating business activities.
Q:
The financial budgets of a business include the cash budget, the budgeted income statement, and the budgeted balance sheet.
Q:
The master budget consists of three major groups of budget components: the operating budgets, the capital expenditures budgets, and the financial budgets.
Q:
The merchandise purchases budget is the starting point for preparing the master budget.
Q:
The merchandise purchases budget depends on information provided by the sales budget.
Q:
The budgets within the master budget must be prepared in a definite sequence as dictated by GAAP.
Q:
A rolling budget is a specific budget application relevant only to a merchandising company.
Q:
Larger, more complex organizations usually require a longer time to prepare their budgets than smaller organizations because of the considerable effort to coordinate the different units within the business.
Q:
The responsibility for coordinating the preparation of a master budget should be assigned to the Chief Executive Officer.
Q:
The task of preparing a budget should be the sole task of the most important department in an organization.
Q:
Continuous budgeting is the practice of preparing a new budget for a selected number of future periods and replacing budgets for periods that have lapsed.
Q:
Past performance is the best overall basis for evaluating current performance and assessing the need for corrective action.
Q:
A budget is a formal statement of future plans, usually expressed in monetary terms.
Q:
One of the major benefits of formal budgeting is the positive effect it can have on employee attitudes if applied correctly.
Q:
Budgets are normally more effective when all levels of management are involved in the budgeting process.
Q:
A budget can be an effective means of communicating management's plans to the employees of a business.
Q:
Consulting the persons affected by a budget when it is prepared can provide an effective means of motivation and cooperation.
Q:
Describe what happens to the net income of a company under each of the following assumptions: (a) Sales volume is less than break-even sales. (b) Sales volume is greater than break-even sales. (c) Sales volume is equal to the break-even point.
Q:
What are the basic assumptions of CVP analysis with regard to variable cost, fixed cost, and selling price per unit? (Assume a single product).
Q:
Q:
Baines Brothers manufactures and sells two products, A and Z in the ratio of 4:2. Product A sells for $75; Z sells for $95. Variable costs for product A are $35; for Z $40. Fixed costs are $418,500. Compute the number of units of Product Z Baines must sell to break even.
A. 5,080.
B. 6,200.
C. 2,540.
D. 3,100.
E. 2,790.
Q:
Baines Brothers manufactures and sells two products, A and Z in the ratio of 4:2. Product A sells for $75; Z sells for $95. Variable costs for product A are $35; for Z $40. Fixed costs are $418,500. Compute the number of units of Product A Baines must sell to break even.
A. 5,080.
B. 6,200.
C. 5,580.
D. 3,100.
E. 9,300.
Q:
Baines Brothers manufactures and sells two products, A and Z in the ratio of 4:2. Product A sells for $75; Z sells for $95. Variable costs for product A are $35; for Z $40. Fixed costs are $418,500. Compute the break-even point in composite units.
A. 1,748.
B. 1,468.
C. 1,550.
D. 1,395.
E. 1,270.
Q:
Baines Brothers manufactures and sells two products, A and Z in the ratio of 4:2. Product A sells for $75; Z sells for $95. Variable costs for product A are $35; for Z $40. Fixed costs are $418,500. Compute the contribution margin per composite unit.
A. $270.
B. $240.
C. $300.
D. $330.
E. $285.
Q:
Winthrop Manufacturing produces a product that sells for $50.00. Fixed costs are $260,000 and variable costs are $24.00 per unit. Winthrop can buy a new production machine that will increase fixed costs by $11,400 per year, but will decrease variable costs by $3.50 per unit. Compute break-even point in dollars with the purchase of the new machine.
A. $500,000.
B. $440,678.
C. $521,923.
D. $480,000.
E. $460,000.
Q:
Winthrop Manufacturing produces a product that sells for $50.00. Fixed costs are $260,000 and variable costs are $24.00 per unit. Winthrop can buy a new production machine that will increase fixed costs by $11,400 per year, but will decrease variable costs by $3.50 per unit. What effect would the purchase of the new machine have on Winthrops break-even point in units?
A. 800 unit increase.
B. 800 unit decrease.
C. 5,714 unit increase.
D. 4,444 unit decrease.
E. No effect on the break-even point in units.
Q:
Winthrop Manufacturing produces a product that sells for $50.00. Fixed costs are $260,000 and variable costs are $24.00 per unit. Winthrop can buy a new production machine that will increase fixed costs by $11,400 per year, but will decrease variable costs by $3.50 per unit. Compute break-even point in units if the new machine is purchased.
A. 10,438 units.
B. 8,814 units.
C. 10,000 units.
D. 9,200 units.
E. 9,869 units.
Q:
Winthrop Manufacturing produces a product that sells for $50.00. Fixed costs are $260,000 and variable costs are $24.00 per unit. Winthrop can buy a new production machine that will increase fixed costs by $11,400 per year, but will decrease variable costs by $3.50 per unit. Compute the contribution margin per unit if the machine is purchased.
A. $22.50.
B. $26.00.
C. $29.50.
D. $28.50.
E. $27.50.
Q:
Wayward Enterprises manufactures and sells three distinct styles of bicycles: the Youth model sells for $300 and has a unit contribution margin of $105; the Adult model sells for $850 and has a unit contribution margin of $450; and the Recreational model sells for $1,000 and has a unit contribution margin of $500. The company's sales mix includes: 5 Youth models; 9 Adult models; and 6 Recreational models. If the firm's annual fixed costs total $6,500,000, calculate the firm's break-even point in sales dollars.
A. $13,250,000.
B. $13,000,000.
C. $12,750,000.
D. $12,900,050.
E. $12,750,625.
Q:
Camden Corporation sells three products (M, N, and O) in the following mix: 3:1:2. Unit price and cost data are: M
N
O Unit sales price......................................
$7
$4
$6 Unit variable costs......................................
3
2
3 Total fixed costs are $340,000. The break-even point in sales dollars for the current sales mix is (round to the nearest thousand):
A. $ 20,000.
B. $289,000.
C. $400,000.
D. $629,000.
E. $740,000.
Q:
Baker Company's sales mix is 3 units of A, 2 units of B, and 1 unit of C. Selling prices for each product are $20, $30, and $40, respectively. Variable costs per unit are $12, $18, and $24, respectively. Fixed costs are $320,000. What is the break-even point in composite units?
A. 1,111.
B. 1,600.
C. 2,666.
D. 4,000.
E. 5,000.
Q:
The ratio of the sales volume for the various products sold by a company is called the:
A. Current product mix.
B. Relevant mix.
C. Sales mix.
D. Inventory cost ratio.
E. Production ratio.
Q:
A firm sells two products, A and B. For every unit of A the firm sells, two units of B are sold. The firm's total fixed costs are $1,612,000. Selling prices and cost information for both products follow. What is the firm's break-even point in units of A and B?
Unit Variables
Sales Costs
Product Price Per Unit
A.... $20 $8
B.... 24 4
A. 31,000 of A and 31,000 of B.
B. 31,000 of A and 62,000 of B.
C. 10,333 of A and 20,667 of B.
D. 36,167 of A and 72,333 of B.
E. 62,000 of A and 31,000 of B.
Q:
A firm sells two products, A and B. For every unit of A the firm sells, two units of B are sold. The firm's total fixed costs are $1,612,000. Selling prices and cost information for both products follow. The contribution margin per composite unit is:
Unit Variables
Sales Costs
Product Price Per Unit
A.... $20 $8
B.... 24 4
A. $12.
B. $20.
C. $32.
D. $44.
E. $52.
Q:
A CVP graph presents data on:
A. Profit and loss on a per unit basis.
B. Profit, loss, and break-even on a total dollar basis.
C. Profit, loss, and break-even on a per unit basis.
D. Only profit and loss on a total basis.
E. Profit and loss on a budget and actual basis.
Q:
When graphing cost-volume-profit data on a CVP chart:
A. Units are plotted on the horizontal axis; costs on the vertical axis.
B. Units are plotted on the vertical axis; costs on the horizontal axis.
C. Both units and costs are plotted on the horizontal axis.
D. Both units and cost are plotted on the vertical axis.
E. Data points always represent expected future points.
Q:
A cost-volume-profit chart is also known as a(n)
A. Operating profit chart.
B. Operating leverage chart.
C. Break-even chart.
D. Margin of safety chart.
E. Sales chart.
Q:
In Davis Corporation's most recent fiscal year, the company reported pretax earnings of $215,000.
Fixed costs totaled $325,800, the unit selling price of the firm's only product was $60, and the variable costs per unit were 40% of the selling price. Based on this information, the firm's break-even point in units was:
A. 13,575 units.
B. 15,023 units.
C. 13,750 units.
D. 9,050 units.
E. 8,750 units.
Q:
Assume that sales are predicted to be $3,750, the expected contribution margin is $1,500, and a net loss of $250 is anticipated. The break-even point in sales dollars is:
A. $1,750.
B. $2,500.
C. $4,000.
D. $4,250.
E. $4,375.
Q:
Mueller Corp. manufactures compact discs that sell for $5.00. Fixed costs are $28,000 and variable costs are $3.60 per unit. Mueller can buy a newer production machine that will increase fixed costs by $8,000 per year, but will decrease variable costs by $0.40 per unit. What effect would the purchase of the new machine have on Mueller's break-even point in units?
A. 4,444 unit increase.
B. 9,850 unit decrease.
C. 5,714 unit increase.
D. 4,444 unit decrease.
E. No effect on the break-even point in units.
Q:
Yamaguchi Company's break even point in units is 1,000. The sales price per unit is $10 and variable cost per unit is $7. If the company sells 2,500 units, what will net income be?
A. $ 4,500
B. $ 7,500
C. $17,000
D. $35,000
E. Fixed costs must be known in order to predict net income.
Q:
Ginger Company's product has a contribution margin per unit of $11.25 and a contribution margin ratio of 22.5%. What is the selling price of the product?
A. $ 5.
B. $20.
C. $30.
D. $40.
E. $50.
Q:
Lee Company manufactures and sells widgets for $2.00 per unit. Its variable cost per unit is $1.70. Lee's total fixed costs are $10,500. How many widgets must Lee Company sell to break even?
A. 5,250.
B. 6,176.
C. 35,000.
D. 52,500.
E. 61,760.
Q:
A company has fixed costs of $90,000. Its contribution margin ratio is 30% and the product sells for $75 per unit. What is the company's break-even point in dollar sales?
A. $ 60,000.
B. $128,571.
C. $180,000.
D. $210,000.
E. $300,000.
Q:
A company manufactures and sells a product for $120 per unit. The company's fixed costs are $68,760, and its variable costs are $90 per unit. The company's break-even point in dollars is:
A. $91,680.
B. $68,760.
C. $2,292.
D. $275,040.
E. $206,280.
Q:
A company manufactures and sells a product for $120 per unit. The company's fixed costs are $68,760, and its variable costs are $90 per unit. The company's break-even point in units is:
A. 2,292.
B. 573.
C. 764.
D. 327.
E. 840.
Q:
The contribution margin per unit expressed as a percentage of the product's selling price is the:
A. Volume variance.
B. Margin of safety.
C. Contribution margin ratio.
D. Break-even point.
E. Rate of return on sales.
Q:
The difference between sales price per unit and variable cost per unit is the:
A. Gross profit from sales.
B. Gross margin per unit.
C. Fixed cost per unit.
D. Margin of safety per unit.
E. Contribution margin per unit.
Q:
A product sells for $30 per unit and has variable costs of $18 per unit. The fixed costs are $720,000. If the variable costs per unit were to decrease to $15 per unit and fixed costs increase to $900,000, and the selling price does not change, break-even point in units would:
A. Increase by 20,000.
B. Equal 6,000.
C. Increase by 6,000.
D. Decrease by 20,000.
E. Not change.
Q:
A product sells for $200 per unit, and its variable costs per unit are $130. The fixed costs are $420,000. What is the break-even point in dollar sales?
A. $2,100.
B. $6,000.
C. $420,000.
D. $646,154.
E. $1,200,000.
Q:
The sales level at which a company neither earns a profit nor incurs a loss is the:
A. Relevant range.
B. Margin of safety.
C. Step-wise variable level.
D. Break-even point.
E. Contribution margin.
Q:
A method that estimates cost behavior by connecting the costs linked to the highest and lowest volume is called the:
A. Scatter method.
B. High-low method.
C. Least-squares method.
D. Break-even method.
E. Step-wise method.
Q:
A line on a scatter diagram that is intended to reflect the past relation between cost and volume is the:
A. Margin of safety line.
B. Break-even line.
C. Contribution margin line.
D. Estimated line of cost behavior.
E. Standard cost line.
Q:
A graph used to analyze past cost behaviors by displaying costs and volume levels for each period as points on the diagram is called a:
A. Least-squares diagram.
B. Step-wise diagram.
C. Scatter diagram.
D. Break-even diagram.
E. Composite diagram.
Q:
The least-squares regression method is:
A. A graphical method to identify cost behavior.
B. An algebraic method to identify cost behavior.
C. A statistical method to identify cost behavior.
D. The only identify cost estimation method allowed by GAAP.
E. A cost estimation method that only uses the two extreme values.
Q:
A statistical method for deriving an estimated line of cost behavior is the:
A. Scatter diagram method.
B. High-low method.
C. Composite method.
D. CVP charting method.
E. Least-squares regression method.
Q:
Which of the following is the correct interpretation of a degree of operating leverage of 5?
A. Operating leverage of 5 means that sales can decrease by 5% before the firm's current level of sales will hit the break-even point.
B. Operating leverage of 5 means that if sales increase by 5% the firm will hit its break-even point.
C. Operating leverage of 5 means that if sales increase by 5%, there will be a 25% increase in the firm's pretax profit.
D. Operating leverage of 5 measures the degree of debt employed by the firm's debt structure.
E. Operating leverage of 5 means that the company would need to increase sales by 5 times in order to hit its break-even point.
Q:
Total contribution margin in dollars divided by pretax income is the:
A. Degree of operating leverage.
B. Contribution margin ratio.
C. Margin of safety.
D. Sales mix.
E. Break-even point in units.
Q:
The contribution margin ratio:
A. Is the percent of each sales dollar that remains after deducting total unit variable cost.
B. Is the percent of each sales dollar that remains after deducting total unit fixed cost.
C. Is the percent of each sales dollar that remains to cover fixed costs and contribute to the managers' incomes.
D. Cannot be used in conjunction with other analytical tools.
E. Is the same as the unit contribution margin.
Q:
In cost-volume-profit analysis, the unit contribution margin is:
A. Sales price per unit less cost of goods sold per unit.
B. Sales price per unit less unit fixed cost per unit .
C. Sales price per unit less total variable cost per unit .
D. Sales price per unit less unit total cost per unit.
E. The same as the contribution margin ratio.
Q:
The budgeted income statement presented below is for Griffith Corporation for the coming fiscal year. If Griffith Corporation is able to achieve the budgeted level of sales, its margin of safety in dollars would be:
Sales (50,000 units) $1,000,000
Costs:
Direct materials $270,000
Direct labor 240,000
Fixed factory overhead 100,000
Variable factory overhead 150,000
Fixed marketing costs 110,000
Variable marketing costs 50,000 920,000
Pretax income $ 80,000
A. $172,420.
B. $150,000.
C. $262,500.
D. $275,862.
E. $310,115.
Q:
The budgeted income statement presented below is for Griffith Corporation for the coming fiscal year. If Griffith Corporation's income tax rate is 40%, compute the number of units that must be sold in order to achieve a target pretax income of $130,000.
Sales (50,000 units) $1,000,000
Costs:
Direct materials $270,000
Direct labor 240,000
Fixed factory overhead 100,000
Variable factory overhead 150,000
Fixed marketing costs 110,000
Variable marketing costs 50,000 920,000
Pretax income $ 80,000
A. 53,165.
B. 81,250.
C. 36,207.
D. 50,000.
E. 58,621.
Q:
Use the following information to determine the margin of safety in dollars:
Unit sales 50,000 Units
Dollar sales............................................................. .............................................. $500,000
Fixed costs ............................................................. .............................................. $204,000
Variable costs............................................................. .............................................. $187,500
A. $ 88,500.
B. $108,500.
C. $173,600.
D. $326,400.
E. $500,000.
Q:
Ivan Company has a goal of earning $70,000 after-tax income. Ivan would need to pay $20,000 of income taxes at the target level of income. The contribution margin ratio is 30%. What amount of dollar sales must be achieved to reach the goal if fixed costs are $36,000?
A. $ 23,333.
B. $ 36,000.
C. $300,000.
D. $353,333.
E. $420,000.
Q:
Conan Company has total fixed costs of $112,000. Its product sells for $35 per unit and variable costs amount to $25 per unit. Next year Conan Company wishes to earn a pretax income that equals 10% of fixed costs. How many units must be sold to achieve this target income level?
A. 1,120.
B. 8,214.
C. 11,200.
D. 12,320.
E. 14,080.
Q:
A product sells for $200 per unit, and its variable costs per unit are $130. The fixed costs are $420,000. If the firm wants to earn $35,000 pretax income, how many units must be sold?
A. 6,500.
B. 6,000.
C. 500.
D. 5,000.
E. 5,500.