MGMT640 Section 1121
The Final Exam is individual work. All work on the exam should be from your own efforts, with
no assistance from classmates, family, friends or others. By proceeding with this exam, you are
agreeing not to share the exam content or your responses with anyone, including future students
of MGMT640. Your completed exam is due by 8:00 PM on Thursday, April 25, 2013 (upload
to your Assignments Folder in WebTycho).
Please refer to the Syllabus for the policy regarding late submissions. There will be no
make-up exams except for documented emergencies.
You are not required to submit your working. However, complete working showing
formulas and calculations may be considered for partial credit for incorrect answers.
Identify the letter of the choice that best completes the statement or answers the question.
1. 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 19% markup the price per unit will be:
Use the following to answer questions 2-3:
RNO Company’s market for the Model 55 has changed significantly, and RNO 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. RNO could sell these units in their current
state for $100 each. It will cost RNO $10 per unit to complete these units so that they can be
sold for $125 each.
2. 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?
Net income will increase by $35 per unit for each unit discarded.
Net income will decrease by $115 per unit for each unit discarded.
It will have no effect on net income.
Net income will decrease by $265 per unit for each unit discarded.
3. When the incremental revenues and expenses are analyzed, the company is better off by
$10 per unit if they sell the units in their current state.
$25 per unit if they sell the units in their current state.
$15 per unit if they complete the units.
$125 per unit if they complete the units.
4. A company using activity based pricing marks up the direct cost of goods by 43% plus
charges customers for indirect costs based on the activities utilized by the customer.
Indirect costs are charged as follows: $8.00 per order placed; $4.00 per separate item
ordered; $30.00 per return. A customer places 10 orders with a total direct cost of
$3,000, orders 300 separate items, and makes 6 returns. What will the customer be
5. 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 7,000 machine hours, how much manufacturing
overhead will be allocated to this product?
Use the following to answer questions 6-7:
The Sunrise Hotel has 200 rooms. Each room rents at $110 per night and variable costs total $16
per room per night of occupancy. Fixed costs total $84,000 per month.
6. If the hotel spends an additional $10,000 in the month of February on advertising they
feel that they can expect occupancy rate to increase by 5%. What would be the financial
impact of spending this additional money on advertising for the month of February (28
Total fixed costs will increase by $10,500.
Net income will increase by $16,320.
Net income will increase by $26,320.
Total fixed costs will remain the same.
7. If 80% of the rooms are occupied each night in the month of February (28 days) what
will total costs be for the month?
8. Jones 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
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
What is the amount of avoidable costs if Jones
buys rather than makes the components?
9. Below is a performance report that compares budgeted and actual profit of Boyles Beer
for the month of April:
Cost of ingredients
In evaluating the department in terms of its increase in sales and expenses, what will be
most important to investigate?
Cost of ingredients
All three components have equal importance.
10. K-Henry’s Dull Diner has a contribution margin ratio of 16%. If fixed costs are
$176,800, how many dollars of revenue must K-Henry’s generate in order to reach the
11. A company has a total cost of $50.00 per unit at a volume of 100,000 units. The
variable cost per unit is $20.00. What would the price be if the company expected a
volume of 120,000 units and used a markup of 50%?
There is not enough information in the problem to answer
12. At Caleb’s Tights, 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?
13. If a company is currently operating at its breakeven point, which of the following
statements is true? (Income tax considerations are ignored.)
If fixed costs increase, net income will decrease by the contribution margin ratio
times the amount of the increase in fixed costs.
If sales increase by 20%, net income will also increase by 20%, assuming fixed
costs are not equal to zero.
If variable costs double, net income will decrease by 50%.
Net income will decrease by the decrease in number of units sold times the
contribution margin per unit.
14. One Small Grill Company is a start up with the following profile:
Unit selling price = $230; Variable cost per unit = $130; Fixed Costs = $36,000;
Tax rate = 40%. How many units should Small Grill sell to achieve an after-tax target
income of $6,000?
15. Western Apparel Company owns two stores
and management is considering eliminating the
East store due to declining sales. Segmented
contribution income statements are as follows
and common fixed costs are allocated on the
basis of sales.
Direct fixed costs
Allocated fixed costs
Western feels that if they eliminate the East
store that sales in the West store will decline by
25%. If they close the East store, overall
company net income will:
decline by $90,000.
decline by $62,000.
decline by $85,625.
decline by $20,000.
16. JungleGym, 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 JungleGyms must the company sell
to realize a profit of $450,000?
Information for Questions 17-18
Anderson Manufacturing makes a single product. Budget information regarding the current
period is given below:
Revenue (100,000 units at $8.00)
Variable manufacturing overhead
Fixed manufacturing overhead
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
17. What is the incremental income (loss) associated with accepting the special order?
18. What is the incremental revenue associated with accepting the special order?
19. The Copy Department of the Cadiz Company is budgeted to incur $40,000 per month in
fixed costs and $0.02 per copy in variable costs. It allocates copy costs to user
departments as follows: Fixed costs are allocated (as a lump sum) based on budgeted
fixed costs and estimated peak demand for each department. Variable costs are allocated
based on the budgeted rate per copy times the department’s actual usage. Which of the
following is not an advantage of this allocation scheme over allocating actual costs
based on actual usage?
The amount charged to one using department is not affected by the number of copies
used by another department.
Managers in the using departments pay for the fixed costs that are created by their
demands for capacity.
Using departments are not charged for cost overruns in the copy department.
All of the above are advantages of this allocation system.
20. Which of the following is not a difference between financial accounting and managerial
Financial accounting must follow GAAP while managerial accounting is not required to
Managerial accounting is primarily concerned with providing information for external
users while financial accounting is concerned with internal users.
Financial accounting is primarily concerned with reporting the past, while managerial
accounting is more concerned with the future.
Managerial accounting uses more nonmonetary information than is used in financial
21. Paul’s Pizza produced and sold 2,000 pizzas last month and had fixed costs of $6,000. If
production and sales are expected to increase by 10% next month, which of the
following statements is true?
Total fixed costs will decrease.
Fixed cost per unit will decrease.
Total fixed costs will increase.
Fixed cost per unit will increase.
22. The Dynamaco 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?
Use the following to answer question 23:
Taylor’s Treasures has collected the following information over the last six months.
23. Using the high-low method, what is the variable cost per unit?
24. A manufacturing company produces and sells 40,000 units of a single product. Variable
costs total $80,000 and fixed costs total $120,000. If unit is sold for $8, what markup
percentage is the company using?
25. Visit finance.yahoo.com and determine which of the following statements is incorrect:
A) The price per share of Google is more than ten times that of Microsoft.
B) Revenues of Apple for the trailing twelve months to September 30, 2012 were more
than double revenues of Microsoft.
C) The market cap of Microsoft is more than double that of Google.
D) The current ratio for the most current quarter for Google is higher than the current ratio