ACCT 2102 Principles of Accounting II - University Of Georgia. Test 2 combined multiple choice (answers listed at end of file)

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ACCT 2102 Principles of Accounting II - University Of Georgia. Test 2 combined multiple choice (answers listed at end of file)ACCT2102 Farmer Test 2 combined multiple choice practice (answers liste... d at end of file) 1. Which of the following “rules of thumb” is incorrect with regard to making short-term business decisions? a. Analysis should be performed using a traditional income statement approach. b. Variable costs should be analyzed on a per unit. c. Qualitative factors should be considered when analyzing a decision. d. Past costs should not be used in the decision-making process. e. Per unit fixed costs should be converted to totals for analysis. 2. Which of the following statements is correct regarding contribution margin? a. The contribution margin income statement is organized by cost behavior. b. The total contribution margin tells managers the amount by which sales revenue exceeds cost of goods sold. c. The unit contribution margin is calculated by subtracting the unit fixed cost from the sales price. d. The variable cost percentage represents the amount from each unit sale that covers variable costs. e. Companies that sell more than one product can disregard sales mix when performing CVP analysis. 3. Which of the following is NOT a reason why companies should budget? a. To provide expectations against which managers compare actual operating results. b. To guarantee that the company will be profitable. c. To generate space for managers to focus on the company’s long term goals. d. To determine if “we have enough.” e. To communicate to stakeholders what is important to the company. 4. Which of the following statements concerning budget preparation for a merchandiser is incorrect? a. Bad debt expense under the percentage of sales method is calculated by multiplying total sales on account by the estimated uncollectible percentage. b. Timing differences can cause operating expenses to differ from operating cash outflows. c. For the cash disbursements budget, it is assumed that the company will take advantage of all available purchase discounts. d. The operating expense budget includes both variable product costs and variable period costs. e. The purchases budget is prepared using the cost of sales. 5. Which of the following statements is true with regard to cost behavior? a. Cost behavior relates to the categorization of costs as either product or period costs. b. Variable costs do not change in total as the activity level changes. c. Fixed costs, calculated on a per unit basis, are inversely related to the change in activity level. d. Mixed costs are constant in total. e. More than one of the above statements is true. 1ACCT2102 Farmer Test 2 combined multiple choice practice (answers listed at end of file) 6. A merchandiser has created a sales budget for its first five months of operations. The sales budget includes unit sales and sales revenue. The company has a policy that each month's ending inventory in units must equal 15% of the next month's anticipated unit sales. Given this information, the company can prepare purchases budgets for how many months? a. Two b. One c. Five d. Four e. Three 7. Holding all other variables constant, in which of the following situations will the breakeven point decrease? a. Variable expenses increase. b. Contribution margin percentage increases. c. Sales price decreases. d. Contribution margin decreases. e. Fixed expenses increase. 8. Which of the following statements is correct concerning budget preparation? a. If a participative approach is used to prepare budgets, multiple levels of management are involved in the budgeting process. b. A zero-based budgeting approach requires that all budgeted amounts be “justified” during the budgeting process. c. The preparation of the sales budget is the starting point in the budgeting process for all companies. d. Participative budgeting increases the risk that employees will create budgetary slack. e. All of the above statements are correct concerning budget preparation. 9. Which of the following is correct with regard to short-term decision making? a. If a company has insufficient excess capacity to fully fill a special order, the company will need to give up regular sales if they accept the special order. b. When a manufacturer outsources production of a part used in its production process, the manufacturer will typically eliminate all fixed manufacturing costs. c. In a keep/drop decision, if all of a company’s fixed costs are common, a segment’s segment margin will be less than its contribution margin. d. The effect on current and future customer relationships should not be considered when deciding whether to accept or reject a special order. e. A company having few competitors would typically use target costing in its pricing approach. 2ACCT2102 Farmer Test 2 combined multiple choice practice (answers listed at end of file) 3ACCT2102 Farmer Test 2 combined multiple choice practice (answers listed at end of file) 10. For CVP analysis calculations, which of the following statement is incorrect? a. The break-even point is the point at which operating income is equal to $0. b. In target profit calculations, sales revenue exceeds total costs. c. If sales volume is expected to be higher than the indifferent point, management should choose the cost structure with higher fixed costs. d. CVP analysis relies on our knowledge of cost function to express relationships among costs, sales volume, and profit. e. A company’s sales mix is ultimately determined by the market. 11. Which of the following is incorrect regarding cost behavior equations? a. If costs are nonlinear, managers can develop cost behavior equations by defining multiple relevant ranges. b. The account analysis method is considered the most subjective tool available for developing a cost behavior equation. c. If a data set only contains two data points, the high low method and regression analysis will yield different cost behavior equations. d. The y-intercept value in a cost behavior equation represents total expected costs when the activity level is zero. e. The relevant range is defined as the range of activity over which a cost behavior equation is valid. 4ACCT2102 Farmer Test 2 combined multiple choice practice (answers listed at end of file) 12. Reach the Summit, Inc. is planning to open a new rock climbing facility in Athens. Summit will generate revenue by selling monthly memberships that give climbers unlimited access to the facility. The facility will have an estimated $240,000 in assets. The owners expect to earn a 15% annual return on the company’s assets. The facility’s annual fixed costs are estimated to be $42,000. The variable costs per climber are estimated to be $15 per month. After researching the market, the company believes that it can sell 100 memberships in its first month of operations if it does not require an initial signup fee. Summit can only charge $75 per month for a membership because of competition from another facility in the area. Which of the following statements is incorrect regarding the company’s first month of operations? a. Holding all other variables constant, if the company reduces variable costs to $10 per member, the company would meet its monthly target profit. b. If fixed costs are reduced to $3,000 per month and all other variables remain constant, the company would meet its monthly target profit. c. The total monthly target costs for Reach the Summit is $4,000. d. Reach the Summit is considered a price taker in its current market. e. If it makes no changes to its projected operations, the company will fall short of its monthly target profit by $500. 5ACCT2102 Farmer Test 2 combined multiple choice practice (answers listed at end of file) 13. Clarke Central’s class of 2001 is currently planning its 20-year class reunion. In estimating costs for the 20-year reunion, the planning committee compiled the number of people in attendance and related total costs for each previous class reunion held. The data was then entered in a spreadsheet program and regression analysis was performed. The analysis resulted in the following cost behavior equation: y=56x+800 and indicated that 95% of the variability in total costs could be explained by the number of people in attendance. Which of the following statements is incorrect if the planning committee’s best estimate is that 200 people will attend the 20-year reunion, and the committee expects all costs to be covered by the people in attendance? a. The best estimate of total costs for the 20-year reunion is $12,000. b. If the estimate is correct, the total fixed costs will be $800 c. Assuming the estimate is realistic, the minimum price that should be charged per person is $56. d. It is unlikely that an outlier exists in the data used to perform the regression analysis. e. The x variable coefficient is 56, and the intercept coefficient is 800. 6ACCT2102 Farmer Test 2 combined multiple choice practice (answers listed at end of file) 14. Blue Sky, Inc. generated $265,000 in sales during September 2020. Of this amount, $65,000 was for cash. The remaining $200,000 of sales were made on account. The company budgeted $350,000 in sales for October 2020 and expect sales in November 2020 to be 10% lower than October’s sales. 20% of the total budgeted sales are for cash; the remaining budgeted sales are expected to be made on account. The historical collection pattern for sales made on account is as follows: month of sale 60% first month following the month of sale 35% second month following the month of sale 4% The balance is expected to be uncollectible. Given the above information, calculate the total expected cash receipts in November. a. $322,100 b. $367,800 c. $257,200 d. $320,200 e. $321,390 7ACCT2102 Farmer Test 2 combined multiple choice practice (answers listed at end of file) 15. Unwind, Inc. is a merchandiser of herbal tea products. The company will begin operations on January 1 with a $500 initial investment from its sole owner. The company expects sales in its first month of operations to total $5,000. All sales will be cash sales. Inventory purchases during January are expected to equal $1,500. Purchases are paid for in the month following the month of purchase. No purchase discounts are available. Unwind’s employees are paid on the last day of each month. Expected salaries and wages for January are $835. The company leases its retail space for $500 per month. Rent is due on the 15th of each month. Utilities are paid on the first day of the following month. Unwind anticipates its January utility bill will be $250. Depreciation of $165 is recorded under the straight line method of depreciation at the end of the month. The company has no other expenses. Unwind is required to maintain a minimum cash balance of $2,500 at the end of each month by the bank. Which of the following statements is correct? a. Unwind’s expected ending cash balance on January 31st is $3,750. b. Cash collections expected from Unwind’s customers in January cannot be calculated without information related to cash collection patterns. c. Unwind could pay up to $1,665 in cash dividends to its owner during January without dipping below the required minimum cash balance. d. In order to calculate the cash payments expected to be paid to Unwind’s supplier in January, the company’s December purchases. e. Unwind should anticipate having to pull $750 from an established line of credit if it makes no changes to the above plan. 8ACCT2102 Farmer Test 2 combined multiple choice practice (answers listed at end of file) 16. It’s Five O’clock Somewhere, LLC manufactures beverage containers. The company is anxious to produce and sell a new beverage container designed to keep beverages cool for up to 2 hours. The container will sell for $3 each. Enough capacity exists in the company’s plant to produce 16,000 of the new containers each month. $0.60 from every sales dollar covers variable costs. Fixed costs associated with the container would total $14,400 per month in the existing facility. The company’s Marketing Department predicts that if demand for the new container exceeds the 16,000 containers that the company is able to produce in its current facility that additional manufacturing space can be rented from another company at a fixed cost of $1,000 per month. The rented facility has a production capacity of 20,000 units per month. The contribution margin percentage in the rented facility would equal 30% due to somewhat less efficient operations than in the company’s current facility. Which of the following statements is correct? a. As long as the company’s monthly target profit is less than or equal to $19,200, it will not need to rent the additional facility. b. To make a monthly target profit of $20,000, a total of 34,000 blenders must be produced and sold. c. The maximum monthly operating income that the company could make with the two facilities is $27,800. d. The monthly breakeven point in the rented facility is greater than the monthly breakeven point in the existing facility. e. If the company operates below full capacity in its current facility, the total fixed costs will be less than $14,400. 9ACCT2102 Farmer Test 2 combined multiple choice practice (answers listed at end of file) 17. #namaste manufactures yoga props such as straps and blocks. Straps are sold to customers at a price of $15 per strap. The company is currently operating at 75% capacity with regard to strap production and produces 30,000 straps per year. At the current operating level, the cost of producing and selling a single strap is as follows: Variable Product Costs $3.20 Fixed Product Costs 1.30 Variable Period Costs 0.50 Fixed Period Costs 0.45 Total Cost per Mat $5.45 An order has been received from a chain of yoga studios for 12,000 straps at a special price of $10 per strap. If the special order is accepted, the unit variable manufacturing costs will increase by $0.20 per strap due to the addition of a special label the studio has requested be included on the straps. Additionally, the total fixed product costs will increase by 5%. Variable period costs consist solely of sales commissions, which will not be paid on the special order. Fixed period costs will not be affected by acceptance of the special order. By how much will operating income increase if the special order is accepted? a. $26,400 b. $50,600 c. $24,750 d. $77,250 e. $54,650 10ACCT2102 Farmer Test 2 combined multiple choice practice (answers listed at end of file) 18. Red Stapler, Inc. is a wholesaler of office supplies. In the current year, actual March sales revenue totaled $100,000. April sales revenue is expected to increase 20% above March sales revenue. May sales revenue are expected to decrease 10% below April sales revenue. June sales revenue is expected to be $90,000. Prices are set to achieve a 60% gross profit. The company wants to maintain an ending merchandise inventory equal to 15% of the next month’s cost of sales. The ending inventory requirement was met at the end of March. Accounts Payable consist solely of inventory purchases. Purchases from suppliers carry payment terms of 2/10, net 30. All invoices from the supplier are dated as of the end of the month regardless of when purchases are made during the month. What is Red Stapler’s expected cash disbursement in May to its supplier assuming it pays within the discount period? a. $47,280.00 b. $41,277.60 c. $42,336.00 d. $46,334.40 e. $45,276.00 11ACCT2102 Farmer Test 2 combined multiple choice practice (answers listed at end of file) Use the following data to answer the next two questions: That’s How We Roll is a bowling center. The following total costs were incurred during two different sessions for a single bowler: Games Bowled Shoe Rental Game Fees Total Costs to Bowl 3 $6.00 $12.75 $18.75 6 $6.00 $25.50 $31.50 19. The cost behavior for each cost listed above is: a. Shoe Rental – variable; Game Fees – variable b. Shoe Rental – fixed; Game Fees – mixed c. Shoe Rental – mixed; Game Fees – variable d. Shoe Rental – fixed; Game Fees – variable e. Shoe Rental – fixed; Game Fees – fixed 20. Which of the following statements is correct concerning the above data? (use either account analysis or the high low method to develop an equation) a. If the bowling alley only accepts cash, you would need $41 to bowl 4 games. b. The total costs to bowl would be considered a mixed cost. c. For each additional game bowled, the total costs to bowl would increase by $5.58. d. The total cost to bowl per game increases as the number of games bowled increases. e. To determine the total variable costs to bowl at any activity level, the number of games bowled should be multiplied by $6.00. 12ACCT2102 Farmer Test 2 combined multiple choice practice (answers listed at end of file) 21. You own a 500-unit apartment complex and charge a monthly rental rate of $1,250 per unit. When the apartments are 80% occupied, monthly operating costs total $200,000. When occupancy dips to 75%, monthly operating costs fall to $197,000. A nearby manufacturing plant has just announced that it is expanding and adding additional jobs in the upcoming year. As a result, you anticipate occupancy will increase to 90%. Given the high low method is used to predict cost behavior, which of the following statements is incorrect? a. Monthly costs are expected to increase by $120 for each additional unit that is occupied. b. At 90% occupancy, the expected monthly operating costs are $206,000. c. Annual fixed costs are expected to be $152,000. d. At 90% occupancy, the expected monthly operating income is $356,500. e. If 505 units were occupied, the expected costs should not be calculated using the cost behavior formula developed. 13ACCT2102 Farmer Test 2 combined multiple choice practice (answers listed at end of file) 22. Hold That Plank manufactures a single line of yoga mats and is based in Nashville, Tennessee. The company is considering relocating its operations to Franklin, Tennessee in an effort to increase profit. For the year ended December 31, 2019, the company manufactured and sold a total of 15,000 mats. The following additional information was prepared for 2019: Sales Revenue $750,00 0 Contribution Margin $450,00 0 Fixed Costs $275,00 0 If the company relocates to Franklin, the sales price will not change, but the variable manufacturing costs per mat will decrease to $18. No other variable costs will be affected. Annual fixed costs will increase by $50,040. Based on the above information, which of the following statements is correct? a. The company’s operating income for 2019 was $25,000. b. If the company relocates to Franklin, the unit contribution margin will decrease by $12. c. At an annual sales level of 4,170 units, the company be indifferent between remaining in Nashville and moving to Franklin. d. If the company relocates to Franklin, 21,095 mats must be sold to achieve a target profit of $350,000. e. At an annual sales level above the indifference point, the company should choose to remain in Nashville. 14ACCT2102 Farmer Test 2 combined multiple choice practice (answers listed at end of file) 23. The High School Musical Company has two divisions – Troy and Gabriella. In the previous year, Troy generated sales revenue of $300,000 and had total traceable costs of $80,000, $20,000 of which was fixed. Gabriella generated a segment margin of $30,000. Common fixed costs totaled $170,000; $50,000 of this amount was allocated to the Gabriella division. Management is considering the elimination of the Gabriella division since it has shown an operating loss for the past several years. If Gabriella is dropped, the company would open a new division in its place. The new division would generate $200,000 in sales revenue and have a contribution margin percentage equal to 40%. The new division’s traceable fixed costs would total $15,000. In addition, it is projected that opening the new division would decrease Troy’s sales volume by 6%. What would be the net increase in the company’s operating income if Gabriella is dropped and replaced with the new division? a. $20,600 b. $100,600 c. $99,400 d. $90,600 e. $21,800 15ACCT2102 Farmer Test 2 combined multiple choice practice (answers listed at end of file) 24. Good Morning Sunshine is a wholesaler of coffee makers. In 2020, actual September sales revenue totaled $200,000. In October and November, sales are expected to increase 10% above the previous month’s sales. Prices are set to achieve a 60% gross profit. The company wants to maintain an ending merchandise inventory equal to 15% of the next month’s cost of goods sold. What are the company’s budgeted purchases for the month of October? a. $81,200 b. $89,320 c. $82,200 d. $88,000 e. $85,800 16ACCT2102 Farmer Test 2 combined multiple choice practice (answers listed at end of file) Use the following data to answer the next two questions. Hawkins Audio Video, Inc. manufactures digital cameras. Hawkins is considering whether it should outsource production of a part used in the manufacturing of its cameras. A supplier has been identified who can sell the part to Hawkins at a price of $6.90 per unit. Currently, 60,000 units of the part were made last year. At this production level, the company incurred $354,000 of total variable direct product costs. Manufacturing overhead increased by $0.10 for each unit produced. Fixed manufacturing overhead costs equaled $50,000. If the part were purchased from the outside supplier, 75% of the total fixed manufacturing overhead cost would continue, and the facilities now being used to make the part could be used to make more units of a product that is in high demand. The additional income from this other product would be $22,000 per year. 25. Assume the company will need 50,000 units of the parts next year. If production is outsourced, what would be the effect on operating income? a. Increase of $33,000 b. Decrease of $10,500 c. Decrease of $54,500 d. Increase of $14,500 e. Decrease of $18,833 26. Assume a supplier has not yet been identified and that the company will need 57,500 units of the part next year. At what purchase price per unit will Hawkins be economically indifferent between making and buying the part from the outside supplier? a. $6.90 b. $6.60 c. $6.22 d. $6.93 e. $5.83 [Show More]

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