**Multiple Choice Answer on the Scantron provided ONLY.**

1. Which of the graphs in Figure 20-1 illustrates the behavior of a total fixed cost?

a.

Graph 2

b.

Graph 3

c.

Graph 4

d.

Graph 1

2. Which of the following describes the behavior of the fixed cost per unit?

a.

Decreases with increasing production

b.

Decreases with decreasing production

c.

Remains constant with changes in production

d.

Increases with increasing production

3. For purposes of analysis, mixed costs are generally:

a.

classified as fixed costs

b.

classified as variable costs

c.

classified as period costs

d.

separated into their variable and fixed cost components

4. Which of the following statements is true regarding fixed and variable costs?

a.

Both costs are constant when considered on a per unit basis.

b.

Both costs are constant when considered on a total basis.

c.

Fixed costs are constant in total, and variable costs are constant per unit.

d.

Variable costs are constant in total, and fixed costs vary in total.

5. Contribution margin is:

a.

the excess of sales revenue over variable cost

b.

another term for volume in the “cost-volume-profit” analysis

c.

profit

d.

the same as sales revenue

6. If sales are $820,000, variable costs are 58% of sales, and operating income is $260,000, what is the **contribution margin ratio**?

a.

53.1%

b.

42%

c.

62%

d.

32%

7. Variable costs as a percentage of sales for Lemon Inc. are 80%, current sales are $600,000, and fixed costs are $130,000. How much will **operating income change** if sales increase by $40,000?

a.

$8,000 increase

b.

$8,000 decrease

c.

$30,000 decrease

d.

$30,000 increase

8. If the contribution margin ratio for France Company is 45%, sales were $425,000. and fixed costs were $100,000, what was the **income from operations**?

a.

$167,750

b.

$91,250

c.

$325,000

d.

$133,750

9. If fixed costs are $250,000, the unit selling price is $125, and the unit variable costs are $73, what is the **break-even sales (units)**?

a.

3,425 units

b.

2,381 units

c.

2,000 units

d.

4,808 units

10. If fixed costs are $750,000 and variable costs are 80% of sales, what is the break-even point in sales dollars?

a.

$937,500

b.

$525,000

c.

$3,750,000

d.

$1,275,000

11. If fixed costs are $1,400,000, the unit selling price is $240, and the unit variable costs are $110, what is the amount of sales required to realize an operating income of $200,000?

a.

10,769 units

b.

12,000 units

c.

12,308 units

d.

1,538 units

(for #12) Safari Co. sells two products, Orks and Zins. Last year Safari sold 21,000 units of Orks and 14,000 units of Zins. Related data are:

Product

Unit Selling

Price

Unit Variable

Cost

Unit Contribution

Margin

Orks

$120

$80

$40

Zins

80

60

20

____ 12. What was Safari Co.’s sales mix last year?

a.

60% Orks, 40% Zins

b.

30% Orks, 70% Zins

c.

70% Orks, 30% Zins

d.

40% Orks, 60% Zins

____ 13. If a business had a capacity of $8,000,000 of sales, actual sales of $5,000,000, break-even sales of $3,500,000, fixed costs of $1,400,000, and variable costs of 60% of sales, what is the margin of safety expressed as a percentage of sales?

a.

25%

b.

18%

c.

28%

d.

30%

____ 14. Selling price = $80 per unit

Variable cost = $30 per unit

Units = 20,000

Fixed costs = $240,000

This company is considering a 20% drop in selling price that they believe will raise units sold by 20%. All other costs stay the same. How much will income go up or down if they make this change?

a.

$184,000 less income

b.

$320,000 less income

c.

$20,000 more income

d.

$40,000 more income

____ 15. Another name for variable costing is:

a.

indirect costing

b.

process costing

c.

direct costing

d.

differential costing

____ 16. Under variable costing, which of the following costs would be included in finished goods inventory?

a.

Selling costs

b.

Salary of vice-president of finance

c.

Variable factory overhead cost

d.

Fixed factory overhead cost

____ 17. On the variable costing income statement, the figure representing the difference between manufacturing margin and contribution margin is the:

a.

fixed manufacturing costs

b.

variable cost of goods sold

c.

fixed selling and administrative expenses

d.

variable selling and administrative expenses

(for #18) A business operated at 100% of capacity during its first month, with the following results:

**Sales (90 units)**

$90,000

Production costs **(100 units):**

Direct materials

$40,000

Direct labor

20,000

Variable factory overhead

2,000

Fixed factory overhead

5,000

67,000

Operating expenses:

Variable operating expenses

$ 8,000

Fixed operating expenses

1,000

9,000

____ 18. What is the amount of the income from operations that would be reported on the **absorption costing **income statement?

a.

$21,000

b.

$20,700

c.

$22,000

d.

$28,000

____ 19. Which of the following budgets allow for adjustments in activity levels?

a.

Static Budget

b.

Continuous Budget

c.

Zero-Based Budget

d.

Flexible Budget

____ 20. Scott Manufacturing Co.’s static budget at 10,000 units of production includes $40,000 for direct labor and $4,000 for electric power. Total fixed costs are $23,000. At 12,000 units of production, a flexible budget would show:

a.

variable costs of $52,800 and $27,600 of fixed costs

b.

variable costs of $44,000 and $23,000 of fixed costs

c.

variable costs of $52,800 and $23,000 of fixed costs

d.

variable and fixed costs totaling $67,000

____ 21. At the beginning of the period, the Assembly Department budgeted direct labor of $110,000, direct material of $170,000 and fixed factory overhead of $28,000 for 8,000 hours of production. The department actually completed 10,000 hours of production. What is the appropriate total budget for the department, assuming it uses flexible budgeting?

a.

$288,000

b.

$305,000

c.

$350,000

d.

$378,000

____ 22. The production budgets are used to prepare which of the following budgets?

a.

Operating expenses

b.

Direct materials purchases, direct labor cost, factory overhead cost

c.

Sales in dollars

d.

Sales in units

____ 23. Motorcycle Manufacturers, Inc. projected sales of 76,000 machines for 2010. The estimated January 1, 2010, inventory is 6,500 units, and the desired December 31, 2010, inventory is 7,000 units. What is the budgeted production (in units) for 2010?

a.

75,500

b.

66,000

c.

76,500

d.

65,000

____ 24. Production and sales estimates for April are as follows:

Estimated inventory (units), April 1

9,000

Desired inventory (units), April 30

8,000

Expected sales volume (units):

Area A

3,500

Area B

4,750

Area C

4,250

Unit sales price

$20

**The budgeted total sales for April are:**

a.

$200,000

b.

$230,000

c.

$270,000

d.

$250,000

The Cardinal Company had a finished goods inventory of 55,000 units on January 1. Its projected sales for the next four months were: January – 200,000 units; February – 180,000 units; March – 210,000 units; and April – 230,000 units. The Cardinal Company wishes to maintain a desired ending finished goods inventory of 20% of the following months sales.

____ 25. What should the **budgeted production be for January**?

a.

236,000

b.

181,000

c.

200,000

d.

219,000

____ 26. Woodpecker Co. has $296,000 in accounts receivable on January 1. Budgeted sales for January are $860,000. Woodpecker Co. expects to sell 20% of its merchandise for cash. Of the remaining credit sales, 75% are expected to be collected in the month of sale, and 25% collected the following month.

**The January cash collections are:**

a.

$812,000

b.

$688,000

c.

$468,000

d.

$984,000

Nuthatch Corporation began its operations on September 1 of the current year. Budgeted sales for the first three months of business are $260,000, $350,000, and $400,000, respectively, for September, October, and November. The company expects to sell **30% of its merchandise for cash**. Of sales on account, **80% are expected to be collected in the month of the sale, and 20% in the month following the sale**.

____ 27. The cash collections in September from **accounts receivable** are:

a.

**$223,600**

b.

**$145,600**

c.

**$192,000**

d.

**$168,000**

____ 28. The cash collections in October from **accounts receivable** are:

a.

$232,400

b.

$240,000

c.

$210,000

d.

$337,400

____ 29. As of January 1 of the current year, the Grackle Company had accounts receivables of $50,000. The sales for January, February, and March of 2009 were as follows: $120,000, $140,000 and $150,000. **20% of each month’s sales are for cash**. Of the remaining sales (on account), **60% are collected in the month of sale**, with remaining 40% collected in the following month.

What is the cash collected (**both from accounts receivable and for cash sales**) in the month of January?

a.

$$74,000

b.

$110,000

c.

$71,600

d.

$131,600

____ 30. As of January 1 of the current year, the Grackle Company had accounts receivables of $50,000. The sales for January, February, and March were as follows: $120,000, $140,000 and $150,000. **20% of each month’s sales are for cash**. Of the remaining sales (on account), **60% are collected in the month of sale**, with remaining 40% collected in the following month.

What is the total cash collected (both from accounts receivable and for cash sales) in the month of February?

a.

$129,600

b.

$62,400

c.

$133,600

d.

$91,200

____ 31. Standards that represent levels of operation that can be attained with reasonable effort are called:

a.

theoretical standards

b.

ideal standards

c.

variable standards

d.

normal standards

____ 32. A favorable cost variance occurs when

a.

Actual costs are more than standard costs.

b.

Standard costs are more than actual costs.

c.

Standard costs are less than actual costs.

d.

None of the above.

The following data relate to direct materials costs for November:

Actual costs

4,700 pounds at $5.40

Standard costs

4,500 pounds at $6.00

____ 33. What is the **direct materials price variance**?

a.

$2,700 favorable

b.

$120 favorable

c.

$2,820 favorable

d.

$1,700 unfavorable

____ 34. What is the **direct materials quantity variance**?

a.

$2,700 favorable

b.

$1,200 favorable

c.

$2,700 favorable

d.

$1,200 unfavorable

____ 35. If the wage rate paid per hour differs from the standard wage rate per hour for direct labor, the variance is termed (do not over think this question):

a.

variable variance

b.

rate variance

c.

quantity variance

d.

volume variance

____ 36. The following data relate to direct labor costs for the current period:

Standard costs

7,500 hours at $11.50

Actual costs

6,000 hours at $12.00

What is the direct labor time variance?

a.

$3,000 favorable

b.

$15,000 unfavorable

c.

$2,400 favorable

d.

$17,250 favorable

Standard

Actual

Rate

$12.00

$12.25

Hours

18,500

17,955

Units of Production

9,450

____ 37. Calculate the Direct Labor Variance using the above information

a.

$2,051.25 Favorable

b.

$2,051.25 Unfavorable

c.

$2,362.50 Unfavorable

d.

$2,362.50 Favorable

____ 38. Calculate the Direct Labor Rate Variance using the above information

a.

$4,488.75 Unfavorable

b.

$6,851.25 Favorable

c.

$4,488.75 Favorable

d.

$6,851.25 Unfavorable

Rusty Co. sells two products, X and Y. Last year Rusty sold 5,000 units of X’s and 35,000 units of Y’s. Related data are:

Unit Selling Price

Unit Variable

Unit contribution

Product

Price

Cost

Margin

X

$110

$70

$40

Y

70

50

$20

39. Assuming fixed costs totaled $675,000. **What was Rusty Co.’s break-even point (in units)**?

a.

16,875 units

b.

30,100 units

c.

30,000 units

d.

11,250 units

40. When units manufactured exceed units sold:

a.

variable costing income equals absorption costing income

b.

variable costing income is less than absorption costing income

c.

variable costing income is greater than absorption costing income

d.

variable costing income is greater by the number of units produced multiplied by the variable cost ratio.

41. The amount of income under absorption costing will be less than the amount of income under variable costing when units manufactured:

a.

exceed units sold

b.

equal units sold

c.

are less than units sold

d.

are equal to or greater than units sold