Q1.Garth Company sells a single product. If the selling price per unit and the variable expense per unit both increase by 10% and fixed expenses do not change, then:
ContributionContributionBreak-even
margin per unitmargin ratioin Units
AIncreasesIncreasesDecreases
BNo changeNo changeNo change
CNo changeIncreasesNo change
DIncreasesNo changeDecreases
Answer
.0/msohtmlclip1/01/clip_image002.png”>A
B
C
D
Q2
The costs of publishing a grade school textbook can be assumed to be as follows. Use the date for questions 2 to 5.
Fixed expenses for each new edition of the book:
Copy editing$3,000
Art work$1,000
Typesetting$36,000
Variable expenses per copy of the book:
Printing and binding$1.60
Bookstore discounts$2.00
Salespersons’ commissions$0.25
Author’s royalties$1.00
Each book sells for $10 per copy.
The unit contribution margin for each copy of the book is:
Answer
.0/msohtmlclip1/01/clip_image002.png”>$5.15.
$4.15.
$5.40.
$7.15.
Q3
The contribution margin ratio for the textbook is:
Answer
.0/msohtmlclip1/01/clip_image004.png”>41.5%.
54.0%.
71.5%.
51.5%.
Q4
The publishing company is currently selling 8,000 copies of the textbook per edition but management feels that sales could be increased by 1,000 books if the selling price per book was reduced by $1.00 per copy. Implementing such a policy should result in:
Answer
.0/msohtmlclip1/01/clip_image004.png”>an increase in total contribution margin of $5,150.
a decrease in total contribution margin of $4,150.
a decrease in total contribution margin of $3,850.
an increase in total contribution margin of $4,850.
Q5
The break-even point in total sales revenue at the price of $10 per copy is:
Answer
.0/msohtmlclip1/01/clip_image004.png”>$82,474.00
$77,670.00
$65,041.00
$65,041.00
Q6
Barrus Company makes 30,000 motors to be used in the productions of its power lawn mowers. The manufacturing cost per motor at this level of activity is as follows:
Direct materials$9.50
Direct labor$8.60
Variable manufacturing overhead$3.75
Fixed manufacturing overhead$4.35
This motor has recently become available from an outside supplier for $25 per motor. If Barrus decides not to make the motors, none of the fixed manufacturing overhead would be avoidable and there would be no other use for the facilities. If Barrus decides to continue making the motor, how much higher or lower will the company’s net operating income be than if the motors are purchased from the outside supplier?
Answer
.0/msohtmlclip1/01/clip_image004.png”>$94,500 higher.
$36,000 lower.
$130,500 higher.
$207,000 higher.
Q7
The Melville Company produces a single product called a Pong. Melville has the capacity to produce 60,000 Pongs each year. If Melville produces at capacity, the per unit costs to produce and sell one Pong are as follows. Use the data for questions 7 to 9.
Direct materials$15
Direct labor12
Variable manufacturing overhead8
Fixed manufacturing overhead9
Variable selling expense8
Fixed selling expense3
The regular selling price for one Pong is $80. A special order has been received by Melville from Mowen Company to purchase 6,000 Pongs next year. If this special order is accepted, the variable selling expense will be reduced by 75%. However, Melville will have to purchase a specialized machine to engrave the Mowen name on each Pong in the special order. This machine will cost $9,000 and it will have no use after the special order is filled. The total fixed manufacturing overhead and selling expenses would be unaffected by this special order.
Assume Melville anticipates selling only 50,000 units of Pong to regular customers next year. If Mowen Company offers to buy the special order units at $65 per unit, the effect of accepting the special order on Melville’s operating income for next year should be a:
Answer
.0/msohtmlclip1/01/clip_image004.png”>$36,000 increase.
$159,000 increase.
$60,000 increase.
$90,000 decrease.