1. A retail company determines its selling price by marking up variable costs 60%.

In
addition, the company uses frequent selling price markdowns to stimulate sales. If
the markdowns average 10%, what is the company's contribution margin ratio?
A. 43.75%
B. 37.5%
C. 27.5%
D. 30.6%

2. Listed below are a company’s monthly unit costs to manufacture and market a
particular product.
Manufacturing costs:
Direct materials $2.00
Direct labor 2.40
Variable indirect 1.60
Fixed indirect 1.00
Marketing costs:
Variable 2.50
Fixed 1.50
The company must decide to continue making the product or buy it from an outside
supplier. The supplier has offered to make the product at the same level of quality
that the company can make it. Fixed marketing costs would be unaffected, but
variable marketing costs would be reduced by 30% if the company were to accept
the proposal. What is the maximum amount per unit that the company can pay the
supplier without decreasing operating income?
A. $6.75
B. $7.75
C. $5.25
D. $8.50

3. A corporation manufactures two products that are considered joint products.

Common costs of $350,000, allocated using the physical measures method, yield
15,000 units of Product A and 20,000 units of Product B. Product B incurs $50,000 of
direct costs and sells for $15 per unit. The corporation has the option of processing
Product B further. This action would increase the product’s direct costs by $35,000
and would increase the unit selling price to $17. If the corporation further processes
Product B, its income will
A. Decrease by $45,000.
B. Increase by $5,000.
C. Increase by $55,000.
D. Increase by $105,000.
4. If a product’s price elasticity of demand is greater than one, then a 1% price
increase will cause the quantity demanded to
A. Decrease by less than 1%
B. Increase by less than 1%.
C. Increase by more than 1%.
D. Decrease by more than 1%.

5. Donnelly Corporation manufactures and sells T-shirts imprinted with college

names and slogans. Last year, the shirts sold for $7.50 each, and the variable cost
to manufacture them was $2.25 per unit. The company needed to sell 20,000 shirts
to break even. The net income last year was $5,040. Donnelly's expectations for the
coming year include the following:

 The sales price of the T-shirts will be $9

 Variable cost to manufacture will increase by one-third
 Fixed costs will increase by 10%
 The income tax rate of 40% will be unchanged

The selling price that would maintain the same contribution margin rate as last year
is
A. Some amount other than those given.
B. $9.00
C. $10.00
D. $8.25

6. The equilibrium price of the Special Jeans brand of jeans is $30 per pair, with
Special Jeans selling 500,000 pairs per month. The price of clothing drops, and the
price of jeans decreases to $25 per pair. Eventually, Special Jeans decreases
production, offering only 400,000 pairs per month. What is the elasticity of supply for
the jeans?
A. 1.22.

B. 0.40.

C. 0.82.

D. 0.04.
7. Adams Corporation’s goal is for operating income to equal 6% of sales. Adams
estimates that the highest selling price the market will bear is $115 per unit. Adams
expects to sell 100,000 units, incur fixed costs of $3,500,000, and has an effective
income tax rate of 40%. To achieve these plans, the target variable cost per unit
must be
A. $68.50.
B. $62.75.
C. $108.10.
D. $73.10.

8. A manufacturer produces a product that sells for $10 per unit. Variable costs per
unit are $6 and total fixed costs are $12,000. At this selling price, the company earns
a profit equal to 10% of total dollar sales. By reducing its selling price to $9 per unit,
the manufacturer can increase its unit sales volume by 25%. Assume that there are
no taxes and that total fixed costs and variable costs per unit remain unchanged. If
the selling price were reduced to $9 per unit, the profit would be:
A. $6,000
B. $5,000
C. $4,000
D. $3,000

9. The management accountant for a bookstore has prepared the following income
statement for the most current year:
Cook Book Travel Books Classic Total
s

Sales $60,000 $100,000 $40,00 $200,00

0 0
Cost of goods sold 36,000 65,000 20,000 121,000

Contribution margin $20,00 $ 79,00

$24,000 $ 35,000 0 0
Order and delivery
processing 18,000 21,000 8,000 47,000
Rent (per sq. ft. used) 2,000 1,000 3,000 6,000
Allocated corporate costs 7,000 7,000 7,000 21,000

Operating profit $ 2,00 $ 5,00

$ (3,000) $ 6,000 0 0

If the company drops Cook Book, the square footage used will return to the landlord.
Dropping Cook Book will cause the company’s operating profit to be
A. $6,000 lower.
B. $7,000 higher.
C. $4,000 lower.
D. $4,000 higher.

10. Leland Manufacturing uses 10 units of Part Number KJ37 each month in the
production of radar equipment. The unit cost to manufacture 1 unit of KJ37 is
presented below.
Direct materials $ 1,000
Materials handling (20% of direct material cost) 200
Direct labor 8,000
Manufacturing overhead (150% of direct labor) 12,00
0
Total manufacturing cost $21,200
Material handling represents the direct variable costs of the Receiving Department
that are applied to direct materials and purchased components on the basis of their
cost. This is a separate charge in addition to manufacturing overhead. Leland's
annual manufacturing overhead budget is one-third variable and two-thirds fixed.
Scott Supply, one of Leland's reliable vendors, has offered to supply Part Number
KJ37 at a unit price of $15,000.
If Leland purchases the KJ37 units from Scott, the capacity Leland used to
manufacture these parts would be idle. Should Leland decide to purchase the parts
from Scott, the unit cost of KJ37 would
A. Increase by $4,800.
B. Decrease by $6,200.
C. Decrease by $3,200.
D. Change by some amount other than those given.

11. Long Lake Golf Course has raised greens fees for a nine-hole game due to an
increase in demand.
Average GamesAverage Games
Played at Played at
Previous Rate New Previous Rate New Rate
Rate

Regular weekday $10 $11 80 70

Senior citizen 6 8 150 82
Weekend 15 20 221 223
Which one of the following is true?
A. The regular weekday and weekend demand is
inelastic.
B. The regular weekday and weekend demand is elastic.
C. The senior citizen demand is elastic, and weekend demand is inelastic.
D. The regular weekday demand is inelastic, and weekend demand is
elastic.

12. A manufacturer produces hacksaw blades. Recently, the manufacturer has

decided to enhance its product line and offer band blades. Two alternatives are
being analyzed: purchase band blades overseas or produce them in-house. If the
band blades are made in-house, the manufacturer will not be able to produce
hacksaw blades, forgoing a $30,000 profit contribution.

Revenue from sale of band blades $180,000

Outside purchase 170,000
Direct material and labor 100,000
Variable manufacturing overhead 50,000
Avoidable fixed manufacturing
overhead 10,000
Calculate the incremental cost of making and purchasing band blades, respectively.
A. $20,000 $40,000
B. $160,000 $170,000
C. $20,000 $40,000
D. $160,000 $170,000

13. The following information is available on Crain Co.’s two product lines:
Chairs Tables

Sales $180,000 $ 48,000

Variable costs (96,000) (30,000)

Contribution margin $ 84,000 $ 18,000

Fixed costs:
Avoidable (36,000) (12,000)
Unavoidable (18,000) (10,800)

Operating income $ 30,000 $ (4,800

(loss) )
Assuming the tables line is discontinued and the factory space previously used to
make tables is rented for $24,000 per year, operating income will increase by what
amount?

A. $13,200
B. $18,000
C. $24,000
D. $28,800

14. XYZ Company has fixed costs of $300,000 per month. Total output per month is
150,000 units. Minimum pay for production line workers is $5.85 per hour, and total
variable costs are currently $270,000 per month. If variable costs increase to
$350,000 per month and production output increases to 250,000 per month, what
are the average variable costs before and after the increase in production?

A. $1.8 per unit before and $1.40 per unit after the increase in production.

B. $2 per unit before and $1.20 per unit after the increase in production.

C. $1.80 per unit before and after the increase in production.

D. $3.83 per unit before and $2.60 per unit after the increase in production

15. The ABC Company manufactures components for use in producing one of its
finished products. When 12,000 units are produced, the full cost per unit is $35,
separated as follows:
Direct materials $ 5
Direct labor 15
Variable 10
overhead
Fixed overhead 5
The XYZ Company has offered to sell 12,000 components to ABC for $37 each. If
ABC accepts the offer, some of the facilities currently being used to manufacture the
components can be rented as warehouse space for $40,000. However, $3 of the
fixed overhead currently applied to each component would have to be covered by
ABC's other products. What is the differential cost to the ABC Company of
purchasing the components from the XYZ Company?

A. $8,000

B. $20,000

C. $24,000
D. $44,000

16. A company's cost information for the normal range of production is presented in
the following table:

Number of Units Produced Total Cost

100,000 4,000,000
120,000 4,250,000
140,000 4,500,000
What is the marginal cost of producing one additional unit?

A. $40.00
B. $32.14
C. $12.50
D. $35.42