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27. Holt Company's variable expenses are 70% of sales. At

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27. Holt Company's variable expenses are 70% of sales. At a $300,000 sales level, the degree of operating leverage is 10. If sales increase by $60,000, the degree of operating leverage will be: A) 12 B) 10 C) 6 D) 4 E) none of the above 28. Hopi Corporation expects the following operating results for next year: Sales $400,000 Margin of safety $100,000 Contribution margin ratio 75% Degree of operating leverage 4 What is Hopi expecting total fixed expenses to be next year? A) $75,000 B) $100,000 C) $200,000 D) $225,000 E) none of the above Use the following to answer questions 29-31: Call Corporation is a wholesaler that sells a single product. Management has provided the following cost data for two levels of monthly sales volume. The company sells the product for $140.50 per unit. Sales volume (units) 6,000 7,000 Cost of sales $497,400 $580,300 Selling, general, and administrative costs $273,600 $294,700 29. The best estimate of the total monthly fixed cost is: A) $875,000 B) $147,000 C) $771,000 D) $823,000 E) none of the above 30. The best estimate of the total variable cost per unit is: A) $82.90 B) $128.50 C) $104.00 D) $125.00 E) none of the above 31. The best estimate of the total contribution margin when 6,300 units are sold is: A) $75,600 B) $97,650 C) $362,880 D) $229,950 E) none of the above 32. Under the variable costing method, which of the following is always expensed in its entirety in the period in which it is incurred? A) fixed manufacturing overhead cost B) fixed selling and administrative expense C) variable selling and administrative expense D) all of the above E) none of the above is the correct answer 33. Under the theory of constraints (TOC), which of the following is treated as a period cost? Direct labor Direct material A) Yes Yes B) Yes No C) No Yes D) No No E) none of the above 34. Dietrick Corporation produces and sells two products. Data concerning those products for the most recent month appear below: Product B32L Product K84B Sales $46,000 $27,000 Variable expenses $13,800 $14,670 Fixed expenses for the entire company were $42,550 If the sales mix were to shift toward Product B32L with total sales remaining constant, the overall break-even point for the entire company: A) could increase or decrease. B) would decrease. C) would not change. D) would increase. E) none of the above Use the following to answer questions 35-37: The following data was provided by Truxton Corporation: Sales 10,000 units Selling price $30 per unit Contribution margin ratio 30% Margin of safety percentage 40% 35. The variable expense per unit is: A) $21 B) $9 C) $12 D) $18 E) none of the above 36. The break-even level in sales dollars is: A) $180,000 B) $90,000 C) $210,000 D) $54,000 E) none of the above 37. Net operating income at sales of 10,000 units is: A) $0 B) $32,000 C) $90,000 D) $300,000 E) none of the above Use the following to answer questions 38-41: Thornbrough Corporation produces and sells a single product with the following characteristics: Per Unit Percent of Sales Selling price $220 100% Variable expenses 44 20% Contribution margin $176 80% The company is currently selling 7,000 units per month. Fixed expenses are $901,000 per month. Consider each of the following questions independently. 38. This question is to be considered independently of all other questions relating to Thornbrough Corporation. Refer to the original data when answering this question. Management is considering using a new component that would increase the unit variable cost by $11. Since the new component would increase the features of the company's product, the marketing manager predicts that monthly sales would increase by 500 units. What should be the overall effect on the company's monthly net operating income of this change? A) increase of $82,500 B) decrease of $5,500 C) decrease of $82,500 D) increase of $5,500 E) none of the above 39. This question is to be considered independently of all other questions relating to Thornbrough Corporation. Refer to the original data when answering this question. The marketing manager believes that a $28,000 increase in the monthly advertising budget would result in a 190 unit increase in monthly sales. What should be the overall effect on the company's monthly net operating income of this change? A) decrease of $28,000 B) increase of $33,440 C) increase of $5,440 D) decrease of $5,440 E) none of the above 40. This question is to be considered independently of all other questions relating to Thornbrough Corporation. Refer to the original data when answering this question. The marketing manager would like to cut the selling price by $18 and increase the advertising budget by $53,000 per month. The marketing manager predicts that these two changes would increase monthly sales by 1,000 units. What should be the overall effect on the company's monthly net operating income of this change? A) decrease of $105,000 B) increase of $149,000 C) increase of $105,000 D) decrease of $21,000 E) none of the above 41. This question is to be considered independently of all other questions relating to Thornbrough Corporation. Refer to the original data when answering this question. The marketing manager would like to introduce sales commissions as an incentive for the sales staff. The marketing manager has proposed a commission of $11 per unit. In exchange, the sales staff would accept a decrease in their salaries of $65,000 per month. (This is the company's savings for the entire sales staff.) The marketing manager predicts that introducing this sales incentive would increase monthly sales by 300 units. What should be the overall effect on the company's monthly net operating income of this change? A) increase of $1,269,500 B) increase of $37,500 C) increase of $61,700 D) decrease of $92,500 E) none of the above 42. Mrs. Rafter has supplied the following data for her small business: Selling price $10 per unit Variable expenses $6 per unit Rent $400 per week Salaries $600 per week Other fixed expenses $200 per week . If sales commissions $(1.00 per unit) are discontinued in favor of a $300 increase in salaries, the break-even point in units would: A) increase by 50% B) decrease by 50% C) remain the same D) increase by 15% E) none of the above Use the following to answer questions 43-44: Taylor, Inc. produces only two products, Acdom and Belnom. These account for 60% and 40% of the total sales dollars of Taylor, respectively. The unit variable expense as a percentage of the selling price is 60% for Acdom and 85% for Belnom. Total fixed expenses are $150,000. There are no other costs. 43. What is Taylor's break-even point in sales dollars? A) $150,000 B) $214,286 C) $300,000 D) $520,000 E) none of the above 44. Assuming that the total fixed expenses of Taylor increase by 30% and the sales mix remains constant, what amount of sales dollars would be necessary to generate a net operating income of $9,000? A) $204,000 B) $464,000 C) $659,000 D) $680,000 E) none of the above 45. Assuming that direct labor is a variable cost, the primary difference between the absorption and variable costing is that: A) variable costing treats only direct materials, direct labor, and the variable portion of manufacturing overhead as product costs while absorption costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs. B) variable costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs while absorption costing treats only direct materials, direct labor, and the variable portion of manufacturing overhead as product costs. C) variable costing treats only direct materials, direct labor, the variable portion of manufacturing overhead, and the variable portion of selling and administrative expenses as product cost while absorption costing treats direct materials, direct labor, the variable portion of manufacturing overhead, and an allocated portion of fixed manufacturing overhead as product costs. D) variable costing treats only direct materials and direct labor as product cost while absorption costing treats direct materials, direct labor, and the variable portion of manufacturing overhead as product costs. E) None of the above 46. In its first year of operations, Bronfren Corporation produced 800,000 sets and sold 780,000 sets of artificial tan lines. What would have happened to net operating income in this first year under the following costing methods if Bronfren had produced 20,000 fewer sets? (Assume that Bronfren has both variable and fixed production costs.) Variable costing Absorption costing A) No effect Decrease B) Decrease Increase C) Decrease Decrease D) Increase Increase E) None of the above 47. Net operating income under absorption costing may differ from net operating income determined under variable costing. How is this difference calculated? A) number of units produced during the period times the fixed manufacturing overhead rate per unit. B) change in the quantity of units in inventory times the fixed manufacturing overhead rate per unit. C) change in the quantity of units in inventory times the variable manufacturing cost per unit. D) number of units produced during the period times the variable manufacturing cost per unit. E) None of the above 48. When sales are constant, but the production level fluctuates, net operating income determined by the variable costing method will: A) fluctuate in direct proportion to changes in production. B) fluctuate inversely with changes in production. C) remain constant. D) be greater than net operating income under absorption costing. E) None of the above Use the following to answer questions 49-50: Eliason Company, which has only one product, has provided the following data concerning its most recent month of operations: Selling price $72 Units in beginning inventory 0 Units produced 7,300 Units sold 7,200 Units in ending inventory 100 Variable costs per unit: Direct materials $12 Direct labor $24 Variable manufacturing overhead $3 Variable selling and administrative $8 Fixed costs: Fixed manufacturing overhead $138,700 Fixed selling and administrative $36,000 49. What is the net operating income for the month under variable costing? A) $7,200 B) $1,900 C) $5,200 D) $1,400 E) none of the above 50. What is the net operating income for the month under absorption costing? A) $1,400 B) $1,900 C) $7,200 D) $5,300 E) none of the above
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