Select the one best answer to each question. Use the following information to answer question 1: Soft Mattress Inc. produces a queen and a king size soft bed. Selected data follows: Queen King Sales price $525 $635 Direct material $350 $365 Direct labor $75 $85 Variable overhead $25 $35 Stuffing hours 1 3 1. Only two employees are trained to stuff mattresses. They can work a maximum of 4,000 stuffing hours per year. What is the contribution margin per limited resources for each type of bed? A. Queen $75, King $150 C. Queen $75, King $50 B. Queen $150, King $75 D. Queen $50, King $75 Use the following information to answer question 2: Project A Project B Initial investment $(2,000) $(4,000) PV of cash inflows $2,600 $3,400 Net present value $600 $(600) 2. Based upon profitability index, which project(s) would be acceptable? A. A only C. 80th A and 8 B. B only D. Neither A nor B Use the following information to answer question 3: Sales price $6.00 per unit Variable costs $2.25 per unit Fixed costs $10,000 Units sold 20,000 3. What is the break-even point in sales dollars? A. $12,000 C. $17,500 B. $16,000 D. $18,460 Use the following information to answer question 4: Volume Cost 1 unit $15 10 units $150 100 units $1,500 4. What type of cost is given? A. Fixed B. Variable C. Step D. Mixed 5. If the contribution margin ratio is 65% and fixed costs are $15,000, what would sales have to be for a before-tax net income of $50,000? (Round your answer to the nearest dollar.) A. $100,000 C. $42,250 B. $65,000 D. $23,077 Use the following information to answer question 6: Investment A Investment B Initial cost $180,000 $270,000 Estimated useful life 3 years 3 years Estimated annual savings in cash operating costs $75,000 $120,000 Minimum desired rate of return 10% 12% PV factor 2.4869 2.4018 6. Based on net present value, profitability index, and internal rate of return, which investment(s) would be preferable? A. A C. Both A and B B. B D. Neither A nor B 7. Which of the following statements best describes a comparison of net present value (NPV) and internal rate of return (IRR)? A. NPV can be adjusted for risk, but IRR can't. B. NPV is more useful than IRR when asset lives are equal and cash flows follow similar patterns. C. IRR should be modified using the profitability index to allow better comparison of different-sized investments, while NPV doesn't have to be modified. D. Both NPV and IRR can be used for screening decisions. 8. Management of a bookbinder is considering whether the hard cardboard for binding should be made internally or purchased from a supplier for $2.35 per book. The current internal production costs for the cardboard average $2.50 of variable costs and $10,000 of fixed costs for the 20,000 books bound annually. What would you recommend management do, and what is the effect on net income? A. Make, increase NI by $3,000 B. Make, increase NI by $13,000 C. Buy, increase NI by $3,000 D. Buy, increase NI by $13,000 Use the following information to answer question 9: Project A Project B Investment $40,000 $50,000 Annuals $7,000 $5,000 9. If a company has a policy of accepting projects with a payback period of seven years or less, which project(s) would be acceptable? A. A only B. B only C. Both A and B D. Neither A nor B 10. Taco Stand has monthly fixed costs of $750 and variable costs of $0.50 per taco. What Taco Stand's total cost if 1,000 tacos are made? A. $500 B. $750 C. $1,000 D. $1,250 Answer questions 11 and 12 from the following information: Variable selling & admin. costs $2.00 per unit Direct materials $7.50 per unit Variable overhead $2.25 per unit Direct labor $1.25 per unit Fixed selling & admin. Costs $50,000 Fixed overhead $75,000 Units sold 25,000 11. What is the product cost per unit under variable costing? A. $11 C. $14 B. $13 D. $16 12. What is the product cost per unit under absorption costing? A. $11 B. $13 C. $14 D. $16 13. The cost' equation y = $0 + $1.75x represents which type of cost? A. Variable C. Step B. Fixed D. Mixed Use the following information to answer question 14: FanCo needs 20,000 fan switches annually to complete their fans. They've learned of a supplier who will sell them the exact switch that's needed for assembly at a unit price of $0.875. Current production costs for the switches are Direct material $5,000 Direct labor $10,000 Variable overhead $2,500 Fixed overhead $1,000 If the switches are purchased rather than made, one-half of the fixed overhead costs can be eliminated. 14. What are the total relevant costs in this make-or-buy decision? A. $15,000 B. $17,500 C. $18,000 D. $18,500 15. If AC Enterprises is in the 40% tax bracket and has a 12% rate of return, what rate of return would be used to calculate the after-tax benefit? A. 4.8% B. 7.2% C. 11.6% D. 12% 16. TNL Co. is considering an investment with a cost of $55,000. Annual cash savings of $10,000, with a present value at 12% (TNL's discount rate) of $56,502, are expected for the next 10 years. What can you conclude? A. TNL should make the investment. B. TNL shouldn't make the investment. C. The investment offers a 12% rate of return. D. The investment offers less than a 12% rate of return. Answer question 17 based on the following information: Product A B C Total Sales $10,000 $9,000 $12,000 $31,000 Variable costs $4,500 $7,000 $6,000 $17,500 Fixed costs $6,500 $1,000 $3,000 $10,500 17. How would the discontinuation of Product line A affect net income? A. Increase by $5,500 C. Increase by $1,000 B. Decrease by $5,500 D. Decrease by $1,000 Use the following results from a regression analysis of production costs to answer question 18: Multiple R .71196 R Square .50688 Adjusted R Square .50438 Standard Error 1.43764 Analysis of Variance DF Sum of Squares Mean of Squares Regression 1 418.52992 418.52992 Residual 197 407.16375 2.06682 F=202.49935 Signif F=0.0000 Variables in the Equation Variable Coefficients Standard t stat p-value Error X variable 1 7.93958 .055794 14.230 0.0000 Intercept 204.070 261513 -.780 0.4361 18. What are total fixed costs, rounded to the nearest penny? A. $204.07 B. $793.96 C. $1,587.92 D. $1,791.99 19. Hotdogs, Inc. sells hot dogs for $2'each. The variable costs per hot dog are $1, and the fixed overhead costs are $0.35. A summer camp wants to place a one-time order for 100 hot dogs at a price of $1.25 each. What is the minimum price Hotdogs should charge for this special order? A. $1.00 C. $1.35 B. $1.25 D. $1.60 Use the following information from a pants manufacturer to answer questions 20 and 21: Production Overhead costs January 10,500 pairs $40,250 February 10,675 pairs $41,000 March 11,500 pairs $44,250 April 12,500 pairs $45,250 May 11,000 pairs $43,750 20. Using the high/low method, what is the variable cost per unit? A. $2.50 C. $3.62 B. $2.75 D. $3.83 21. Using the high/low method, what is the fixed cost? A. $30,250 B. $29,750 C. $15,250 D. $14,000 Use the following information to create a contribution margin income statement and answer question 22: Sales 150,000 units Sales price $2.00 per unit Variable costs $0.50 per unit Fixed costs $80,000 22. What is the operating leverage? (Round your answer to two decimals.) A. 0.50 B. 1.50 C. 1.55 D. 1.67 23. The cost of producing whole kernel corn is $0.20 per can, and the can sells for $0.40. Additional processing costs to produce creamed corn are $0.06 per can, and each can sells for $0.45. If the corn is processed further and 1,000 cans are sold as creamed corn rather than whole kernel corn, what is the effect on net income? A. $450 increase C. $50 increase B. $60 decrease D. $10 decrease 24. Which of the following will increase contribution margin? A. Decreasing sales price C. Decreasing variable cost B. Decreasing fixed cost D. Increasing variable cost 25. If a manager is considering a project that will increase sales revenue by $120 without affecting expenses, what would the after~tax revenue be, given a 30% tax rate? A. $36 B. $84 C. $15  |
