Exam (elaborations) Acct 525 Fall 2017 Exam 1

A partial listing of costs incurred at Archut Corporation during September appears below: Direct materials $ 113,0 00 Utilities, factory $ 5,000 Administrative salaries $ 81,00 0 Indirect labor $ 25,00 0 Sales commissions $ 48,00 0 Depreciation of production equipment $ 20,00 0 Depreciation of administrative equipment $ 30,00 0 Direct labor $ 129,0 00 Advertising $ 135,0 00 The total of the period costs listed above for September is: Multiple Choice  $294,000 Correct  $344,000  $50,000  $292,000 Explanation Period costs include: Administrative salaries; Sales commissions; Depreciation of administrative equipment; and Advertising. $81,000 + $48,000 + $30,000 + $135,000 = $294,000 2. A manufacturer of tiling grout has supplied the following data: Kilograms produced and sold 380,00 0 Sales revenue $ 2,736,0 00 Variable manufacturing expense $ 1,349,0 00 Fixed manufacturing expense $ 336,00 0 Variable selling and administrative expense $ 399,00 0 Fixed selling and administrative expense $ 372,00 0 Net operating income $ 280,00 0 The company's break-even in unit sales is closest to: Multiple Choice  92,055  98,333  272,308 Correct  60,488 Explanation Contribution margin = Sales – Variable expenses = $2,736,000 – ($1,349,000 + $399,000) = $2,736,000 – $1,748,000 = $988,000 Unit CM = $988,000 ÷ 380,000 kilograms = $2.60 per kilogram Unit sales to break even = Fixed expenses ÷ Unit CM = $708,000 ÷ $2.60 per kilogram = 272,308 kilograms 3. A company makes a single product that it sells for $16 per unit. Fixed costs are $76,800 per month and the product has a contribution margin ratio of 40%. If the company's actual sales are $224,000, its margin of safety is: Multiple Choice  $128,000  $192,000  $32,000 Correct  $96,000 Explanation Dollar sales to break even = Fixed expenses ÷ CM ratio = $76,800 ÷ 0.4 = $192,000 Margin of safety in dollars = Total budgeted (or actual) sales – Break-even sales = $224,000 – $192,000 = $32,000 4 Thornbrough Corporation produces and sells a single product with the following characteristics: Per Unit Percent of Sales Selling price $ 22 0 10 0 % Variable expenses 44 20% Contribution margin $ 17 6 80% The company is currently selling 7,000 units per month. Fixed expenses are $901,000 per month. The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $11 per unit. In exchange, the sales staff would accept a decrease in their salaries of $65,000 per month. (This is the company's savings for the entire sales staff.) The marketing manager predicts that introducing this sales incentive would increase monthly sales by 300 units. What should be the overall effect on the company's monthly net operating income of this change? Multiple Choice  increase of $37,500 Correct  increase of $61,700  decrease of $92,500  increase of $1,269,500 Explanation Unit sales (increase by 300 units) 7,000 units 7,300 units Sales (at $220 per unit) $ 1,540,0 $ 1,606,0 00 00 Variable expenses (at $44 per unit and $55 per unit) 308,00 0 401,50 0 Contribution margin 1,232,0 00 1,204,5 00 Fixed expenses (decrease by $65,000) 901,00 0 836,00 0 Net operating income $ 331,00 0 $ 368,50 0 Overall net operating income will increase by $37,500 5 Wofril Corporation uses the cost formula Y = $ 5,300 + $ 0.60X for the maintenance cost, where X is machine-hours. The August budget is based on 8,000 hours of planned machine time. Maintenance cost expected to be incurred during August is: Multiple Choice  $500  $4,800  $5,300  $10,100 Correct Explanation Y = $5,300 + ($0.60 per unit × X) = $5,300 + ($0.60 per unit × 8,000 hours) = $5,300 + $4,800 = $10,100 6. At a sales volume of 40,000 units, Lonnie Company's total fixed costs are $40,000 and total variable costs are $60,000. The relevant range is 30,000 to 50,000 units. If Lonnie were to sell 42,000 units, the total expected cost would be: Multiple Choice  $100,000  $103,000 Correct  $102,000  $105,000 Explanation Variable cost per unit = Total variable cost ÷ Units = $60,000 ÷ 40,000 = $1.50 per unit Total cost = Fixed cost + (Variable cost per unit × Units) = $40,000 + ($1.50 per unit × 42,000 units) = $103,000 7. Mishoe Corporation has provided the following contribution format income statement. Assume that the following information is within the relevant range. Sales (1,000 units) $ 50,00 0 Variable expenses 32,50 0 Contribution margin 17,50 0 Fixed expenses 12,25 0 Net operating income $ 5,250 The break-even point in unit sales is closest to: Multiple Choice  700 units Correct 