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Managerial accounting practice exam questions

1. Zeta Company sells men's sports coat. The average sales price is \$475 the average cost per code is \$225. Fixed costs are \$4,220,000. If Zeta sells 25,000 coats, the contribution margin will be:
a. \$7,655,000
b. \$5,625,000
c. \$2,030,000
d. \$6,250,000

5. The following information was drawn from the records of Lane Company
Sales Price \$9 per unit
Variable Costs \$6 per unit
Fixed Cost \$24,000
Units Sold 8,600

Based on this information the breakeven point is:
a. Sales of 8600 units.
b. Sales of \$32,600.
c. Sales of 8000 units.
d. Sales of \$24,000.

9. Shah Enterprises (SE) desires to earn a profit of \$81,984. SE has total fixed cost of \$240,000. The company sells a product that cost \$42 each for a price of \$74 each. Based on this information, the level of required sales necessary to attain the company's profit of objective is:
a. 10,000 units.
b. 2,562 units.
c. 10,062 units.
d. 2,500 units.

16. The following information applies to questions 7 and 8
Doster, Inc. makes and sells 65,000 units of a product that has a contribution margin of \$14 per unit. Variable costs are \$8 dollars per unit and fixed costs amount to \$728,000. Doster has an opportunity to purchase new production equipment. The equipment will increase fixed cost to buy \$124,000 and reducing variable cost by \$2. per unit. The sales volume will remain at 65,000 units and the sales price will not change if the new production equipment is purchased.

Without giving consideration to the possible purchase of the new production equipment, the sales price per unit of Doster's product is:
a. \$6.
b. \$22.
c. \$28.
d. None of the above.

20. If Doster purchases the new production equipment:
a. Profitability will decrease by \$6000.
b. Profitability will decrease by \$14,000.
c. Profitability will increase by \$6,000.
d. Profitability will increase by \$14,000.

21. Selected the true statement:
a. Unit-level costs are always relevant to special order decisions.
b. Batch-level costs are never relevant to special order decisions.
c. Product-level costs are always relevant to special order decisions.
d. Statement a and b are true.

10. The following information is available for the next three (3) questions.

A production costs summary for Davidson Company follows:
Unit-level direct material \$ 5.00/unit
Unit-level direct labor 2.00/unit
Total cost per unit \$17.00

Fixed facility-level selling costs are \$600,000 per year and unit-level selling costs are \$2. The unit-level selling costs consist primarily of shipping and packaging costs. Production capacity is 400,000 units, but Davidson only expects to produce (and sell) 250,000 units next year. The normal selling price of the product is \$30 per unit. A merchant from Venice, Italy has made an offer to purchase 50,000 units at \$24 each.

The relevant incremental cost per unit associated with the special order is:
a. \$15
b. \$13
c. \$ 9
d. \$11

11. Is Davidson accepts a special offer, profitability will:
a. Increase by \$450,000.
b. Decrease of \$450,000.
c. Increase by \$550,000.
d. Decrease by \$550,000.

12.Select the true statement from the following choices.
a. The facility-level selling costs are relevant to the special offer decision.
b. The product-level production costs are relevant to the special offer decision.
c. The unit-level selling costs are not relevant to the special offer decision.
d. All of the statements are false.

13. Based on the following history of production information, which allocation base which you choose to use for your company (i.e. what is the cost driver)?
2001 2002 2003
Units Produced 20,000 40,000 80,000
Direct Labor Hours 15,000 12,000 10,000
Direct Material Costs \$140,000 \$130,000 \$120,000

Actual Overhead Costs \$40,000 \$80,000 \$160,000

a. Direct Material Costs.
b. Units.
c. Direct Labor Hours.
d. All three bases, material costs, labor hours, or units would be equally appropriate.

14. Which are the following is the least logical cost driver for allocating indirect materials cost to three custom-built homes that are different with respect to size?
a. Square footage or floor space.
b. Direct labor hours.
c. Number of houses.
d. Expected sales price measured in dollars.

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