2024 – 1 According to Michael Porter which of the following is an example of product
ACT 5060 (Midterm Exam) Summer 2015 – 2024
1. According to Michael Porter, which of the following is an example of product or service differentiation as a business strategy?
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A regional beer brewer that caters to local tastes. |
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An automobile manufacturer that focuses on the rapid introduction of technological change in new automobile design. |
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An online bookseller utilizing efficient scale facilities and overhead cost control. |
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A manufacturer focused on designing and building corporate jet aircraft. |
2. _______________ are specific units of work performed to serve customer needs that consume costly resources.
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Activity cost drivers |
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Customer cost drivers |
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Organizational cost drivers |
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Structural cost drivers |
3. Which of the following is an assumption used in cost-volume-profit analysis?
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All costs are classified as fixed or variable |
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The total cost function is linear |
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The total revenue function is linear |
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All of the above |
4. Under variable costing, which of the following costs are assigned to inventory?
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Fixed manufacturing costs |
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Variable non-manufacturing costs |
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Variable manufacturing costs |
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None of the above
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5. Brahtz Company uses an activity-based costing system. It has the following manufacturing activity areas, related cost drivers and cost allocation rates:
During the month, 100 units were produced, with no defects, requiring three setups. Each unit consisted of 17 parts, 3 direct labor hours and 2.5 machine hours. Direct materials cost $50 per finished unit.
What is the total manufacturing cost for machine setups?
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$75 |
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$50 |
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$2,500 |
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$5,000 |
6. Total contribution margin is calculated by subtracting:
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Cost of goods sold from total revenues |
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Fixed costs from total revenues |
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Total manufacturing costs from total revenues |
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Total variable costs from total revenues 7. Which of the following statements regarding sales mix is true?
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8. For which of the following manufactured products would process costing be more appropriate?
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Modular homes |
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Luxury liners |
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Nylon fiber production |
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Special order printing |
9. Over the short term, which type of costs is indifferent to activity level changes?
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Variable costs |
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Fixed costs |
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Mixed costs |
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Step costs |
10. Which one of the following statements about difficulties in cost estimation is true?
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Changes in the company’s production technology make estimating the company’s production costs easier |
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The shorter the time period, the higher the probability of inappropriately matching activity and cost |
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The stronger the economy, the harder it is to accurately match activity and cost |
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When prices of a company’s raw materials or labor are rapidly increasing, cost estimations based on previous periods will overestimate future costs |
11. How is depreciation on the manufacturing building and equipment classified in financial reporting?
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As an irrelevant cost because it has already been incurred |
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As a current expense |
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As part of the cost of the products produced |
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As a period cost |
12. A profit-volume graph:
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Is most useful in situations where there are multiple cost drivers |
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Plots both revenue and total cost on the Y axis |
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Plots contribution margin on the Y axis and volume on the X axis |
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Plots total profit on the Y axis against total volume on the X axis |
13. What is the purpose for using predetermined overhead rates?
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Delays in product costing can be avoided |
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Variation in cost assignment due to seasonality can be prevented |
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Variation in cost assignment due to short-term variations in volume can be prevented |
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Use of predetermined overhead rates serves all the above purposes |
14. Contribution margin is calculated by subtracting:
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Total variable costs from total revenues |
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Total manufacturing costs from total revenues |
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Fixed costs from total revenues |
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Cost of goods sold from total revenues |
15. Examples of activity cost drivers include all of the following except:
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Inspecting incoming raw materials |
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Machine time spent working on a product |
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Deciding how to arrange raw materials inventory within the warehouse |
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Receiving (loading) raw materials into the warehouse 16. The process of selecting strategies to achieve goals is often referred to as:
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17. All of the following costs are included in inventory under absorption costing except:
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Direct materials |
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Direct labor |
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Fixed manufacturing expenses |
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Variable selling expenses 18. The following data was input into a spreadsheet program to determine the Intercept, Slope and R2 (RSQ) for Patient Days and Maintenance Costs for a local hospital:
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The estimated fixed maintenance cost for the hospital is:
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$5,468 |
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$3,431 |
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$0.759 |
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$0.683 |
19. To stay competitive in the express delivery business, both Federal Express and United Parcel Service must compete against each other based on which of the following?
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Price/Cost |
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Service |
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Quality |
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All of the above |
20. Betsy’s Brew is a successful brewery engaged in the development and production of specialty micro brews. It uses manufacturing cost hierarchy to allocate costs to various activities. During the past year, it has incurred $1,450,000 of product development costs, $950,000 of materials handling costs, $2,500,000 of production line labor costs, $900,000 for production setup costs, $500,000 in power costs for cooling beer and running equipment and $1,750,000 for manufacturing facility management.
Using the manufacturing cost hierarchy, what is the total cost that would be classified as facility-level activity costs?
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$ 500,000 |
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$1,750,000 |
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$1,500,000 |
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$2,000,000 |
21. Lincoln Corp. obtained the following information from its absorption costing accounting records:
The total Period Costs incurred this period equals:
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$15,000 |
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$20,000 |
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$48,000 |
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$68,000 |
22. Managerial accounting is primarily focused on:
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Providing creditors information on the status of their loans |
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Providing investors with useful information for valuing securities |
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Providing the Internal Revenue Service with information to determine the amount of taxes owed |
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Providing managers with relevant information to help achieve organizational goals |
23. Which of the following can be considered to be unethical behavior?
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Forecasting the amount of ending inventory on hand at the end of a budgetary period |
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Transferring ending inventory to another warehouse in another geographic location |
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Keeping inventory that is unlikely to be used so as to avoid recording a loss |
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Building up inventory in anticipation of increased sales in the next accounting period |
24. Which of the following is an example of an organizational cost driver?
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Deciding how to arrange raw materials inventory within a warehouse |
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Inspecting incoming raw materials |
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Determining the best location for a manufacturing facility |
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Receiving raw materials into the warehouse |
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None of the above |
25. Using cost-volume-profit analysis, we can conclude that a 20 percent reduction in variable costs will:
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Not affect the break-even sales volume if there is an offsetting 20 percent increase in fixed costs |
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Reduce the break-even sales volume by 20 percent |
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Reduce total costs by 20 percent |
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Reduce the slope of the total costs line by 20 percent 26. Which of the following is an appropriate setting for job order production?
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27. A cost that is constant within a relevant range but differs outside the relevant range of activity is best classified as what type of cost?
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Variable cost |
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Fixed cost |
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Mixed cost |
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Step cost 28. Which of the following is the most reasonable cost driver for direct material costs?
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29. The Snape Corporation has the following data for 2014:
Selling price per unit $10
Variable costs per unit $6
Fixed costs $20,000
Units sold 12,000
Snape’s 2014 operating leverage is:
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0.50 |
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2.00 |
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4.00 |
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1.71 |
30. To compete on the basis of service, the seller must carefully manage:
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The degree to which products or services meet customer’s needs |
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Timely delivery and customer support |
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Communications between buyer and seller |
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Operating and maintenance costs 31. Cari German uses gas to heat her home. She has accumulated the following information regarding her monthly gas bill and monthly heating degree-days. The heating degree-days value for a month is found by first subtracting the average temperature for each day from 65 degrees and then summing these daily amounts together for the month.
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32. The following costs related to Summertime Company for a relevant range of up to 20,000 units annually:
Variable Costs:
Direct materials $5.00
Direct labor 1.50
Manufacturing Overhead 2.50
Selling and administrative 3.00
Fixed Costs:
Manufacturing overhead $20,000
Selling and Administrative 10,000
The selling price per unit of product is $15.00.
At a sales volume of 15,000 units, what is the total profit for Summertime Company?
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$ 30,000 |
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$ 15,000 |
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$225,000 |
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$300,000 |
33. The method of accounting for inventory that assigns all manufacturing costs to inventory is sometimes referred to as:
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Prime costing |
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FIFO |
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The weighted average cost method |
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Absorption costing |
34. Product or service differentiation involves:
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Any changes made to a product or service |
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The use of new technologies in manufacturing |
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Shifting sales to growing markets |
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Creating something that is perceived as unique and worth a premium price |
35. In deciding whether to sell a joint product or to process it further, management should consider:
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All joint costs and separately identifiable costs |
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Only joint costs that vary with production volume |
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The separately identifiable costs of the product under consideration |
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Variable joint and variable separately available costs |
36. The introduction of production technology in a manufacturing process would likely result in which of the following?
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Decreasing the probability of inappropriately matching activity and costs in the short run |
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Shifting to production technology makes cost estimation and prediction easier |
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Shifting to production technology requires identifying the most appropriate activity that matches costs |
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Increasing the probability that the coefficient of determination will likely decrease in the short run |
37. Assuming sales prices and cost behavior remain unchanged, when variable costing is used, when does net income change in response to changes in unit sales?
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Only when number of units sold exceeds number of units produced |
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Only when number of units produced exceeds number of units sold |
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Only when number of units sold exactly equals number of units produced |
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Under all the above conditions |
38. The determination of the mathematical relationship between activity level and cost is known as:
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Cost control |
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Cost estimation |
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Cost prediction |
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Regression analysis |
39. Using the weighted average method, whenever units in process are produced to a different percentage of completion for materials and labor, this creates a condition where:
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The number of equivalent units in process will invariably be different for materials and conversion costs |
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The cost per equivalent unit for materials and conversion will be equal. |
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It is inappropriate to use the process costing method. |
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None of the above |
40. A basic assumption of the cost-volume-profit model is that:
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All costs can be accurately classified as either fixed or variable |
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Cost drivers can be organized into unit-level, batch-level, product-level and facility-level factors |
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Higher volumes of product require lower prices |
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The mix of products changes over time |
41. Wesley’s income statement is as follows:
Sales (10,000 units) $150,000
Less variable costs – 48,000
Contribution margin $102,000
Less fixed costs – 24,000
Net income $ 78,000
If sales increase by 1,000 units, profits will:
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Increase by $12,000 |
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Increase by $10,200 |
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Increase by $4,800 |
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Increase by $8,000 |
42. Which of the following statements best defines a goal for an organization?
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Increase next year’s sales by 10 percent over current year sales |
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Providing high quality products and services to customers |
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Adopt a cost effective plan for providing new products and services to customers |
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Become the world’s largest provider of consumer goods 43. Facility level activities of an organization would not include:
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44. Determine the unit break-even point, assuming fixed costs are $60,000 per period, variable costs are $16.00 per unit, and the sales price is $25.00 per unit.
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5,000 |
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6,667 |
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15,000 |
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12,000 |
45. The Fairmont Machine Shop wants to develop a cost estimating equation for its monthly cost of electricity. It has the following data:
Month Cost of Electricity (Y) Direct Labor-Hours (X)
January $14,000 1,500
April $15,000 1,700
July $17,000 2,000
October $14,500 1,600
What would be the best equation using the high-low method?
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Y = $4,000 + $7X |
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Y = $0 + $9X |
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Y = $1,000 + $8X |
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Y = $5,000 + $6X |
46. Which of the following would be classified as a fixed selling and administrative cost?
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Sales Commissions |
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Depreciation on office equipment |
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Depreciation on factory equipment |
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Wages of production supervisor |
47. At its current level of sales, a company has a degree of operating leverage of 6. This means that a 10% increase in sales would result in a:
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6% Increase in before-tax profit |
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10% Increase in before-tax profit |
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60% Increase in contribution margin |
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60% Increase in before-tax profit |
48. The following procedure performed by a home oil delivery company is the best example of a unit level activity within a customer cost hierarchy:
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Opening an account for a new customer |
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Processing monthly customer billings |
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Pumping home heating oil into a customer’s oil tank |
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Purchasing a new delivery truck |
49. A decision to work closely with a limited number of suppliers for the purpose of ensuring that the proper materials are available at the optimal time is an example of:
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A batch level cost driver |
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An activity cost driver |
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An organizational cost driver |
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A structural cost driver |
50. In the following equation for total cost, Y = a + bX, the slope of the total cost line is an approximation of which of the following?
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Total Cost |
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Fixed Cost |
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Variable Cost |
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Volume |
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