AMANDA DELEON, A COLLEGE STUDENT IS CONTEMPLATING THE FOLLOWING OPTIONS FOR HER 3MONTH SUMMER BREAK:

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1. Amanda Deleon, a college student is contemplating the following options for her 3month
summer break:
(1) Take a summer course which will cost $800 and work half-time making $1,500 per
month.
(2) Work full time at the local dinner making $3,000 per month.
(3) Take the summer class at a cost of $800 and not work during the summer.
Amanda’s incremental profit or loss if she chooses option 1 over option 2 would be:
A) ($4,100)
B) ($2,500)
C) ($5,300)
D) ($3,700)
2. Ronodex, Inc., a manufacturing company produces 80,000 units of product A at a total
cost of $2.4 million. Total fixed costs are $1.4 million. If the company increases
production by 25% and uses a 40% markup, the price per unit will be:
A) $31.54
B) $37.10
C) $30.80
D) $51.80
Use the following to answer questions 3-4:
NTN Company's market for the Model 55 has changed significantly, and NTN has had to drop
the price per unit from $265 to $125. There are some units in the work in process inventory that
have costs of $150 per unit associated with them. NTN could sell these units in their current
state for $100 each. It will cost NTN $10 per unit to complete these units so that they can be
sold for $125 each.
3. A new employee looks at the analysis and exclaims, “We'll lose money with either of
these alternatives! Let's just throw these units in the trash!” Suppose the alternative to
trashing is choosing the more profitable of the two alternatives (that the new employee
looked at and did not like). What effect will the trashing option (that the new employee
wants) have on net income?
A) Net income will increase by $35 per unit for each unit discarded.
B) Net income will decrease by $115 per unit for each unit discarded.
C) It will have no effect on net income.
D) Net income will decrease by $100 per unit for each unit discarded.
4. When the incremental revenues and expenses are analyzed, the company is better off by
A) $15 per unit if they complete the units.
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2. B) $25 per unit if they sell the units in their current state.
C) $10 per unit if they sell the units in their current state.
D) $125 per unit if they complete the units.
5. A company using activity based pricing marks up the direct cost of goods by 40% plus
charges customers for indirect costs based on the activities utilized by the customer.
Indirect costs are charged as follows: $6.00 per order placed; $3.00 per separate item
ordered; $28.00 per return. A customer places 10 orders with a total direct cost of
$2,000, orders 300 separate items, and makes 5 returns. What will the customer be
charged?
A) $3,000
B) $3,900
C) $5,330
D) $5,750
6. Manufacturing overhead is allocated to products based on the number of machine hours
required. In a year when 20,000 machine hours were anticipated, costs were budgeted
at $125,000. If a product requires 8,000 machine hours, how much manufacturing
overhead will be allocated to this product?
A) $41,667
B) $31,120
C) $43,750
D) $50,000
Use the following information to answer questions 7-8:
The EconoPrice Hotel has 200 rooms. Each room rents at $110 per night and variable costs total
$27 per room per night of occupancy. Fixed costs total $76,000 per month.
7. If the hotel spends an additional $20,000 in the month of February on advertising they
feel that they can expect occupancy rate to increase by 10%. What would be the
financial impact of spending this additional money on advertising for the month of
February (28 days)?
A) Total fixed costs will increase by $10,500.
B) Net income will increase by $16,320.
C) Net income will increase by $26,480.
D) Total fixed costs will remain the same.
8. If 75% of the rooms are occupied each night in the month of February (28 days) what
will total costs be for the month?
A) $189,400
B) $173,600.
C) $197,400
D) $155,680.
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9. Johnson Company manufactures widgets. Old Ham Company has approached Jones
with a proposal to sell the company one of the components used to make widgets at a
price of $100,000 for 50,000 units. Jones is currently making these components in its
own factory. The following costs are associated with this part of the process when
50,000 units are produced:
Direct material
Direct labor

3. Manufacturing overhead
Total
$44,000
20,000
60,000
$124,000
The manufacturing overhead consists of $32,000 of costs that will be eliminated if the
components are no longer produced by Jones. The remaining manufacturing overhead
will continue whether or not Jones makes the components.
What is the amount of avoidable costs if Jones buys rather than makes the components?
A) $60,000
B) $96,000
C) $124,000
D) $100,000
10. Below is a performance report that compares budgeted and actual profit of Famous Beer
for the month of April:
Sales
Less:
Cost of ingredients
Salaries
Controllable Profit
Budget
$200,000
Actual
$202,000
Difference
$2,000
$162,000
$31,000
$166,000
$31,200
$4,000
$200
$47,000
$44,800
-$2,200

4. In evaluating the department in terms of its increase in sales and expenses, what will be
most important to investigate?
A)
B)
C)
D)
Sales
Cost of ingredients
Salaries
All three components have equal importance.
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11. Fatima’s Diner has a contribution margin ratio of 17%. If fixed costs are $176,800, how
many dollars of revenue must Fatima’s generate in order to reach the break-even point?
A) $282,880
B) $1,040,000
C) $1,060,800
D) $1,105,000
12. New Visions, Inc. is looking to achieve a net income of 15 percent of sales. Here’s the
firm’s profile: Unit sales price is $10; variable cost per unit is $6; total fixed costs are
$40,000. What is the level of sales in units required to achieve a net income of 15
percent of sales?
A) 12,000 units
B) 21,000 units
C) 16,000 units
D) 20,000 units
13. At Zik’s Apparel, the break-even point is 2,400 units. If fixed costs total $300,000 and
variable costs are $25 per unit, what is the selling price per unit?
A) $210
B) $180
C) $5
D) $150
14. Which of the following situations will most likely violate cost-volume-profit
assumptions about fixed costs?
A) When production volume increases beyond the capacity of the plant, a second shift
will be added instead of building a new plant.
B) The company’s raw material supplier typically allows volume discounts when
larger amounts of the raw material are purchased.
C) Fixed costs per unit decrease as volume increases.
D) As volume increases, per unit fixed manufacturing overhead remain constant.
15. Neighborhood Grill Company is a start up with the following profile:
Unit selling price = $200; Variable cost per unit = $100; Fixed Costs = $36,000;
Tax rate = 25%. How many units should Neighborhood Grill sell to achieve an
after-tax target income of $6,000?
A) 200

5. B) 460
C) 440
D) 300
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16. Northern Apparel Company owns two stores and management is considering
eliminating the South store due to declining sales. Segmented contribution income
statements are as follows and common fixed costs are allocated on the basis of sales.
North
South
Total
Sales
$475,000
120,000
$595,000
Variable costs
242,500
69,000
311,500
Direct fixed costs
72,500
35,500
108,000
Segment margin
160,000
15,500
175,500
Allocated fixed costs
104,500
48,000
152,500
Net Income
$55,500
($32,500)
$23,000
Northern feels that if they eliminate the South store, sales in the North store will decline
by 20%. If they close the South store, overall company net income will:
A) decline by $90,000.
B) decline by $85,625.
C) decline by $62,000.
D) decline by $20,000.
17. Forest Park, a best-selling toy has a selling price of $15. If the contribution margin ratio
is 40% and if the fixed costs are $60,000, how many Forest Parks must the company sell
to realize a profit of $450,000?
A) 30,000
B) 34,000
C) 85,000

6. D) 100,000
Information for Questions 18
Anderson Manufacturing makes a single product. Budget information regarding the current
period is given below:
Revenue (100,000 units at $8.00)
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Net income
$800,000
150,000
125,000
235,000
110,000
$180,000
Dye Company approaches Anderson with a special order for 15,000 units at a price of $7.50 per
unit. Variable costs will be the same as the current production and accepting the special order
will not have any impact on the rest of the company's orders. However, Anderson is operating at
capacity and will incur an additional $50,000 in fixed manufacturing overhead if the order is
accepted.
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18. What is the incremental income (loss) associated with accepting the special order?
A) ($14,000)
B) $36,000
C) ($23,500)
D) $27,000
19. Auto Zone believes it can sell 3,500,000 of a new vehicle charger for $8 each. There
will be $3,000,000 in fixed costs associated with the charger. If the company desires to
make a profit of $2,000,000 on the charger, what is the target variable cost per charger?
A) $7.25
B) $9.00
C) $6.57
D) $9.40
20. On July 26, 2012, Radio Shack announced disappointing 2nd quarter earnings that
caused the stock to fall 29% to all time lows. Although sales were up 1.2% to $953.2
million gross profit fell 16.6% to $360.3 million. Assuming Radio Shack’s store count
and fixed costs were the same in the 2nd quarter of 2011 and 2012, which of the
following statements is the best explanation for the decrease in the firm’s profitability?
A) Opportunity costs decreased.
B) Margin of safety decreased.
C) Contribution margin decreased.
D) Selling price decreased.
21 Paul's Pizza produced and sold 2,000 pizzas last month and had fixed costs of $6,000. If

7. production and sales are expected to increase by 10% next month, which of the
following statements is true?
A) Total fixed costs will decrease.
B) Fixed cost per unit will decrease.
C) Total fixed costs will increase.
D) Fixed cost per unit will increase.
22. The Synergy Company uses cost-plus pricing with a 50% mark-up. The company is
currently selling 100,000 units at $12 per unit. Each unit has a variable cost of $6. In
addition, the company incurs $200,000 in fixed costs annually. If demand falls to
80,000 units and the company wants to continue to earn a 50% return, what price should
the company charge?
A) $13.50
B) $14.55
C) $12.75
D) $10.95
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Use the following to answer question 23:
Taylor's Treasures has collected the following information over the last six months.
Month
March
April
May
June
July
August
Units produced
10,000
12,000
18,000
13,000
12,000
15,000
Total costs
$25,600
26,200
27,600
26,450
26,000
26,500
23. Using the high-low method, what is the variable cost per unit?
A) $0.25
B) $2.56
C) $0.22

8. D) $2.00
24. During 2014, Teko Inc. reported revenues of $925,400 and profits of $88,500. Fixed
costs were $456,250 and 37,016 units were sold. If costs and prices are expected to stay
the same in 2015, and Teko expects to sell 40,000 units, what will be the company’s
budgeted profit?
A) $95,457
B) $132,414
C) $525,000
D) $667,957
25. Visit finance.yahoo.com and determine which of the following statements is incorrect:
A) The current market cap of Google is greater than the market cap of Microsoft.
B) The current ratio for the most recent quarter for Microsoft is greater than the current
ratio for Google.
C) The current price per share of Google is more than ten times that of Microsoft.
D) Return on equity for the most recent quarter for Microsoft is higher than return on
equity for Google.