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Managerial Accounting Practice Problems

Multiple Choice

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Identify the letter of the choice that best completes the statement or answers the question.

1. If variable costs per unit decrease, sales volume at the break-even point will

a. increase

b. decrease

c. remain the same

d. remain the same; however, contribution margin per unit will decrease

2. If fixed costs increase, the break-even point in units will

a. increase

b. decrease

c. remain the same

d. remain the same; however, contribution margin per unit will decrease

3. If the selling price per unit increases, the break-even point in units will

a. increase

b. decrease

c. remain the same

d. remain the same; however, contribution margin per unit will decrease

4. If the contribution margin per unit decreases, the break-even point in units

a. will increase

b. will decrease

c. will remain the same

d. cannot be determined from the information given

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Structured Questions

Single Product

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1. Enola, Inc., manufactures a product that sells for $400. Â The variable costs per unit are as follows:

Direct materials Â Â Â $100

Direct labor Â Â Â Â Â Â 80

Variable manufacturing overhead Â Â Â 50

During the year, the budgeted fixed manufacturing overhead is estimated to be $500,000, and budgeted fixed selling and administrative costs are expected to be $250,000. Â Variable selling costs are $20 per unit.

Required:

a. Determine the break-even point in units.

b. Determine the number of units that must be sold to earn $300,000 in profit before taxes.

c. Determine the number of units that must be sold to generate an after-tax profit of $90,000 if there is a 40 percent tax rate.

2. LaVerle, Inc., manufactures a product that sells for $480. Â The variable costs per unit are as follows:

Direct materials Â Â Â $160

Direct labor Â Â Â Â Â 100

Variable manufacturing overhead Â Â Â Â 40

During the year, the budgeted fixed manufacturing overhead is estimated to be $100,000, and budgeted fixed selling and administrative costs are expected to be $40,000. Â Variable selling costs are $20 per unit.

Required:

a. Determine the break-even point in units.

b. Determine the number of units that must be sold to earn $60,000 in profit before taxes.

c.Â Determine the number of units that must be sold to generate an after-tax profit of $60,000 if there is a 40 percent tax rate

3. Determine the following missing amounts:

Sales Â Â $100,000

Total variable costs Â Â ?

Contribution margin Â Â ?

Total fixed costs Â Â $20,000

Net income Â Â $12,000

Units sold Â Â 100

Price Â Â ?

Variable cost per unit Â Â ?

Contribution margin per unit Â Â ?

Contribution margin ratio Â Â ?

Break-even point in units Â Â ?

4. The break-even point in units is 2,000 for Lumus Company. Â Contribution margin per unit was $20 per unit. Â What would total sales units if Lumus Company desires a net income of $45,000?

5. Danna Company has a margin safety of $20,000. Â The break-even point is $220,000, and the variable cost ratio is 25 percent. Â Given this information, what would be the net income?

6. The following information pertains to Kangas Company:

Selling price per unit Â Â $250

Variable manufacturing costs per unit Â Â $75

Fixed manufacturing costs per unit Â Â $90

Variable selling costs per unit Â Â $45

Fixed selling costs per unit Â Â $20

Expected production and sales Â Â 2,000 units

By how many units can Kangas Company's sales decline before losses are incurred?

Multi-Product

1. Information about two products is as follows:

Product C Â Â Product D

Selling price per unit Â Â Â $20 Â Â $25

Variable costs per unit Â Â Â Â 11 Â Â 18

Contribution margin per unit Â Â $ 9 Â Â $ 7

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The firm expects 60 percent of its sales (in units) to be Product C (a sales mix of 6:4). Â Fixed costs are expected to be $82,000. What is the Break-even in units?

2. Information about two products is as follows:

Product E Â Â Product Z

Selling price per unit Â Â $40 Â Â $65

Variable costs per unit Â Â 15 Â Â 45

Contribution margin per unit Â Â $25 Â Â $20

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The firm expects 80 percent of its sales (in units) to be Product E (a sales mix of 8:2). Â Fixed costs are expected to be $90,000.

Required

a. Calculate the Break-even in units.

b. Calculate the number of units of Product E to be sold if the company is targeting a before-tax income of $120,000.

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3. Lily Fan Company has three products: Economy, Standard, and Deluxe. Â The following information is available for the three products:

Economy Â Â Standard Â Â Deluxe

Selling price Â Â Â $10 Â Â $20 Â Â $35Â

Variable cost Â Â Â $ 8 Â Â $13 Â Â $24Â

Contribution margin Â Â Â $2 Â Â $7 Â Â $11Â

Expected sales Â Â Â 18,000 Â Â 12,000 Â Â 6,000Â

Fixed costs are $170,500.

Required

a. calculate the break-even sales in dollars for Economy.

b. Calculate the number of units to be sold to achieve a target net income before tax for the coming year of $62,000.

c. Calculate Lily Fan Company's margin of safety.