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- Download: http://solutionzip.com/downloads/a-product-sells-for-200-per-unit-and-its-variable-costs-per-unit-are-130/
- 1. 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? (Points : 5)
- 6,500
- 500
- 5,000
- 200
- Units required to earn target pre-tax income of $35,000 = ($35,000 + $420,000)/$70 = 6,500 units
- 2. For January, sales revenue is $700,000; sales commission are 5% of sales; the sales manager's salary is $96,000; advertising expenses are $90,000; shipping expenses total 2% of sales; and miscellaneous selling expenses are $2,100 plus 1/2 of 1% sales. Total selling expenses for the month of January are: (Points : 5)
- $157,100
- $240,600
- $183,750
- $182,100
- 3. A company's product sells at $12 per unit and has a $5 per unit variable cost. The company's total fixed costs are $98,000.The break-even point in units is: (Points : 5)
- 14,000
- 7,000
- 5,187
- 2,123
- $98,000/$7 = 14,000 units
- 4. The contribution margin per unit is equal to the sales price per unit minus the variable costs per unit. (Points : 5)
- True
- False
- 5. Total variable costs change proportionately with changes in output activity. (Points : 5)
- True
- False
- 6. Variable costs per unit increase proportionately with increases in output activity. (Points : 5)
- True
- False
- 7.
- If fixed costs are $500,000 and variable costs are 60% of break-even sales, profit is zero when sales revenue is $930,000.
- (Points : 5)
- True
- False
- 8. Which of the following is a mixed cost? (Points : 5)
- Salary of a factory supervisor
- Electricity costs of $2 per kilowatt-hour
- Rental costs of $5,000 per month plus $.30 per machine hour of use
- Straight-line depreciation on factory equipment
- 9. Variable costs are costs that remain constant in total dollar amount as the level of activity changes (Points : 5)
- True
- False
- 10. 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? (Points : 5)
- $8,000 increase
- $8,000 decrease
- $30,000 decrease
- $30,000 increase
- 11. A break-even point can be calculated either in units or in dollars. (Points : 5)
- True
- False
- 12.
- How does contribution margin differ from gross margin? Give a specific example as part of your explanation.
- (Points : 10)
- The Contribution Margin is calculated by subtracting Variable Costs from Sales. This is used in Variable Costing where costs are categorized based on the cost behavior; while Gross Margin is calculated by subtracting Cost of Goods Sold from Sales which is used in Absorption Costing where costs are categorized based on function.
- 13. 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. current breakeven
- b. new breakeven
- Show all work to receive full credit (Points : 10)
- a)
- Contribution Margin = $30 - $18
- = $12
- BEP = $720,000 / $12
- = 60,000 units
- b)
- Contribution Margin = $30 - $15
- = $15
- BEP = $900,000 / $15
- = 60,000 units
- 14. State the difference in cost of goods manufactured between absorption costing and variable costing. As part of your explanation give an example of the statement format difference. (Points : 10)
- The main difference between those methods is in the treatment of Fixed Manufacturing Costs; where under Variable Costing, Fixed Manufacturing Costs are not included in Product Costs and are treated as a Period Cost while Under Absorption Costing Fixed Manufacturing Overhead are treated as Product Costs. Hence, under Variable Costing Product Costs consist solely of Variable Production Costs.
- The following Income Statements show the difference:
- Company A
- Income Statement (Variable Costing)
- Month Ended April 30, 20xx
- Sales revenue (10,000 × $27) $270,000
- Variable manufacturing costs $80,000
- Variable selling and administrative costs $20,000 $100,000
- Contribution margin $170,000
- Fixed manufacturing costs $35,000
- Fixed selling and administrative costs $10,000 $45,000
- Operating income $125,000
- Company A
- Income Statement (Absorption Costing)
- Month Ended April 30, 20xx
- Sales revenue (10,000 × $27) $270,000
- Cost of goods manufactured $131,000
- Less: Ending inventory ($22,000)
- Cost of Goods Sold $109,000
- Gross Profit $161,000
- Operating expenses:
- Variable Selling and administrative cost $20,000
- Fixed Selling and administrative
- $10,000 $30,000
- Operating income $131,000
- Income statements
- 15. The more activities tracked by activity-base...The more activities tracked by activity-based costing, the more accurately overhead costs are assigned. (Points : 5)
- True
- False
- 16. Which of the following would not be considered a product cost? (Points : 5)
- Cost accountant's salary
- Factory line worker's salary.
- Direct labor costs
- Manufacturing overhead costs
- 17. A retail store has three departments, 1, 2, and 3, and does general advertising that benefits all departments. Advertising expense totaled $41,000 for the year, and departmental sales were as follows. Which department would be allocated the highest amount of the advertising expense if the activity base is sales?
- Sales: Department 1 $101,000
- Department 2 $212,750
- Department 3 $157,750
- (Points : 5)
- Department 1
- Department 2
- Department 3
- Each department would have and equal amount since advertising benefits all departments
- Download: http://solutionzip.com/downloads/a-product-sells-for-200-per-unit-and-its-variable-costs-per-unit-are-130/
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