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Flashcards in Final 3 Deck (30):
1

Lewis Company has only 25,000 hours of machine time each month to manufacture its two products. Product X has a contribution margin of $50, and Product Y has a contribution margin of $64. Product X requires 5 hours of machine time, and Product Y requires 8 hours of machine time. If Lewis Company wants to dedicate 80 percent of its machine time to the product that will provide the most income, the company will have a total contribution margin of

240,000

2

The first stage in the budgeting process is the preparation of a sales budget.

T

3

In a special order decision, the sales price should be sufficient to cover a job's variable costs, incremental fixed costs, and generate a profit.

T

4

Phillips Company has 3 divisions: X, Y, and Z. Division X's income statement shows the following for the year ended December 31:

Sales $1,000,000
Cost of goods sold (800,000)
Gross profit $ 200,000
Selling expenses $100,000
Administrative expenses 250,000 (350,000)
Net loss $(150,000)

Cost of goods sold is 75 percent variable and 25 percent fixed. Of the fixed costs, 60 percent are avoidable if the division is closed. All of the selling expenses relate to the division and would be eliminated if Division X were eliminated. Of the administrative expenses, 90 percent are applied from corporate costs. If Division X were eliminated, Phillips's income would

decrease by $155,000.

5

In a manufacturing organization, the production budget is prepared immediately after the sales budget.

T

6

Variable costs per unit vary directly with levels of production.

F

7

The amount of raw materials that must be purchased can be computed by the following formula: Beginning inventory + Materials required - Ending inventory.

F

8

Below is an income statement for Parker Company:

Sales $400,000
Variable costs (125,000)
Contribution margin $275,000
Fixed costs (200,000)
Profit before taxes $ 75,000

Refer to Parker Company. Assuming that the fixed costs are expected to remain at $200,000 for the coming year and the sales price per unit and variable costs per unit are also expected to remain constant, how much profit before taxes will be produced if the company anticipates sales for the coming year rising to 130 percent of the current year's level?

$157,500

9

Lindburgh Company manufactures toy airplanes. Information on Lindburgh Company's labor costs follow:

Sales commissions $5 per plane
Administration $10,000 per month
Indirect factory labor $3 per plane
Direct factory labor $5 per plane

The following information applies to the upcoming month of July for Lindburgh Company:

Budgeted production 1,200 units
Budget sales 1,000 units

Refer to Lindburgh Company. What is Lindburgh's budgeted factory labor cost for July?

$9,600

10

Denver Boot Corporation has been asked to submit a bid on supplying 1,000 pairs of military combat boots to the Armed Forces Training Center. The company's costs per pair of boots are as follows:

Direct material $8
Direct labor 6
Variable overhead 3
Variable selling cost (commission) 3
Fixed overhead (allocated) 2
Fixed selling and administrative cost 1

Assuming that there would be no commission on this potential sale, the lowest price the firm can bid is some price greater than

$17

11

The following information relates to financial projections of Stewart Company:

Projected sales 60,000 units
Projected variable costs $2.00 per unit
Projected fixed costs $50,000 per year
Projected unit sales price $7.00

Refer to Stewart Company. How many units would Stewart Company need to sell to earn a profit before taxes of $10,000?

12,000

12

Boston Bakers is trying to decide whether it should keep its existing bread-making machine or purchase a new one that has technological advantages (which translate into cost savings) over the existing machine. Information on each machine follows:

Old machine New machine
Original cost $10,000 $25,000
Accumulated depreciation 6,000 0
Annual cash operating costs 9,500 5,000
Current salvage value of old machine 2,500
Salvage value in 10 years 650 1,200
Remaining life 12 yrs. 12 yrs.

Refer to Boston Bakers. The $10,000 cost of the original machine represents a(n)

sunk cost.

13

Production of Product B has been budgeted at 200,000 units for November. One unit of Product B requires 2 lbs. of raw material. The projected beginning and ending materials inventory for November are:

Beginning inventory: 2,000 lbs.
Ending inventory: 10,000 lbs.
How many lbs. of material should be purchased during November?

408,000

14

Blue Mountain Company manufactures a single product. In the prior year, the company had sales of $90,000, variable costs of $50,000, and fixed costs of $30,000. Blue Mountain expects its cost structure and sales price per unit to remain the same in the current year, however total sales are expected to increase by 20 percent. If the current year projections are realized, net income should exceed the prior year's net income by:

80 percent.

15

Priceless Memories Company manufactures toy trains. Information on Priceless Memories Company's labor costs follow:

Sales commissions $6 per train
Administration $12,000 per month
Indirect factory labor $4 per train
Direct factory labor $6 per train

The following information applies to the upcoming month of July for Priceless Memories Company:

Budgeted production 1,500 units
Budgeted sales 1,300 units
Refer to Priceless Memories Company. What amount of budgeted labor cost would appear in the July selling, general, and administrative expense budget?

19,800

16

Budgeted sales for Fleetwood Corporation for the first quarter the year are shown below:

JANUARY FEBRUARY MARCH
UNITS: 35,000 25,000 32,000

The company has a policy that requires the ending inventory in each period to be 10 percent of the following period's sales. Assuming that the company follows this policy, what quantity of production should be scheduled for February?

25,700 units

17

Budgeted sales for the first six months for Stone Corporation are listed below:

JANUARY FEBRUARY MARCH APRIL MAY JUNE
UNITS: 6,000 7,000 8,000 7,000 5,000 4,000

Stone Corporation has a policy of maintaining an inventory of finished goods equal to 40 percent of the next month's budgeted sales. If Stone Corporation plans to produce 6,000 units in June, what are budgeted sales for July

9,000 units

18

A company's break-even point is the level where total revenues equal total costs.

T

19

When multiple products are produced and sold, a change in the sales price of one product may cause a change in the sales mix of the firm.

T

20

Below is an income statement for Putnam Company:

Sales $600,000
Variable costs (150,000)
Contribution margin $450,000
Fixed costs (300,000)
Profit before taxes $150,000
Refer to Putnam Company. Based on the cost and revenue structure on the income statement, what was Putnam's break-even point in dollars?

$400,000

21

Below is an income statement for Parker Company:

Sales $400,000
Variable costs (125,000)
Contribution margin $275,000
Fixed costs (200,000)
Profit before taxes $ 75,000

Refer to Parker Company. Based on the cost and revenue structure on the income statement, what was Parker's break-even point in dollars?

$290,909

22

Below is an income statement for Parker Company:

Sales $400,000
Variable costs (125,000)
Contribution margin $275,000
Fixed costs (200,000)
Profit before taxes $ 75,000
Refer to Parker Company. What was Parker's margin of safety?

$109,091

23

Fixed costs per unit vary inversely with levels of production.

T

24

For the month of November, Whetzel Corporation. predicts total cash collections to be $1 million. Also for November, Whetzel Corporation. estimates that its beginning cash balance will be $50,000 and that it will borrow cash in the amount of $70,000. If Whetzel Corporation. estimates an ending cash balance of $30,000 for November, what must its projected cash disbursements be?

$1,090,000

25

The capital budgeting committee of the Brazosport Pipe Corporation is evaluating the possibility of replacing its old pipe-bending machine with a more advanced model. Information on the existing machine and the new model follows:

Existing machine New machine
Original cost $200,000 $400,000
Market value now 80,000
Market value in year 5 0 20,000
Annual cash operating costs 40,000 10,000
Remaining life 5 yrs. 5 yrs.

Refer to Brazosport Pipe Corporation. If the company buys the new machine and disposes of the existing machine, corporate profit over the five-year life of the new machine will be ____ than the profit that would have been generated had the existing machine been retained for five years.

$150,000 lower

26

Real Products Company produces and sells a single product. Information on its costs follow:

Variable costs:
SG&A $2 per unit
Production $4 per unit
Fixed costs:
SG&A $12,000 per year
Production $15,000 per year
Refer to Real Products Company. Assume Real Products Company produced and sold 5,000 units. At this level of activity, it produced a profit of $18,000. What was Real Products Company's sales price per unit?

$15.00

27

Buxton Company is currently operating at a loss of $15,000. The sales manager has received a special order for 5,000 units of product, which normally sells for $35 per unit. Costs associated with the product are: direct material, $6; direct labor, $10; variable overhead, $3; applied fixed overhead, $4; and variable selling expenses, $2. The special order would allow the use of a slightly lower grade of direct material, thereby lowering the price per unit by $1.50 and selling expenses would be decreased by $1. If Buxton wants this special order to increase the total net income for the firm to $10,000, what sales price must be quoted for each of the 5,000 units?

23.50

28

Mercy Medical Center has provided you with the following budget information for April:

Cash collections $876,000
April 1 cash balance 23,000
Cash disbursements 978,600

Mercy has a policy of maintaining a minimum cash balance of $20,000 and borrows only in $1,000 increments. How much will Mercy borrow in April?

$100,000

29

Collins Company uses 12,000 units of a part in its production process. The costs to make a part are: direct material, $15; direct labor, $27; variable overhead, $15; and applied fixed overhead, $32. Eichholtz has received a quote of $60 from a potential supplier for this part. If Collins buys the part, 75 percent of the applied fixed overhead would continue. Collins Company would be better off by

$60,000 to buy the part.

30

In a special order decision, unavoidable current fixed costs are taken into consideration in setting a sales price.

F