Victoria Company produces a single product. Last year’s income statement is as follows: Sales (29,000 units) ………………………………………………. $1,218,000 Total variable cost ……………………………………………………… 812,000 Contribution margin ………………………………………………. $ 406,000 Total fixed cost …………………………………………………………. 300,000 Operating income ………………………………………………….., $ 106,000 Required: 1. Compute the break-even point in units and sales dollars calculated using the breakeven units. 2. What was the margin of safety for Victoria last year in sales dollars? 3. Suppose that Victoria is considering an investment in new technology that will increase fixed cost by $250,000 per year but will lower variable costs to 45% of sales. Units sold will remain unchanged. Prepare a budgeted income statement assuming that Victoria makes this investment. What is the new break-even point in sales dollars, assuming that the investment is made?
> Explain the meaning of the coefficient of determination.
> What is meant by the best-fitting line?
> What is the scatter graph method, and why is it used? Why is a scatter graph a good first step in separating mixed costs into their fixed and variable components?
> Describe the cost formula for a strictly variable cost such as electrical power cost of $1.15 per machine hour (i.e., every hour the machinery is run, electrical power cost goes up by $1.15).
> Describe the cost formula for a strictly fixed cost such as depreciation of $15,000 per year.
> Why do mixed costs pose a problem when it comes to classifying costs into fixed and variable categories?
> What is a driver? Give an example of a cost and its corresponding output measure or driver.
> Which of the following is a period expense? a. Factory insurance b. CEO salary c. Direct labor d. Factory maintenance e. All of these.
> Slaps hot Company makes ice hockey sticks. During the month of June, 1,900 sticks were completed at a cost of goods manufactured of $437,000. Suppose that on June 1, Slaps hot had 350 units in finished goods inventory costing $80,000 and on June 30, 370
> Stone Inc. is a company that purchases goods (e.g., chess sets, pottery) from overseas and resells them to gift shops in the United States. Stone Inc. is which of the following? a. Wholesaler b. Retailer c. Service firm d. Manufacturing firm e. None of
> Target is which of the following? a. Wholesaler b. Retailer c. Service firm d. Manufacturing firm e. None of these.
> Kellogg’s makes a variety of breakfast cereals. Kellogg’s is which of the following? a. Wholesaler b. Retailer c. Service firm d. Manufacturing firm e. None of these.
> Bobby Dee’s is an owner-operated company that details (thoroughly cleans—inside and out) automobiles. Bobby Dee’s is which of the following? a. Wholesaler b. Retailer c. Service firm d. Manufacturing firm e. None of these.
> Which of the following is an indirect cost? a. The cost of denim in a jeans factory b. The cost of mixing labor in a factory that makes over-the-counter pain relievers c. The cost of bottles in a shampoo factory d. The cost of restriping the parking lot
> The accountant in a factory that produces biscuits for fast-food restaurants wants to assign costs to boxes of biscuits. Which of the following costs can be traced directly to boxes of biscuits? a. The cost of flour and baking soda b. The wages of the m
> Product (or manufacturing) costs consist of a. direct materials, direct labor, and selling costs. b. direct materials, direct labor, manufacturing overhead, and operating expense. c. administrative costs and conversion costs. d. prime costs and manufact
> Accumulating costs means that a. costs must be summed and entered on the income statement. b. each cost must be linked to some cost object. c. costs must be measured and tracked. d. costs must be allocated to units of production. e. costs have expired a
> What is the cost of goods manufactured?
> Define selling cost. Give five examples of selling cost.
> Slaps hot Company makes ice hockey sticks. During the month of June, the company purchased $132,000 of materials. Also during the month of June, Slaps hot Company incurred direct labor cost of $113,000 and manufacturing overhead of $187,000. Inventory in
> How does a period cost differ from a product cost?
> Explain the difference between direct materials purchased in a month and direct materials used for the month.
> Define manufacturing overhead.
> What is allocation?
> Explain the difference between cost and expense.
> Which of the following is typically found in a corporation’s code of ethics? a. Compliance with the rule of law b. Integrity c. Honesty d. Competence e. All of these.
> Which of the following is not a common form of certification for managerial accountants? a. Certificate in Internal Auditing b. Certificate in External Auditing c. Certificate in Public Accounting d. Certificate in Management Accounting
> Which of the following is a characteristic of managerial accounting? a. There is an internal focus. b. Subjective information may be used. c. There is an emphasis on the future. d. It is broad-based and multidisciplinary. e. All of these.
> The process of choosing among competing alternatives is called a. planning. b. decision making. c. controlling. d. performance evaluation. e. None of these.
> The users of managerial accounting information include a. for-profit companies. b. not-for-profit organizations. c. city governments. d. educational institutions. e. All of these.
> The following statements have appeared in newspaper editorials: 1. Business students come from all segments of society. If they have not been taught ethics by their families and by their elementary and secondary schools, a business school can have little
> The provision of accounting information for internal users is known as a. accounting. b. financial accounting. c. managerial accounting. d. information provision. e. accounting for planning and control.
> The controller should be a member of the top management staff. Do you agree or disagree? Explain.
> What is the difference between a staff position and a line position?
> Jenna Suarez, the controller for Arben Company, has faced the following situations in the past two weeks: a. Ben Heald, head of production, wondered whether it would be more cost effective to buy parts partially assembled or to buy individual parts and a
> Each of the following scenarios requires the use of accounting information to carry out one or more managerial accounting objective. a. Laboratory Manager: An HMO approached me recently and offered us its entire range of blood tests. It provided a price
> What is the value chain? Why is it important?
> The chief accounting officer for a firm is the a. chief executive officer. b. chief operating officer. c. vice president of sales. d. production head. e. controller.
> Explain the role of financial reporting in the development of managerial accounting. Why has this changed in recent years?
> In terms of strategic positioning, which two general strategies may be chosen by a company? a. Revenue production and cost enhancement b. Activity-based costing and value chain emphasis c. Increasing customer value and decreasing supplier orientation d.
> An effective managerial accounting system should track information about an organization’s activities in which of the following areas? a. Development b. Marketing c. Production d. Design e. All of these.
> Manager: If I can reduce my costs by $40,000 during this last quarter, my division will show a profit that is 10% above the planned level, and I will receive a $10,000 bonus. However, given the projections for the fourth quarter, it does not look promisi
> What is meant by controlling?
> Should a managerial accounting system provide both financial and nonfinancial information? Explain.
> Setting objectives and identifying methods to achieve those objectives is called a. planning. b. decision making. c. controlling. d. performance evaluation. e. None of these.
> What are the three broad objectives of managerial accounting?
> What is managerial accounting?
> Candy land Inc. produces a particularly rich praline fudge. Each 10-ounce box sells for $5.60. Variable unit costs are as follows: Pecans ………………………………………………….. $0.70 Sugar ……………………………………………………… 0.35 Butter ……………………………………………………… 1.85 Other ingredients ……
> Abraham Company had revenues of $830,000 last year with total variable costs of $647,400 and fixed costs of $110,000. Required: 1. What is the variable cost ratio for Abraham? What is the contribution margin ratio? 2. What is the break-even point in sal
> Polaris Inc. manufactures two types of metal stampings for the automobile industry: door handles and trim kits. Fixed cost equals $146,000. Each door handle sells for $12 and has variable cost of $9; each trim kit sells for $8 and has variable cost of $5
> Carlyle Lighting Products produces two different types of lamps: a floor lamp and a desk lamp. Floor lamps sell for $30, and desk lamps sell for $20. The projected income statement for the coming year follows: Sales ……………………………………………………………………… $600,000
> Consider the following scenario between Dave, a printer, and Steve, an assistant in the local university’s athletic department. Steve: Dave, our department needs to have 10,000 posters printed for the basketball team for next year. Here’s the mock-up, an
> Elgart Company produces plastic mailboxes. The projected income statement for the coming year follows: Sales ……………………………………………………………… $460,300 Total variable cost …………………………………………….. 165,708 Contribution margin ………………………………………. $294,592 Total fixed cost
> Legrand Company produces hand cream in plastic jars. Each jar sells for $3.40. The variable cost for each jar (materials, labor, and overhead) totals $2.55. The total fixed cost is $58,140. During the most recent year, 81,600 jars were sold. Required: 1
> Aldovar Company produces a variety of chemicals. One division makes reagents for laboratories. The division’s projected income statement for the coming year is: Sales (203,000 units @ $70) ………………………………………. $14,210,000 Total variable cost ………………………………………
> Kallard Manufacturing Company produces t-shirts screen-printed with the logos of various sports teams. Each shirt is priced at $13.50 and has a unit variable cost of $9.85. Total fixed cost is $197,600. Required: 1. Compute the break-even point in units
> Khumbu Company’s projected profit for the coming year is as follows: Required: 1. Compute the break-even point in units. 2. How many units must be sold to earn a profit of $240,000? 3. Compute the contribution margin ratio. Using that
> Income statements for two different companies in the same industry are as follows: Required: 1. Compute the degree of operating leverage for each company. 2. CONCEPTUAL CONNECTION Compute the break-even point in dollars for each company. Explain why th
> Parker Pottery produces a line of vases and a line of ceramic figurines. Each line uses the same equipment and labor; hence, there are no traceable fixed costs. Common fixed cost equals $30,000. Parker’s accountant has begun to assess t
> Medina Company produces a single product. The projected income statement for the coming year is as follows: Sales (40,000 units @ $45) …………………………….. $1,800,000 Total variable cost …………………………………………….. 1,044,000 Contribution margin …………………………………………. $ 756
> Klamath Company produces a single product. The projected income statement for the coming year is as follows: Sales (54,600 units @ $34) …………………………………….. $1,856,400 Total variable cost …………………………………………………….. 1,064,700 Contribution margin …………………………………………
> Lotts Company produces and sells one product. The selling price is $10, and the unit variable cost is $6. Total fixed cost is $10,000. Required: 1. Prepare a CVP graph with ‘‘Units Sold’’ as the horizontal axis and ‘‘Dollars’’ as the vertical axis. Labe
> The Bedron Company is a closely held investment service group that has been quite successful over the past 5 years, consistently providing most members of the top management group with 50% bonuses. In addition, both the chief financial officer and the ch
> Arberg Company’s controller prepared the following budgeted income statement for the coming year: Sales ……………………………………………………….. $415,000 Total variable cost ……………………………………… 302,950 Contribution margin …………………………………. $112,050 Total fixed cost ……………………………
> Comer Company produces and sells strings of colorful indoor/outdoor lights for holiday display to retailers for $8.12 per string. The variable costs per string are as follows: Direct materials ……………………………………. $1.87 Direct labor ……………………………………………. 1.70 V
> Werner Company produces and sells disposable foil baking pans to retailers for $2.75 per pan. The variable cost per pan is as follows: Direct materials …………………………………………………… $0.37 Direct labor …………………………………………………………… 0.63 Variable factory overhead ………………
> The controller of Pelley Company prepared the following projected income statement: Sales ……………………………………………………………….. $95,000 Total variable cost ……………………………………………… 68,400 Contribution margin ………………………………………… $26,600 Total fixed cost ………………………………………………….
> For each of the following independent situations, calculate the amount(s) required. Required: 1. At the break-even point, Jefferson Company sells 115,000 units and has fixed cost of $349,600. The variable cost per unit is $4.56. What price does Jefferso
> Suppose that Adams Company sells a product for $20. Unit costs are as follows: Direct materials …………………………………………………….. $1.90 Direct labor …………………………………………………………….. 1.40 Variable factory overhead ………………………………………… 2.10 Variable selling and administrative
> Jellico Inc.’s projected operating income (based on sales of 450,000 units) for the coming year is as follows: Total Sales …………………………………………………… $11,700,000 Total variable cost …………………………………… 8,190,000 Contribution margin …………………………….. $ 3,510,000 Total
> Suppose a firm with a contribution margin ratio of 0.3 increased its advertising expenses by $10,000 and found that sales increased by $30,000. Was it a good decision to increase advertising expenses? Suppose that the contribution margin ratio is now 0.4
> Explain why contribution margin per unit becomes profit per unit above the break-even point.
> Describe the difference between the units sold approach to CVP analysis and the sales revenue approach.
> Identify the three forms of accounting certification. Which form of certification do you believe is best for a managerial accountant? Why?
> What is the difference between a product and a service? Give an example of each.
> On February 1, 2010, the balance of the retained earnings account of Blue Power Corporation was $630,000. Revenues for February totaled $123,000, of which $115,000 was collected in cash. Expenses for February totaled $131,000, of which $108,000 was paid
> For the year ended December 31, 2010, Ebanks, Inc., earned an ROI of 12%. Sales for the year were $96 million, and average asset turnover was 2.4. Average owners’ equity was $32 million. Required: a. Calculate Ebanks, Inc.’s margin and net income. b. Ca
> At the beginning of the year, the net assets of Carby Co. were $346,800. The only transactions affecting owners’ equity during the year were net income of $42,300 and dividends of $12,000. Required: Calculate Carby Co.’s return on equity (ROE) for the y
> From the following data, calculate the retained earnings balance as of December 31, 2009: Retained earnings, December 31, 2010 . . . . . . . . . . . . . ………... . . . . . . . $841,200 Decrease in total liabilities during 2010 . . . . . . . . . . . . . .
> From the following data, calculate the retained earnings balance as of December 31, 2010: Retained earnings, December 31, 2009 . . . . . . . . …………... . . . . . . . . . . …. $311,800 Cost of equipment purchased during 2010 . . . . . . . ………………….. . . .
> From the following data, calculate the Retained Earnings balance as of December 31, 2011: Retained earnings, December 31, 2010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $346,400 Cost of buildings purchased during 2011 .
> Prepare a bank reconciliation as of October 31 from the following information: a. The October 31 cash balance in the general ledger is $844. b. The October 31 balance shown on the bank statement is $373. c. Checks issued but not returned with the bank s
> Prepare a bank reconciliation as of August 31 from the following information: a. The August 31 balance shown on the bank statement is $9,810. b. There is a deposit in transit of $1,260 at August 31. c. Outstanding checks at August 31 totaled $1,890. d.
> Assume that you own 600 shares of common stock of a company, that you have been receiving cash dividends of $6 per share per year, and that the company has a 4-for-3 stock split. Required: a. How many shares of common stock will you own after the stock
> A firm issues long-term debt with an effective interest rate of 10% and the proceeds of this debt issue can be invested to earn an ROI of 12%. What effect will this financial leverage have on the firm’s ROE relative to having the same amount of funds inv
> A bookkeeper prepared the year-end financial statements of Giftwrap, Inc. The income statement showed net income of $47,400, and the balance sheet showed ending retained earnings of $182,000. The firm’s accountant reviewed the bookkeeper’s work and deter
> Maliha, Inc., did not pay dividends on its $6.50, $50 par value, cumulative preferred stock during 2009 or 2010. Since 2005, 22,000 shares of this stock have been outstanding. Maliha, Inc., has been profitable in 2011 and is considering a cash dividend o
> The balance sheet caption for common stock is the following: Common stock, $5 par value, 2,000,000 shares authorized, 1,400,000 shares issued, 1,250,000 shares outstanding . . . . . . . . . . . . . . . . . . . . . . . $ ? Required: a. Calculate the dol
> Kohl Co. provides warranties for many of its products. The January 1, 2010, balance of the Estimated Warranty Liability account was $70,400. Based on an analysis of warranty claims during the past several years, this year’s warranty provision was establi
> Two acquaintances have approached you about investing in business activities in which each is involved. Julie is seeking $560 and Sam needs $620. One year from now your original investment will be returned, along with $50 income from Julie or $53 income
> Prepare an answer sheet with the column headings shown here. For each of the following transactions or adjustments, indicate the effect of the transaction or adjustment on the appropriate balance sheet category and on net income by entering for each acco
> Crichton Publications uses the accounting rate of return method to evaluate proposed capital investments. The company’s desired rate of return (its cost of capital) is 18%. The project being evaluated involves a new product that will have a three-year li
> The following capital expenditure projects have been proposed for management’s consideration at Heard, Inc., for the upcoming budget year: Required: a. Calculate the net present value of projects B, C, and D, using 14% as the cost of
> Information about four investment proposals is summarized here: Required: Calculate the present value ratio of each proposal and indicate which proposal is the most desirable investment. Proposal Investment Required Net Present Value $60,000 24,000
> Duncan Company is considering the investment of $140,000 in a new machine. It is estimated that the new machine will generate additional cash flow of $21,000 per year for each year of its 12-year life and will have a salvage value of $15,000 at the end o
> The segmented income statement for XYZ Company for the year ended December 31, 2010, follows: The company is concerned about the performance of product A, and you have been asked to analyze the situation and recommend to the president whether to contin
> MMV Inc. opened a chain of businesses several years ago that provide quick oil changes and other minor services in conjunction with a convenience operation consisting of a soup, sandwich, and snack bar. The strategy was that as customers brought autos in
> Following are the current asset and current liability sections of the balance sheets for Freedom, Inc., at January 31, 2011 and 2010 (in millions): Required: a. Calculate the working capital and current ratio at each balance sheet date. Round your curr
> Hull Motors, Inc. (HMI), produces small gasoline-powered motors for use in lawn mowers. The company has been growing steadily over the past five years and is operating at full capacity. HMI recently completed the addition of new plant and equipment at a
> The Delmar Beverage Co. produces a premium root beer that is sold throughout its chain of restaurants in the Midwest. The company is currently producing 4,000 gallons of root beer per day, which represents 80% of its manufacturing capacity. The root beer
