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Managerial Accounting Practice Problems

## Multiple Choice

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.