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1. The budget projects cash inflows and outflows and the end of period balance sheet.

a. Cash.
b. Financial.
c. Capital expenditures
d. purchases

2. CVP analysis assumes that the ONLY factor that affects costs in change in volume.

True
False

3. Total Fixed Costs \$15,000
Sale Price per Unit \$23
Variable Cost per Unit \$15

If Sales Revenue per Unit decreases to \$18 and 15,000 units are sold, what is the Operating Income or Loss?

a. \$270,000
b. \$30,000
c. \$45,000
d. \$50,000

4. Mist Company sells two products, X and Y. Mist predicts that it will sell 2,500 units of X and 1,500 units of Y in the next period. The unit contribution margins are \$3.50 and \$4.80, respectively. What is the Weighted Average Unit Contribution Margin?

a. \$3.99
b. \$3.71
c. \$4.25
d. \$4.15

5. To calculate the Weighted Average Contribution Margin, divide the sum of the individual product contribution margins by the sales mix in units.

True
False

6. Which of the following statements is TRUE with respect to Fixed Costs per Unit?

a. They will decrease as production decreases.
b. They will remain the same as production levels change.
c. They will increase as production decreases.
d. They will increase as production increases.

7. Canine Company produces and sells dog treats for discriminating pet owners. The unit selling price is \$10. Unit Variable Cost are \$7, and Total Fixed Costs are \$3,300. What are breakeven sales?

a. \$4,714.
b. \$11,000.
c. \$7,700.
d. \$3,300.

8. During July, Neptune Company had actual sales of \$144,000 compared to budgeted sales of \$156,000. Actual cost of goods sold was \$108,000, compared to a budget of \$109,200. Monthly operating expenses, budgeted at \$22,400, totaled \$20,000. Interest revenue of \$2,000 was earned during April but had not been included in the budget. The performance report for July would show a net income variance of what amount?

a. \$10,400
b. \$(10,400)
c. \$(6,400)
d. \$6,400.

9. If the Sale Price per Unit is \$32, Total Fixed Expenses are \$45,000, and the breakeven sale in dollars is \$180,000, what will the Variable Expense per Unit be?
a. \$4.20.
b. \$24.00
c. \$8.00.
d. \$4.00.

10. Janeway Corporation desires a December 31 ending inventory of 1,500 units. Budgeted sales for December are 2,300 units. The November 30 inventory was 850 units. What are budgeted purchases?

a. 2,350
b. 3,150
c. 2,950
d. 3,800

11. A budget is a quantitative expression of a plan that helps managers coordinate and implement the plan.

True
False

12. What is a cost whose total amount changes in direct proportion to a change in volume?

a. Mixed cost.
b. Fixed cost.
c. Variable cost.
d. Irrelevant cost.

13. Which of the following is an income statement which groups variable and fixed expenses separately?

a. Absorption costing income statement.
b. Contribution margin income statement
c. Conventional income statement.
d. Gross profit income statement.

14. The master budget is the set of budgeted financial statements and supporting schedules for the entire organization

True
False

15. Fairfield Company management has budgeted the following amounts for its next fiscal year:

Total fixed expenses \$832,500
Sale price per unit \$40
Variable expenses per unit \$25

If Fairfield Company can reduce Fixed Expenses by \$41,625, by how much can variable expenses per unit increase and still allow the company to maintain the original breakeven sales in units?

a. \$0.25.
b. \$2.75
c. \$0.75
d. \$0.53.

16. Operating budgets include all of the following except for one. Which is it?

a. Inventory budget
b. Sales budget
c. Budgeted income statement
d. Budgeted balance sheet

17. Holding all other factors constant, if fixed expenses increase by \$25%, the breakeven point goes up by 50%

True
False

18. The three components of the operating budget are the sales budget, inventory, purchases and cost of goods sold budget, and the cash budget.

TRUE
FALSE

19. Pennell Company gathered the following information for the year ended December 31, 2009

Fixed costs:

Manufacturing \$165,000
Marketing \$52,000

Variable Costs:

Manufacturing \$113,000
Marketing \$39,000

During the year, Pennell produced and sold 75,000 units of product at a sale price of \$6.50 per unit.

What is the contribution margin?

a. \$122,500
b. \$287,500
c. \$324,500
d. \$209,500

20. Budgets provide benchmarks that help managers evaluate performance.

True
False

21. Belton Company currently sells its products for \$25 per unit. Management is contemplating a 20% increase in sale price for the next year. Variable costs are currently 30% of sales revenue and are not expected to change next year, Fixed expenses are \$150,000.

What is the breakeven point in units at the current sale price?

a. 20,000 units
b. 6,667 units
c. 8,571 units
d. 10,650 units

22. The first step in allocation of indirect costs to individual departments is to choose an allocation base for the indirect cost.

True
False

23. If a unit sells for \$11.40 and has a variable cost of \$3.80, its contribution margin ratio is \$7.60.

True
False

24. To determine the target sales in units, total fixed expenses plus the target operating income are divided by the contribution margin ratio.

True
False

25. Which of the following alternatives reflects the proper order of preparing components of the master budget?

1. financial budget
2. operating budget
3. capital expenditures budget

a. 2, 3, 1.
b. 3, 1, 2
c. 1, 3, 2
d. 1, 2, 3

26. The cash budget is prepared before the budgeted balance sheet is prepared.

TRUE
FALSE

27. Unit fixed costs change as total production increases.

True
False

28. Gray Company sells two products, X and Y. For the coming year, Gray predicts the sale of 5,000 units of X and 10,000 units of Y. The contribution margins of the two products are \$2 and \$3, respectively. The weighted average contribution margin would be \$2.50.

True
False

29. A cost center is a responsibility center in which a manager is accountable for costs ONLY.

True
False

30. Which of the following is an advantage of the budgeting process?

a. Assures the company of achieving its objectives.
b. Aids in performance evaluation.
c. Coordinates the activities of the organization
d. Both A and B.

31. Which of the following statements about budgeting is NOT true?

a. Budgets help to coordinate the activities of the entire organization.
b. Budgets promote communication and coordination between departments.
c. The operating budget should be prepared by top management because it has the overall objectives of the company in mind better than mid management personnel.
d. Budgeting is an aid to planning and control.

32. Universe, Inc. has two service departments, Maintenance and Personnel, as well as two production departments, Venus and Mars. Maintenance costs are allocated based on squared footage while personnel costs are allocated based on number of employees. The following information has been gathered for the current year.

Maintenance Personnel Venus Mars
Direct department cost \$9,000 \$6,000 \$7,500 \$12,500
Square footage 400 200 800 600
Number of employees 4 6 12 16

The total cost allocated from Personnel to Venus would be what amount?

a. \$2,571
b. \$3,429
c. \$2,000
d. \$6,000

33. June sales were \$40,000 while projected sales for July and August were \$50,000 and \$60,000, respectively. Sales are 40% cash and 60% credit. All credit sales are collected in the month following the sale. What are the expected collections for July?

a. \$50,000
b. \$36,000
c. \$54,000
d. \$44,000

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#### Solution Preview

Thank you for requesting me. Please see the attached file for answers/explanations in blue.

1. The ________budget projects cash inflows and outflows and the end of period balance sheet.

a. Cash.

b. Financial.

c. Capital expenditures

d. purchases

2. CVP analysis assumes that the ONLY factor that affects costs in change in volume.

True

False

3. Total Fixed Costs \$15,000
Sale Price per Unit \$23
Variable Cost per Unit \$15

If Sales Revenue per Unit decreases to \$18 and 15,000 units are sold, what is the Operating Income or Loss?

a. \$270,000

b. \$30,000

c. \$45,000

d. \$50,000

Total contribution margin = (18-15)X15,000 = 45,000
Fixed cost = 15,000
Operating income = 30,000

4. Mist Company sells two products, X and Y. Mist predicts that it will sell 2,500 units of X and 1,500 units of Y in the next period. The unit contribution margins are \$3.50 and \$4.80, respectively. What is the Weighted Average Unit Contribution Margin?

a. \$3.99

b. \$3.71

c. \$4.25

d. \$4.15

Weighted average contribution margin = (2,500X3.50 + 1,500X4.80)/(2,500+1,500) = 3.99

5. To calculate the Weighted Average Contribution Margin, divide the sum of the individual product contribution margins by the sales mix in units.

True

False
The individual contribution margin are to be multiplied by the sales mix and then added

6. Which of the following statements is TRUE with respect to Fixed Costs per Unit?

a. They will decrease as production decreases.

b. They will remain the same as production levels change.

c. They will increase as production decreases.

d. They will increase as production increases.

Fixed costs remain constant in total and so decrease on a per unit basis as production increases.

7. Canine Company produces and sells dog treats for discriminating pet owners. The unit selling price is \$10. Unit Variable Cost are \$7, and Total Fixed Costs are \$3,300. What are breakeven sales?

a. \$4,714.

b. \$11,000.

c. \$7,700.

d. \$3,300.

Breakeven sales = Fixed cost/contribution margin ratio
Contribution margin ratio = CM/Sales = (10-7)/10 = 0.3
Breakeven sales = 3,300/0.3 = 11,000

8. During July, Neptune Company had actual sales of \$144,000 compared to budgeted sales of \$156,000. Actual cost of goods sold was \$108,000, compared to a budget of \$109,200. Monthly operating expenses, budgeted at \$22,400, totaled \$20,000. Interest revenue of \$2,000 was earned during April but had not been included in the budget. The performance report for July would show a net income variance of what ...

#### Solution Summary

The solution explains various multiple choice questions relating to budgets, CVP analysis, break even, variable cost, fixed cost, indirect cost and allocation of costs.

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