ACCT 526 TEST EVALUATION ANSWERS AND
QUESTIONS SET A+
✔✔Beta Company sells wrist watches at $76 each. Variable cost incurred is $60 for
each unit. The break-even point for Beta is 5,000 wrist watches. Determine the number
of wrist watches that Beta must sell to earn an operating income of $90,300. - ✔✔Beta
Company sells wrist watches at $76 each. Variable cost incurred is $60 for each unit.
The break-even point for Beta is 5,000 wrist watches. Determine the number of wrist
watches that Beta must sell to earn an operating income of $90,300.
✔✔In general, assuming that fixed costs remain unchanged, the contribution margin
ratio can be used to find the: - ✔✔profit impact of a change in sales revenue.
✔✔Which of the following is true of the break-even point in sales dollars in a multiple-
product setting? - ✔✔It implicitly uses the assumed sales mix of the products.
✔✔Burlywood Company sells two products that are expected to produce total revenue
of $198,538 and total variable cost of $129,050 next year. Total fixed cost is expected to
equal $44,050.
Determine the break-even point in sales dollars for Burlywood. Round all ratios to two
decimal places. - ✔✔Calculation of break-even point in sales dollars for
Burlywood:Contribution Margin Ratio = $69,488 / $198,538 = 0.35Break-Even Sales =
Fixed Cost / Contribution Margin Ratio = $44,.35 = $125,857
✔✔In financial terms, operating leverage is concerned: - ✔✔with the relative mix of fixed
costs and variable costs of an organization.
✔✔The quantity at which two systems produce the same operating income is referred to
as the: - ✔✔indifference point
✔✔Aquamarine Company plans to sell 5,600 sewing machines at $75 each in the
coming year. Aquamarine has unit variable cost of $60 and total fixed cost of $62,430.
Compute the margin of safety for Aquamarine in terms of the number of units. -
, ✔✔Contribution margin per sewing machine = $75 - $60 = $15Break-Even Units = Total
Fixed Cost / Contribution Margin = $62,430 / $15 = 4,162 sewing machinesMargin of
Safety in Units = Sales - Break-Even Units = 5,600 sewing machines - 4,162 sewing
machines = 1,438 sewing machines
✔✔Decisions that involve choosing between different alternatives that attempt to
provide a competitive advantage over a particular time frame are called: - ✔✔strategic
decisions
✔✔Which of the following is a characteristic of relevant costs? - ✔✔they differ across
alternatives
✔✔In a keep-or-drop decision: - ✔✔segmented reports prepared on a variable-costing
basis are important.
✔✔Which of the following is true regarding special order decisions? - ✔✔A company
should consider excess capacity while considering special order decisions.
✔✔Which of the following is a critical concern when deciding how much of each product
type to produce and sell when there exists a scarce resource? - ✔✔the contribution
margin per unit of the scarce resource
✔✔When managers consider a product mix, _____. - ✔✔they must choose the
alternative that maximizes total contribution margin
✔✔Ace Manufacturing produces two products: A and B. Unit contribution margins for A
and B are $20 and $50 respectively. Product A uses 1 direct labor hour, and product B
uses 4 direct labor hours. Direct labor is Ace's constrained resource. What is the
contribution margin per direct labor hour for each product? - ✔✔The computation equals
unit contribution margin divided by direct labor hours used or:Product A = $ hour =
$20 contribution margin per direct labor hourProduct B = $ hours = $12.5
contribution margin per direct labor hour
✔✔Which of the following is true of target pricing? - ✔✔It requires the use of fewer
materials, labor, and processes during production, delivery and customer service.
✔✔is a percentage applied to a base cost and includes desired profit and any costs not
included in the base cost. - ✔✔markup
✔✔Simon Company manufactures furniture as per customer specifications. Simon has
decided to price its jobs at the cost of direct materials and direct labor plus 28%. The job
for an accounting firm included the following costs:
Direct materials $34,000
Direct labor 5,000
QUESTIONS SET A+
✔✔Beta Company sells wrist watches at $76 each. Variable cost incurred is $60 for
each unit. The break-even point for Beta is 5,000 wrist watches. Determine the number
of wrist watches that Beta must sell to earn an operating income of $90,300. - ✔✔Beta
Company sells wrist watches at $76 each. Variable cost incurred is $60 for each unit.
The break-even point for Beta is 5,000 wrist watches. Determine the number of wrist
watches that Beta must sell to earn an operating income of $90,300.
✔✔In general, assuming that fixed costs remain unchanged, the contribution margin
ratio can be used to find the: - ✔✔profit impact of a change in sales revenue.
✔✔Which of the following is true of the break-even point in sales dollars in a multiple-
product setting? - ✔✔It implicitly uses the assumed sales mix of the products.
✔✔Burlywood Company sells two products that are expected to produce total revenue
of $198,538 and total variable cost of $129,050 next year. Total fixed cost is expected to
equal $44,050.
Determine the break-even point in sales dollars for Burlywood. Round all ratios to two
decimal places. - ✔✔Calculation of break-even point in sales dollars for
Burlywood:Contribution Margin Ratio = $69,488 / $198,538 = 0.35Break-Even Sales =
Fixed Cost / Contribution Margin Ratio = $44,.35 = $125,857
✔✔In financial terms, operating leverage is concerned: - ✔✔with the relative mix of fixed
costs and variable costs of an organization.
✔✔The quantity at which two systems produce the same operating income is referred to
as the: - ✔✔indifference point
✔✔Aquamarine Company plans to sell 5,600 sewing machines at $75 each in the
coming year. Aquamarine has unit variable cost of $60 and total fixed cost of $62,430.
Compute the margin of safety for Aquamarine in terms of the number of units. -
, ✔✔Contribution margin per sewing machine = $75 - $60 = $15Break-Even Units = Total
Fixed Cost / Contribution Margin = $62,430 / $15 = 4,162 sewing machinesMargin of
Safety in Units = Sales - Break-Even Units = 5,600 sewing machines - 4,162 sewing
machines = 1,438 sewing machines
✔✔Decisions that involve choosing between different alternatives that attempt to
provide a competitive advantage over a particular time frame are called: - ✔✔strategic
decisions
✔✔Which of the following is a characteristic of relevant costs? - ✔✔they differ across
alternatives
✔✔In a keep-or-drop decision: - ✔✔segmented reports prepared on a variable-costing
basis are important.
✔✔Which of the following is true regarding special order decisions? - ✔✔A company
should consider excess capacity while considering special order decisions.
✔✔Which of the following is a critical concern when deciding how much of each product
type to produce and sell when there exists a scarce resource? - ✔✔the contribution
margin per unit of the scarce resource
✔✔When managers consider a product mix, _____. - ✔✔they must choose the
alternative that maximizes total contribution margin
✔✔Ace Manufacturing produces two products: A and B. Unit contribution margins for A
and B are $20 and $50 respectively. Product A uses 1 direct labor hour, and product B
uses 4 direct labor hours. Direct labor is Ace's constrained resource. What is the
contribution margin per direct labor hour for each product? - ✔✔The computation equals
unit contribution margin divided by direct labor hours used or:Product A = $ hour =
$20 contribution margin per direct labor hourProduct B = $ hours = $12.5
contribution margin per direct labor hour
✔✔Which of the following is true of target pricing? - ✔✔It requires the use of fewer
materials, labor, and processes during production, delivery and customer service.
✔✔is a percentage applied to a base cost and includes desired profit and any costs not
included in the base cost. - ✔✔markup
✔✔Simon Company manufactures furniture as per customer specifications. Simon has
decided to price its jobs at the cost of direct materials and direct labor plus 28%. The job
for an accounting firm included the following costs:
Direct materials $34,000
Direct labor 5,000
