Practice Exam III

Practice Exam III ACCT 200 08W Michael Van Leer

ACCT 200 Michael Van Leer
Practice Exam III
08W
NAME ______DATE______
1. / Which of the following costs, if expressed on a per unit basis, would be expected to vary inversely with the level of production and sales?
A) / Sales commissions.
B) / Fixed manufacturing overhead.
C) / Variable manufacturing overhead.
D) / Direct materials.
2. / A merchandising company typically will have a high proportion of which type of cost in its cost structure?
A) / Variable.
B) / Fixed.
C) / Semivariable.
D) / Step-variable.
3. / Factory overhead is an example of a:
A) / Mixed cost.
B) / Fixed cost.
C) / Variable cost.
D) / Irrelevant cost.
4. / A disadvantage of the high-low method of cost analysis is that:
A) / It cannot be used when there are a very large number of observations.
B) / It is too time consuming to apply.
C) / It uses two extreme data points, which may not be representative of normal conditions.
D) / It relies totally on the judgment of the person performing the cost analysis.
5. / An analysis of a particular mixed cost indicates it will be an average of $0.65 per hour at an activity level of 18,000 hours and $11,700 in total at an activity level of 20,000 hours. Assuming that this activity is within the relevant range, what will this cost be expected to be in total at an activity level of 16,000 hours?
A) / $9,360
B) / $10,400
C) / $11,250
D) / $11,700
6. / Kandy Company's material handling costs and kilos of materials handled for two recent months appear below.
Materials / Handling
handled / costs
January / 80,000 kilos / $160,000
February / 60,000 kilos / 132,000
What is the best estimate of the materials handling costs for 75,000 kilos? (Assume that this activity is within the relevant range.)
A) / $150,000
B) / $153,000
C) / $157,500
D) / $165,000
7. / Quartz Manufacturing Company has developed the following overhead cost formulas:
Overhead Cost / Cost Formulas
Insurance / $400
Depreciation / $900
Maintenance materials / $0.15 per machine hour
Utilities / $600 plus $0.20 per machine hour
Based on these cost formulas, the total overhead cost expected for Quartz Manufacturing Company if 1,500 hours are worked is:
A) / $1,825.
B) / $525.
C) / $1,900.
D) / $2,425.
8. / Brooks Company uses the cost formula Y = $7,200 + $0.60X for the maintenance cost in department T, where X is machine hours. The July budget is based on 20,000 hours of planned machine time. Maintenance cost expected to be incurred during the month is:
A) / $ 7,200.
B) / $12,000.
C) / $12,600.
D) / $19,200.

Use the following to answer questions 09-10:

Frank Company operates a cafeteria for its employees. The number of meals served each week over the last seven weeks, along with the total costs of operating the cafeteria are given below:

Week / Meals served / Cafeteria costs
1 / 1,500 / $4,800
2 / 1,600 / $5,080
3 / 1,800 / $5,280
4 / 1,450 / $4,900
5 / 1,200 / $4,000
6 / 1,650 / $5,100
7 / 1,900 / $5,400

Assume that the relevant range includes all of the activity levels mentioned in this problem.

9. / Using the high-low method of analysis, the variable cost per meal served in the cafeteria would be estimated to be:
A) / $1.50.
B) / $2.00.
C) / $2.80.
D) / $1.00.
10. / Assume that the cafeteria expects to serve 1,850 meals during Week 8. Using the high-low method, the expected total cost of the cafeteria would be:
A) / $5,340.
B) / $5,180.
C) / $5,300.
D) / $4,375.
11. / Which of the following formulas is used to calculate the break-even point in terms of sales dollars?
A) / Fixed expenses/Unit contribution margin
B) / Variable expenses/Contribution margin ratio
C) / Fixed expenses/Contribution margin ratio
D) / Net operating income/Unit contribution margin
12. / All other things the same, which of the following would be true of the contribution margin and variable expenses of a capital-intensive company with fixed costs and low variable costs as compared to a labor-intensive company with low fixed costs and high variable costs?
Contribution Margin / Variable Costs
A) / Higher / Higher
B) / Lower / Higher
C) / Higher / Lower
D) / Lower / Lower
13. / Butteco Corporation has provided the following cost data for last year when 100,000 units were produced and sold:
Raw materials / $200,000
Direct labor / 100,000
Manufacturing overhead / 200,000
Selling and administrative expense / 200,000
All costs are variable except for $100,000 of manufacturing overhead and $150,000 of selling and administrative expense. There are no beginning or ending inventories. If the selling price is $10 per unit, the net operating income from producing and selling 110,000 units would be:
A) / $405,000.
B) / $355,000.
C) / $450,000.
D) / $560,000.
14. / Menlove Company had the following income statement for the most recent year:
Sales (17,000 units) / $357,000
Less: Variable expenses / 225,000
Contribution margin / 102,000
Less: Fixed expenses / 68,000
Net Income / $ 34,000
Given this data, the unit contribution margin was:
A) / $ 2.
B) / $15.
C) / $ 6.
D) / $ 4.
15. / Solen Company's break-even-point in sales is $900,000, and its variable expenses are 80% of sales. If the company lost $32,000 last year, sales must have amounted to
A) / $868,000.
B) / $740,000.
C) / $772,000.
D) / $628,000.
16. / The contribution margin ratio is 25% for Grain Company and the break-even point in sales is $400,000. If Grain Company's target net operating income is $60,000, sales would have to be:
A) / $260,000.
B) / $440,000.
C) / $640,000.
D) / $240,000.
17. / Last year Easton Company reported sales of $720,000, a contribution margin ratio of 30% and a net loss of $24,000. Based on this information, the break-even point was:
A) / $640,000.
B) / $880,000.
C) / $744,000.
D) / $800,000.
18. / The contribution margin ratio is 30% for the Honeyville Company and the break-even point in sales is $150,000. If the company's target net operating income is $60,000, sales would have to be:
A) / $200,000.
B) / $350,000.
C) / $250,000.
D) / $210,000.
19. / Northern Pacific Fixtures Company sells a single product for $28 per unit. If variable expenses are 65% of sales and fixed expenses total $9,800, the break-even point will be:
A) / $15,077.
B) / $18,200.
C) / $9,800.
D) / $28,000.

20.The net present value of a proposed investment is negative. Therefore, the discount rate must be:

A) greater than the project’s internal rate of return.

B) less than the project’s internal rate of return.

C) greater than the minimum required rate of return.

D) less than the minimum required rate of return.

21. Some investment projects require that a company increase its working capital. Under the net present value method, the investment and eventual recovery of working capital should be treated as:

A) An initial cash outflow.

B) A future cash flow

C) Both an initial cash outflow and a future cash flow.

D) Irrelevant to the next present value analysis.

22.If taxes are ignored, all of the following items are included in a discounted

Cash flow analysis except:

A) Future operating cash savings.

B) Depreciation expense.

C) Futuresalvages value.

D) Investment in working capital.

23.In net present value analysis, the release of working capital at the end of

a project should be:

A) Ignored.

B) Included as a cash outflow.

C) Included as a cash inflow.

D) Included as a tax deduction.

24.(Ignore income taxes in this problem.) The following data on a proposed investment project have been provided:

Cost of equipment $50,000

Working capital required $30,000

Salvage value of equipment $0

Annual cash inflows from the project $20,000

Required rate of return 20%

Life of the project 8 years

The net present value of the project would be:

A) $3,730

B) $0

C) $32,450

D) $88,370

25.The following information relates to the next year’s projected operating results of the Aluminum Division of Wroclaw Corporation:

Contributing margin $1,500,000

Fixed expenses 1,700,000

Net operating loss $(200,000)

If Aluminum Division is dropped, $1,000,000 of the above fixed costs would be eliminated. What will be the effect on Wroclaw’s profit next year if Aluminum Division is dropped instead of being kept?

A) $500,000 decrease

B) $800,000 increase

C) $1,000,000 increase

D) $1,200,000 increase

1