1. Managerial accounting stresses accounting concepts and procedures that are relevant to preparing reports for A. taxing authorities.

B. internal users of accounting information. C. external users of accounting information. D. the Securities and Exchange Commission (SEC). 2. A difference between actual costs and planned costs A. should be investigated if the amount is exceptional. B. indicates that the planned cost was poorly estimated. C. indicates that the manager is doing a poor job. D. should be ignored unless it involves the cost of ingredients. 3. Variable cost per unit A. increases when the number of units produced increases. B. does not change when the number of units produced increases. C. decreases when the number of units produced increases. D. decreases when the number of units produced decreases. 4. Opportunity costs are A. considered to be fixed costs in the short term. B. another term for sunk costs. C. able to be controlled by most effective managers. D. the value of benefits foregone when one decision is selected over another. 5. Barries Bagel Bakery projects labor costs of $25,000 in a period when 50,000 units are produced. If labor is a variable cost, and if production is expected to drop to 45,000 units in the next period, what is the expected labor cost in the next period? A. $25,000 B. $22,500 C. $20,000 D. $27,500 Units produced 50,000 Labor costs Labor cost per unit Volume for next year Labor cost for next period $25,000 $0.50 =25,000/50,000 45,000 $22,500 =0.50 * 45,000

6. Freds Friendly Frisbee Corporation has a variable cost per unit budgeted to be $6.00 and fixed cost per unit budgeted to be $3.00 in a period when 5,000 units are produced. If production is actually 4,500 units, what is the expected total cost of the units produced? A. $45,000 B. $40,500 C. $43,500 D. $42,000 Variable cost 6 Fixed cost Expected total cost 7. You get what you measure! refers to the relationship between A. managerial accounting and financial accounting. B. direct costs and indirect costs. C. sunk costs and opportunity costs. D. performance measures and actions of managers. 15,000 =5,000 * 3 42,000 =15,000 + (4,500 * 6)

8. Sam, a college student, has a number of options for his 10-week summer. He needs to choose from the following options with regard to work and school. He can either: (1) Work full time (40 hours per week) at the local country club making $10 per hour. (2) Take a summer class which will cost $700 and last all summer. During this time he will work 15 hours per week making $10 per hour. (3) Take a class at a cost of $700 and not work at all during the summer. Sams opportunity cost of taking the class if he chooses option 3 over option 1 would be: A. $4,000. B. $3,300. C. $1,800. D. $700. Option 1 2 3 Revenue 4,000 800 -700

9. Variable costs per unit A. can be estimated by the high-low method. B. remains the same on a per unit basis when the level of activity changes. C. are represented by the slope of the total cost line. D. All of the above answers are correct. 10. Benoits Baguettes has total costs of $7,000 when 3,500 units are produced and $10,500 when 7,000 units are produced. What is the total fixed cost? A. $7,000 B. $3,500 C. $10,500 D. $0 Output Cost High Low Difference Variable cost Fixed cost 7,000 3,500 3,500 $1.00 $3,500 =10,500 (1 * 7,000) 10,500 7,000 $3,500.0

11. Total costs at the Saucy Salsa Company were $75,800 when 30,000 units were produced and $95,800 when 40,000 units were produced. Use the high-low method to find the estimated total costs for a production level of 32,000 units. A. $80,115 B. $76,000 C. $79,800 D. $91,800 Output Cost High 40,000 95,800 Low Difference Variable cost Fixed cost Cost of level 30,000 10,000 $2.00 $15,800 $79,800 =15,800 + (2 * 32,000) 75,800 $20,000.0

12. The contribution margin ratio provides a measure of: A. The contribution of every sales dollar to covering fixed cost and generating a profit. B. The contribution of every sales dollar to covering variable cost and generating a profit. C. The contribution of every sales dollar to covering variable and fixed costs and generating a profit. D. None of the above. 13. Marys Manufacturing is operating at its break-even point of 10,000 units. Which of the following statements is not true? A. The amount of Marys costs equals the amount of its revenues. B. Marys fixed costs equal its variable costs. C. Marys profit equals zero. D. Assuming no other changes, if Mary sold more units, it would earn a profit.

14. Holding all other factors constant, the break-even point will be decreased by A. increasing the fixed costs. B. decreasing the contribution margin. C. increasing the selling price. D. increasing the variable cost per unit. 15. Assume that Tammys Tamales has fixed costs of $128,325. Each unit generates variable costs of $0.42 and sells for $1.00. What is the break-even point? A. 90,170 units B. 221,250 units C. 304, 536 units D. 86,325 units Fixed cost 128,325 Variable cost Selling price Break-even point (Units) 0.42 1 221,250 =128,325/(1 0.42)

16. Silly Strollers, Inc. sells a single product at a price of $275 per unit. Variable cost per unit is $135 and fixed costs total $356,860. If sales are expected to be $825,000, what is Sillys margin of safety? A. $468,140 B. $124,025 C. $700,975 D. $405,000 Fixed cost 356,860 Variable cost Selling price Break-even point (Units) Expected sales Margin of safety 135 275 700,975 825,000 124,025 =825,000 700,975

17. The Chinese Checker Company had revenues of $360,000 when 60,000 units were sold. If fixed costs totalled $90,000 and variable costs totalled $210,000, what was the contribution margin per unit? A. $6.00 B. $5.00 C. $2.50 D. $4.50 Revenue 360,000 Variable cost Number of units Contribution margin per unit 210,000 60,000 2.5 =(360,000 210,000)/60,000

18. Assume the variable production cost and the price were both cut by $1.00 per unit. Which of the following would change? A. Contribution margin ratio B. Contribution margin per unit C. Breakeven point in units D. Total fixed costs 19. Underneath Umbrella Company sells 3 types of umbrellas. Umbrella A sells for $20 and has variable cost of $9.00 per unit. Umbrella B sells for $17.00 and has variable cost of $12.00 per unit. Umbrella C sells for$9.00 and has variable costs of $6.00 per unit. Underneath sells in a mix of 2 units of A, 3 units of B and 5 units of C. What is the weighted average contribution margin per unit for Underneath? A. $5.20 B. $13.60 C. $10.00 D. $6.33

20. The process of assigning indirect costs is called A. directional association. B. variable costing. C. cost allocation. D. joint costing. 21. Which of the following is not a criterion used to allocate fixed costs? A. ability to bear costs B. equity C. feasible outcomes D. relative benefits 22. The Copy Department of the Cadiz Company is budgeted to incur $40,000 per month in fixed costs and $0.02 per copy in variable costs. It allocates copy costs to user departments as follows: Fixed costs are allocated (as a lump sum) based on budgeted fixed costs and estimated peak demand for each department. Variable costs are allocated based on the budgeted rate per copy times the department's actual usage. Which of the following is not an advantage of this allocation scheme over allocating actual costs based on actual usage? A. Using departments are not charged for cost overruns in the copy department. B. The amount charged to one using department is not affected by the number of copies used by another department. C. Managers in the using departments pay for the fixed costs that are created by their demands for capacity. D. All of the above are advantages of this allocation system. 23. When activity based costing is implemented, the initial outcome is normally that: A. the cost of all products will be higher. B. The cost of all products will be lower C. The cost of low volume products will be higher and the cost of high volume products will be lower D. The cost of low volume products will be lower and the cost of high volume products will be higher. 24. What is the major difference between ABC and ABM? A. ABC is used in managerial accounting while ABM is used in financial accounting. B. ABC focuses on control while ABM focuses on measurement. C. The goal of ABC is to accurately measure costs while the goal of ABM is to manage the activities which cause the costs. D. There is no difference; ABC and ABM are two names for the same thing. 25. WeMadeIt Antiques produces antique Navajo vases for sale to tourists in Arizona and New Mexico. Utility costs are allocated to products based on the amount of time spent on the pottery wheel. Utility costs of $3,000 per month are budgeted and the store anticipates spending 7,500 minutes on the pottery wheel each month. If a vase uses 18 minutes on the pottery wheel how much of the utility costs will be allocated to each vase? A. $72.00 B. $4.50 C. $45.00 D. $7.20 Utility costs 3,000 Minutes budgeted Utility cost per minute Utility cost per vase 7,500 0.4 =3,000/7,500 7.2 =0.4 * 18

26. Albright Company allocates the estimated $270,000 of its accounting department costs to its production and sales departments since the accounting department supports the other two departments particularly with regard to payroll and accounts payable functions. The cost will be allocated based on the number of employees in the production and sales departments. Information regarding costs and employees follows: Department Accounting Production Sales How much of the accounting department costs will be allocated to the production and sales departments? Production Sales A. $67,500 $202,500 B. $202,500 $67,500 C. $216,000 $54,000 D. $54,000 $216,000 Production Sales Total Employees Percentage of allocation Amount allocated 48 0.8 =48/60 216,000 =0.8 * 270,000 12 0.2 54,000 60 Employees 4 48 12

Use the following information for questions 27, 28, and 29 Saucy Salsa Company makes two types of salsa, hot and mild. Information for the two flavors appears below: Hot Sales Direct costs: Materials Labor Labor hours Additionally, Saucy Salsa has incurred $240,000 in overhead costs. 100,000 50,000 5,000 200,000 150,000 10,000 400,000 Mild 600,000

27. Assume that Saucy allocates the overhead cost to the product based on the labor hours worked on each product, what is the overhead application rate per direct labor hour? A. $10.00 B. $15.00 C. $16.00 D. $13.33 Overhead 240,000 Total labor hours Overhead application rate 15,000 16.00 =240,000/15,000

28. Assume that Saucy allocates the overhead costs to the products based on the labor cost and that there are no costs besides the ones shown above. What is the overall profit for Saucy Salsa? A. $500,000 B. $260,000 C. $700,000 D. $520,000 Hot Mild Total Sales Direct costs: Materials Labor Overheads Profit 100,000 50,000 80,000 170,000 200,000 150,000 160,000 90,000 260,000 400,000 600,000

29. Assume that Saucy allocates the overhead costs to the products based on the direct material cost. What is the amount of overhead to be assigned to Mild? A. $144,000 B. $160,000 C. $180,000 D. $0 Overhead 240,000 Total material cost Overhead application rate Overhead apportioned to mild 300,000 0.80 160,000 =200,000 * 0.8

30. When deciding between two alternatives, the preferred alternative always has A. no opportunity costs. B. greater revenues than the other alternatives. C. less expense than the other alternatives. D. greater incremental profit than the other alternatives. 31. When a department or product line is dropped, the common fixed costs that had been allocated to that department A. are eliminated. B. become variable costs. C. are allocated to the remaining departments or product lines. D. become sunk costs. 32. The Bling Company produces a bracelet which normally sells for $79.95. The company produces 1,500 units annually but has the capacity to produce 2,000 units. A special order for manufacturing and selling 200 bracelets at $49.95 has been received which would not disrupt current operations. Current costs for the bracelet are as follows: Direct materials Direct labor Variable overhead Fixed overhead Total 17 14.5 4 5 40.5

In addition, the customer would like to add a monogram to each bracelet which would require an additional $2 per unit in additional labor costs and Walter Company would also have to purchase a piece of equipment to create the monogram which would cost $1,600. This equipment would not have any other uses. With regard to this special order only: A. incremental revenues will exceed incremental costs by $2,490. B. incremental revenues will exceed incremental costs by $890. C. incremental revenues will exceed incremental costs by $2,890 D. incremental revenues will exceed incremental costs by $1,290 Per unit Increment Units Selling price Revenue Expenses: Direct materials Direct labor Variable overhead Machine Total Profit 35.5 890 17 14.5 4 3,400 3,300 800 1,600 49.95 9,990 200

33. Costly Coffee Company owns two stores in New York City, on the East Side and on the West Side. Management is considering eliminating the East Side store due to declining sales. Segmented contribution income statements are as follows and common fixed costs are allocated on the basis of sales. West East Total Sales Variable costs Direct fixed costs Segment margin Allocation of fixed costs Net income 420,000 210,000 50,000 160,000 110,000 50,000 90,000 45,000 25,000 20,000 35,000 -15,000 510,000 255,000 75,000 180,000 145,000 35,000

Costly Coffee feels that if they eliminate the East store that sales in the West store will decline by 20%. If they close the East store, overall company net income will: A. decline by $87,000. B. decline by $20,000. C. decline by $62,000. D. decline by $90,000. With east store Without east store Difference West Sales Variable costs Direct fixed costs Segment margin Allocation of fixed costs Net income Company income 420,000 210,000 50,000 160,000 110,000 50,000 East 90,000 45,000 25,000 20,000 35,000 -15,000 Total 510,000 255,000 75,000 180,000 145,000 35,000 35,000 West 336,000 168,000 50,000 118,000 145,000 -27,000 Total 336,000 168,000 50,000 118,000 145,000 -27,000 -27,000 62,000

34. A disadvantage of using an outside supplier is that A. they may be able to produce a component at a lower cost. B. there is a loss of control over the production process. C. there may be an opportunity to expand other parts of the company. D. the supplier assumes some of the risk of a downturn in business activity. 35. Economic theory says to set the price that will A. allow you to maximize profits. B. allow you to maximize the number of units sold. C. allow you to maximize revenues. D. all of the above. 36. Which of the following statements about price, demand, and profit is most generally true? A. As price increases, demand increases. B. As demand increases, profit increases. C. As price increases, demand decreases. D. As price increases, profit decreases

37. Harmonious Harmonica Company sells a single product. Harmonious estimates demand and costs at various activity levels as follows: Units sold 120,000 140,000 160,000 180,000 200,000 Price 48 45 40 35 30 Total variable costs 3,000,000 3,500,000 4,000,000 4,500,000 5,000,000 Fixed costs 1,000,000 1,000,000 1,000,000 1,000,000 1,000,000

What price should Harmonious charge to maximize profits? A. $48 B. $45 C. $40 D. $35 E. $30 Units Pric Total variable Fixed Profits sold e costs costs 120,000 48 3,000,000 1,000,000 1,760,000 =(48*120,000) (3,000,000 + 1,000,000) 140,000 45 3,500,000 1,000,000 1,800,000 160,000 180,000 200,000 40 35 30 4,000,000 4,500,000 5,000,000 1,000,000 1,000,000 1,000,000 1,400,000 800,000 -

38. Which of the following should be true in order for a company to accept a special order? A. Variable costs are less than fixed costs. B. Incremental revenues are greater than incremental costs. C. Opportunity costs are zero. D. The order is for a current customer. 39. How are the fixed costs of production treated in determining whether or not to accept a special order? A. They are increased in proportion to the amount production increases when the special order is accepted. B. They are considered relevant only when the plant is operating at less than capacity. C. If the order can be completed without incurring additional fixed costs, they are not relevant. D. They are never relevant in the decision. 40. Garland Company has a capacity of 50,000 units per year and is currently selling all 50,000 for $500 each. Garcia Company has approached Garland about buying 5,000 units for only $450 each. Garland has a normal variable cost of $380 per unit, including $50 per unit in direct labor. Garland could produce the special order on an overtime shift. This would result in direct labor being paid overtime at 150% of the normal pay rate. Additionally, $50,000 in additional fixed costs would be association with the order. What will be the impact on profits of accepting the order? A. Profits would decrease $350,000 B. Profits would increase $350,000 C. Profits would increase $175,000 D. Profits would increase $225,000. Per unit Increment Units Selling price Revenue Expenses: Direct labor Variable cost Fixed costs Total Profit 405 175,000 75 330 375,000 1,650,000 50,000 450 2,250,000 5,000