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# Accounting 221 Quiz # 3

Multiple Choice Questions
Select the best answer for the following questions. Each question is worth 5 points. Question 1 (5 points)
Joe’s Tuxedos has monthly fixed costs of \$12,000. The variable costs of sales are 60%. What is the
break-even monthly sales revenue?
Question 1 options: \$20,000 \$30,000 \$19,200 \$7,200
Save Question 2 (5 points)
Delta Manufacturing has sales of \$2,000,000 with direct materials cost of \$400,000, direct labor of
\$280,000, variable overhead of \$120,000, and fixed costs of \$300,000. What is Delta’s contribution
margin percentage?
Question 2 options: 40% 55% 60% 45% Save Question 3 (5 points)
If a company has a 45% contribution margin ratio and has fixed costs of \$250,000, how much sales does
it need to earn a gross profit of \$200,000?
Question 3 options: \$1,000,000 \$555,556 \$818,182 \$652,500
Save Question 4 (5 points)
Leisure Products management wants to ensure that each product makes a profit. The company produced
a hammock that sold 3,500 units at \$80 per unit. The variable cost of production was \$36 per unit. The
fixed costs were \$110,000. What was the margin of safety?
Question 4 options: \$54,000 \$80,000 \$126,000 \$20,000 Save Question 5 (5 points)
Sports Specialty Inc. produces a bicycle that it normally sells wholesale for \$250 per bike. The variable
costs of production are \$160 and the fixed cost for this product line is \$154,000 per month. The company
has been selling this product at a rate of 2,000 units per month. The company has received an order for
1,000 bikes at a price of \$182 per bike. The order is to ship to a market where the company has no
business, so it is believed it will not adversely affect existing business. The company has the capacity to
produce the special order. How much will operating profit increase if Sports Specialty accepts this order?
Question 5 options: increase of \$26,000 increase of \$48,000 decrease of \$55,000 increase of \$22,000
Save Question 6 (5 points)
Premier Manufacturing makes and distributes a wall clock that is popular with schools and other
institutions. Normal monthly sales are 2,500 clocks at an average sale price of \$40 per clock. Production
of each clock takes 15 minutes of direct labor and has material costs of \$14. The direct labor rate is \$22
per hour, and overhead is applied at a rate of \$40 per direct labor hour. The overhead spending is 60%
fixed and 40% variable costs. Premier has been approached by a supplier offering to supply all of the
clocks at a finished cost of \$25 per clock. Assume that all fixed overhead would remain, but the variable
overhead would be eliminated. What would be the change in monthly operating income if Premier buys
the clocks instead of making them?
Question 6 options: increase of \$3,750 decrease of \$3,750 increase of \$11,250 decrease of \$11,250
Save Question 7 (5 points)
Roscoe Enterprises has sales for a three-month period as follows: May, \$240,000; June, \$280,000; July,
\$275,000. All sales are on account, and history has shown that accounts receivable are typically collected
10% in the month of the sale, 60% in the month after the sale, and 30% two months after the sale. What
are Roscoe’s expected cash collections in the month of July?
Question 7 options: \$267,500 \$172,000 \$275,000 \$280,000
Save Question 8 (5 points)
Mega Manufacturing has a budget to sell 100,000 units of a certain product at a selling price of \$35 per
unit. Variable costs for materials, labor, and overhead are \$18 per unit. Fixed cost is \$800,000. Actual
sales were 110,000 units, and management would like to see actual manufacturing performance
compared to a budget adjusted for volume (flexible budget). What would be the adjusted budgeted
operating profit?
Question 8 options: \$1,870,000 \$900,000 \$1,070,000 \$990,000
Save Question 9 (5 points)
A company president wants the chief financial officer to tell him how many sales are required to make a
\$1,000,000 operating profit. Variable production costs are 70% of sales, and fixed costs are \$2,750,000.
What are the required sales, rounded to the closest dollar?
Question 9 options: \$8,750,000 \$5,357,143 \$9,166,667 \$12,500,000
Save Question 10 (5 points)
Top Dog Company has a budget with sales of 5,000 units and \$3,200,000. Variable costs are budgeted at
\$1,750,000, and fixed overhead is budgeted at \$900,000. What is the budgeted manufacturing cost per
unit?
Question 10 options: \$350 \$530 \$640 \$460
Save Problems
Problem 1 (20 points)
X-Ray Manufacturing has the following revenues and costs:
Sales
Direct labor
Direct materials
Selling expenses
Interest expense
Income tax \$4,340,000
\$1,020,000
\$458,000
\$620,000
\$365,000
\$489,000
\$224,000
\$118,000
\$366,000 Prepare a contribution margin income statement with both dollars and percentages of sales
displayed. Problem 2 (20 points) Presented below are selected budget data items for Globe Corporation for a three-month period:
Sales
Direct materials
Direct labor
Fixed loan payments OCTOBER
\$960,000
\$123,000
\$90,000
\$65,600
\$140,000
\$312,000
\$140,000 NOVEMBER
\$870,000
\$119,000
\$85,000
\$62,400
\$140,000
\$310,000
\$140,000 DECEMBER
\$850,000
\$125,000
\$96,000
\$68,000
\$140,000
\$315,000
\$140,000 Sales were \$770,000 in August and \$840,000 in September. Material usage was \$115,000 in
August and \$118,000 in September. All sales are on account, and accounts receivable is
historically collected 15% in the month of sale, 65% in the month following sales, and the
remainder two months after the sale. Materials are paid for 40% in the month used and 60% the
following month. All other expenses are paid in the month incurred. The cash balance was
\$35,000 at the beginning of October, and management wants to determine if the company will
have enough cash to pay a year-end bonus.
Prepare a three-month cash budget, including a schedule for cash collections and material
payments. Problem 3 (10 points)
Olympic Products Inc. manufactures and distributes barbecue grills. The company normally
sells 1,000 of these grills each month for a price of \$140 each. The material cost for a grill is
\$44 and the direct labor is \$22. The variable overhead cost is \$13 per grill, and the fixed
overhead cost is \$30,000 per month. A contract manufacturer has approached the company and
offered to supply the grills ready to sell for \$85 each. The company management believes that if
it accepts this offer, Olympic Products will be able to lease unused factory space for \$10,000
per month.