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# Various practice questions for accounting

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1. Burch Company has \$12,000 cash at the beginning of June and anticipates \$30,000 in cash receipts and \$34,500 in cash disbursements. Burch Company maintains a cash balance of \$10,000 at the end of each month. The firm has an agreement with its bank to borrow or repay funds necessary to maintain the required ending balance. As of May 31 the company owes \$15,000 to the bank. The balance of the loan on June 30 will be:
a. \$7,500
b. \$12,500
c. \$17,500
d. \$19,500
e. \$25,000

2. A retailer, in business for over 50 years, has developed the following regression model from the past 60 months of operating data:
Monthly sales dollars = 50,000 + 4.70A+30B - 1,000X
Where:
A = number of customers
B = advertising dollars in month
X = 1 if a winter month
X = 0 if other months
An appropriate interpretation of this model is that:
a. the business is seasonal, generating higher sales in winter months than other months.
b. advertising is not cost effective.
c. within the relevant range, each additional customer will make a purchase of \$4.70 on average.
d. sales are always expected to be at least \$50,000.

3. A firm derives the following cost relationship from a regression analysis of monthly manufacturing overhead cost:
C=\$80,000 + \$12M
C=monthly manufacturing overhead cost; M=machine hours

The standard error of estimate of the regression is \$6,000. The standard time required to manufacture one 6-unit case of the product is 4 machine hours. The firm applies manufacturing overhead to production on the basis of machine hours; normal annual production is 50,000 cases. If scheduled production during April is 5,000, then the estimated variable manufacturing overhead cost for that month is:
a. \$ 80,000
b. \$240,000
c. \$320,000
d. \$360,000

4. OutlyTech Corp. expects to sell 24,000 telephone switches. Fixed costs are \$12,150,000; unit sales price is \$4,190; and unit variable costs are \$1,440. The firm's margin of safety in sales dollars is:
a. \$71,108,113
b. \$76,577,990
c. \$82,047,826
d. \$87,517,661

Daley Company manufactures computer monitors. The following is a summary of basic cost and revenue data.

Per unit Percent
Sales price \$580 100
Variable costs (348) (60)

Daley is currently selling 700 monitors per month. Fixed costs total \$96,000.
The breakeven point is:

a. 276 units
b. 414 units
c. 420 units
d. 440 units

6. Daley's margin of safety ratio if 700 units are sold is:
a. 39.43%
b. 40.86%
c. 60.6%
d. 62.86%

7. Daley's operating income at a sales level of 700 units is:
a. \$ 66,400
b. \$ 97,200
c. \$162,400
d. \$193,800

8. Daley's operating leverage, based on sales of 700 units, is:
a. 0.667
b. 1.691
c. 1.446
d. 2.446

9. Morris & Son Garden Center's policy is to have 20% of the next month's sales on hand at the end of the current month. Projected sales for August, September and October are 15,000 units, 10,000 units, and 20,000 units, respectively. How many units must be purchased in September?
a. 7,000
b. 10,000
c. 11,000
d. 12,000
e. 14,000
10. Starra Corporation maintains ending inventory for each month at 40% of the next month's sales. It predicted the following sales for the first four months of the coming year.
January February March April
Sales (units) 1,560 1,820 1,950 1,560

How many units should be purchased in February?

a. 1,092
b. 1,768
c. 1,820
d. 1,872
e. 2,600

#### Solution Preview

1. Burch Company has \$12,000 cash at the beginning of June and anticipates \$30,000 in cash receipts and \$34,500 in cash disbursements. Burch Company maintains a cash balance of \$10,000 at the end of each month. The firm has an agreement with its bank to borrow or repay funds necessary to maintain the required ending balance. As of May 31 the company owes \$15,000 to the bank. The balance of the loan on June 30 will be:
a. \$7,500
b. \$12,500
c. \$17,500
d. \$19,500
e. \$25,000

Cash, beginning balance 12,000
Less: Cash disbursements 34,500
Cash, ending balance 10,000
Bank loan required 2,500

15,000 + 2,500 = 17,500

2. A retailer, in business for over 50 years, has developed the following regression model from the past 60 months of operating data:
Monthly sales dollars = 50,000 + 4.70A+30B - 1,000X
Where:
A = number of customers
B = advertising dollars in month
X = 1 if a winter month
X = 0 if other months
An appropriate interpretation of this model is that:
a. the business is seasonal, generating higher sales in winter months than other months.
b. advertising is not cost effective.
c. within the relevant range, each additional customer will make a ...

#### Solution Summary

This solution is comprised of a detailed explanation to answer various practice questions for accounting.

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