AIM 2302 – PRACTICE EXAM II
Section I – Multiple Choice
Use the following information to answer questions 1 through 6
Pooh & Co. manufactures and sells teddy bears. Selling price and cost information for each teddy bear are below:
Sales price / $ 60Direct materials / 10
Direct labor / 12
Variable manufacturing support costs / 6
Variable selling support costs / 2
Annual total fixed costs for Pooh & Co. are $600,000.
1) What is the contribution margin ratio?
a)40%
b)45%
c)50%
d)55%
2) What is the breakeven point in terms of number of teddy bears?
a)20,000 units
b)30,000 units
c)40,000 units
d)50,000 units
3) What is the breakeven point in terms of dollars of sales?
a)$1,200,000
b)$ 1,000,000
c)$800,000
d)$600,000
4) How many units of teddy bears must be sold in order to generate a profit of $300,000?
a)20,000 units
b)30,000 units
c)40,000 units
d)45,000 units
5) If the annual fixed costs increase by $120,000, the breakeven point (in units) changes to
a)20,000 units
b)24,000 units
c)34,000 units
d)44,000 units
6) If the company decides to stimulate sales by spending an additional $150,000 on advertising, how many more teddy bears must be sold to justify this spending?
a)2,000 units
b)3,000 units
c)4,000 units
d)5,000 units
7) The most likely strategy to reduce the breakeven point would be to:
a)Increase both the fixed costs and the contribution margin
b)Decrease both the fixed costs and the contribution margin
c)Decrease the fixed costs and increase the contribution margin
d)Increase the fixed costs and decrease the contribution margin
8) If the fixed costs for a firm decreases and the variable costs per unit also decreases, what will be the effect on the contribution margin ratio and the breakeven point?
Contribution margin ratio / Breakeven pointa) / Increases / Decreases
b) / Decreases / Increases
c) / Decreases / Decreases
d) / Increases / Increases
Use the following information to answer questions 9 through 13
Winthrop Company uses a job order costing system. The following data pertains to Job W250 completed during September 2002. Job W250 consisted of 100 clamping devices.
Resources required by W250 / Quantity / PriceDirect materials / 4,000 pounds / $5 per pound
Direct labor / 1,000 hours / $12 per hour
Manufacturing support costs (based on direct labor hours) / $6 per Direct labor hour
9) Direct material costs assigned to Job W250 are
a)$2,000
b)$4,000
c)$10,000
d)$20,000
10) Direct labor costs assigned to job W250 are
a)$12,000
b)$2,400
c)$6,000
d)$24,000
11) Manufacturing support costs assigned to job W250 are
a)$12,000
b)$2,400
c)$6,000
d)$24,000
12) The cost per unit of the clamping device is
a)$ 200
b)$ 120
c)$ 380
d)$ 60
13) Winthrop Company establishes its plantwide manufacturing support cost rate at the beginning of every year. If total estimated plantwide manufacturing support costs for 2002 were $600,000, what was the estimated level of direct labor hours for 2002?
a)1,000 hours
b)10,000 hours
c)100,000 hours
d)600,000 hours
14) Departmental manufacturing support cost rates are usually preferred to a plantwide support cost rates when
a)The activities performed in various departments in the plant are very different
b)The support costs are insignificant.
c)The accounting department has too many people.
d)The company wants to cut costs.
15) Total contribution margin equals
a)Revenues minus variable costs
b)Revenues minus fixed costs
c)Revenues minus manufacturing support costs
d)Revenues minus total manufacturing costs
16) The contribution margin ratio increases if
a)Total fixed costs increase
b)Unit variable cost increases
c)The percentage of variable costs to sales revenues increases
d)The percentage of variable costs to sales revenues decreases
17) The breakeven point is
a)Fixed costs divided by unit contribution margin
b)Fixed and variable costs divided by unit contribution margin
c)Total costs divided by unit contribution margin
d)Unit contribution margin divided by fixed costs per unit
18) The higher the safety margin,
a)The lower is the unit contribution margin
b)The higher is the ability of the firm to withstand drop in sales revenue without incurring losses
c)The higher is the breakeven point
d)The lower is the profitability
19) Design of an activity-based costing system requires that
a)The job bid process be redesigned
b)Resource costs be linked to the activities performed
c)The cost of activities be linked to cost objects
d)Both (b) and (c)
20) Different products consume different proportions of manufacturing support costs because of differences in all of the following EXCEPT
a)Sales prices
b)Customers’ customization specifications
c)Setup times
d)Product design
21) The major reason for using normal or practical capacity as the denominator for activity driver calculations is to
a)Avoid distortions induced by the assignment of excess capacity costs to the products
b)Simplify the calculations of the activity cost drivers
c)Reduce the cost of unused capacity
d)Place less emphasis on the cost of unused capacity
22) Activity-based costing information
a)Should be used when services place similar demands on resources
b)Usually results in peanut-butter costing
c)Will yield inaccurate cost numbers when products are similar
d)May assist in improving product design and efficiency
Section II
Taylor Manufacturing Inc. produces two products: D110 and E220. The following data are available from their records:
D110 / E220Selling price per unit / $15 / $35
Variable costs per unit / $7.50 / $20.00
For every 9 units of D110 sold, 1 unit of E220 is sold. Fixed costs for the firm are $ 82,500.
a)Calculate the unit contribution margin for D110 and E220.
b)Calculate the weighted average contribution margin per unit for Taylor Manufacturing Inc. assuming a constant sales mix between D110 and E220.
c)Calculate the breakeven volume for Taylor Manufacturing Inc. in terms of numbers of units of D110 and E220.
d)Calculate the number of units of D110 and E220 that need to be sold, if Taylor Manufacturing Inc. wants to generate a net income of $ 247,500?
e)Assume that Taylor Manufacturing Inc. can increase its selling price of D110 to $ 17.50 (no costs will change) and still attract enough customers to keep the same sales mix of 9:1 for D110 and E220. How many units of D110 and E220 does Taylor Manufacturing Inc. need to sell in order to achieve the target income of $247,500?
Section III
Neptune Company produces customized sailboats. The company uses a job costing system. Its plant has 3 production departments: Cutting, machining, and assembly. The estimated support cost and direct labor cost for each department for 2001 are as follows:
Cutting / Machining / AssemblyManufacturing support cost / $540,000 / $800,000 / $100,000
Direct labor hours / 30,000 / 20,000 / 40,000
In May 2001, the company received an invitation from Duluth Sailing Company to bid for an order of 5 sailboats. This job would require the following direct manufacturing costs:
Cutting / Machining / AssemblyDirect material cost / $12,000 / $900 / $5,600
Direct labor hours / 6,500 / 1,700 / 13,000
a)Assume that a single, plantwide manufacturing support cost driver based on direct labor hours is used. Determine the plant-wide support cost rate.
b)Using the rate in (a) above, determine the support costs applied to the Duluth job.
c)Assume that instead of a plant-wide manufacturing support cost rate, Neptune Company is using departmental manufacturing support cost rates based on direct labor hours. Determine the manufacturing support cost rate for each of the three departments.
d)Using the rates in (c) above, determine the support costs applied to the Duluth job.
Section IV
Automotive Products (AP) designs, manufactures and sells automotive parts. It has three main operating departments: design, engineering and production.
- Design – The design of parts, using computer-aided design (CAD) equipment
- Engineering – The prototyping of parts and testing of their specifications
- Production – The manufacture of parts
For many years, AP had long-term contracts with major automobile assembly companies. AP’s costing system allocates manufacturing overhead on the basis of machine-hours. Actual manufacturing overhead costs for 2004 were $308,600. AP had three contracts in 2004 and its machine-hours used in 2004 were assigned as follows:
United Motors 120
Holden Motors2,800
Leland Vehicle1,080
Totals4,000
a)Compute the plantwide manufacturing overhead cost rate for 2004.
b)Compute the amount of manufacturing overhead allocated to each contract in 2004.
c)What conditions must be present for machine-hours to provide an accurate estimate of the manufacturing overhead incurred on each individual contract?
The new plant accountant suggested implementing an activity-based costing system and collected the following summary data about the company’s activities:
Department / Mfg. OH Costs / Cost DriverDesign / $39,000 / CAD Design-Hours
Engineering / 29,600 / Engineering Hours
Production / 240,000 / Machine Hours
Totals / $308,600
Details pertaining to usage of the cost drivers for each of the three 2004 contracts are:
Department / Cost Driver / United / Holden / LelandDesign / CAD Design-Hours / 110 / 200 / 80
Engineering / Engineering Hours / 70 / 60 / 240
Production / Machine Hours / 120 / 2,800 / 1,080
d)Compute the manufacturing overhead cost rate for each department in 2004.
e)Compute the amount of manufacturing overhead allocated to each contract in 2004 using activity-based costing.
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