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Multiple Choice

See attached file.

The following data relate to a company that produces and sells a travel guide that is updated monthly:

Each book sells for $20.00. The company sold 8,000 books in June and 10,000 books in July.

The degree of operating leverage for July is closest to:

4.48

3.48

4.22

8.70

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

What is the unit product cost for the month under variable costing?

$118

$94

$111

$87

KAB Inc., a small retail store, had the following results for May. The budgets for June and July are also given.

Sales are collected 80% in the month of the sale and the balance in the month following the sale. (There are no bad debts.) The goods that are sold are purchased in the month prior to sale. Suppliers of the goods are paid in the month following the sale. The "selling and administrative expenses" are paid in the month of the sale.

The cash disbursements during the month of June for goods purchased for resale and for selling and administrative expenses should be:

$40,000

$41,000

$42,500

$43,500

Abdi Company, which has only one product, has provided the following data concerning its most recent month of operations:

What is the total period cost for the month under the absorption costing approach?

$98,000

$65,700

$21,000

$163,700

The International Company makes and sells only one product, Product SW. The company is in the process of preparing its Selling and Administrative Expense Budget for the last half of the year. The following budget data are available:

All expenses other than depreciation are paid in cash in the month they are incurred.

If the budgeted cash disbursements for selling and administrative expenses for November total $123,250, then how many units of Product SW does the company plan to sell in November (rounded to the nearest whole unit)?

33,444 units

25,000 units

22,952 units

20,111 units

Under the variable costing method, which of the following is always expensed in its entirety in the period in which it is incurred?

fixed manufacturing overhead cost

fixed selling and administrative expense

variable selling and administrative expense

all of the above

If both the fixed and variable expenses associated with a product decrease, what will be the effect on the contribution margin ratio and the break-even point, respectively?

Item A

Item B

Item C

Item D

Betz Company's sales budget shows the following projections for next year:

Inventory at the beginning of the year was 18,000 units. The finished goods inventory at the end of each quarter is to equal 30% of the next quarter's budgeted unit sales. How many units should be produced during the first quarter?

24,000

48,000

66,000

72,000

Kern Company produces a single product. Selected information concerning the operations of the company follow:

Assume that direct labor is a variable cost.

Which costing method, absorption or variable costing, would show a higher operating income for the year and by what amount?

Absorption costing net operating income would be higher than variable costing net operating income by $2,500.

Variable costing net operating income would be higher than absorption costing net operating income by $2,500.

Absorption costing net operating income would be higher than variable costing net operating income by $5,500.

Variable costing net operating income would be higher than absorption costing net operating income by $5,500.

Shun Corporation manufactures and sells a hand held calculator. The following information relates to Shun's operations for last year:

What is Shun's unit product cost under absorption costing for last year?

$4.10

$4.55

$5.85

$6.30

KAB Inc., a small retail store, had the following results for May. The budgets for June and July are also given.

Sales are collected 80% in the month of the sale and the balance in the month following the sale. (There are no bad debts.) The goods that are sold are purchased in the month prior to sale. Suppliers of the goods are paid in the month following the sale. The "selling and administrative expenses" are paid in the month of the sale.

The amount of cash collected during the month of June should be:

$32,000

$40,000

$40,400

$41,000

The following data relate to a company that produces and sells a travel guide that is updated monthly:

Each book sells for $20.00. The company sold 8,000 books in June and 10,000 books in July.

The contribution margin ratio for the book is:

71.5%

54.0%

51.5%

51.9%

MJ Department Store expects to generate the following sales figures for the next three months:

MJ's gross profit rate is 45% of sales dollars. At the end of each month, MJ wants a merchandise inventory balance equal to 30% of the following month's expected sales, stated at cost. What dollar amount of merchandise inventory should MJ plan to purchase in August?

$257,400

$314,600

$320,000

$327,800

The following data relate to a company that produces and sells a travel guide that is updated monthly:

Each book sells for $20.00. The company sold 8,000 books in June and 10,000 books in July.

The break-even point in units is:

8,247 books

7,767 books

7,407 books

6,504 books

Abel Company uses activity-based costing. The company has two products: A and B. The annual production and sales of Product A is 200 units and of Product B is 400 units. There are three activity cost pools, with estimated costs and expected activity as follows:

The cost per unit of Product B is closest to:

$41.58

$81.53

$74.73

$17.69

Which of the following strategies could be used to reduce the break-even point?

Item A

Item B

Item C

Item D
In two companies making the same product and with the same total sales and total expenses, the contribution margin ratio will be lower in the company with a higher proportion of fixed expenses in its cost structure.

True

False

A shift in the sales mix from products with high contribution margin ratios toward products with low contribution margin ratios will raise the break-even point.

True

False

Attachments

Solution Preview

Please see the attached file. All answers/explanations in blue

The following data relate to a company that produces and sells a travel guide that is updated monthly:

Each book sells for $20.00. The company sold 8,000 books in June and 10,000 books in July.

The degree of operating leverage for July is closest to:

4.48

3.48

4.22

8.70

DOL = (Sales - Variable cost)/(Sales - Variable cost - fixed cost)
Variable cost per unit = 3.20+4+0.50+2= 9.70
Selling price = $20
Total (Sales-Variable cost) = (20-9.70)X10,000= 103,000
Total fixed cost = 6,000+2,000+72,000=80,000
DOL = 103,000/(103,000-80,000) = 4.48

A manufacturing company that produces a single product has provided the following data concerning its most recent month of operations:

What is the unit product cost for the month under variable costing?

$118

$94

$111

$87

Under variable costing only the variable manufacturing costs are taken
Direct material 33
Direct labor 53
Variable manufacturing overhead 1
Total unit cost 87

KAB Inc., a small retail store, had the following results for May. The budgets for June and July are also given.

Sales are collected 80% in the month of the sale and the balance in the month following the sale. (There are no bad debts.) The goods that are sold are purchased in the month prior to sale. Suppliers of the goods are paid in the month following the sale. The "selling and administrative expenses" are paid in the month of the sale.

The cash disbursements during the month of June for goods purchased for resale and for selling and administrative expenses should be:

$40,000

$41,000

$42,500

$43,500
In June we will pay for purchases made in May which is the cost of goods sold of June =20,000. In June the selling and administrative expense is 20,000. Total disbursement =$40,000

Abdi Company, which has only one product, has provided the following data concerning its most recent month of operations:

What is the total period cost for the month under the absorption costing approach?

$98,000

$65,700

$21,000

$163,700

Under absorption costing the period cost is the variable and fixed selling and administrative cost. The variable cost is 11X7,000 and fixed cost is 21,000. Total period cost = 77,000+21,000=98,000

The International Company makes and sells only one product, Product SW. The company is in the process of preparing its Selling and Administrative Expense Budget for the last half of the year. The following budget data are available:

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Solution Summary

The solution explains various multiple choice questions relating to leverage, unit cost, variable costing, absorption method and inventory

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