Admas University Cost II Ch-1 & 2

Assignment to be submitted within one week (Make a group of 3- students to do the assignment)
1. Lyndon Company is the exclusive distributor of an automotive product that sells for $40 per unit
and has a contribution margin ration of 30%. The company’s fixed expenses are $180,000 per
year.
Required:
A. What are the variable expenses per unit?
B. What is the Break-even point in units and dollar amount?
C. What sales level in units and sales dollars is required to earn an after tax net income of
$60,000(assume 40% tax rate)
D. Assume that by using a more efficient shipper, the company is able to reduce its variable
expense by $4 per unit. What is the company’s new Break-even point in units and sales dollar
amount?
2. If contribution margin is positive?
A. Profit will occur.
B. Both a profit and loss are possible.
C. Profit will occur if the fixed expenses are greater than the contribution margin.
D. A loss will occur if the contribution margin is greater than fixed expenses.
3. At the breakeven point:
A. Profit is $0.
B. Fixed Cost + Variable Cost = Sales
C. Fixed Cost = Contribution Margin
D. All of the above
4. A completed CVP graph will show that profit or loss at any level of sales is measured by:
A. A vertical line between the fixed cost line and the x axis.
B. A horizontal line between the revenue line and the y axis.
C. A vertical line between the total revenue line and the total expenses line.
D. A horizontal line between the total revenue line and the total expenses line.
5. Using a CVP graph, it becomes apparent that:
A. A loss occurs above the breakeven point.
B. Below the breakeven point, profit increases as sales increase.
C. Above the breakeven point, profit decreases as sales increase.
D. Above the breakeven point, profit increases as sales increase.
6. Contribution margin ratio is:
A. Total Contribution Margin / Sales.
B. Sales / Contribution Margin per unit.
C. Fixed cost / Contribution margin per unit.
D. Sales / Variable costs.
7. Camp Book Publishers has sales of $130,000, variable expenses of $78,000, and fixed expenses
of 35,000. Which of the following are true about Camp?
A. Contribution margin is $113,000.
B. Contribution margin ratio is 40%.
C. At $113,000 in sales, profit will be $100.
D. Contribution margin ratio is 60%.
8. The impact on net operating income of any given dollar change in total sales can be computed
by applying which ratio to the dollar change?
A. Profit margin. C. Contribution Margin.
B. Variable cost ratio.
D. Ratio of Variable to Fixed Expenses.
9. The Foss Corporation has a breakeven point when sales are $160,000 and variable costs at that
level of sales are $100,000. How much would profit increase or decrease if variable expenses
dropped by $20,000?
A. $0. C. $50,000.
B. $20,000.
D. Cannot tell from the information given.
10. The Foss Corporation has a breakeven point when sales are $160,000 and variable costs at that
level of sales are $100,000. How much would contribution margin increase or decrease, if
variable expenses dropped by $20,000?
A. 26% C. 60%.
B. 37.5%. D. 12.5%.

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By: Taddesse Kebede May 2016
Admas University Cost II Ch-1 & 2

11. The Foss Corporation has a breakeven point when sales are $160,000 and variable costs at that
level of sales are $100,000. How much in additional sales would it take to remain at the
breakeven point, if fixed costs doubled?
A. $100,000. C. $160,000.
B. $120,000. D. $325,000.
12. Which of the following represents the CVP equation?
A. Sales = Contribution margin + Fixed expenses + Profits
B. Sales = Contribution margin ratio + Fixed expenses + Profits
C. Sales = Variable expenses + Fixed expenses + Profits
D. Sales = Variable expenses - Fixed expenses + Profits
13. The Bailey Corporation has a breakeven point when sales are 100,000 units and $320,000, and
variable costs at that level of sales are $200,000. How many additional units would have to be
sold to reach a new breakeven point, if fixed costs doubled?
A. 325,000. C. 120,000.
B. 100,000. D. 160,000.
14. Margin of Safety is a term best described as the excess of:
A. Contribution margin over fixed expenses.
B. Total expenses over the breakeven point.
C. Sales over the breakeven point.
D. Sales over total costs.
15. The following monthly budgeted data are available for a wholesale company:
Product L Product Z Product C
Sales $400,000 $200,000 $800,000
Variable expenses 240,000 140,000 640,000
Contribution margin $160,000 $ 60,000 $160,000

Budgeted net operating income for the month is $130,000.

Required:
A. Calculate the break-even sales for the month.
B. Calculate the margin of safety in sales dollars.
C. Calculate the operating leverage for both budgeted and actual data.
D. Actual total sales for the month were the same as the budgeted sales--$1,400,000.
However, the sales mix changed so that sales by product were: L, $560,000; Z, $280,000;
C, $560,000. Calculate the expected net operating income with this new sales mix. Explain
why this net operating income figure differs from the original budgeted net operating income
of $130,000.

16. Data concerning Breedon Company's operations last year appear below:

Units in beginning inventory -0-

Units produced 12,000
Units sold 11,250

Selling price per unit $90

Variable costs per unit:

Direct materials $20
Direct labor 10
Variable manufacturing overhead 8
Variable selling and administrative 5

Fixed costs in total:

Fixed manufacturing overhead $180,000
Fixed selling and administrative 150,000

Required: find BEP in Units and BEP in Sales.

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By: Taddesse Kebede May 2016
Admas University Cost II Ch-1 & 2

17. For each of the following, indicate whether the cost would typically be variable (V) or fixed (F).
a. _____ rent on building b. _____ direct labor c. _____ supervisor salaries

d. _____ direct materials e. _____ sales commissions based on units sold

18. For each of the following, indicate whether the cost would typically be considered direct or
indirect cost for the cost object given.
a. The direct labor factory costs for the manufacturing division.
b. The factory supervisor’s (Admin) salary for the product produced.
c. The factory supervisor’s salary for the manufacturing division.
d. The manufacturing overhead costs for (Admin) the products produced.
19. For each of the following, indicate whether the cost or example would typically be considered an
example of a differential cost, an opportunity cost, or a sunk cost.
a. The cost of equipment purchased five years ago which is no longer usable.
b. The cost of making a part compared with the cost of buying the part from a supplier.
c. The use of factory equipment to produce an item when it could be used to produce another
item that sells for a profit.
d. The decision to go to graduate school to earn an MBA versus taking a second part-time
job.
e. The cost of accepting a special order from a customer at a reduced selling price due to
reduced packaging and delivery services.
20. Describe how the following product costs should be classified—as direct labor or indirect labor
(mfg. Overhead) costs:
a. costs of premium paid for overtime factory workers
b. costs of idle time when factory production lines are shut down for repairs
c. costs of fringe benefits associated with direct labor workers
d. costs of fringe benefits associated with indirect labor workers
21. For each of the following, indicate whether an increase in the item (and no other changes) would
result in a higher or lower contribution margin and operating income.
Contribution Margin Effect Effect on Operating Income
a. Increase in sales volume ? ?
b. Increase in sales price ? ?
c. Increase in variable costs ? ?
d. Increase in fixed costs ? ?

22. The Turner Company sells hand-crafted children’s furniture. One item it sells is a booster stool
which sells for $30 per unit. The variable costs related to the stool, including product and
shipping costs, are $18 per unit. Total fixed costs for the company are $60,000. Assuming the
stools are the only product the company sells this year, draw a CVP graph to represent the
company’s sales and expenses. From this graph, compute the approximate breakeven point in
dollars and units.

23. If a company has a contribution margin percentage of 30%, and it expects sales to increase by
$200,000 next year, how much will the contribution margin increase?

24. The followings are ABC co.’s monthly budget pertaining sales mix of two products (Sugar and
Pasta)
Sugar Pasta Total
Units in Kilograms 10,000 5,000 15,000
Selling Price/Kg birr 15 Birr 20
Variable Cost/Kg birr 10 Birr 17
Fixed Costs (Rent, Salary, etc…) 20,000
Assume that, constant sales mix of 2kg of Sugar for each Kg of Pasta
Required:
a. Find sales Mix Breakeven point in Kg.
b. CM% and VC%
c. What will be the new Sales mix Breakeven point in Kg if Fixed Cost is increased by birr 5,000
and Variable cost/ kg of Sugar is increased by 10% and Selling price/kg of Pasta is birr 25/kg
instead of birr 20/kg?

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By: Taddesse Kebede May 2016
Admas University Cost II Ch-1 & 2

25. A company has provided the following data:

Sales 12,000 units
Sales price $100 per unit
Variable cost $50 per unit
Fixed cost $300,000
If the dollar contribution margin per unit is increased by 10%, total fixed cost is decreased by
20%, and all other factors remain the same, by how much will net income increase?

26. Hamada Company sells a single product. The product has a selling price of $100 per unit and
variable expenses of 80% of sales. If the company's fixed expenses total $150,000 per year,
what will the break-even be?
27. The capacity of an electronic firm is restricted to 8,000 units per month. Overall costs given that
capacity is fully used are Birr 820,000 if production is 6,000 units, overall costs are Birr 660,000.
The products are sold for Birr 140 per unit.
Required:
A. The firm aims at achieving a sales profitability (profit/revenue) of 25%. How many units are
to be sold to achieve this result?
B. Competitors in the market force the firm to lower prices. Only 85% of overall capacity is
available. What sales price is needed if the firm wants to break even?
C. Demand for the firm’s product is 10,000 units per month. The management considers an
increase in capacity by 25%. Fixed costs would rise by 50% per month. Variable costs,
however would decrease by 10%. What are the unit costs in this setting? Calculate profit it
products are sold for Birr 130 per unit.
D. What price per unit is to be charged if 10,000 units are produced and the firm wishes to
achieve a sales profitability of 25%?

28. Wow Co. currently sells Normal Burger. During a typical month, the stand reports a profit of
$9,000 with sales of $50,000, fixed costs of $21,000, and variable costs of $0.64 per Normal
Burger.

Next year, the company plans to start selling Special Burger A for $3 per unit. Special Burger A
will have a variable cost of $0.72 and new equipment and personnel to produce Special Burger A
will increase monthly fixed costs by $8,808. Initial sales of Special Burger A should total 5,000
units. Most of the Special Burger A sales are anticipated to come from current Normal Burger
purchasers, therefore, monthly sales of Normal Burger are expected to decline to $20,000.

After the first year of Special Burger A sales, the company president believes that Normal Burger
sales will increase to $33,750 a month and Special Burger A sales will increase to 7,500 units a
month.
Required:
A. Determine the monthly breakeven sales in dollars before adding Special Burger A.
B. Determine the monthly breakeven sales during the first year of Special Burger A sales,
assuming a constant sales mix of 1 Normal Burger and 2 units of Special Burger A.

29. Alexander plans to operate a booth selling beverages at his little brother’s graduation ceremony.
Alexander decides to sell a drink called “Tella” (Traditional Drink) and expects to sell 75 to 83
unit with equal probability. Fixed costs are Birr 12. The selling price per unit is birr 0.27, variable
costs per unit are Birr 0.12.

Required:
A. Calculate the probability for Alexander reach at least the break-even –point.
B. Alexander thinks his plans over and considers to operate a larger booth for different
beverages to be sold. For that alternative he expects the following sales numbers:

Tella Areke Malta Beer

Price/unit 0.27 9 4 7
VC/unit 0.12 5 2 5
Sales Units 82 30 50 39
Calculate break-even-sales for the sales mix given if fixed costs are Birr 150.

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By: Taddesse Kebede May 2016
Admas University Cost II Ch-1 & 2

30. The following is Tyler Corporation's contribution format income statement for last month:
Sales $4,000,000
Less variable expenses 2,800,000
Contribution margin 1,200,000
Less fixed expenses 720,000
Net income $ 480,000

The company has no beginning or ending inventories. A total of 80,000 units were produced and sold
last month. What is the company’s breakeven in sales dollars? How many units would the company
have to sell to attain target profits of $600,000?

31. Trowbridge Company sells two products, Product A and Product B. Typically, Product A accounts
for 40% of sales dollars and Product B accounts for the rest. Product A’s contribution margin is
30% of sales, while Product B typically has a contribution margin percentage of 50%. Fixed
costs for the company total $300,000. Product A’s selling price is $10 per unit, while the
company sells Product B for $25 per unit.
A. Given the current product mix, what is breakeven in sales dollars?
B. Assuming the product mix shifts to 30% of Product A and 70% of Product B, what will the
new breakeven in sales dollars be?
32. The difference between producing three bird houses and four bird houses is called:
a. An incremental cost c. A marginal cost
b. A differential cost d. All of the above
33. ____ is an Authority exerted down ward over subordinates and ____ is an authority to advice
but not command and It may be exerted downward, laterally, or upward
a. Staff authority, Line authority
b. Line authority, Staff authority
c. Line authority, Line authority
d. Line authority, Staff authority
34. A student earning $500 each week is considering registering for college classes that would
require spending each week studying instead. Which of the following would be true?
a. Opportunity costs associated with going to school are $500
b. Opportunity costs associated with not going to school are the higher potential wages
associated with a college education.
c. Both A and B
d. None of the above

35. Suppose XXX co.’s Breakeven point is revenues of Birr 1,000,000 and Fixed costs are birr
400,000
A. Compute the contribution margin percentage
B. Compute the selling price if variable costs are birr 12 per unit
C. Suppose 80,000 units are sold. Compute the margin of safty

36. Which of the following is not likely to be an incremental cost for a make-or-buy decision?
a. Materials cost
b. Direct labor cost
c. Variable manufacturing cost
d. Depreciation of building

37. Fill in the blanks for each of the following independent cases

Variable Fixed Total Operating Contribution

Cases Revenues Costs Costs Costs Income Margin Percentage

A. $ ____ $500 $____ $800 $1,200 _____

B. 2,000 ____ 300 ____ 200 _____

C. 1,000 700 ____ 1,000 ___ _____

D. 1,500 ____ 300 _____ ___ 40%

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By: Taddesse Kebede May 2016
Admas University Cost II Ch-1 & 2

38. Place the number of appropriate definition in the blank next to each concepts

Concept Definition

a. __________ Periodic costs 1. Costs that Vary with the volume of activity
b. __________ Indirect costs 2. A sacrifice of resources
c. __________ Fixed costs 3. The cost charged against revenue in particular
. accounting period
d. __________ Opportunity Costs 4. Costs that are part of inventory
e. __________ Quality Costs 5. Costs that can more easily be attributed to
. time intervals
f. __________ Direct Costs 6. Past, Present, or near-future cash flow
g. __________ Expenses 7. The lost benefit from the best forgone
. alternative
h. __________ Cost 8. Costs used to compute inventory value
. accounting to GAAP
i. __________ Variable Costs 9. Costs that cannot be directly related to a cost
. object
j. __________ Full absorption Cost 10. Costs that can be directly related to a cost
. object
k. __________ Periodic Costs 11. Costs that do not vary with the volume of
. activity

39. The difference between the meaning of the term cost and expenses?
40. The difference between Product cost and period cost?
41. Is the cost of goods sold an expense?
42. Define Cost Volume profit analysis
43. Describe assumptions under CVP analysis
44. List and describe those main limitation in CVP analysis
45. How can a company with multiple products compute its BEP?
46. State the difference between Gross profit approach and Contribution margin approach of Income
statements using example
47. State the difference between operating income and net income
48. Good accounting information helps an organization achieve its goals and objectives by helping to
answer three basic types of questions. List and describe the three basic types of questions
49. Write the difference between Financial accounting, Management Accounting and Cost Accounting
by using comparative table
50. What are the main objectives and advantages of Cost Accounting?
51. Indicate the relationship of Cost Accounting with Other Functions
52. Write briefly the relationship between Management process and Accounting
53. Indicate the exact Position of Accounting in the Organization and also describe the difference
between Controllers and Treasurers

‘’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’//’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’’

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By: Taddesse Kebede May 2016