COMPREHENSIVE EXAMINATION F
(Chapters 18 – 21)
Approximate
Problem Topic Points Minutes
F – I Multiple Choice ……………………………………… 22 22
F – II Cost-Volume-Profit ………………………………… 24 16
F – III Budgeting …………………………………………….. 18 15
F – IV Contribution Margin ……………………………….. 14 10
F – V Incremental Analysis ……………………………… 10 10
88 73
Checking Work ……………………………………… 5
78
Test Bank for Kimmel Accounting, Fifth Edition
F – 2
Problem F – I — Multiple Choice (22 points)
Circle the one best answer.
1. Halladorn, Inc. sells a single product with a contribution margin of $9 per unit, fixed costs
of $54,000, and sales for the current year of $82,800. How much is Halladorn’s break–
even point?
a. 15,200 units
b. $6,000
c. 6,000 units
d. 9,200 units
Use the following information for questions 2 and 3.
At January 1, 2014, Top Surf, Inc. has beginning inventory of 2,100 surfboards. Top Surf
estimates it will sell 6,000 units during the first quarter of 2014 with a 10% increase in sales each
quarter. Top Surf’s policy is to maintain an ending inventory equal to 10% of the next quarter’s
sales. Each surfboard costs $80 and is sold for $120.
2. How many boards should Top Surf produce during the first quarter of 2014?
a. 6,660
b. 4,560
c. 5,940
d. 6,000
3. How much is budgeted sales revenue for Top Surf the third quarter of 2014?
a. $7,260
b. $720,000
c. $864,000
d. $871,200
4. Jayson Company’s variable costs are 40% of sales. The company is contemplating an
advertising campaign that will cost $34,000. If sales are expected to increase $50,000, by
how much will the company’s net income increase/(decrease)?
a. $30,000
b. $20,000
c. ($14,000)
d. ($4,000)
5. Finnegan’s Grill has total fixed costs of $96,000 and a contribution margin ratio of 40%.
How much are total variable costs incurred at the break-even level of activity?
a. $96,000
b. $240,000
c. $144,000
d. $160,000
6. A company desires to earn target net income of $42,000 from the sale of its product. If the
unit sales price is $12, unit variable cost is $7, and total fixed costs are $56,000, how
many units must the company sell to earn its target net income?
a. 19,600 units
b. 11,200 units
c. 2,800 units
d. 33,600 units
Comprehensive Examination F
F – 3
7. Advantage Production has a policy of having sufficient direct materials inventory on hand
at the end of each month equal to 25% of next month’s budgeted production needs. The
company has budgeted production of 12,000 clipboards in June and 15,000 units in July.
It takes 1.5 pounds of resin to produce one clipboard and 4,500 pounds of resin were on
hand on May 31. How many pounds of resin should be purchased in the month of June?
a. 13,500 pounds
b. 17,250 pounds
c. 19,125 pounds
d. 11,250 pounds
8. Bates Boogie Boards has budgeted direct materials purchases of $120,000 in March and
$160,000 in April. Past experience indicates that the company pays for 40% of its
purchases in the month of purchase and the remaining 60% in the next month. During
April, the following items were budgeted:
Wages Expense $32,000
Purchase of office equipment 13,000
Selling and Administrative Expenses 25,000
Depreciation Expense 9,000
How much are budgeted cash disbursements for April?
a. $214,000
b. $223,000
c. $206,000
d. $127,000
9. Shan Stone manufactures a product with a unit variable cost of $26 and a unit sales price
of $38. Fixed manufacturing costs were $48,000 when 10,000 units were produced and
sold, equating to $4.80 per unit. The company has a one-time opportunity to sell an
additional 1,500 units at $29 each in an international market which would not affect its
present sales. The company has sufficient capacity to produce the additional units. How
much is the relevant income or loss effect of accepting the special order?
a. ($2,250)
b. $4,500
c. $43,500
d. ($16,500)
10. Hoover, Inc. is unsure of whether to sell its product assembled or unassembled. The unit
cost of the unassembled product is $9, while the added cost of assembling each unit is
estimated at $5. Unassembled units can be sold for $22, while assembled units could be
sold for $31 per unit. What decision should Hoover make?
a. Sell before assembly, the company will earn $4 per unit.
b. Sell before assembly, the company will save $5 per unit.
c. Process further, the company will earn $5 less per unit.
d. Process further, the company will earn $4 more per unit.
Test Bank for Kimmel Accounting, Fifth Edition
F – 4
*11. Bourdon Enterprises sells its product for $30 per unit. During 2014, it produced 12,000
units and sold 10,000 units (there was no beginning inventory). Costs per unit are: direct
materials $6, direct labor $2, and variable overhead $1. Fixed costs are: $126,000
manufacturing overhead, and $32,000 selling and administrative expenses. How much is
the manufacturing cost per unit under absorption costing?
a. $9.00
b. $22.17
c. $21.60
d. $19.50
Problem F – II — Cost-Volume-Profit (24 points)
Temp Range Company prepared the following income statement for 2014:
TEMP RANGE COMPANY
Income Statement
For the Year Ended December 31, 2014
———————————————————————————————————————————
Sales (5,000 units) …………………………………………………………………………….. $200,000
Variable expenses ……………………………………………………………………………… 75,000
Contribution margin ……………………………………………………………………………. 125,000
Fixed expenses …………………………………………………………………………………. 83,200
Net income ……………………………………………………………………………………….. $ 41,800
Instructions
Answer the following independent questions and show computations to support your answers.
1. What is the company’s break-even point in units?
2. How many units would the company have had to sell to earn a target net income of $64,000
in 2014?
3. If the company expects a 25% increase in sales volume in 2015, what would be the expected
net income in 2015?
4. How much sales (in dollars) would the company have to generate in order to earn a target net
income of $68,000 in 2015?
Comprehensive Examination F
F – 5
Problem F – III — Budgeting (18 points)
Ratario Company has budgeted the following unit sales for the first quarter of 2014:
Units
January 12,000
February 17,000
March 15,000
It takes 3 pounds of direct materials, which cost $6 per pound, to manufacture one unit of
product. It is the company’s policy to have a finished goods inventory on hand at the end of each
month equal to 30% of next month’s sales and to maintain a direct materials inventory at the end
of the month equal to 20% of the next month’s production needs. The inventory levels at
December 31, 2013, were in accordance with company policy.
Instructions
Answer the following independent questions and show computations to support your answers.
1. Calculate the number of units that should be scheduled for production in the month of
February.
2. What was the number of units in ending finished goods inventory at December 31, 2013?
3. What was the number of pounds in ending direct materials inventory at December 31, 2013?
4. What was the number of pounds and the dollar amount of direct materials purchases
budgeted for the month of January?
Test Bank for Kimmel Accounting, Fifth Edition
F – 6
Problem F – IV — Contribution Margin (14 points)
Rudine Company makes two products, wallets and belts. Additional information follows:
Wallets Belts
Units 1,500 2,500
Sales $33,000 $75,000
Variable costs 19,800 30,000
Fixed costs 7,000 15,000
Net income $ 6,200 $30,000
Profit per unit $4.13 $12.00
If Rudine has unlimited demand for both products, which product should the company
emphasize? Explain why. Support with computations.
Problem F – V — Incremental Analysis (10 points)
Cracker Bin incurs unit costs of $3 ($2 variable and $1 fixed) in making a subassembly part for its
finished product. A supplier offers to make 120,000 of the assembly part at $2.20 per unit. If the
offer is accepted, all variable costs and $0.15 of fixed costs per unit will be saved.
Instructions
Comprehensive Examination F
F – 7
Solutions — Comprehensive Examination F
Problem F – I — Solution
Problem F – II — Solution
Test Bank for Kimmel Accounting, Fifth Edition
F – 8
Problem F – III — Solution
Problem F – IV — Solution
Comprehensive Examination F
F – 9
Problem F – V — Solution