Exam Chapters 8-9 answers by PhuongDo5

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									                                                      Cost Accounting
                                                     Exam Chapters 8-9

1. Long-range planning carried out by top management is referred to as ______________________________.

       ANS: strategic planning

2. The starting point for any master budget is the _________________________.

       ANS: sales budget

3. A budget that is prepared by adding a new budget month as each month expires is referred to as a
      _________________________________________.

       ANS: continuous budget.

4. If revenues are intentionally underestimated during the budgeting process, _____________________ has been
        created.

       ANS: budgetary slack

5. The level of activity where a company’s total revenues equal total costs is referred to as the
      ______________________________.

       ANS: break-even point

6. The preparation of an organization's budget
      a. forces management to look ahead and try to see the future of the organization.
      b. requires that the entire management team work together to make and carry out the yearly
          plan.
      c. makes performance review possible at all levels of management.
      d. all of the above.
       ANS: D                 DIF: Easy              OBJ: 8-1

7. When actual performance varies from the budgeted performance, managers will be more likely to revise future
     budgets if the variances were
     a. controllable rather than uncontrollable.
     b. uncontrollable rather than controllable.
     c. favorable rather than unfavorable.
     d. small.
       ANS: B                 DIF: Moderate          OBJ: 8-1

8. Which of the following is not an "operating" budget?
      a. sales budget
      b. production budget
      c. purchases budget
      d. capital budget
      ANS: D                DIF: Easy             OBJ: 8-3
9. Budgeted production for a period is equal to
      a. the beginning inventory + sales - the ending inventory.
      b. the ending inventory + sales - the beginning inventory.
      c. the ending inventory + the beginning inventory - sales.
       d. sales - the beginning inventory + purchases.
      ANS: B               DIF: Easy              OBJ: 8-4
10. The amount of raw material purchased in a period may be different than the amount of material used that period
      because
      a. the number of units sold may be different from the number of units produced.
      b. finished goods inventory may fluctuate during the period.
      c. the raw material inventory may increase/decrease during the period.
      d. companies often pay for material in the period after it is purchased.
       ANS: C               DIF: Moderate          OBJ: 8-4
11. If a company has a policy of maintaining an inventory of finished goods at a specified percentage of the next month's
       budgeted sales, budgeted production for January will exceed budgeted sales for January when budgeted
       a. February sales exceed budgeted January sales.
       b. January sales exceed budgeted December sales.
       c. January sales exceed budgeted February sales.
       d. December sales exceed budgeted January sales.
       ANS: A                DIF: Moderate          OBJ: 8-4

12. Which of the following items would not be found in the financing section of the cash budget?
     a. cash payments for debt retirement
     b. cash payments for interest
     c. dividend payments
     d. payment of accounts payable
       ANS: D                DIF: Easy              OBJ: 8-5

13. CVP analysis requires costs to be categorized as
      a. either fixed or variable.
      b. fixed, mixed, or variable.
      c. product or period.
      d. standard or actual.
       ANS: A                DIF: Easy              OBJ: 9-1,9-6

14. Cost-volume-profit analysis is a technique available to management to understand better the interrelationships of
      several factors that affect a firm's profit. As with many such techniques, the accountant oversimplifies the real
      world by making assumptions. Which of the following is not a major assumption underlying CVP analysis?
      a. All costs incurred by a firm can be separated into their fixed and variable components.
      b. The product selling price per unit is constant at all volume levels.
      c. Operating efficiency and employee productivity are constant at all volume levels.
      d. For multi-product situations, the sales mix can vary at all volume levels.
       ANS: D                DIF: Easy              OBJ: 9-2

15. Which of the following will decrease the break-even point?

        Decrease in       Increase in direct      Increase in
         fixed cost           labor cost         selling price

       a.   yes                 yes                 yes
       b.   yes                 no                  yes
       c.   yes                 no                  no
       d.   no                  yes                 no

       ANS: B                DIF: Easy              OBJ: 9-2
16. Consider the equation X = Sales - [(CM/Sales)  (Sales)]. What is X?
      a. net income
      b. fixed costs
      c. contribution margin
      d. variable costs
       ANS: D                DIF: Moderate         OBJ: 9-2

17. The margin of safety would be negative if a company('s)
      a. was presently operating at a volume that is below the break-even point.
      b. present fixed costs were less than its contribution margin.
      c. variable costs exceeded its fixed costs.
      d. degree of operating leverage is greater than 100.
       ANS: A                DIF: Easy             OBJ: 9-5

18. If a company's fixed costs were to increase, the effect on a profit-volume graph would be that the
       a. contribution margin line would shift upward parallel to the present line.
       b. contribution margin line would shift downward parallel to the present line.
       c. slope of the contribution margin line would be more pronounced (steeper).
       d. slope of the contribution margin line would be less pronounced (flatter).
       ANS: B                DIF: Moderate         OBJ: 9-3

19. The most useful information derived from a cost-volume-profit chart is the
      a. amount of sales revenue needed to cover enterprise variable costs.
      b. amount of sales revenue needed to cover enterprise fixed costs.
      c. relationship among revenues, variable costs, and fixed costs at various levels of activity.
      d. volume or output level at which the enterprise breaks even.
       ANS: C                DIF: Easy             OBJ: 9-3

20.Why have many managers in recent years moved toward emphasizing employee participation in the budgeting
     process rather than simply imposing the budget on the employees?

       ANS:
       Many managers believe that the quality of the budget is enhanced through employee participation. This is
       attributable in part to the fact that many employees possess technical information that management does not have.
       Through the budgeting process this technical information is imparted to management. Further, participation in the
       budgeting process may lead employees to be more attentive to the budget and feel like a more important part of
       the organizational team. Employees feel more committed to meeting a budget they helped prepare. Preparing a
       budget gives the preparer management training, which makes him or her better prepared for advancement in the
       company.

     DIF: Moderate        OBJ: 8-6
21. What major assumption do multi-product firms need to make in using CVP analysis that single-product firms need
     not make?

       ANS:
       The assumption that must be imposed is a constant sales mix. A multi-product firm assumes that (within the
       relevant range) the sales mix is constant. This permits CVP analysis to be performed using a unit of the constant
       sales mix.

       DIF: Moderate         OBJ: 9-4
22. Cline Company has the following collection pattern for its accounts receivable:

       40 percent in the month of sale
       50 percent in the month following the sale
       8 percent in the second month following the sale
       2 percent uncollectible

       The company has recent credit sales as follows:

       April:                               $200,000
       May:                                  420,000
       June:                                 350,000

       How much should the company expect to collect on its receivables in June?

       ANS:

       JUNE COLLECTIONS
       From April sales: $200,000  .08                   $ 16,000
       From May sales:    420,000  .50                    210,000
       From June sales:   350,000  .40                    140,000
       Total                                              $366,000

       DIF: Moderate         OBJ: 8-4


       Oakwood Music, Inc.

       Oakwood Music, Inc. sells Baldwin pianos. The following information regarding operating costs has been
       extracted from budgets of Oakwood Music for December of this year and the first few months of next year:

                                             Dec.            Jan.                 Feb.             Mar.
       Payroll                           $12,000          $13,000           $22,000              $16,000
       Insurance                           4,000            4,000             4,000                4,000
       Rent                                6,000            6,000             6,000                6,000
       Depreciation                        2,000            2,000             2,000                2,000
       Taxes                               1,200            1,400             2,300                2,000

       In addition to the above operating costs, enough pianos are purchased each month to maintain the inventory at 40
       percent of the projected next month's sales. The firm is expected to be in compliance with this policy on
       December 1. Budgeted sales are:

                                               Dec.        Jan.            Feb.           Mar.       Apr.
       Budgeted sales in units:                 40          45             60             50          40


23. Refer to Oakwood Music, Inc. The average cost of a piano is $500. Merchandise is paid for in the month following
      its purchase. All other expenses are paid in the month in which they are incurred. Prepare a budget of the cash
      disbursements for Oakwood Music, Inc. for the first three months of next year.

       First, prepare a purchases budget for December through March for the pianos.

       ANS:

                                                  Dec.              Jan.                 Feb.          Mar.
      Required ending inventory                 18              24              20              16
      Projected sales                           40              45              60              50
      Total pianos needed                       58              69              80              66
      Less the beginning inventory             (16)            (18)            (24)            (20)
      Pianos to be purchased                    42              51              56              46
      x the cost of the piano              x $500          x $500          x $500          x $500
      Budgeted purchases                   $21,000         $25,500         $28,000         $23,000

                                                Budgeted cash disbursements
                                               Jan.          Feb.           Mar.
      Payroll                              $13,000         $22,000         $16,000
      Insurance                              4,000           4,000           4,000
      Rent                                   6,000           6,000           6,000
      Taxes                                  1,400           2,300           2,000
      Merchandise purchases                 21,000          25,500          28,000
      Total                                $45,400         $59,800         $56,000

      DIF: Moderate         OBJ: 8-4


24. The Graves Company makes three products. The cost data for these three products is as follows:

                                          Product A       Product B       Product C
      Selling price                          $10             $20               $40
      Variable costs                           7              12                16

      Total annual fixed costs are $840,000. The firm's experience has been that about 20 percent of dollar sales come
      from product A, 60 percent from B, and 20 percent from C.

      Required:
      a. Compute break-even in sales dollars.

      b.   Determine the number of units to be sold at the break-even point.

      ANS:

                                A              B             C
      a.    SP                $10            $20            $40
            - VC               (7)           (12)           (16)
            = CM              $ 3            $ 8            $24
            CMR                30%            40%            60%

            CMR = (.2  30%) + (.6  40%) + (.2  60%) = 42%

            BE = $840,000/.42 = $2,000,000

      b.    A ($2,000,000  .20)/$10 = 40,000 units

            B ($2,000,000  .60)/$20 = 60,000 units

            C ($2,000,000  .20)/$40 = 10,000 units

      DIF: Moderate         OBJ: 9-4
25. Anderson Company produces and sells two products: A and B in the ratio of 3A to 5B. Selling prices for A and B
      are, respectively, $1,200 and $240; respective variable costs are $480 and $160. The company's fixed costs are
      $1,800,000 per year.

       Compute the volume of sales in units of each product needed to:

       Required:
       a. break even.

       b.   earn $800,000 of income before income taxes.

       A     SP              $1,200         B          SP                $240
             - VC              (480)                   - VC              (160)
             CM              $ 720                     CM                $ 80

       Weighted CM = (3  $720) + (5  $80) = $2,560

       a.   $1,800,000 = 703.125                                 A = 704  3 = 2,112 units
              $2,560                                             B = 704  5 = 3,520

       b.   $1,800,000 + $800,000 = 1015.625                     A = 1,016  3 = 3,048 units
                     $2,560                                      B = 1,016  5 = 5,080

								
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