BANK SOAL MANAGERIAL ACCOUNTING

Chapter 1

1. The Primary objective of Managerial Accounting is What was the COGM for July

a) To Provide Stockholders and potential a) 70,500

investors with useful information for decision b) 70,700
making c) 69,600
b) To Provide banks and other creditors with d) 69,100
information useful in making credit descision 7. Gateway Company produces a product with the
c) To Provide management with information following per-unit cost :
useful for planning and control of operations
d) To Provide internal revenue service with Direct Material $11, Direct Labor $8, Overhead $15
information about taxable income
Last Year, Gateway produced and sold 750 unit at a sales
2. Managerial Accounting price of $68 each. Total Selling and administrative
expense was 22,000. Total Operating income last year ?
a) Is primarily for external users
b) Has no mandatory rules a) $29,000
c) Provide information based on historical b) $51,000
information c) $25,500
d) Must adher to GAAP
d) $3500
8. Junko Company makes financial calculators. During
3. An Indirect Cost the year junko manufactured 97,000 Financial
calculators. Finish Goods Inventory had the following
a) Can be easily and accurately traced to a cost units on hand :
object
b) Is hard to trace January 1 : 1260
c) Should never be assigned to cost object December 31 : 1040
d) Do none of these If each financial calculators has a per-unit cost $112,
what was COGS Last year
4.Which of the following is not an example of a direct
material cost ? a) 10,864,000
b) 10,888,640
a) Shelves on a bookcase c) 11,005,120
b) Engine in a car d) 10,839,360
c) Tires on bicycle 9. If production volume increases from 8000 to 1000
d) Nail used to manufacture a desk units

5. Product costs are expensed a) Total costs will increase by 20 %

b) Total costs will increase by 25%
a) When the product is finished c) Total variable costs will increase 25%
b) When the product unit cost is calculated d) Total variable costs will increase 20%
c) When the product is sold 10. Taran Company Incurred the following costs of the
d) All of these correct month of january and February.

6. In July, Tutor Nyantai Company purchased material Type of Cost January February
costing $21,000 and Incurred Direct Labour Cost of Insurance $ 5000 $ 5000
$18,000. Overhead totalled $32,000 for the month. Utilities $ 4000 $ 5000
Depreciation $ 3500 $ 3500
Information on inventories was as follows :
Materials $ 10000 $ 20000
If output was 5,000 units in January and 10,000 units in
July 1 July 2
Materials 6200 7100 February we can assume that
WIP 700 1200
Finish Goods 3300 2700 a) Utilities and materials are variable cost
b) Insurance and depreciation is mixed cost
c) Materials is the only variable cost
11. A salary of the vice president of finance would be considered as a (an) …

a) Administrative expense
b) Selling expense
c) Product cost
d) Direct labor cost

12. TUTORNYANTAI manufactures pen. During 2017, company had the following information:
Direct Material used $20.000 Office Building Rent $16.000
Direc t Labor $17.000 Machine Maintenance Expense $8.500
Marketing Expense $32.000 Equipment Depreciation – factory $2.000
Office Manager Salary $22.000 Equipment Depreciation – office $7.500
Rent Factory $8.000 Administrative Expense $3.000

22.800 units produced. What is the product cost per unit?

13.Fire Out Company manufactures its product, Vitadrink, through two manufacturing processes: Mixing and
Packaging. All materials are entered at the beginning of each process. On October 1, 2017, inventories
consisted of Raw Materials $27,300, Work in Process—Mixing $0, Work in Process—Packaging $252,500, and
Finished Goods $293,600.

1. Purchased $302,300 of raw materials on account.

2. Issued raw materials for production: Mixing $211,500 and Packaging $48,500.
3. Incurred labor costs of $284,000.
4. Used factory labor: Mixing $184,200 and Packaging $99,800.
5. Incurred $938,900 of manufacturing overhead on account.
Applied manufacturing overhead on the basis of $24 per machine hour. Machine hours were 30,200 in
6.
Mixing and 7,400 in Packaging.
7. Transferred 48,600 units from Mixing to Packaging at a cost of $980,300.
8. Transferred 55,000 units from Packaging to Finished Goods at a cost of $1,318,000.
9. Sold goods costing $1,645,000 for $2,501,000 on account.

Make the Journal Entry…., then compute the ending balance of Raw Material, Finish Goods, WIP-Mixing, WIP-Packaging

14. McQueen Motor Company manufactures automobiles. During September 2017, the company purchased 8,900 head
lamps at a cost of $10 per lamp. McQueen withdrew 8,277 lamps from the warehouse during the month. 64 of these lamps
were used to replace the head lamps in autos used by traveling sales staff. The remaining 8,213 lamps were put in autos
manufactured during the month.

Of the autos put into production during September 2017, 73% were completed and transferred to the company’s storage
lot. Of the cars completed during the month, 75% were sold by September 30.

Determine the cost of head lamps that would appear in each of the following accounts at September 30, 2017: Raw
Materials, Work in Process, Finished Goods, Cost of Goods Sold, and Selling Expenses. (Round answers to 0 decimal places,
e.g. 1,525.)

15.

Direct Labor Jan 2017 Rp4,000,000

Overhead Jan 2017 Rp1,800,000
Compute COGM and COGS
 CHAPTER 2 – JOB ORDER COSTING

1. Heurion Company is a job-order costing firm that uses a plantwide overhead rate based on direct
labor hours. Estimated information for the year is as follows:

Overhead $ 789,000
Direct labor hours 100,000

Heurion worked on five jobs in July. Data are as follows:

Job 741, 743 Were Completed in July

1. Calculate the plantwide overhead rate for Heurion Company.
2. Calculate the cost of completed jobs during the month and prepare the journal entry (or
entries) to record the completion of any job(s) during the month.
3. Calculate the balance in Work in Process on July 31.

2. Lott Company uses a job order cost system and applies overhead to production on the basis of direct labor
costs. On January 1, 2017, Job No. 50 was the only job in process. The costs incurred prior to January 1 on this
job were as follows: direct materials $24,000, direct labor $14,400, and manufacturing overhead $19,200. As
of January 1, Job No. 49 had been completed at a cost of $108,000 and was part of finished goods inventory.
There was a $18,000 balance in the Raw Materials Inventory account.

During the month of January, Lott Company began production on Jobs 51 and 52, and completed Jobs 50 and
51. Jobs 49 and 50 were also sold on account during the month for $146,400 and $189,600, respectively. The
following additional events occurred during the month.
1) Purchase additional raw materials of $108,000 on account
2) Incurred factory labor costs of $84,000. Of this amount, $19,200 related to employer taxes

3) Incurred MOH costs as follow : indirect materials $20,400; indirect labor $24,000; depreciation expense on
equipment $14,400; various other MOH costs on account $19,200
4) Assigned direct materials and direct labor to jobs as follows :

a. Calculate the predetermined overhead rate for 2017, assuming Lott Company estimates total manufacturing
overhead costs of $1,008,000, direct labor costs of $840,000, and direct labor hours of 24,000 for the year.

b. Open job cost sheets for Jobs 50, 51, and 52. Enter the January 1 balances on the job cost sheet for Job No.
50

c) Prepare the journal entries to record the purchase of raw materials, the factory labor costs incurred, and the
manufacturing overhead costs incurred during the month of January.

d) Prepare the journal entries to record the assignment of direct materials, direct labor, and manufacturing
overhead costs to production. In assigning manufacturing overhead costs, use the overhead rate calculated in
e) Total the job cost sheets for any job(s) completed during the month. Prepare the journal entry to record the
completion of any job(s) during the month.

f) Prepare the journal entries to record the sale of any job(s) during the month.

g) What is the balance in the Finished Goods Inventory account at the end of the month? What does this
balance consist of?

h) What is the amount of over- or underapplied overhead?

1.Harrington Company uses predetermined overhead rates to
apply manufacturing overhead to jobs. The predetermined
overhead rate is based on machine hours in the Machining
Department and direct labor cost in the Assembly Department.
At the beginning of the year, the company made the following
estimates:
What predetermined overhead rates would be used in the
Machining and Assembly Departments, respectively?
predetermined overhead rate was $40.00 per DLH, how many
DLHs were worked during the year?
A) 5,500 hours
B) 5,200 hours
C) 5,000 hours
D) 4,800 hours
4. Vahedi Company manufactures a specialty line of silk-
screened ties. The company uses a job-order costing system.
During the month, the following costs were incurred on Job
1041: direct materials $54,800 and direct labor $19,200. In
addition, selling and shipping costs of $28,000 were incurred on
the job. Manufacturing overhead was applied at the rate of $25
per machine-hour (MH) and Job 1041 required 320 MHs. If Job
1041 consisted of 5,000 ties, the cost of goods sold per tie was:

A) 110% and $15 A) $50.00

B) $22.00
B) $5.00 and 50% C) $16.40
D) $14.80
5. Hutchins Company uses a predetermined overhead rate
C) $8.00 and 50%
based on direct labor hours (DLHs) to apply manufacturing
overhead to jobs. At the beginning of the year, the company
D) $5.00 and 200%
estimated manufacturing overhead would be $200,000 and
DLHs would be 20,000. The actual figures for the year were
$215,000 for manufacturing overhead and 21,000 DLHs. The
cost records for the year will show:

a) overapplied overhead of $5,000.

b) underapplied overhead of $5,000
c) overapplied overhead of $10,000.
d) underapplied overhead of $10,000.

6. Hiassen Company's predetermined overhead rate is based on

2. The company estimates that 16,000 direct labor and 106,000 direct labor costs. The company's Work in Process inventory
machine hours will be worked during the year. If overhead is account has a balance of $2,400, which relates to the one job
applied on the basis of direct labor hours, the predetermined that was in process at the end of an accounting period. The
overhead rate per direct labor hour will be: related job cost sheet includes total charges of $400 for direct
materials and $1,000 for direct labor. The company's
A) $7.00. predetermined overhead rate, as a percentage of direct labor
B) $13.88. costs, must be:
C) $15.26.
D) $17.12.
A) 100%.
B) 50%.
3. Dearborn Company's predetermined overhead rate is based
C) 40%.
on direct labor hours (DLHs). At the beginning of the current D) 17%.
year, the company estimated that its manufacturing overhead
would total $220,000 during the year. During the year, the
company incurred $200,000 in actual manufacturing overhead
costs. The Manufacturing Overhead account showed that
overhead was underapplied by $8,000 during the year. If the
 CHAPTER 3- PROCESS COST SYSTEM

4. Wyle Company uses the weighted-average method in its

1. When a process costing system is in use, which of the
following matches the journal entry used to record the transfer
of units from Department A, a processing department, to
Department B, the next processing department?
A). Debit Work in Process – Department A and credit
to Work in Process – Department B
B). Debit Work in Process – Department B and credit
to Work in Process – Department A
C). Debit Work in Process – Department B and credit
to Materials
D). Debit Finished Goods and credit to Work in
Process – Department B
2. Feuerstein Company uses the weighted-average method
in its process costing system. The following data for the Mixing
Department were taken from the company's accounting
records.
process costing system. The following information was available
for one of its processing departments:
The beginning work in process inventory consisted of 16,000
units, which were 75% complete with respect to conversion
costs.
A total of 50,000 units were completed and transferred out of
that department during the current month.
The ending work in process inventory consisted of 12,000
units, which were 50% complete with respect to conversion
costs.
What is the number of units that were started during the
month in that processing department?
A) 29,000 units
B) 42,000 units
C) 46,000 units
D) 54,000 units
5. Shetty Company uses the weighted-average method in its
process costing system. The following information pertains to
one of its processing departments for the current month:

The equivalent units of production for conversion costs were:

A) 200,000 units. All materials are added at the beginning of the process. The
B) 204,000 units. cost per equivalent unit for materials is closest to:
C) 222,000 units.
D) 224,000 units. A) $0.25.
B) $0.34.
3.Bloodgood Company uses the weighted-average method in C) $0.44.
its process costing system. The following information was D) $1.48.
available about one of the company's processing departments:
6. Cook Company uses the weighted-average method in its
There were 15,000 units in the department's beginning work in process costing system. The Baking Department is the third
process inventory, which were two-thirds complete with department in its production process. The data below
respect to conversion costs. summarize the department's operations during the current
month:
During the current month, 105,000 units were started and
100,000 were completed and transferred out of the
department

There were 108,000 equivalent units of production with

respect to conversion costs during the current month.

The Baking Department's production report indicates that the

Which of the following statements correctly describes the
cost per equivalent unit for conversion cost for the current
ending work in process inventory in that processing
month was $8.24. How much conversion cost was assigned to
department?
the units transferred out of the Baking Department during the
A) It is 40% complete with respect to conversion costs. current month?

B) It is 65% complete with respect to conversion costs. A) $964,574.40

B) $1,005,280
C) $1,046,480
C) It consists of 5,000 units.
D) $1,122,288

D) It consists of 10,000 units.

7. The Printing Department of Major Company has the following production and manufacturing cost data for October.
Materials are entered at the beginning of the process.

Production : Beginning inventory 1,600 units that are 100% complete as to materials and 30% complete as to conversion
costs; units started during the period are 42,900; ending inventory of 5,000 units 10% complete as to conversion costs.

Manufacturing Costs : Beginning inventory costs, comprised of $20,000 of materials and $43,180 of conversion cost;
materials costs added in Printing during the month $175,800; labor and overhead applied in Printing during the month
$125,680 and $257,140 , respectively.

a) Compute the equivalent units of production for materials and conversion costs for the month of October !
b) Compute the unit costs of production !
c) Determine the costs to be assigned to the units transferred out and in process !

8. The Smelting Department of Harrelson Company has the following cost and production data for the month of
September.
Costs: Work in process, September 1
Direct materials: 100% complete $ 155,000
Conversion costs: 25% complete 84,400
Costs of work in process, September 1 $ 239,400

Costs incurred during production in September

Direct materials $ 905,000
Conversion costs 370,400
Costs incurred in September $ 1,275,400
Units transferred out totaled 18,500. Ending work in process was 1,500 units that are 100% complete as to materials and
30% complete as to conversion costs.

Instructions:
1. Compute the equivalent units of production for materials and conversion costs for the month.
2. Compute the unit costs of production for the month.
3. Determine the costs to be assigned to the units transferred out and in ending work in process.

9. Thakin Industries Inc. manufactures dorm furniture in separate processes. In each process, materials are entered at the
beginning, and conversion costs are incurred uniformly. Production and cost data for the first process in making two
products in two different manufacturing plants are as follows.
Cutting Department
Plant 1 Plant 2
Production Data—July T12-Tables C10-Chairs
Work in process units, July 1 0 0
Units started into production 21,800 17,440
Work in process units, July 31 3,270 545
Work in process percent complete 60 80

Cost Data—July
Work in process, July 1 $0 $0
Materials 414,200 313,920
Labor 255,496 119,900
Overhead 113,360 114,232
Total $783,056 $548,052

Instructions:
1. Compute the equivalent units of production for materials and conversion costs for the month.
2. Compute the unit costs of production for the month.
3. Determine the costs to be assigned to the units transferred out and in ending work in process.
10. The ledger of American Company has the following work in process account.
Work in Process—Painting
5/1 Balance 3,890 5/31 Transferred out ?
5/31 Materials 6,340
5/31 Labor 4,030
5/31 Overhead 1,680
5/31 Balance ?

Production records show that there were 510 units in the beginning inventory, 30% complete, 1,650 units started,
and 1,580 units transferred out. The beginning work in process had materials cost of $2,840 and conversion costs of
$1,050. The units in ending inventory were 40% complete. Materials are entered at the beginning of the painting process.

a. How many units are in process at May 31?

b. What is the unit materials cost for May?
c. What is the unit conversion cost for May?
d. What is the total cost of units transferred out in May?
e. What is the cost of the May 31 inventory?

11. Overton Company has gathered the following information.

Units in beginning work in process 20,650

Units started into production 197,750
Units in ending work in process 25,230
Percent complete in ending work in process:
Conversion costs 60 %
Materials 100 %
Costs incurred:
Direct materials $109,200
Direct labor $438,934
Overhead $185,990

Instructions:
1. Compute the equivalent units of production for materials and conversion costs for the month.
2. Compute the unit costs of production for the month.
3. Determine the costs to be assigned to the units transferred out and in ending work in process.

CHAPTER 4 – Activity Based Costing

1. Randel Manufacturing has five activity cost pools and two products (a budget tape vacuum and a deluxe tape vacuum).
Information is presented below:
Cost Drivers by Product
Activity Cost Pool Cost Driver Estimated Overhead Budget Deluxe
Ordering and Receiving Orders $130,000 600 400
Machine Setup Setups 297,000 500 400
Machining Machine hours 1,000,000 150,000 100,000
Assembly Parts 1,600,000 1,200,000 800,000
Inspection Inspections 300,000 550 450

Compute the overhead cost per unit for each product. Production is 700,000 units of Budget and 200,000 units of Deluxe
2. Venus Creations sells window treatments (shades, blinds, and awnings) to both commercial and residential customers.
The following information relates to its budgeted operations for the current year.
Commercial Residential
Revenues $319,300 $472,500
Direct materials costs $45,000 $50,000
Direct labor costs 120,000 280,000
Overhead costs 79,300 244,300 167,500 497,500
Operating income (loss) $75,000 $(25,000)

The controller, Peggy Kingman, is concerned about the residential product line. She cannot understand why this line is not
more profitable given that the installations of window coverings are less complex for residential customers. In addition, the
residential client base resides in close proximity to the company office, so travel costs are not as expensive on a per client
visit for residential customers. As a result, she has decided to take a closer look at the overhead costs assigned to the two
product lines to determine whether a more accurate product costing model can be developed. Here are the three activity
cost pools and related information she developed:

Activity Cost Pools Estimated Overhead Cost Drivers

Scheduling and travel $79,300 Hours of travel
Setup time 127,500 Number of setups
Supervision 40,000 Direct labor cost

Expected Use of Cost Drivers per Product

Commercial Residential
Scheduling and travel 750 550
Setup time 500 250

Compute the activity-based overhead rates for each of the three cost pools
Determine the overhead cost assigned to each product line
Compute the operating income for each product line, using the activity-based overhead rates

3. Peach, Inc., has identified the following overhead costs and cost drivers for next year:
Overhead Item Expected Cost

Setup costs ................................. $ 90,000 Cost Driver Expected Actual Transactions

Ordering costs ............................. 50,000
Maintenance costs ....................... 150,000 Number of setups 400
Power ......................................... 30,000 Number of orders 4,000
Machine hours 25,000
Kilowatt hours 75,000

The following are two of the jobs completed during the year:
Job 700 Job 701
Direct materials ............................... $1,200 $600
Direct labor ................................... $900 $400
Units completed .............................. 250 100
Direct labor hours ........................... 40 20
Number of setups ........................... 2 1
Number of orders ............................ 10 4
Machine hours ................................ 50 40
Kilowatt hours ................................. 60 25

The company’s practical activity is 5,000 direct labor hours.

Instructions:
1. Determine the unit cost for each job using direct labor hours to apply overhead! (Round answers to two decimal places)
2. Determine the unit cost for each job using ABC Cost System to apply overhead!
4. Spencer Company uses activity-based costing to compute product costs for external reports. The company has three
activity cost pools and applies overhead using predetermined overhead rates for each activity cost pool. Estimated costs
for Activity 3 total $40,000 and expected activity equals 2,500 for this activity cost pool. Actual activity for the current year
was 2,490. What is the amount of overhead applied for Activity 3 during the year?
A) $36,300
B) $39,840
C) $40,000
D) $96,190

5. Which of the following statements is correct?

A) Activity-based costing uses a number of activity cost pools, each of which is allocated to products on the basis of direct
labor-hours.
B) Activity rates in activity-based costing are computed by dividing costs from the first-stage allocations by the activity
measure for each activity cost pool.
C) An activity-based costing system is generally easier to implement and maintain than a traditional costing system.
D) One of the goals of activity-based management is the elimination of waste by allocating costs to products that waste
resources.

6. Which of the following would not be considered a product-level activity?

A) Advertising a product
B) Human resource management
C) Parts administration
D) Testing a prototype of a new product

7. Taylor Company has two products: A and B. The annual production and sales level of Product A is 9,094 units. The annual
production and sales level of Product B is 15,826. The company uses activity-based costing and has prepared the following
analysis showing the estimated total cost and expected activity for each of its three activity cost pools.

8. What is the activity rate for Activity 3? 9. What is the overhead cost per unit of Product A?
A) $29.32 A) $1.83
B) $30.00 B) $1.98
C) $33.33 C) $5.00
D) $41.53 D) $10.00

CHAPTER 5 – 6

1. Vin Diesel owns the Fredonia Barber Shop. He employs 5.00 barbers and pays each a base rate of $1,480 per month. One
of the barbers serves as the manager and receives an extra $510 per month. In addition to the base rate, each barber also
receives a commission of $5.52 per haircut.

Other costs are as follows.

Advertising $290 per month
Rent $980 per month
Barber supplies $0.32 per haircut
Utilities $180 per month plus $0.24 per haircut
Magazines $25 per month

Vin currently charges $11.08 per haircut.

Determine the variable costs per haircut and the total monthly fixed costs.
2. Maxweel company makes treadmill. The company with investment in machinery. Projected sales for both
controller wants to calculate the fixed and variable costs firm are 15% less than in the prior year, Which
associated with the janitorial cost incurred in the statement regarding profit is true ?
factory. Data for the past four months were collected a) Firm X will lose more profit than firm Y
Months Janitorial Machine Hours b) Firm Y will lose more profit than firm X
September $11,000 575 c) Firm X and Y will lose the same amount of
Oktober $11,400 610 profit
November $10,200 510 d) Neither Firm X nor Firm Y will lose profit
December $10,725 550

Using High Low Method, calculate the fixed cost for 10. Zahn Company manufactures a product that sells for
janitorial services $120. A selling commission of 10% of the selling price is
a) $4080 paid on each unit sold. Variable manufacturing costs are
b) $7320 $60 per unit. Fixed manufacturing costs are $20 per unit
c) $6120 based on the current level of activity, and fixed selling
d) None of these are correct and administrative costs are $16 per unit. What is the
3. What would Maxwell company’s estimated janitorial contribution margin per unit?
cost at 600 machine hours ? A) $104
a) $11,280 B) $72
b) $7,500 C) $60
c) $4,080 D) $48
d) $6,120
4. If Variabel cost per unit decrease, sales volume at the 11. Jovovich Corporation produced and sold 80,000 units
break event point will and reported sales of $4,000,000 during the past year.
a) Decrease Management determined that variable expenses totaled
b) Stay constant $2,800,000 and fixed expenses totaled $720,000. What
c) Increase is the company's contribution margin ratio?
d) Double A) 30%
5. Patricia company produces two products, X and Y, B) 70%
which account for 60% and 40% respectively, of total C) 150%
sales dollars. Contribution margin ratio are 50% for X, D) 250%
and 25% for Y. Total Fixed Cost 120,000. What is Patricia
BEP in Dollars ? 12. Brolin Company sells a single product. The product
a) $300,000 has a selling price of $50 per unit and variable expenses
b) $328,767 of 80% of sales. If the company's fixed expenses total
c) $342,856 $150,000 per year, what is the company's break-even
d) $375,000 point in sales dollars?
6. Dirth Company sells only one product at a regular A) $750,000
Price $7.5 per unit. Variabel expenses are 60% of Sales. B) $187,500
And Fixed Expenses are $30,000. Management has C) $15,000
decided to decrease the selling price in 6$. But the D) $3,750
Variabel cost remain the same. Calculate the different of
BEP in Unit between Old Price and the new one. 13. Portis, Inc. reported sales of $8,000,000 for the
month and incurred variable expenses totaling
7. Yerke Company makes jungle gyms and tree houses $5,600,000 and fixed expenses totaling $1,440,000. The
for children. For Jungle Gyms the price is $120, variable company has no beginning or ending inventories. A total
expense are $90 per unit. For Tree Houses, the price is of 80,000 units were produced and sold last month.
$200 and Variable expenses 100$. Total Fixed expenses What is the company's break-even point in units?
are $253,750. Last year Yerke Sold 12,000 Gyms and A) 0 units
4,000 Tree Houses. Now Suppose the tree houses B) 48,000 units
demand increase from 4,000 to 8,000 units. What is the C) 72,000 units
number of jungle gyms sold at break even. D) 80,000 units

8. if sales remain the same an d the margin safety
increases, which of following is true ?
a) The common fixed cost have increases
b) The break event point remain constant
c) The break-event point has decreased
d) Variable costs have increased
9. Firm X and Firm Y are competitors within same
industry. Firm X produces its product using large amount
of direct labour. Firm Y has replaced the direct labour
14. Portis, Inc. reported sales of $8,000,000 for the
month and incurred variable expenses totaling
$5,600,000 and fixed expenses totaling $1,440,000. The
company has no beginning or ending inventories. A total
of 80,000 units were produced and sold last month.
(Note that this is the same data that was provided for
the previous question.) If sales increase by 200 units,
what is the expected increase in net operating income?
A) $1,600
B) $6,000
 C) $10,000 A) 88,000
D) $19,200 B) 100,000
C) 106,668
15. How many units would the company have to sell to D) 150,000
achieve a desired profit of $1,200,000?
16. What is the company's margin of safety in dollars? 17. What is the company's degree of operating
A) $480,000 leverage?
B) $2,400,000 A) 0.12
C) $3,200,000 B) 0.4
D) $3,520,000 C) 2.5
D) 3.3

CHAPTER 7

1. On January 2, 2016, Twilight Hospital purchased a $98,400 special radiology scanner from Bella Inc. The scanner had a
useful life of 4 years and was estimated to have no disposal value at the end of its useful life. The straight-line method of
depreciation is used on this scanner. Annual operating costs with this scanner are $106,000.

Approximately one year later, the hospital is approached by Dyno Technology salesperson, Jacob Cullen, who indicated
that purchasing the scanner in 2016 from Bella Inc. was a mistake. He points out that Dyno has a scanner that will save
Twilight Hospital $25,000 a year in operating expenses over its 3-year useful life. Jacob notes that the new scanner will cost
$109,000 and has the same capabilities as the scanner purchased last year. The hospital agrees that both scanners are of
equal quality. The new scanner will have no disposal value. Jacob agrees to buy the old scanner from Twilight Hospital for
$48,000.

2. Kirk Minerals processes materials extracted from mines. The most common raw material that it processes
results in three joint products: Spock, Uhura, and Sulu. Each of these products can be sold as is, or each can be
processed further and sold for a higher price. The company incurs joint costs of $179,400 to process one batch
of the raw material that produces the three joint products. The following cost and sales information is
available for one batch of each product.
Sales Value at Allocated Cost to Process Sales Value of
Split-Off Point Joint Costs Further Processed Product
Spock $209,700 $40,000 $109,600 $300,900
Uhura 300,000 60,200 84,900 399,900
Sulu 455,500 79,200 249,500 800,500

Determine the incremental profit or loss that each of the three joint products.

3. harp Company operates a small factory in which it manufactures two products: C and D. Production and sales results for
last year were as follows.
C D
Units sold 8,800 19,000
Selling price per unit $93 $75
Variable cost per unit 47 39
Fixed cost per unit 20 20

For purposes of simplicity, the firm averages total fixed costs over the total number of units of C and D produced and sold.

The research department has developed a new product (E) as a replacement for product D. Market studies show that
Tharp Company could sell 11,000 units of E next year at a price of $113; the variable cost per unit of E is $40. The
introduction of product E will lead to a 10% increase in demand for product C and discontinuation of product D. If the
company does not introduce the new product, it expects next year’s results to be the same as last year’s.

Compute company profit with products C & D and with products C & E.