cost accounting test bank chapter 3

Objective 3.3

1) Stephanie's Bridal Shoppe sells wedding dresses. The average selling price of each dress is $1,000, variable costs are $400, and fixed costs are $90,000. How many dresses must the Bridal Shoppe sell to yield after-tax net income of $18,000, assuming the tax rate is 40%? A) 200 dresses B) 170 dresses C) 150 dresses D) 145 dresses Answer: A

Explanation: A) $1,000N - $400N - $90,000 = $18,000 / (1 - 0.4); $600N - $90,000 = $30,000; N = 200 units

Diff: 3

Objective: 3

AACSB: Analytical thinking

2) Zeta Corp's most recent income statement is given below.

Sales (8,000 units) $160,000 Less variable expenses (68,000) Contribution margin 92,000 Less fixed expenses (50,000) Net income $ 42,000

Required:

a. Contribution margin per unit is $ ________ per unit

b. If sales are doubled to $240,000, total variable costs will equal $ ________

c. If sales are doubled to $240,000, total fixed costs will equal $ ________

d. If 20 more units are sold, profits will increase by $ ________ e. Compute how many units must be sold to break even. # ________

f. Compute how many units must be sold to achieve profits of $60,000. # ________ Answer:

a. Contribution margin per unit is $92,000 / 8,000 = $11.5 b. Variable cost = $68,000 × 2 = $136,000 c. Fixed cost = $50,000

d. Contribution margin of $11.50 × 20 units = $230

e. Breakeven point in units = Fixed costs of $50,000 / Contribution margin per unit $11.50 = 4,348 units f. Desired sales = (Fixed costs of $50,000 + Desired profits $60,000) / $11.50 = 9,566 units

Diff: 3

Objective: 3

AACSB: Application of knowledge

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3) Black Pearl, Inc., sells a single product. The company's most recent income statement is given below.

Sales $50,000 Less variable expenses (30,000) Contribution margin 20,000 Less fixed expenses (12,500) Net income $ 7,500

Required:

a. Contribution margin ratio is ________%

b. Breakeven point in total sales dollars is $ ________

c. To achieve $40,000 in net income, sales must total $ ________

d. If sales increase by $50,000, net income will increase by $ ________ Answer:

a. Contribution margin ratio is $20,000 / $50,000 = 40% b. Fixed costs $12,500 / 0.40 CM% = $31,250 in sales

c. [Fixed costs $12,500 + Net income $40,000] / 0.40 CM% = $131,250 in sales d. $50,000 × 0.40 CM% = $20,000 increase in net income

Diff: 3

Objective: 3

AACSB: Application of knowledge

4) The selling price per unit is $25, variable cost per unit $15, and fixed cost per unit is $4. When this company operates above the breakeven point, the sale of one more unit will increase net income by $6. Answer: FALSE

Explanation: The sale of one more unit will increase net income by $10, ($25 - $15 = $10).

Diff: 2

Objective: 3

AACSB: Application of knowledge

5) A company with sales of $50,000, variable costs of $35,000, and fixed costs of $25,000 will earn a net income of $15,000. Answer: FALSE

Explanation: Net income = $50,000 - $35,000 - $25,000 = ($10,000)

Diff: 2

Objective: 3

AACSB: Application of knowledge

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6) Which of the following statements about net income (NI) is true? A) NI = operating income plus nonoperating revenue. B) NI = operating income plus operating costs. C) NI = operating income less income taxes.

D) NI = operating income less cost of goods sold. Answer: C

Diff: 1

Objective: 3

AACSB: Analytical thinking

Answer the following questions using the information below:

Assume the following cost information for Fernandez Company: Selling price $120 per unit Variable costs $80 per unit Total fixed costs $80,000 Tax rate 40%

7) What minimum volume of sales dollars is required to earn an after-tax net income of $30,000? A) $465,000 B) $330,000 C) $390,000 D) $165,000 Answer: C

Explanation: C) Minimum volume of sales dollars is required = [$80,000 + ($30,000/0.6)] / [($120 - $80) / $120] = $390,000

Diff: 3

Objective: 3

AACSB: Application of knowledge

8) What is the number of units that must be sold to earn an after-tax net income of $42,000? A) 3,750 units B) 4,625 units C) 3,050 units D) 1,875 units Answer: A

Explanation: A) Required number of units = [$80,000 + ($42,000 / 0.6)] / ($120 - $80) = 3,750 units

Diff: 3

Objective: 3

AACSB: Application of knowledge

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9) In CVP analysis, focusing on target net income rather than operating income ________. A) will increase the breakeven point B) will decrease the breakeven point C) will not change the breakeven point

D) will help managers construct a better capital policy Answer: C

Diff: 2

Objective: 3

AACSB: Analytical thinking

10) Which of the following is true of net income?

A) Net income is operating income divided by income tax rate.

B) Net income is operating income plus operating revenues minus operating costs minus income taxes. C) Net income is operating income plus nonoperating revenues minus nonoperating costs minus income taxes.

D) Net income is operating income minus nonoperating revenues minus nonoperating costs minus sales taxes.

Answer: C

Diff: 2

Objective: 3

AACSB: Analytical thinking

11) If selling price per unit is $40, variable costs per unit are $25, total fixed costs are $20,000, the tax rate is 30%, and the company sells 5,000 units, net income is ________. A) $32,158 B) $26,548 C) $28,500 D) $38,500 Answer: D

Explanation: D) Net income = *(($40 ? $25) × 5,000) ? $20,000+ × (1.0 ? 0.3) = $38,500

Diff: 2

Objective: 3

AACSB: Application of knowledge

12) The planned operating income is calculated by ________. A) dividing net income by tax rate B) dividing net income by 1 ? tax rate C) multiplying net income by tax rate D) multiplying net income by 1 ? tax rate Answer: B

Diff: 2

Objective: 3

AACSB: Analytical thinking

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