Tri-State Food Service operates six fast food restaurants in the New England area. The company pays rent of $10,000 per year for each shop. The managers of each shop are paid a salary of $3,200 per month and all other employees are paid on an hourly basis. Relative to the number of hours worked, total compensation cost for a particular shop is which kind of cost? (Points : 2) Variable cost
Fixed cost
Mixed cost
None of the above
2. Hico Bottling Company pays its production manager a salary of $5,000 per month. Salespersons are paid strictly on commission, at $2 for each case of product sold.
For Hico Bottling Company, the production manager’s salary is an example of: (Points : 2)
a variable cost.
a fixed cost.
a mixed cost.
none of the above.
3. Select the correct statement regarding fixed costs. (Points : 2) They do not change, because fixed costs should be ignored in decision making.
The fixed cost per unit increases when volume increases.
The fixed cost per unit decreases when volume increases.
The fixed cost per unit does not change when volume decreases.
4. Hico Bottling Company pays its production manager a salary of $5,000 per month. Salespersons are paid strictly on commission, at $2 for each case of product sold.
For Hico Bottling Company, the salespersons’ commissions are an example of: (Points : 2)
a variable cost.
a fixed cost.
a mixed cost.
none of the above.
5. Once sales reach the breakeven point, each additional unit sold will: (Points : 2) increase fixed cost by a proportionate amount.
reduce the margin of safety.
increase profit by an amount equal to the per unit contribution margin.
increase the company’s operating leverage.
6. Zoro, Inc. produces a product that has a variable cost of $6.00 per unit. The company’s fixed costs are $30,000. The product sells for $10.00 a unit and the company desires to earn a $20,000 profit. What is the volume of sales in units required to achieve the target profit? (Points : 2) 5,000
7,500
8,333
12,500
7. CMA, Inc. produces a product that has a variable cost of $2.50 per unit. The company’s fixed costs are $30,000. The product is sold for $5.00 per unit and the company desires to earn a target profit of $10,000. What amount of sales that will be necessary to earn the desired profit? (Points : 2) $80,000
$200,000
$60,000
$100,000
8. The magnitude of operating leverage for Perkins Corporation is 3.4 when sales are $100,000. If sales increase to $110,000, profits would be expected to increase by what percent? (Points : 2) 34%
2.9%
3.4%
37%
9. Wall Company incurred $30,000 of fixed cost and $40,000 of variable cost when 1,000 units of product were made and sold. If the company’s volume increases to 1,500 units, the company’s total costs will be: (Points : 2) $80,000
$105,000
$87,500
$90,000
10. Wall Company incurred $30,000 of fixed cost and $40,000 of variable cost when 1,000 units of product were made and sold. If the company’s volume doubles, the cost per unit will: (Points : 2) stay the same.
double as well.
increase but will not double.
decrease.
11. For the last two years, Barton Company had net income as follows: 20092010Net income$80,000$100,000
What was the percentage change in income from 2009 to 2010? (Points : 2) 20% increase
20% decrease
25% decrease
25% increase
12. Booker Company operates a factory with two departments, X and Y. The rent paid on the manufacturing facility would most likely be allocated to departments X and Y on the basis of: (Points : 2) direct labor hours.
machine hours.
square footage occupied.
units sold.
13. Which of the following costs is most likely to be directly traceable to a specific department in a retail clothing store? (Points : 2) The cost of heating and air conditioning the department
The cost of supplies
The cost of commissions paid to the sales staff
All of the above
14. The margin of safety can be defined as the excess of budgeted sales over: (Points : 2) break-even sales.
net income.
fixed costs.
variable costs.
15. Hamlin Company expects to incur overhead costs of $100,000 per year and direct production costs (materials and labor) of $125 per unit. The estimated production activity for the upcoming year is 10,000 units. If the company desires to earn a gross profit of $50 per unit, what would be the sales price per unit? (Points : 2) $185
$175
$160
$205
16. Cost accumulation is used to: (Points : 2) identify fixed and variable costs.
identify and estimate opportunity costs.
determine the cost of a particular cost object.
set the selling price for a service.
17. The KnitWitt Corporation manufactures knitted shawls and scarves. The company expects to incur $1,500,000 in overhead costs during 2010. The following budget information is for 2010: ShawlsScarvesTotalNumber of units expected to be produced50,000100,000150,000Direct labor hours250,000800,0001,050,000Machine hours100,00080,000180,000
If the company uses direct labor hours as the cost driver, what amount of overhead cost will be allocated to Shawls? (Points : 2) $357,500
$750,000
$470,000
$833,000
18. Select the true statement from the following. (Points : 2) Only direct costs are assigned to cost objects.
The same cost may be assigned to more than one cost object.
General, selling, and administrative costs are not assigned to cost objects.
A given cost cannot be driven by more than one cost driver.
19. Which of the following statements is true? (Points : 2) Direct costs can easily be traced to a cost object; indirect costs cannot be.
Both direct and indirect costs can easily be traced to a cost object.
Neither direct nor indirect costs are easily traced to a cost object.
Indirect costs can be traced easily to a cost object, but direct costs cannot be.
20. Select the incorrectstatement from the following. (Points : 2) It is better to be approximately right than precisely wrong.
Actual costs are useful for evaluating managerial performance.
Actual costs are not relevant in many decisions because actual costs cannot be determined until after the decision has been made.
When accumulating the cost of a specific cost object, the indirect costs are traced to the cost object.
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