University of Cebu-Banilad

Cebu City
College of Business and Accountancy

Summary Quiz in Acctg. 120

(CVP,ST BUD, RESP)

Name ________________________________________________ Score _________________

TEST I

TRUE OR FALSE

1.A company’s break-even point is the level where total revenues equal total costs.

ANS: T DIF: Easy OBJ: 9-1

2. Absorption costing is more useful than variable costing in determining a company’s break-even point.

ANS: F DIF: Easy OBJ: 9-1

3. Variable costing is more useful than absorption costing in determining a company’s break-even point.

ANS: T DIF: Easy OBJ: 9-1

4. Total variable costs vary directly with levels of production.

ANS: T DIF: Easy OBJ: 9-1

5. Variable costs per unit vary directly with levels of production.

ANS: F DIF: Easy OBJ: 9-1

6. Variable costs per unit remain unchanged with levels of production.

ANS: T DIF: Easy OBJ: 9-1

7. Total fixed costs remain unchanged with levels of production.

ANS: T DIF: Easy OBJ: 9-1

8. Total fixed costs vary inversely with levels of production.

ANS: F DIF: Easy OBJ: 9-1

9. Fixed costs per unit vary inversely with levels of production.

ANS: T DIF: Easy OBJ: 9-1

10. Fixed costs per unit remain constant with levels of production.

ANS: F DIF: Easy OBJ: 9-1

11.The operating budget is expressed both in units and dollars.

ANS: T DIF: Easy OBJ: 8-3

12. The first stage in the budgeting process is the preparation of a sales budget.

ANS: T DIF: Easy OBJ: 8-3

 13. The first stage in the budgeting process is the preparation of a cash collections budget.

ANS: F DIF: Easy OBJ: 8-3

14. In a manufacturing organization, the cash budget is prepared immediately after the sales budget.

ANS: F DIF: Moderate OBJ: 8-3

15. In a manufacturing organization, the production budget is prepared immediately after the sales budget.

ANS: T DIF: Moderate OBJ: 8-3

16. The amount of raw materials that must be purchased can be computed by the following formula: Beginning
inventory + Materials required - Ending inventory.

ANS: F DIF: Moderate OBJ: 8-4

17. The amount of raw materials that must be purchased can be computed by the following formula: Ending
inventory + Materials required - Beginning inventory.

ANS: T DIF: Moderate OBJ: 8-4

18. In estimating factory overhead, it is necessary to separate costs into their fixed and variable components.

ANS: T DIF: Easy OBJ: 8-4

19. In estimating factory overhead, it is necessary to subtract depreciation from total overhead costs.

ANS: T DIF: Easy OBJ: 8-4

20. In estimating factory overhead, it is necessary to add depreciation to total overhead costs.

ANS: F DIF: Easy OBJ: 8-4

21.An administrative department provides services that benefit the entire organization.

ANS: T DIF: Easy OBJ: 13-4

22. An service department provides services that benefit other internal units of an organization.

ANS: T DIF: Easy OBJ: 13-4

23. The most theoretically correct method of allocating service department costs is the algebraic method.

ANS: T DIF: Moderate OBJ: 13-3

24. The direct method of service department cost allocation allows a partial recognition of reciprocal
relationships among service departments before assigning costs to revenue-producing areas.

ANS: F DIF: Moderate OBJ: 13-4

25. The most straight-forward method of assigning service department costs to revenue-producing areas is
the direct method.

ANS: T DIF: Easy OBJ: 13-4

26. Transfer prices can be used to promote goal congruence among operating segments of an
organization.

ANS: T DIF: Moderate OBJ: 13-5

27. In computing a transfer price, the maximum price should be no higher than the lowest market price at
which the buying segment can obtain the good or service externally.

ANS: T DIF: Moderate OBJ: 13-5

28. In computing a transfer price, the maximum price should be no higher than the highest market price at
which the buying segment can obtain the good or service externally.

ANS: F DIF: Moderate OBJ: 13-5

29. In computing a transfer price, the minimum price should be no lower than the incremental costs
associated with the goods plus the opportunity cost of the facilities used.

ANS: T DIF: Moderate OBJ: 13-5

30. One of the main factors to consider when using a cost-based transfer price is whether to use actual or
standard costs.

ANS: T DIF: Moderate OBJ: 13-5

MULTIPLE CHOICE

Brittany Company

Below is an income statement for Brittany Company:

Sales $300,000
Variable costs (150,000)
Contribution margin $150,000
Fixed costs (100,000)
Profit before taxes $ 50,000

1. Refer to Brittany Company. What was the company's margin of safety?

a. $50,000
b. $100,000
c. $150,000
d. $25,000
ANS: B
Margin of safety = Sales - BEP Sales
CM = .50
BEP Sales = .50x - $100,000 = 0
= .50x = $100,000
x = $200,000
$(300,000 - 200,000) = $100,000

DIF: Moderate OBJ: 9-5

2. Refer to Brittany Company. If the unit sales price for Brittany’s sole product was $10, how many units would it
have needed to sell to produce a profit of $40,000?
a. 27,500
b. 29,000
c. 28,000
d. can't be determined from the information given

ANS: C
Contribution Margin at $40,000 profit: $(40,000 + 100,000) = $140,000
Contribution Margin Ratio: 0.50
$140,000 / .50 = $280,000
$280,000 / $10 = 28,000 units
 DIF: Moderate OBJ: 9-3

3. A firm estimates that it will sell 100,000 units of its sole product in the coming period. It projects the sales price
at $40 per unit, the CM ratio at 60 percent, and profit at $500,000. What is the firm budgeting for fixed costs in
the coming period?
a. $1,600,000
b. $2,400,000
c. $1,100,000
d. $1,900,000
ANS: D
Profit + Fixed Cost = (100,000 units * $60/unit CM)
Fixed Cost = (100,000 units * $24/unit CM) - Profit
= $2,400,000 - $500,000
= $1,900,000

DIF: Moderate OBJ: 9-3

4. Sombrero Company manufactures a western-style hat that sells for $10 per unit. This is its sole product and it
has projected the break-even point at 50,000 units in the coming period. If fixed costs are projected at $100,000,
what is the projected contribution margin ratio?
a. 80 percent
b. 20 percent
c. 40 percent
d. 60 percent
ANS: B
Fixed Costs=Contribution Margin at Breakeven Point
= $100,000
Breakeven Sales: $500,000
CM Ratio: $(100,000/500,000) = 20%

DIF: Moderate OBJ: 9-3

Brandon Company

Brandon Company manufactures a single product. Each unit sells for $15. The firm's projected costs are listed
below:

Variable costs per unit:

Production $5
SG&A $1
Fixed costs:
Production $40,000
SG&A $60,000
Estimated volume 20,000 units

5. Refer to Brandon Company. What is Brandon's projected margin of safety for the current year?
a. $133,333
b. $150,000
c. $80,000
d. $100,000
ANS: A
Contribution Margin = $9/unit
Contribution Margin Ratio = 60%
Breakeven Point = $100,000/.60 = $166,667
Sales Volume = 20,000 units * $15/unit = $300,000
Margin of Safety = $(300,000 - 166,667) = $133,333

DIF: Moderate OBJ: 9-5

6. Refer to Brandon Company. What is Brandon's projected degree of operating leverage for the current year?
 a. 2.25
b. 1.80
c. 3.75
d. 1.67
ANS: A
Contribution Margin = $180,000
Net Income = 80,000
Degree of Operating Leverage = $180,000/80,000 = 2.55

DIF: Moderate OBJ: 9-5

Alpha, Beta, and Epsilon Companies

Below are income statements that apply to three companies: Alpha, Beta, and Epsilon:

Alpha Co. Beta Co. Epsilon Co.

Sales $100 $100 $100
Variable costs (10) (20) (30)
Contribution margin $ 90 $ 80 $ 70
Fixed costs (30) (20) (10)
Profit before taxes $ 60 $ 60 $ 60

7. Refer to Alpha, Beta, and Epsilon Companies. Within the relevant range, if sales go up by $1 for each firm, which
firm will experience the greatest increase in profit?
a. Alpha Company
b. Beta Company
c. Epsilon Company
d. can't be determined from the information given
ANS: A
Alpha Company will have the greatest increase in profit, because it has the
greatest contribution margin per unit.

DIF: Easy OBJ: 9-3

8. Refer to Alpha, Beta, and Epsilon Companies. Within the relevant range, if sales go up by one unit for each firm,
which firm will experience the greatest increase in net income?
a. Alpha Company
b. Beta Company
c. Epsilon Company
d. can't be determined from the information given
ANS: D
Price per unit is not given.

DIF: Easy OBJ: 9-3

9. Refer to Alpha, Beta, and Epsilon Companies. At sales of $100, which firm has the highest margin of safety?
a. Alpha Company
b. Beta Company
c. Epsilon Company
d. They all have the same margin of safety.
ANS: C
Epsilon Company has the lowest amount of fixed costs to be
covered.

DIF: Moderate OBJ: 9-3

10. Mike is interested in entering the catfish farming business. He estimates if he enters this business, his fixed costs
would be $50,000 per year and his variable costs would equal 30 percent of sales. If each catfish sells for $2,
how many catfish would Mike need to sell to generate a profit that is equal to 10 percent of sales?
 a. 40,000
b. 41,667
c. 35,000
d. No level of sales can generate a 10 percent net return on sales.
ANS: B
Let x = sales in dollars
x - .30x - $50,000 = .10x
.60x = $50,000
x = $83,333 Units = $83,333/$2 per unit = 41,667 units

DIF: Difficult OBJ: 9-3

11. Ball Company has a policy of maintaining an inventory of finished goods equal to 30 percent of the
following month's sales. For the forthcoming month of March, Ball has budgeted the beginning inventory at
30,000 units and the ending inventory at 33,000 units. This suggests that
a. February sales are budgeted at 10,000 units less than March sales.
b. March sales are budgeted at 10,000 units less than April sales.
c. February sales are budgeted at 3,000 units less than March sales.
d. March sales are budgeted at 3,000 units less than April sales.
ANS: B
Increase in inventory = 3,000 units
3,000/0.30 = 10,000 increase for April over March.

DIF: Moderate OBJ: 8-4

12. Budgeted sales for the first six months for Porter Corp. are listed below:

JANUARY FEBRUARY MARCH APRIL MAY JUNE

UNITS: 6,000 7,000 8,000 7,000 5,000 4,000

Porter Corp. has a policy of maintaining an inventory of finished goods equal to 40 percent of the next month's
budgeted sales. If Porter Corp. plans to produce 6,000 units in June, what are budgeted sales for July?
a. 3,600 units
b. 1,000 units
c. 9,000 units
d. 8,000 units
ANS: C
Beginning Inventory for June 1,600 units (4,000 * 40%)
Produced in June 6,000 units
Deduct: June sales (4,000) units
Ending inventory for June 3,600 units

3,600/0.40 = 9,000 units

DIF: Difficult OBJ: 8-4

13. Weaver Co. manufactures card tables. The company has a policy of maintaining a finished goods inventory equal
to 40 percent of the next month's planned sales. Each card table requires 3 hours of labor. The budgeted labor
rate for the coming year is $13 per hour. Planned sales for the months of April, May, and June are respectively
4,000; 5,000; and 3,000 units. The budgeted direct labor cost for June for Weaver Co. is $136,500. What are
budgeted sales for July for Weaver Co.?
a. 3,500 units
b. 4,250 units
c. 4,000 units
d. 3,750 units

ANS: B

Card tables to be produced in June:

$136,500 / $13 = 10,500 hours 10,500 hrs/3 hrs/table = 3,500 card tables
 Beginning Inventory for July 1,200 units (3,000 * 40%)
Produced in June 3,500 units
Deduct: June sales (3,000) units
Ending inventory for June 1,700 units

1,700/0.40 = 4,250 units

DIF: Difficult OBJ: 8-4

14. Budgeted sales for Knox Inc. for the first quarter the year are shown below:

JANUARY FEBRUARY MARCH

UNITS: 35,000 25,000 32,000

The company has a policy that requires the ending inventory in each period to be 10 percent of the following
period's sales. Assuming that the company follows this policy, what quantity of production should be scheduled
for February?
a. 24,300 units
b. 24,700 units
c. 25,000 units
d. 25,700 units

ANS: D
Ending Inventory, February 3,200 units
February Sales 25,000 units
Requirements for Month 28,200 units
Less Beginning Inventory, February (2,500) units
Production scheduled for February 25,700 units

DIF: Moderate OBJ: 8-4

15. Budgeted sales for the first six months the year for Gibson Corporation are listed below:

JANUARY FEBRUARY MARCH APRIL MAY JUNE

UNITS: 6,000 7,000 8,000 7,000 5,000 4,000

Gibson Corporation has a policy of maintaining an inventory of finished goods equal to 40 percent of the next
month's budgeted sales. How many units has Gibson Corporation budgeted to produce in the first quarter of the
year?
a. 21,400 units
b. 20,600 units
c. 19,000 units
d. 23,000 units
ANS: A
Desired ending inventory March 31 2,800 units
Sales: 1st quarter 21,000 units
Inventory needs 23,800 units
Beginning inventory, January 1 (2,400) units
Production 21,400 units

DIF: Difficult OBJ: 8-4

16. Production of Product X has been budgeted at 200,000 units for May. One unit of X requires 2 lbs. of raw
material. The projected beginning and ending materials inventory for May are:

Beginning inventory: 2,000 lbs.

Ending inventory: 10,000 lbs.
How many lbs. of material should be purchased during May?
a. 192,000
b. 208,000
 c. 408,000
d. 416,000
ANS: C
Ending inventory--May 10,000 lbs.
Production needs: 200,000 units * 2 lbs/unit 400,000 lbs.
Inventory needed 410,000 lbs.
Beginning inventory--May (2,000) lbs.
Total purchase requirements 408,000 lbs.

DIF: Moderate OBJ: 8-4

Xanadu Company manufactures toy airplanes. Information on Xanadu Company's labor costs follow:

Sales commissions $5 per plane

Administration $10,000 per month
Indirect factory labor $3 per plane
Direct factory labor $5 per plane

The following information applies to the upcoming month of July for Xanadu Company:

Budgeted production 1,200 units

Budget sales 1,000 units

17. Refer to Xanadu Company. What amount of budgeted labor cost would appear in the July selling, general, and
administrative expense budget?
a. $10,000
b. $16,000
c. $15,000
d. $23,000
ANS: C
Sales Commissions (1,000 units * $5/plane $ 5,000
Administration $10,000
Labor in SG&A $15,000

DIF: Moderate OBJ: 8-4

18. Refer to Xanadu Company. What is Xanadu’s budgeted factory labor cost for July?
a. $8,000
b. $15,600
c. $25,600
d. $9,600
ANS: D
Direct labor per unit $5.00/unit
Indirect labor per unit 3.00/unit
8.00/unit
Units produced 1,200 units
Total budgeted labor cost $9,600

DIF: Moderate OBJ: 8-4

19. Harrison Company manufactures card tables. The company has a policy of maintaining a finished goods
inventory equal to 40 percent of the next month's planned sales. Each card table requires 3 hours of labor. The
budgeted labor rate for the coming year is $13 per hour. Planned sales for the months of April, May, and June
are respectively 4,000; 5,000; and 3,000 units. What is Harrison Company’s budgeted direct labor cost for May?
a. $54,600
b. $163,800
c. $226,200
d. $179,400
ANS: D
 Ending Inventory, May 1,200 units
Sales: May 5,000 units
Requirements for May 6,200 units
Less: Beginning Inventory, May 1,600 units
Units to be produced 4,600 units
3 hrs/unit * $13/hr
$179,400

DIF: Difficult OBJ: 8-4

20. Edwards Company has the following expected pattern of collections on credit sales: 70 percent collected in the
month of sale, 15 percent in the month after the month of sale, and 14 percent in the second month after the
month of sale. The remaining 1 percent is never collected.

At the end of May, Edwards Company has the following accounts receivable balances:

From April sales $21,000

From May sales 48,000

Edwards expected sales for June are $150,000. How much cash will Edwards Company expect to collect in June?
a. $127,400
b. $129,000
c. $148,600
d. $152,520
ANS: C
June sales ($150,000 * 70%) $105,000
May sales (160,000 * 15%) 24,000
April sales (140,000 * 14%) 19,600
Total cash collections--June $148,600

DIF: Difficult OBJ: 8-5

21.As the internal transfer price is increased,

a. overall corporate profits increase.
b. profits in the buying division increase.
c. profits in the selling division increase.
d. profits in the selling division and the overall corporation increase.

ANS: C DIF: Easy OBJ: 13-5

22. In an internal transfer, the selling division records the event by crediting
a. accounts receivable and CGS.
b. CGS and finished goods.
c. finished goods and accounts receivable.
d. finished goods and intracompany sales.

ANS: D DIF: Easy OBJ: 13-5

23. In an internal transfer, the buying division records the transaction by

a. debiting accounts receivable.
b. crediting accounts payable.
c. debiting intracompany CGS.
d. crediting inventory.

ANS: B DIF: Easy OBJ: 13-5

24. Top management can preserve the autonomy of division managers and encourage an optimal level of
internal transactions by
a. selecting performance evaluation measures that are consistent with the
achievement of overall corporate goals.
b. selecting division managers who are most concerned about their individual
performance.
c. prescribing transfer prices between segments.
d. setting up all organizational units as revenue centers.

ANS: A DIF: Moderate OBJ: 13-5

25. To evaluate the performance of individual departments, interdepartmental transfers of a product

should preferably be made at prices
a. equal to the market price of the product.
b. set by the receiving department.
c. equal to fully-allocated costs of the producing department.
d. equal to variable costs to the producing department.

ANS: A DIF: Easy OBJ: 13-5

26. Allocating service department costs to revenue-producing departments is an alternative to

a. responsibility accounting.
b. the use of profit centers.
c. the use of cost centers.
d. a transfer pricing system.

ANS: D DIF: Moderate OBJ: 13-4

27. External factors considered in setting transfer prices in multinational firms typically do not include
a. the corporate income tax rates in host countries of foreign subsidiaries.
b. foreign monetary exchange risks.
c. environmental policies of the host countries of foreign subsidiaries.
d. actions of competitors of foreign subsidiaries.

ANS: C DIF: Moderate OBJ: 13-5

28. Corporate taxes and tariffs are particular transfer-pricing concerns of

a. investment centers.
b. multinational corporations.
c. division managers.
d. domestic corporations involved in importing foreign goods.

ANS: B DIF: Easy OBJ: 13-6

 Computer Solutions Corporation

Computer Solutions Corporation manufactures and sells various high-tech office automation products.
Two divisions of Office Products Inc. are the Computer Chip Division and the Computer Division. The
Computer Chip Division manufactures one product, a "super chip," that can be used by both the
Computer Division and other external customers. The following information is available on this
month's operations in the Computer Chip Division:

Selling price per chip $50

Variable costs per chip $20
Fixed production costs $60,000
Fixed SG&A costs $90,000
Monthly capacity 10,000 chips
External sales 6,000 chips
Internal sales 0 chips

Presently, the Computer Division purchases no chips from the Computer Chips Division, but instead
pays $45 to an external supplier for the 4,000 chips it needs each month.

29. Refer to Computer Solutions Corporation. Assume that next month's costs and levels of operations in
the Computer and Computer Chip Divisions are similar to this month. What is the minimum of the
transfer price range for a possible transfer of the super chip from one division to the other?
a. $50
b. $45
c. $20
d. $35

ANS: C
$20 is the incremental internal cost of the
chip.

DIF: Moderate OBJ: 13-5

30. Refer to Computer Solutions Corporation. Assume that next month's costs and levels of operations in
the Computer and Computer Chip Divisions are similar to this month. What is the maximum of the
transfer price range for a possible transfer of the chip from one division to the other?
a. $50
b. $45
c. $35
d. $30

ANS: B
$45 is the external price paid for the
chip.

DIF: Moderate OBJ: 13-5