1) A “what-if” technique that examines how a result will change if the original predicted data are NOT achieved or if an underlying assumption changes is called ________.

adjusted rate-of-return analysis

net present value analysis

sensitivity analysis

internal rate-of-return analysis2)The standard costs and actual costs for direct materials for the manufacture of 2,500 actual units of product are as follows:
Standard Costs
Direct materials 2,500 kilograms @ $8

Actual Costs
Direct materials 2,600 kilograms @ $8.75
3) The amount of the direct materials quantity variance is:

$875 favorable

$800 unfavorable

$800 favorable

$875 unfavorable4) The difference between the current sales revenue and the sales at the break-even point is called the:

contribution margin

margin of safety

price factor

operating leverage5) Corporation sells product G for $150 per unit, the variable cost per unit is $105, the fixed costs are $720,000, and the Corporation is in the 25% corporate tax bracket. What are the rounded sales (dollars) required to earn a net income (after tax) of $40,000?

$2,533,350

$2,577,750

$2,933,400

$2,400,0006) If sales are $400,000, variable costs are 75% of sales, and operating income is $50,000, what is the operating leverage?

0

1.25

2.2

27) The Martin 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 Martin Company wishes to maintain a desired ending finished goods inventory of 20% of the following months sales.
What should the budgeted production be for January?

236,000

181,000

200,000

219,0008) The standard costs and actual costs for direct labor for the manufacture of 2,500 units of product are as follows:
Standard Costs
Direct labor 7,500 hours @ $12

Actual Costs
Direct labor 7,400 hours @ $11.40
The amount of the direct labor efficiency variance is:

$1,140 favorable

$1,140 unfavorable

$1,200 favorable

$1,200 unfavorable9) The Company has the following operating data for its manufacturing operations:
Unit selling price $ 250
Unit variable cost 100
Total fixed costs $840,000
The company has decided to increase the wages of hourly workers which will increase the unit variable cost by 10%. Increases in the salaries of factory supervisors and property taxes for the factory will increase fixed costs by 4%. If these changes are made and the sales prices are held constant, the break-even point in units will be:

increased by 640 units

increased by 400 units

decreased by 640 units

increased by 800 units10) All of the following qualitative considerations may impact upon long-term (capital) investments analysis except:

time value of money

employee morale

the impact on product quality

manufacturing flexibility11) Company manufactures three different product lines, Model X, Model Y, and Model Z. Each model has considerable marketplace demand. The following per unit data apply:
Model X Model Y Model Z
Selling price $50 $60 $70
Direct materials 6 6 6
Direct labor ($12 per hour) 12 12 24
Variable support costs ($4 per machine-hour) 4 8 8
Fixed support costs 10 10 10
If there is excess capacity, which model is the most profitable to produce?

Model Z

Both Model X and Model Y have same and highest profitability

Model Y

Model X12) Which of the following is not a reason for a direct materials quantity variance?

Malfunctioning equipment

Purchasing of inferior raw materials

Material requiring rework

Spoilage of materials13) Corporation began its operations on September 1 of the current year. Budgeted sales for the first three months of business are $240,000, $300,000, and $420,000, respectively, for September, October, and November. The company expects to sell 20% of its merchandise for cash. Of sales on account, 70% are expected to be collected in the month of the sale, 25% in the month following the sale, and the remainder in the following month.
The cash collections in September from accounts receivable are:

$240,000

$134,400

$192,000

$168,00014) Company is considering replacing equipment. Company would sell its existing equipment. At the end of four years, the new equipment would be worth nothing. Information on the proposal is provided below.
Initial investment:
Asset $600,000
Working capital $ 128,000
Operations (per year for four years):
Cash receipts $450,000
Cash expenditures $ 190,000
Disinvestment:
Salvage value existing equipment $ 50,000
Discount rate 18%
Ignoring income taxes, what is the net present value of the investment? Assume there is no recovery of working capital.

$82,724

$149,400

$21,400

$(124,280)15) An unfavorable production-volume variance ________.

indicates that the company had reduced its per unit fixed overhead cost to improve sales

takes into account the effect of additional revenues due to maintaining higher prices

measures the amount of extra fixed costs planned for but not used

is not a good measure of a lost production opportunity16) If breakeven point is 1,000 units, each unit sells for $30, and fixed costs are $10,000, then on a graph the ________.

total cost line will be zero at zero units sold

revenue line will start at $10,000

total revenue line and the total cost line will intersect at $40,000 of revenue

total revenue line and the total cost line will intersect at $30,000 of revenue17) A Company has a current production level of 20,000 units per month. Unit costs at this level are:
Direct materials $0.25
Direct labor 0.40
Variable overhead 0.15
Fixed overhead 0.20
Marketing – fixed 0.20
Marketing/distribution – variable 0.40
Current monthly sales are 18,000 units. X has contacted Company about purchasing 1,500 units at $2.00 each. Current sales would NOT be affected by the one-time-only special order, and variable marketing/distribution costs would NOT be incurred on the special order. What is Company’s change in net operating income if the special order is accepted?

$400 increase in NOI

$400 decrease in NOI

$1,800 increase in NOI

$1,800 decrease in NOI18) The standard costs and actual costs for direct labor for the manufacture of 2,500 actual units of product are as follows:
Standard Costs
Direct labor 7,500 hours @ $12

Actual Costs
Direct labor 7,400 hours @ $11.40
The amount of the direct labor rate variance is:

$4,440 favorable

$4,440 unfavorable

$4,500 favorable

$4,500 unfavorable19) Which of the following is true of relevant information?

All fixed costs are relevant.

All future revenues and expenses are relevant.

All past costs are never relevant.

All fixed costs are not relevant.20) The AARR method is similar to the IRR method as ________.

both consider the time value of money

both calculate the return using operating-income numbers after considering accruals and taxes

both calculate the return using after-tax cash flows

both calculate the result in terms of percentage21) Company is considering a new capital investment. The following information is available on the investment. The cost of the machine will be $330,000. The annual cost savings if the new machine is acquired will be $85,000. The machine will have a 5-year life, at which time the terminal disposal value is expected to be $32,000. Company is assuming no tax consequences. If Company has a required rate of return of 11%, which of the following is closest to the present value of the project?

$24,836

$15,840

$8,245

$3,13622) Which of the following is true of flexible budget?

It calculates total fixed cost by multiplying actual units by budgeted fixed cost per unit.

It calculates contribution margin by multiplying budgeted units by actual contribution margin per unit.

It calculates revenues by multiplying budgeted units by actual selling price per unit.

It calculates total variable cost by multiplying actual units by budgeted variable cost per unit.23) Below is a table for the present value of $1 at Compound interest.
Year 6% 10% 12%
1 .943 .909 .893
2 .890 .826 .797
3 .840 .751 .712
4 .792 .683 .636
5 .747 .621 .567
Below is a table for the present value of an annuity of $1 at compound interest.
Year 6% 10% 12%
1 .943 .909 .893
2 1.833 1.736 1.69
3 2.673 2.487 2.402
4 3.465 3.17 3.037
5 4.212 3.791 3.605

Using the tables above, what would be the internal rate of return of an investment that required an investment of $250,000, and would generate an annual cash inflow of $65,946 for the next 5 years?

6%

10%

12%

cannot be determined from the data given.24) If fixed costs are $200,000 and the unit contribution margin is $20, what amount of units must be sold in order to have a zero net income?

25,000

20,000

200,000

10,00025) Company currently manufactures parts for its main product. The costs per unit are as follows:
Direct materials $ 45.00
Direct labor 35.00
Variable overhead 33.00
Fixed overhead 30.00
Total $143.00
Vendor has contacted Company with an offer to supply 5,000 of these parts for $135.00 each. If the parts were purchased, Company will eliminate $85,000 of fixed overhead if it accepts the proposal.
Should Company make or buy the parts? What is the difference between the two alternatives?

Buy; savings = $85,000

Buy; savings = $50,000

Make; savings = $25,000

Make; savings = $120,00026) Which of the following budgets is not directly associated with the production budget?

Direct materials purchases budget

Factory overhead cost budget

Capital Expenditures budget

Direct labor cost budget27) One-time-only special orders should only be accepted if ________.

incremental revenues exceed incremental costs

differential revenues exceed variable costs

incremental revenues exceed fixed costs

incremental revenues exceed total costs28) Which of the following is the correct mathematical expression to calculate the fixed overhead spending variance?

Static-budget amount — Fixed overhead allocated for actual output

Flexible-budget amount — Actual costs incurred

Flexible-budget amount — Fixed overhead allocated for actual output

Static-budget amount — Flexible-budget amount29) The standard costs and actual costs for direct materials for the manufacture of 2,500 actual units of product are as follows:
Standard Costs
Direct materials (per completed unit) 1.04 kilograms @$8.75

Actual Costs
Direct materials 2,500 kilograms @ $8

The amount of direct materials price variance is:

$1,950 unfavorable

$1,875 unfavorable

$1,950 favorable

$1,875 favorable30) An anticipated purchase of equipment for $400,000, with a useful life of 8 years and no residual value, is expected to yield the following annual net incomes and net cash flows:
Year Net Income Net Cash Flow
1 $60,000 $110,000
2 50,000 100,000
3 50,000 100,000
4 40,000 90,000
5 40,000 90,000
6 40,000 90,000
7 40,000 90,000
8 40,000 90,000
What is the cash payback period?

5 years

4 years

6 years

3 years31) The first budget customarily prepared as part of an entity’s master budget is the:

production budget

cash budget

sales budget

direct materials purchases32) A Company manufactures and sells commercial air conditioners. Because of current trends, it expects to increase sales by 15 percent next year. If this expected level of production and sales occurs and plant expansion is not needed, how should this increase affect next year’s total amounts for the following costs. Variable Costs Fixed Costs Mixed Costs

increase increase increase

increase no change increase

no change no change increase

decrease increase increase33) Cost behavior refers to the manner in which:

a cost changes as the related activity changes

a cost is allocated to products

a cost is used in setting selling prices

a cost is estimated34) Company manufactures three different product lines, Model X, Model Y, and Model Z. Each model has considerable marketplace demand. The following per unit data apply:
Model X Model Y Model Z
Selling price $50 $60 $70
Direct materials 6 6 6
Direct labor ($12 per hour) 12 12 24
Variable support costs ($4 per machine-hour) 4 8 8
Fixed support costs 10 10 10
If there is a machine breakdown, which model is the most profitable to produce?

Model X

Model Z

Model Y

Both Model X and Model Y have same and highest profitability35) Assume that a company sold 8,000 units of Product A and 2,000 units of Product B during the past year. The unit contribution margins for Products A and B are $20 and $45 respectively. The company has fixed costs of $350,000. The break-even point in total units (including A and B) sold is:

14,000 units

25,278 units

8,000 units

10,769 units36) Corporation currently produces products and is heavily automated. Expected production per month is 15,000 units, direct material costs are $0.50 per unit, and manufacturing overhead costs are $15,000 per month. Manufacturing overhead is all fixed costs. What are the total flexible budget amounts for these costs for 10,000 and 15,000 units, respectively?

$15,000; $22,500

$20,000; $17,500

$15,000; $17,500

$20,000; $22,50037) Company began its operations on March 31 of the current year. Projected manufacturing costs for the first three months of business are $156,800, $195,200, and $217,600, respectively, for April, May, and June. Depreciation, insurance, and property taxes represent $28,800 of the estimated monthly manufacturing costs. Insurance was paid on March 31, and property taxes will be paid in November. Three-fourths of the remainder of the manufacturing costs are expected to be paid in the month in which they are incurred, with the balance to be paid in the following month.
The cash payments for manufacturing in the month of May are:

$195,200

$146,400

$156,800

$166,40038) The net present value method assumes that project cash flows can be reinvested at the company’s ________.

internal rate of return

accounting rate of return

required rate of return

growth rate39) As production increases, what should happen to the fixed costs per unit?

Stay the same.

Increase.

Decrease.

Either increase or decrease, depending on the variable costs.40) A Company’s OH variances are shown as follows:

Spending Variance Efficiency Variance Production-Volume Variance
Variable overhead $6,500 F $12,000 U N/A
Fixed overhead ?? N/A $46,000 U
If the Company has a net unfavorable OH spending variance of $2,300, what is the fixed overhead spending variance?

$8,800 favorable

$4,200 unfavorable

$4,200 favorable

$8,800 unfavorable41) A profitable is approached by a potential customer to fulfill a one-time-only special order for its regular product (as a try-out). The company has excess capacity. The following per unit data apply for sales to regular customers:
Variable costs:
Direct materials $120
Direct labor 60
Manufacturing support 105
Advertising costs 45
Fixed costs:
Manufacturing support 135
Advertising costs 45
Total costs 510
Markup (50%) 255
Regular Sales Price $765The company is considering the new customer’s request. It’s only requirement as to sales price is that this special order must increase the company’s net operating income.
What is the minimum acceptable sales price for the special order?

$331

$341

$511

$286
2.5 points
2.5 points