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Fixed Costs, Sunk Costs, Joint Costs, Sales Revenue and Contribution Margin

1)Contribution margin may be express as:
A) A percentage of revenue (B) A total dollar amount for the period (C) A contribution margin per unit (D) All of the above

2) Operating income can be calculated by:
A) Fixed cost divided by contribution margin ratio (B) Fixed costs multiplied by contribution margin ratio (C) Margin of safety multiplied by contribution margin ratio (D) Margin of safety divided by contribution margin ratio

3) As volume increase per unit fixed cost stay the same.
A) True (B) False

Use the following to answer question: 4-7

Handy Gadget Company produces a single product with current selling price of $180. Variable costs are $120 per unit, and fixed costs per month average $4,320. Management is considering increasing the selling price to $200 per unit. Assume that the cost of the product and monthly fixed expense will not charge as a result of the proposed increase is selling price

4) Refer to the above information. At the current selling price of $180 per unit, the contribution margin ratio is:
A) 25% (B) 75% (C) 33 1/3% (D) 30%

5) Refer to the above information. At the current selling price of $180 per unit, what dollar volume of sales per month is required for Handy Gadget to break even?
A) $3,900 (B) $5,200 (C) $12,961 (D) $11,700

6)Refer to the above information. At the current selling price of $180 per unit, what volume of sales per month is necessary for Handy Gadget to generate monthly operating income of $8,000
A) $49,280 (B) $16,427 (C) $39,997 (D) $36,964

7) Refer to the above information. At the proposed increase selling price of $200 per unit , what dollar volume of sales per month is required to break even?
A) $10,800 (B) $7,200 (C) $6,486 (D) $8,640

8) Opportunity cost is the benefit that could have been obtained by pursuing an alternate course of action.
A) true (B) False

9) A cost that has already been incurred and cannot be changed is called a
A) Opportunity cost (B) Out of pocket Cost (C) Joint cost (D) Sunk Cost

10) Which of the following types of cost are always relevant to a decision
A)Sunk Cost (B) Average cost (C) Incremental cost (D) Fixed cost

11) Product for which sales of one contribute to sales of another are called:
A) Complementary product (B) Competing products (C) Contributory products (D) Codependent products

Use the following to answer question 12-13
Star Corporation manufactures telephones. Recently the company produced a batch of 600 defective telephone at a cost of $7,000. Star can sell these telephone as scrap for $7 each. It can also rework the entire batch at a cost of $5,000 after which the telephone could be sold for $18 per unit

12 )Refer to the above information, Which of the following statement is false regarding the defected units
A) Star will not recover its cost if it sells the defective units as scrap(B) Star will recover its costs if it reworks the defective units (C) Star will not recover its cost s if it reworks the defective units (D) Star will recover more of its cost if it decides to rework the defective units

13)Refer to the information above, If Star reworks the defective telephone, by how much will its operating income change.
A) Increase by $1,600 (B) Decrease by $3,000 (C)Increase by $5,800 (D)Decease by $8,000

14)The cost of draining sap out of a maple tree to manufacture maple syrup and maple sugar is an example of:
A)After-split-off cost (B) Sunk cost (C) Incremental cost (D) Joint cost

15) A sunk cost is an expenditure that has proven to be nonproductive.
A) True (B) False

16)Hardware Hut manufactured 100 personal computers at a cost of $55,000. It can sell them as is for $90,000 or install hard disk in them and sell them for $130,000. The $55,000 original manufacturing cost is:
A) An out of pocket cost because it has already been paid.(B) A sunk cost because it is not relevant to the decision (C) An incremental cost because it is relevant to the decision (D) A fixed cost because will remain the same no matter which action is taken.

Use the following to answer questions 17-20

Universal Chemical Company (UCC) manufactures two products as part of a joint process: A1 and B1. Joint cost up to the split-off point total $20,000. The joint cost are allocated to A1 and B1 in proportion to their relative sales values. At the split-off point, product A1 can be sold for $40,000, whereas product B1 can be sold for $60,000 Product A1 can be sold for $40,000 whereas product B1 can be sold for $60,000.Product A1 can be processed further to make product A2, at an incremental cost of $35,000. A2 can be sold for $80,000. Product B1 can be process further to make product B2 at an incremental cost of $45,000. B2 can be sold for $90,000.

17) Refer to the information above. Joint cost allocated to product A1 totals:
A)$8,000 (B) $12,250 (C)$12,000(D) $20,000

18) Refer to the above information. Joint cost allocated to product B1 total:
A)$8,000 (B) $12,000 (C) $12,250 (D) $20,000

19)Refer to the information above. The net charge in operating income resulting from a decision to manufacture product A2 is:
A) $15,000(increase) (B) $15,000 (decrease) (C)$5,000(increase) (D) $45,000(increase)

20) Refer to the information above. The net change in operation income resulting from a decision to manufacture products B2 is:
A) $3,000(decrease) (B) $15,000(decrease) (C) $45,000(decrease) (D)$45,000 (Increase)

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Solution Summary

Fixed Costs, Sunk Costs, Joint Costs, Sales Revenue and Contribution Margin are investigated. The solution is detailed and well presented.

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