ACCT 221 HomeWork Problem Solutions UMUC

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Question 3
If a company increases its fixed costs for Product Z, then the contribution margin per
unit will
Remain the same
Decrease
Increase
Incomplete information
Question 4
When production levels are expected to increase within a relevant range, and a flexible budget is
used, what effect would be anticipated with respect to each of the following costs?
Fixed costs per unit Variable costs per unit
No change
No change
Decrease
No change
No change
Decrease
Decrease
Decrease

Question 5
Wang Company provides the following information for their first year of operation:
Sales

5,000 units @ $10

Selling and administrative costs:

Fixed

$1,000

Variable

$1 per unit

Variable production costs per unit:

Direct materials

$2

Direct labor

$2

Variable overhead

$1

Fixed factory overhead

$7,500

Production

7,500 units

1.
If Wang uses variable costing, operating income would be:
$11,500
$14,000
$16,500
$20,000
Question 6
The management of Ahad Engineering Services has been approached about purchasing
a new management information system. The perceived advantages of the system
include each of the following, except:
The new system will reduce confusion by doing away with dual presentations of
information by line item and object of expenditure.
The new system will enable customized business dashboards, with each executive
having real-time reports of critical business information.
The new system will enable automatic preparation of both internal variable costing
information and external absorption costing information.
The new system will facilitate disaggregation of overall results into business segment
information.
Question 7
Strickland Company prepared segment information relative to its office furniture
manufacturing division. The controllable contribution margin differed from the segment
margin by $100,000. This amount corresponds to the:
Total variable costs.
Controllable fixed costs.
Uncontrollable fixed costs.
Non-traceable costs.
Question 8
Maverick Corporation had four operating segments. Information for each segment is
included in the following table. Maverick has a threshold rate of return of 7%. Which
segment has the largest residual income?

Operating
Income

Segmen
tA

Segmen
tB

Segmen
tC

Segment
D

$100,00
0

$200,00
0

$300,00
0

$400,00
0

Operating
Assets

$200,00
0

$300,00
0

$300,00
0

$5,000,0
00

1. Segment A
Segment B
Segment C
Segment D
Question 9
Which of the following decisions involve differential analysis?
The decision by University to drop its intercollegiate football program
The decision to close a segment of a business
The decision by a record store to add videotapes to the product line.
All of the above.
Question 10
Fixed costs are $90,000, variable cost per unit is $1.80, and budgeted units of output
are 200,000 units. Determine the budgeted production costs.
$360,000
$450,000
$414,000
$540,000
Questions 11 and 12 are based on the following information:
Anderson Enterprises incurred the following costs while producing 500 units: direct
materials, $15 per unit; direct labor, $37.50 per unit; variable manufacturing overhead,
$22.50 per unit; total fixed overhead costs, $15,000; variable selling and administrative
costs, $7.50 per unit; total fixed selling and administrative costs, $11,250.
Question 11
What is the per unit product cost using variable costing?
$105 per unit
$82.50 per unit
$75 per unit
$135 per unit
Question 12
What is the operating income using variable costing if 450 units are sold for $150 each?
$4,125
$7,500
$750
$3,750
Question 13
Production costs (including $30,000 of fixed costs) are budgeted at $150,000 for an
expected output of 100,000 units. Actual output was 90,000 units, while actual costs
were $142,500. What is the budget variance and is it favorable or unfavorable.
$4,500 unfavorable
$6,500 favorable
$5,500 unfavorable
$4,500 favorable
Question 14
Information technology has made it easier for managers to perform all of the following
tasks except
Combining individual units budgets into the companywide budget.
Removing budgetary slack from the budget.

Sensitivity analyses
Preparing performance reports that identify variances between actual and budgeted
revenues and costs.
Use the following information to answer questions 15 and 16.
Suppose Amazon sells 1,000 hardcover books per day at an average price of $15.
Assume that Amazons cost for the books is 75% of the selling price it charges retail
customers. Amazon has no beginning inventory, but it wants to have a three-day supply
of ending inventory. Assume that selling and administrative expenses are $500 per day.
Question 15
Compute Amazons budgeted sales for the next (seven-day) week.
$78,750
$108,500
$217,500
$105,000
Question 16
Determine Amazons budgeted purchases for the next (seven-day) week.
$150,000
$112,500
$78,750
$37,500
Question 17
The budgeted statement of cash flows is part of which element of the master budget?
The financial budget
The operating budget
The capital expenditures budget
None of the above
Question 18
The Best buy company had the following revenue over the past three years:
2007 $300,000
2008 $350,000
2009 $450,000
To forecast revenues for 2010, Best Buy Company uses the average for the past three
years. The companys breakeven revenue is $400,000 per year. What is Best buy
predicted margin of safety for 2010
$400,000
$0
$100,000
$50,000
Question 19
If a company increases its selling price per unit for Product A, the new breakeven point
will
Remain the same
Decrease
Increase
None of the above
Question 20
Straight-line depreciation on a company truck is a
Variable cost.
Fixed cost
Mixed cost
High-low cost

PART 2
Question 1
Jacob Davis recently graduated from medical school. He is considering opening his own
family practice doctor office. A doctors office is a high-fixed cost business, as it requires
considerable expenditures for facilities, labor, and equipment, no matter how many
families are served. Assume the annual fixed cost of operations is $400,000. Further
assume that the only significant variable cost relates to patients served. An average
patient served costs $250. Jacobs banker has asked a variety of questions in
contemplation of providing a loan for this business.
Requirements:
If the average family is charged $475 for services, how many families must be served to
clear the break-even point?
If the banker believes Jacob will only serve 1,000 families during the first year in
business, how much will the business lose during its first year of operation?
If Jacob believes his profits will be at least $100,000 during the first year, how much is
he anticipating for total revenue?
The banker has suggested that Jacob can reduce his fixed costs by $100,000 if he will
not purchase certain equipment. Jacob can instead lease or rent this equipment as
needed. The variable cost of leasing this equipment is $55 per family served. Will this
suggestion help Jacob reach the break-even point sooner?
Question 2
Carpet Clean manufactures a chemical cleaner. The company was formed during the
current year. As a result, there was no beginning inventory. Management is evaluating
performance and inventory management issues, and desires to know both net income
and ending inventory under generally accepted accounting principles (absorption
costing) as well as variable costing methods. Relevant facts are as follows:
Selling price per gallon
$11.00
Variable manufacturing cost per gallon $2.00
Variable SG&A costs per gallon
$2.25
Fixed manufacturing costs $2,900,000
Fixed SG&A
$470,000
Total gallons produced 1,625,000
Total gallons sold
1,500,000
Requirement:
Prepare income statements based on the absorption costing and variable costing
methods.