1. Bexley Company produces retractable pens.

November budgeted production costs are

given below:
Pens to be produced 100,000
Direct material variable! "##,000
Direct $abor variable! "%&,000
'upplies variable! "(),*00
'upervision +ixed! "%0,000
Depreciation +ixed! "(0,000
,t-er +ixed! "10,000
.n December, Bexley expects to produce /0,000 pens. 0ssuming no structural c-anges,
w-at is Bexley1s budgeted production cost per pen +or December2
0! "1.)(
B! "1.&*
C! "1.&/
D! "1./#
Solurion: (33,000+48,000+27500)/100,000 + (40,000+20,000+10,000)/90,000 =
1.85
(. 3se t-e cost in+ormation in 1! above. .n November, t-e actual direct labor costs were
"%4,000 and Bexley produced and sold /0,000 pens. 5-e direct labor per+ormance
variance di++erence! is:
0! "*,000 un+avorable.
B! "(,&00 un+avorable.
C! "1,000 un+avorable.
D! "*,000 +avorable.
Solution: $46,000 ($48,000/100,000 x 90,000) = 2,800 unf!or"l#
#. Bubba1s stea6-ouse -as budgeted t-e +ollowing costs +or a mont- in w-ic- 1,400 stea6
dinners will be sold: 7aterials, "%,0&08 -ourly labor variable!, "*,(008 rent +ixed!,
"1,)(08 depreciation, "4008 and ot-er +ixed costs, "**0. 9ac- dinner sells +or "1(.40.
:ow muc- would Bubba1s pro+it increase i+ 10 more dinners were sold2
0! "4&.
B! ")(.
C! "*(.
D! "1(4.
Solution: ($12.60 (4,080+5,200)/1,600) x 10 = $68
%. 0 manu+acturing company produces &0,000 units o+ product 0 at a total cost o+ "(.%
million. 5otal +ixed costs are "1 million. .+ t-e company increases production by (*;
and uses a %0; mar6up t-e price per unit will be:
0! "#0.&0
B! "#1.*%
C! "#).10
D! "#&.*0
1
Solution: ($2,400,000 $ $1,000,000) / 80,000 = $17.50
$1,000,000 / (80,000 x 1.25) = $10.00
%otl &o't = $28.50
(ri&# = ($18.50 x 1.4) = $38.50
3se t-e +ollowing to answer <uestions *=4:
>N, Company?s mar6et +or t-e 7odel ** -as c-anged signi+icantly, and >N, -as -ad to drop t-e
price per unit +rom "(&* to "(00. 5-ere are some units in t-e wor6 in process inventory t-at -ave
costs o+ "(&0 per unit associated wit- t-em. >N, could sell t-ese units in t-eir current state +or
"140 eac-. .t will cost >N, "#* per unit to complete t-ese units so t-at t-ey can be sold +or "(00
eac-.
*. 0 new employee loo6s at t-e analysis and exclaims, @Ae?ll lose money wit- eit-er o+
t-ese alternativesB $et?s Cust t-row t-ese units in t-e tras-BD 'uppose t-e alternative to
tras-ing is c-oosing t-e more pro+itable o+ t-e two alternatives t-at t-e new employee
loo6ed at and did not li6e!. A-at e++ect will t-e tras-ing option t-at t-e new employee
wants! -ave on net income2
0! Net income will increase by "#* per unit +or eac- unit discarded.
B! Net income will decrease by "11* per unit +or eac- unit discarded.
C! .t will -ave no e++ect on net income.
D! Net income will decrease by "14* per unit +or eac- unit discarded.
4. A-en t-e incremental revenues and expenses are analyEed, t-e company is better o++ by
0! "* per unit i+ t-ey complete t-e units.
B! "1* per unit i+ t-ey sell t-e units in t-eir current state.
C! "(* per unit i+ t-ey sell t-e units in t-eir current state.
D! "#* per unit i+ t-ey complete t-e units.
). 0 company using activity based pricing mar6s up t-e direct cost o+ goods by #/; plus
c-arges customers +or indirect costs based on t-e activities utiliEed by t-e customer.
.ndirect costs are c-arged as +ollows: "4.00 per order placed8 "#.00 per separate item
ordered8 "(&.00 per return. 0 customer places 10 orders wit- a total direct cost o+
"(,(10, orders #1( separate items, and ma6es & returns. A-at will t-e customer be
c-arged2
0! "#,000
B! "%,(/(
C! "*,##0
D! "*,)**
Solution: ($6 x 10) + (3 x 312) + (28 x 8) = 1220 + (2210 x 1.39) = $4,292
&. 7anu+acturing over-ead is allocated to products based on t-e number o+ mac-ine -ours
re<uired. .n a year w-en (0,000 mac-ine -ours were anticipated, costs were budgeted
at "1(*,000. .+ a product re<uires ),000 mac-ine -ours, -ow muc- manu+acturing
over-ead will be allocated to t-is product2
0! "%1,44)
B! "%#,)*0
(
C! "1,1(0
D! "*0,000
Solution: ($125,000 / 20,000 x 7,000) = $43,750
3se t-e +ollowing in+ormation to answer <uestions /=10:
5-e 'unrise :otel -as (00 rooms. 9ac- room rents at "140 per nig-t and variable costs total "#*
per room per nig-t o+ occupancy. Fixed costs total "&0,000 per mont-.
/. .+ t-e -otel spends an additional "10,000 in t-e mont- o+ February on advertising t-ey
+eel t-at t-ey can expect occupancy rate to increase by 10;. A-at would be t-e
+inancial impact o+ spending t-is additional money on advertising +or t-e mont- o+
February (& days!2
0! 5otal +ixed costs will increase by "10,*00.
B! Net income will increase by "40,000.
C! Net income will increase by "(4,#(0.
D! 5otal +ixed costs will remain t-e same.
Solution: ($160 $ $35) x (200 x 10) x 28) = $70,000 $ $10,000 = $60,000
10. .+ )0; o+ t-e rooms are occupied eac- nig-t in t-e mont- o+ February (& days! w-at
will total costs be +or t-e mont-2
0! "11&,*40.
B! "1)#,400.
C! "(1),(00.
D! "1**,4&0.
Solution = (200 x 70) x 28 x $35) + 80,000 = $217,200

11. 0 company believes it can sell 4,000,000 o+ its proposed optical mouse +or "1% eac-.
5-ere will be "),*00,000 in +ixed costs associated wit- t-e mouse. .+ t-e company
desires to ma6e a pro+it o+ "#,000,000 on t-e mouse, w-at is t-e target variable cost per
mouse2
0! "10.40
B! "11.00
C! "1(.(*
D! "/.00
Solution: (6,000,0000 x 14) $ (7,500,000 + 3,000,000) = 73,500,000 / 6,000,000 = $12.25
1(. Below is a per+ormance report t-at compares budgeted and actual pro+it o+ Boyles Beer
+or t-e mont- o+ 0pril:
Budget 0ctual Di++erence
'ales "(00,000 "(0(,000 "(,000
$ess:
Cost o+ ingredients "14(,000 "144,000 "%,000
'alaries "#1,000 "#1,(00 "(00
#
Controllable Pro+it "%),000 "%%,&00 ="(,(00
.n evaluating t-e department in terms o+ its increase in sales and expenses, w-at will be
most important to investigate2
0! 'ales
B! Cost o+ ingredients
C! 'alaries
D! 0ll t-ree components -ave e<ual importance.
1#. 5ynex .nc ma6es a product t-at sells +or "41 and -as "%( per unit in variable costs.
0nnual +ixed costs are "(%,000. .+ G=>andy1s sells 10 units less t-an brea6=even. :ow
muc- loss would t-e company realiEe on its income statement2
0! "()*
B! "(40
C! "(%0
D! "1/0
Solution: ($61 $ $42) x 10 = $190
1%. Della1s Furniture -as a contribution margin ratio o+ 1*;. .+ +ixed costs are "1)*,*00,
-ow many dollars o+ revenue must t-e company generate in order to reac- t-e brea6=
even point2
0! "1,111,###
B! "1,(11,###
C! "1,1)0,000
D! "(,111,%*0
Solution: $175,500 / 15) = $1,170,000
1*. 7ax1s PiEEa produced and sold 1,000 piEEas last mont- and -ad total variable
ingredients t-at cost "%,*)*. .+ production and sales are expected to increase by 1);
next mont-, w-ic- o+ t-e +ollowing statements is true2
0! 5otal variable materials costs are expected to be "%,))/.*0
B! Hariable material cost per unit is expected to be "%.//.
C! 5otal variable materials costs are expected to be "%,#%*
D! 5otal variable materials costs are expected to be "*,#*(.)*
Solution: $4,575 x (1,000 x 1.17) = 5352750
14. ,ne 'mall Irill Company is a start up wit- t-e +ollowing pro+ile:
3nit selling price J "(#08 Hariable cost per unit J "1#08 Fixed Costs J "#4,0008
5ax rate J %0;. :ow many units s-ould 'mall Irill sell to ac-ieve an a+ter=tax target
income o+ "4,0002
0! (00
B! %40
C! (#0
D! #00
Solution: (36,000 + 6,000 / 60)) / (230 130) = 460 unit'
%
1). Aestern 0pparel Company owns two stores and management is considering eliminating
t-e 9ast store due to declining sales. 'egmented contribution income statements are as
+ollows and common +ixed costs are allocated on t-e basis o+ sales.
Aest 9ast 5otal
'ales "*00,*00 /0,000 "*/0,*00
Hariable costs (4(,*00 %*,000 #0),*00
Direct +ixed costs 4(,*00 (*,000 &),*00
'egment margin 1)*,*00 (0,000 1/*,*00
0llocated +ixed costs 1#),*00 #*,000 1)(,*00
Net .ncome "#&,000 "1*,000! "(#,000

Aestern +eels t-at i+ t-ey eliminate t-e 9ast store t-at sales in t-e Aest store will
decline by 1*;. .+ t-ey close t-e 9ast store, overall company net income will:
0! decline by "/0,000.
B! decline by "4(,000.
C! decline by "&*,4(*.
D! decline by "**,)00.
Solution = *urr#nt +rofit = $23,000
,#- +rofit = ((500,500 262,500) x 85)) 62,500 172,500 = $32700
.#&lin# in +rofit = $32700 23000 = $55700
1&. ,n Kuly (4, (01(, radio '-ac6 announced disappointing (
nd
<uarter earnings t-at caused
t-e stoc6 to +all (/; to all time lows. 0lt-oug- sales were up 1.(; to "/*#.( million
gross pro+it +ell 14.4; to "#40.# million. 0ssuming >adio '-ac61s store count and
+ixed costs were t-e same in t-e (
nd
<uarter o+ (011 and (01(, w-ic- o+ t-e +ollowing
statements is t-e best explanation +or t-e decrease in t-e +irm1s pro+itability2
0! ,pportunity costs decreased.
B! 7argin o+ sa+ety decreased.
C! Contribution margin decreased.
D! 'elling price decreased.
.n+ormation +or Luestions 1/=(0
0nderson 7anu+acturing ma6es a single product. Budget in+ormation regarding t-e current period
is given below:

>evenue 100,000 units at "&.00! "&00,000
Direct materials 1*0,000
Direct labor 1(*,000
Hariable manu+acturing over-ead (#*,000
Fixed manu+acturing over-ead 110,000
Net income "1&0,000
*

Dye Company approac-es 0nderson wit- a special order +or 1*,000 units at a price o+ ").*0 per
unit. Hariable costs will be t-e same as t-e current production and accepting t-e special order will
not -ave any impact on t-e rest o+ t-e company?s orders. :owever, 0nderson is operating at
capacity and will incur an additional "*0,000 in +ixed manu+acturing over-ead i+ t-e order is
accepted.
1/. A-at is t-e incremental income loss! associated wit- accepting t-e special order2
0! "1%,000!
B! "#4,000
C! "(#,*00!
D! "(),000
Solution= (15,000 x 7.50) ((150,000+125,000+235,000)/100,000 x 15,000) 50,000 = (14,000)
(0. A-at is t-e incremental revenue associated wit- accepting t-e special order2
0! "1)0,000
B! "11(,*00
C! ")0,000
D! "1(0,000
Solution= (15,000 x 7.50) = $112,500
(1. .nnovations, .nc is loo6ing to ac-ieve a net income o+ 1* percent o+ sales. 3nit sales
price is "108 variable cost per unit is "48 total +ixed costs are "*0,000 w-at is t-e level o+
sales in units! re<uired to ac-ieve a net income o+ 1* percent o+ sales2
0! 1(,000 units.
B! (1,000 units.
C! 14,000 units.
D! (0,000 units.
Solution= 20,0000 x (10$6) $50,000 = 30,000 / (20,000 x 10) = 15)
((. 0nt-ony1s Ba6ery sold (,000 mu++ins last mont- and -ad +ixed costs o+ "4,000. .+
production and sales are expected to increase by 10; next mont-, w-ic- o+ t-e
+ollowing statements is true2
0! 5otal +ixed costs will decrease.
B! Fixed cost per unit will decrease.
C! 5otal +ixed costs will increase.
D! Fixed cost per unit will increase.
4
(#. 0n auto executive is considering -ow to price a (01% -ybrid in order to maximiEe pro+its +or
t-e company. 7anu+acturing eac- -ybrid involves "/,*00 o+ materials, "1(,*00 o+ labor,
"#,&00 o+ s-ipping and "%,000 o+ ot-er supplies. 5-e +acility w-ere t-e car is manu+actured
-as "1(.* million o+ +ixed costs. 5-e mar6eting department says t-at adding a Bose sound
system would boost demand, but it would add an additional ")*0 per car.
5-e <uantity demanded at eac- unit price is as +ollows:
Price Luantity Demanded No Bose! Luantity Demanded wit- Bose!
"#1,000 &,/40 10,)*(
"#(,000 ),14& &,40(
"##,000 *,)#% 4,&&1
"#%,000 %,*&& *,*0*
"#*,000 #,4)0 %,%0%
"#4,000 (,/#4 #,*(#
"#),000 (,#%/ (,&1/
"#&,000 1,&)/ (,(**
"#/,000 1,*0# 1,&0%
A-at pro+it maximiEing price s-ould t-e executive c-oose2
0! "#%,000 wit-out Bose sound system.
B! "#/,000 wit- Bose sound system.
C! "#4,000 wit-out Bose sound system.
D! "#*,000 wit- Bose sound system
Solution:
,o /o'# 0it1 /o'#
Price
Luantity
Demanded
No Bose!
Luantity
Demanded
wit-
Bose!
'ale value Hariable Cost Pro+it 'ale value Hariable Cost Pro+it
"#1,000 &,/40 10,)*( "()),)40,000 "(4),00&,000 "10,)*(,000 "###,#1(,000 "#(&,%)#,400 "%,&#&,%00
"#(,000 ),14& &,40( "((/,#)4,000 "(1#,404,%00 "1*,)4/,400 "()*,(4%,000 "(4(,)/1,100 "1(,%)(,/00
"##,000 *,)#% 4,&&1 "1&/,(((,000 "1)0,&)#,(00 "1&,#%&,&00 "((),0)#,000 "(10,(1%,**0 "14,&*&,%*0
"#%,000 %,*&& *,*0* "1**,//(,000 "1#4,)((,%00 "1/,(4/,400 "1&),1)0,000 "14&,1)),)*0 "1&,//(,(*0
"#*,000 #,4)0 %,%0% "1(&,%*0,000 "10/,#44,000 "1/,0&%,000 "1*%,1%0,000 "1#%,*%(,(00 "1/,*/),&00
"#4,000 (,/#4 #,*(# "10*,4/4,000 "&),%/(,&00 "1&,(0#,(00 "1(4,&(&,000 "10),4(),4*0 "1/,(00,#*0
"#),000 (,#%/ (,&1/ "&4,/1#,000 ")0,000,(00 "14,/1(,&00 "10%,#0#,000 "&4,1(0,%*0 "1&,1&(,**0
"#&,000 1,&)/ (,(** ")1,%0(,000 "**,//%,(00 "1*,%0),&00 "&*,4/0,000 "4&,&/0,(*0 "14,)//,)*0
"#/,000 1,*0# 1,&0% "*&,41),000 "%%,)&/,%00 "1#,&(),400 ")0,#*4,000 "**,11(,(00 "1*,(%#,&00
)
(%. 5-e Bell+ont Company uses cost=plus pricing wit- *0; mar6=up. 5-e company is
currently selling 100,000 units at "1( per unit. 9ac- unit -as a variable cost o+ "4. .n
addition, t-e company incurs "(00,000 in +ixed costs annually. .+ demand +alls to
"&0,000 and t-e company wants to earn a *0; return, w-at price s-ould t-e company
c-arge2
0! "10./*
B! "1(.)*
C! "1#.*0
D! "1%.**
Solution: $200,000 + (80,000 x 6) + ($80,000 x 50)) / 80,000 = 12.75
(*. Hisit +inance.ya-oo.com and determine w-ic- o+ t-e +ollowing statements is incorrect:
0! 5-e current mar6et cap o+ Ioogle is greater t-an t-e mar6et cap o+ 7icroso+t.
B! 5-e current ratio +or t-e most recent <uarter +or 7icroso+t is greater t-an t-e current
ratio +or Ioogle.
C! 5-e current Price per s-are o+ Ioogle is more t-an ten times t-at o+ 7icroso+t.
D! >eturn on e<uity +or t-e most recent <uarter +or 7icroso+t is -ig-er t-an return on
e<uity +or Ioogle.
&