Mid Term Practice

Mid Term Practice Computational Problem Examples
Ch 2
1) John Company has the following information:
Income tax rate 40%

Selling price per unit $7.50
Variable cost per unit $2.50
Total fixed costs $100,000
Target after-tax net income $42,000
Assume the tax rate decreases to 30%. How many fewer units can be sold to retain the same after-tax
net income of $42,000?
A) 1,000
B) 2,000
C) 32,000
D) 34,000
Answer:
LO: 2-9
AACSB: Analytic skills
Learning Outcome: None
2) Jensen Company produces dolls. Each doll sells for $20.00. Variable costs are $14.00 per unit. If the
break-even volume in dollars is $1,446,000, then the total fixed costs for the period are ________.
A) $361,500
B) $433,800
C) $516,425
D) $1,446,000
Answer:
Diff: 2
LO: 2-5
Learning Outcome: Perform fundamental CVP calculations
3) Sharpie Company has variable costs of 75% of total revenues and fixed costs of $40 million per
year. What is the break-even point in dollars?
A) $40 million
B) $53.33 million
C) $100 million
D) $160 million
Answer:
Diff: 2
LO: 2-5
4) If the selling price per unit increases, what is the effect on the break-even point? (Assume no other
changes.)
A) The break-even point increases.
B) The break-even point decreases.
C) The break-even point remains the same.
D) The break-even point is zero.
Answer:
Diff: 2
LO: 2-5
Learning Outcome: Define and use cost-volume-profit analysis to analyze the effects of changes in
costs and volume on a company's profits
5) The break-even point is located at the intersection of the total revenue line and the total costs line
on a cost-volume-profit graph.
Answer: TRUE/FALSE
Diff: 2
LO: 2-4
6) Stefanko Manufacturing has prepared the following income statement:
Sales $450,000
Cost of goods sold 200,000
Gross margin 250,000
Operating expenses 196,000
Operating income $54,000
According to company records, $100,000 of Cost of Goods Sold and $100,000 of Operating Expenses
are fixed.
Required:
A) Compute the contribution margin.
B) Compute the contribution margin ratio.
C) Compute the break-even point in sales dollars.
Answer:
A) Fixed costs = $X + $X = $________
Variable costs = $_______ + $______ = $______
Contribution Margin = $_______ - $_______ = $_______
B) $________/$_______ =______%
C) $_______/______ = $_______
Diff: 2
LO: 2-5
7) Henricks Company has the following information available:
Revenue $500,000
Variable production costs $100,000
Fixed production costs $100,000
Variable selling costs $50,000
Fixed selling costs $50,000
What is the gross margin and net income?

A) $200,000; $200,000
B) $250,000; $150,000
C) $300,000; $200,000
D) $400,000: $200,000
Answer: C
Diff: 2
LO: 2-7
8) Assume the following facts for two products, Zip and Zap:
Zip Zap
Sales mix 3 units 1 unit
Selling price per unit $21.00 $28.00
Variable costs per unit $14.00 $16.00
If total fixed costs are $132,000, the break-even point in units would be ________.
A) 4,000 units of Zip and 12,000 units of Zap
B) 1,200 units of Zip and 400 units of Zap
C) 12,000 units of Zip and 4,000 units of Zap
D) 8,400 units of Zip and 2,800 units of Zap
LO: 2-8
Ch3
9) Leno Company used regression analysis to predict the annual cost of indirect materials. The results
were as follows:
Indirect Materials Cost
Explained by Units Produced
Constant 14,885
Standard error of Y estimate 9,960
R-Squared 0.7832
No. of observations 22
Degrees of freedom 20
X Coefficient 11.75
Standard error of coefficient 2.1876
The linear cost function is ________ where Y = Total indirect materials cost and X = Number of units
produced.
A) Y = $2.1876 + $9,960X
B) Y = $11.75 + $14,885X
C) Y= $9,960 + $14,885X
D) Y = $14,885 + 11.75X
Diff: 2
LO: 3-4
10) The following data has been assembled for Robert Company. Use the high-low method.
Month Cost Hours

January $24,400 2,000
February $39,000 2,200
March $35,280 2,750
April $36,400 3,500
May $40,000 4,000
The cost function is ________ where Y = Total cost and X = Number of hours.
A) Y = $3,600 + $10.40X
B) Y = $8,800 + $7.80X
C) Y = $21,360 + $1.52X
D) Y = $26,672 + $1.84X
Diff: 2
LO: 3-4
Learning Outcome: Discuss and use various methods to estimate the variable and fixed costs
portions of a mixed cost
11) When estimating the total cost of a one-way flight from New York to Los Angeles, what cost
driver should be used?
A) number of miles on flight
B) number of passengers on flight
C) number of pounds of baggage on flight
D) number of passengers on flight times the number of miles on flight
Diff: 2
LO: 3-2
AACSB: Reflective thinking skills
Learning Outcome: Define and distinguish between variable, fixed and mixed costs
12) A linear cost function is estimated over the relevant range of 0 to 1,000 orders. The equation
estimated is: Y = $25,000 + $89X where Y equals the total order-processing cost and X equals the
number of orders. If the number of orders increases to 1,800, what is the predicted total order-
processing cost?
A) $25,000
B) $160,200
C) $185,200
D) cannot be determined
Diff: 2
LO: 3-2
Learning Outcome: Define and distinguish between variable, fixed and mixed costs
13) Direct labor cost is the primary cost driver of support costs for two products. Product One has
direct labor costs of $8.50 per unit and Product Two has direct labor costs of $130 per unit. The
support costs assigned to each product is the direct labor cost times five. What is the support cost
assigned to Product One and Product Two?
Product One Product Two
A) $8.50 $130
B) $5.00 $76.47
C) $42.50 $650
D) $5.00 $26.00
Diff: 2
LO: 3-3
14) The following data has been assembled for Arnold Company. Use the high-low method.
Month Cost Hours

January $24,000 2,000
February $39,000 2,200
March $35,280 2,750
April $36,400 3,500
May $40,000 4,000
The total fixed cost is ________.

A) $3,600
B) $8,000
C) $21,360
D) $26,672
Diff: 2
LO: 3-4
15) Biden Company manufactures small jewelry boxes. The company is considering three cost drivers
for measuring support costs in the factory. The following cost functions have been estimated using
each cost driver:
Cost Driver Cost Function R2

1. X = gluing time in hours Y = $20,000 + $5X R2 = 0.20
2. X = labor hours Y = $13,000 + $10X R2 = 0.55
3. X = machine hours Y = $15,000 + $7X R2 = 0.90
Which cost driver should be chosen?

A) gluing time in hours
B) labor hours
C) machine hours
D) labor hours x gluing time in hours
Diff: 2
LO: 3-4
Ch 4
16) The McCain Company manufactures several products. The McCain Company has gathered the
following information for the year ended December 31, 2015:
Sales $110,000
Direct materials used $10,700
Fixed indirect production costs $10,900
Variable indirect production costs $7,900
Fixed direct labor $10,300
Variable direct labor $12,300
Fixed selling expenses $33,040
Variable selling expenses $3,440
Finished Goods Inventory, January 1, 2015 $24,000
Finished Goods Inventory, December 31, 2015 $22,000
Work-In-Process Inventory, January 1, 2015 0
Work-In-Process Inventory, December 31, 2015 0
Requirements:
A) Compute the Cost of Goods Manufactured for the year ended December 31, 2015.
B) Compute the Cost of Goods Sold for the year ended December 31, 2015.
C) Compute the Net Income for the year ended December 31, 2015.
Answer: (you should know how to compute these, as already covered when we did the chapter)
A)
B)
C)
Diff: 2
LO: 4-6
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement
for different types of organizations
17) A hospital radiology department has the following activities:
Activity Number Activity Description

1 Repair X-ray equipment
2 Taking X-ray with X-ray equipment
3 Wait time between patients
4 Repeating an X-ray because the X-ray technician forgot to
load the film in the X-ray equipment
Which activity is a value-added activity?

A) Activity 1
B) Activity 2
C) Activity 3
D) Activity 4
Diff: 2
LO: 4-8
AACSB: Analytic skills, Reflective thinking skills
Learning Outcome: Compare a traditional cost allocation system to an activity based costing system
18) A manufacturing company has identified several costs. Indicate whether each of the following
costs is an Inventoriable cost(I) or a Period cost(P):
_____ 1. Rent Expense on factory equipment

_____ 2. Cost of subassemblies used in producing product
_____ 3. Wages of machine operators in factory
_____ 4. Rent Expense on computers at corporate office
_____ 5. Wage Expense for janitors in factory
_____ 6. Repairs Expense for factory equipment
_____ 7. Office Supplies Expense at corporate office
_____ 8. Wage Expense for janitors at corporate office
_____ 9. Wages of security guards at corporate office
_____ 10. Property taxes on factory building and land
_____ 11. Wages of security guards at factory
_____ 12. Wages of forklift driver in factory
_____ 13. Supplies Expense for factory
_____ 14. Wages of forklift operators in factory
_____ 15. Distribution Expenses
Answer:
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
11.
12.
13.
14.
15.
Diff: 2
LO: 4-5
Learning Outcome: Describe the basics of managerial accounting and its function within an
organization
19) The following information was taken from the accounting records of Henry Manufacturing
Company:
Direct materials purchased $75,000

Direct materials used $56,000
Direct manufacturing labor costs $20,000
Indirect manufacturing labor costs $10,000
Sales Salaries Expense $35,000
Miscellaneous Factory Expenses $5,000
Administrative Expenses $40,000
Finished Goods Inventory, beginning $10,000
Finished Goods Inventory, end $12,000
Work-In-Process Inventory, beginning 0
Work-In-Process Inventory, end 0
What is Cost of Goods Manufactured?

A) $86,000
B) $89,000
C) $91,000
D) $96,000
Diff: 2
LO: 4-6
Learning Outcome: Define basic managerial accounting concepts and prepare an income statement
for different types of organizations
Ch 5 Questions
20) Cantrall Company is trying to decide which product to manufacture. Expected direct materials
costs are $4.00 per unit for each product. The expected direct labor costs are $2.00 per unit for one
product and $4.00 per unit for another product. In choosing between the two products, the direct
materials costs are ________ and the direct labor costs are ________.
A) relevant; irrelevant
B) irrelevant; relevant
C) relevant; relevant
D) irrelevant; irrelevant
Diff: 2
LO: 5-1
Learning Outcome: Distinguish between relevant and irrelevant costs
21) A company is trying to decide which product to manufacture. The following information is
available:
Costs Product A Product B

Direct Materials 1 $2.00 per unit $2.20 per unit
Direct Labor $0.70 per unit $0.70 per unit
Which product cost is irrelevant to the decision?

A) Direct Materials 1
B) Direct Materials 2
C) Direct Materials 3
D) Direct Labor
Diff: 2
LO: 5-1
22) Wisconsin Company has a current production capacity level of 200,000 units per month. At this
level of production, variable costs are $1.00 per unit and fixed costs are $0.50 per unit. Current
monthly sales are 164,500 units. Gates Company has contacted Wisconsin Company about purchasing
20,000 units at $2.00 each. Current sales would not be affected by the special order and no additional
fixed costs would be incurred on the special order. Variable costs would increase $0.10 per unit with
the special order. If the order is accepted, what is Wisconsin Company's increase in operating
income?
A) $8,000
B) $18,000
C) $20,000
D) $24,000
Diff: 2
LO: 5-4
23) Barber Company has budgeted sales of $30,000 with the following budgeted costs:
Direct materials $6,300

Direct labor $4,100
Variable factory overhead $3,700
Fixed factory overhead $5,600
Variable selling and administrative costs $2,400
Fixed selling and administrative costs $3,200
What is the average target markup percentage for setting prices as a percentage of total variable costs?
A) 45%
B) 57%
C) 82%
D) none of the above
Diff: 2
LO: 5-7
Ch 6 – big ugly problems , not really- the key is knowing how to lay out your data (i.e. “what
type of problem is this and what template do I use?”
24) Sealy Company has a joint process, which produces three products called A, B and C. Each
product may be sold at split-off or processed further and then sold. Joint processing costs for a year
are $20,000. Other relevant data are:
Sales Value Separable Processing Sales Value

Product at Split-Off Costs After Split-Off at Completion
A $94,000 $28,000 $115,000
B 60,000 10,000 82,000
C 66,000 14,000 79,000
Required:
A Which products should be processed further
1. A
2. B & C
3. None
4. B
B) If the Sealy Company maximizes profits, what is the operating income?
1. 202,000
2. 323,000
3. 212,000
4. None of these
25) Nancy Company has an idle machine that originally cost $200,000. The book value of the machine
is $100,000. The company is considering three alternative uses of the idle machine:
Alternative 1: Disposal of machine. Disposal value of machine is $50,000.
Alternative 2: Use the idle machine to increase production of Product A. Contribution margin from
additional sales of Product A is estimated to be $60,000.
Alternative 3: Use the idle machine to increase production of Product B. Contribution margin from
additional sales of Product B is estimated to be $70,000.
When considering the opportunity cost of the idle machine, what is the net financial benefit from
Alternative 3?
A) $10,000
B) $20,000
C) $50,000
D) $70,000
Diff: 2
LO: 6-1
Learning Outcome: Use incremental analysis to make short-term decisions
26) Mueller Company is considering the replacement of equipment used in operations. The following
data are available:
Old Equipment New Equipment

Original cost $93,000 $60,000
Useful life in years 13 6
Current age in years 7 0
Book value $57,000 -
Disposal value now $50,000 -
Disposal value in 6 years 0 0
Annual cash operating costs $14,000 $11,000
Required:
A) Prepare a cost comparison for replacing the old equipment. Use only relevant items and add the
items together for the next 6 years.
B) Should the old equipment be replaced?
Answer:
A (you will need to fill out a table like this below to answer B
Keep Replace Difference

Cash operating costs $____ $____ $___
Disposal value of old equip. (_____) ______
New equipment, cost ______ ______ (______)
Total relevant costs $ $ $
B)
1. Replace 2. Not replace
Diff: 2
LO: 6-6
Learning Outcome: Distinguish between relevant and irrelevant costs, Use incremental analysis to
make short-term decisions
27) LL Company produces and sells a product that has variable costs of $9 per unit and fixed costs of
$200,000 per year. If production decreases from 50,000 to 40,000 units, the total cost per unit will
________.
A) increase by $1
B) increase by $13
C) decrease by $1
D) decrease by $14
28) Joshua Company produces and sells a product that has variable costs of $7 per unit and fixed costs
of $200,000 per year. If production increases from 20,000 units to 25,000 units, the total cost will
________.
A) increase by $35,000
B) decrease by $2 per unit
C) decrease by $8 per unit
D) stay the same

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Mid Term Practice Computational Problem Examples

Income tax rate 40%

6) Stefanko Manufacturing has prepared the following income statement:

7) Henricks Company has the following information available:

What is the gross margin and net income?

Month Cost Hours

Month Cost Hours

The total fixed cost is ________.

Cost Driver Cost Function R2

Which cost driver should be chosen?

17) A hospital radiology department has the following activities:

Activity Number Activity Description

Which activity is a value-added activity?

_____ 1. Rent Expense on factory equipment

Direct materials purchased $75,000

What is Cost of Goods Manufactured?

Costs Product A Product B

Which product cost is irrelevant to the decision?

Direct materials $6,300

Sales Value Separable Processing Sales Value

Alternative 1: Disposal of machine. Disposal value of machine is $50,000.

Old Equipment New Equipment

Keep Replace Difference

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