## 3 6 interpret the results of cvp analysis in complex strategic multi product and mul 4315138

3.6   Interpret the results of CVP analysis in complex strategic, multi-product, and multiple cost driver situations.

1) The relative combination of quantities of products or services that constitute total revenues are called the sales target.

2) The key to applying CVP analysis in non-profit and service organizations is to measure their output.

3) Changes in product quality could be considered an example of a revenue driver.

4) There is no unique break-even point when there are multiple cost drivers.

5) In multi-product situations when sales mix shifts toward the product with the highest contribution margin, operating income will be higher.

6) To calculate the break-even point in a multi-product situation, one must assume that the sales mix of the various products remains constant.

Use the information below to answer the following question(s).

The following information is for Winnie Company:

 Product A: Revenue \$4.00 Variable Cost \$1.00 Product B: Revenue \$6.00 Variable Cost \$2.00 Total fixed costs are 40,000

7) What is the break-even point assuming the sales mix consists of two units of Product A and one unit of Product B?

A) 2,000 units of B and 4,000 units of A

B) 2,025 units of B and 4,050 units of A

C) 4,025 units of B and 8,050 units of A

D) 4,000 units of B and 4,000 units of A

E) 4,000 units of B and 8,000 units of A

8) What is the operating income assuming actual sales are 300,000 units, and the sales mix is one unit of Product A and two units of Product B?

A) \$100,000

B) \$1,040,000

C) \$1,060,000

D) \$1,100,000

E) \$1,100,100

9) A hospital receives \$1,000,000 monthly in funding from various sources. Annual fixed costs are projected to be \$5,000,000 and the variable cost per patient, across all departments is projected to be \$534.80. Last year they treated 11,500 patients. The hospital expects a 5% increase in patients this year. A governing bylaw requires that the hospital be run as a non-profit organization.

What is the maximum number of patients the hospital can expect to be able to treat assuming the operating income is zero?

A) 11,500

B) 12,079

C) 13,000

D) more than 13,000

E) CVP analysis is not relevant for non-profit organizations.

10) A social agency receives a budget appropriation of \$11,000 monthly from the municipality. Annual fixed costs are projected to be \$20,000 and the variable cost per client was \$238.50 last year. Although the agency projects its case load to increase by the usual 15% this year (as it has done historically), the municipality appropriated funds based on last year&#39;s case load. Which of the following strategies would be ineffective in dealing with the expected shortfall in budget appropriation for the agency?

A) reducing the number of clients served

B) reducing the variable cost of serving a client

C) reducing the total fixed costs

D) increasing funding from other sources

E) changing the measure of output used to calculate service

## 3 if the actual volume of production differs from the expected volume of production 4308505

3) If the actual volume of production differs from the expected volume of production, the fixed overhead costs used for budgeting and product costing are ________.

A) the same

B) different

C) indeterminate

D) changing over the accounting period

4) The absorption costing approach applies fixed overhead costs to products as though they have a ________ pattern.

A) mixed cost behavior

B) variable cost behavior

C) step cost behavior

D) fixed cost behavior

5) In absorption costing, production volume does NOT affect the ________.

A) amount of fixed overhead costs applied to products

B) amount of variable overhead costs applied to products

C) budgeted amount of fixed overhead costs

D) amount of direct materials costs applied to products

6) Under absorption costing, fixed manufacturing overhead costs appear on two places on the income statement that include ________ and ________.

A) usage variance for fixed overhead costs; cost of goods sold

B) production volume variance; cost of goods sold

C) efficiency variance for fixed overhead costs; production volume variance

D) efficiency variance for fixed overhead costs; cost of goods sold

13.8   Questions

1) A favorable production volume variance indicates ________.

A) an effective use of manufacturing capacity

B) an ineffective use of manufacturing capacity

C) that the use of manufacturing capacity is lower than expected

D) that the use of manufacturing capacity is higher than expected

2) When the actual volume of production exceeds the expected volume of production, the production volume variance is ________ and fixed overhead is ________.

A) favorable; underapplied

B) favorable; overapplied

C) unfavorable; underapplied

D) unfavorable; overapplied

3) An unfavorable production volume variance ________ a company&#39;s operating income.

A) increases

B) decreases

C) does not affect

D) it depends on the size of the variance

4) An unfavorable production volume variance ________ manufacturing costs on the ________ income statement.

A) decreases; variable costing

B) increases; variable costing

C) decreases; absorption costing

D) increases; absorption costing

## 41 software should never be implemented before it is tested 42 it is essential that 4315924

41.Software should never be implemented before it is tested.

42.It is essential that accountants oversee the data conversion from the old system to the new system to make sure that all accounting data is completely and correctly converted.

43.The file or database storage for the new accounting system may not be different from the old system.

44.The longest and most costly part of the SDLC is the operation and maintenance.

45.During the operation phase of the IT system, it is necessary that management receive regular reports that will enable management to determine whether IT is aligned with business strategy and meeting the objectives of the IT system.

46.              Once the SDLC has identified which types of IT systems are appropriate for the company, the IT governance committee becomes the mechanism to properly manage the development, acquisition, and implementation of the IT system.

47.Each organization may approach IT governance in a different manner, but each organization should establish procedures for IT governance.

48.The AICPA Trust Principles failed to include any reference to the internal control structure of the IT systems.

49.Diligent adherence to the SDLC process, by management, is part of fulfilling its ethical obligations of stewardship and fraud prevention.

50.As the result of the passage of the Sarbanes-Oxley Act, CPA firms have unlimited ability to provide non-audit services to their audit clients.

## 77 although there a number of organizations that provide detailed guidance it is sti 4315864

77.Although there a number of organizations that provide detailed guidance, it is still necessary for auditors to rely on other direction regarding the types of audit tests to use and the manner in which the conclusions are drawn.  These sources of information include:

A.Industry Guidelines

B.PCAOB

C.ASB

D.ASACA

78.Claims regarding the financial condition of the business organization and results of its operations are referred to as:

A.Financial Statements

B.Management Assertions

C.External Audit

D.Presentation and Disclosure

79.Audit tests developed for an audit client are documented in a(n):

A.Audit Program

B.Audit Objective

C.Management Assertion

D.General Objectives

80.The management assertion related to valuation of transactions and account balances would include all of the following, except:

A.Accurate in terms of dollar amounts and quantities

B.Classified properly

C.Real

D.Correctly summarized

81.There are four primary phases of the IT audit.  Which of the following is not one of those phases?

A.Planning

B.Evidence Audit

C.Tests of Controls

D.Substantive Tests

82.The proof of the fairness of the financial information is:

A.Tests of Controls

B.Substantive Tests

C.Audit Completion

D.Evidence

83.Techniques used for gathering evidence include all of the following, except:

A.Physical examination of assets or supporting documentation

B.Observing activities

D.Analyzing financial relations relationship

84.During this phase of the audit, the auditor must gain a thorough understanding of the client’s business and financial reporting systems.  When completing this phase, the auditors review and assess the risks and controls related to the business.

A.Tests of Controls

B.Substantive Tests

C.Audit Completion / Reporting

D.Audit Planning

85.During the planning phase of the audit, auditors estimate the monetary amounts that are large enough to make a difference in decision making.  This amount is referred to as:

A.Risk

B.Materiality

C.Substantive

D.Sampling

86.The likelihood that errors or fraud may occur is referred to as:

A.Risk

B.Materiality

C.Control Tests

D.Sampling

## 41 the following information is available for the jaeger company sales 2 000 000 inv 4308448

41) The following information is available for the Jaeger Company:

Sales\$2,000,000

Invested capital\$500,000

Return on investment20%

Required:

A) Compute capital turnover.

B) Compute operating income.

C) Compute return on sales.

42) Nelson Company has two divisions. The following information is available:

North Division            South Division

Revenue\$300,000\$500,000

After-tax operating income100,00090,000

Average invested capital100,000200,000

Invested capital at end of period200,000300,000

Cost of capital20%15%

Required:

Compute the following for each division:

A) Return on investment

B) Return on sales

C) Capital turnover

D) Residual income

43) The following data are available for three divisions of Beck Company:

Division A       Division B        Division C

Operating incomeA\$45,000I

RevenueBE\$84,000

ROI15%F12%

Invested capital\$150,000G\$35,000

Return on sales8%9%J

Cost of capital12%H10%

Capital turnoverC2.5K

Economic profitD\$15,000L

Required:

Compute the missing data.

## 17 capricorn company 39 s records reveal the following division x market price of fi 4308576

17) Capricorn Company&#39;s records reveal the following:

Division X

Market price of finished component to outsiders\$32 per unit

Variable costs per component\$24 per unit

Division Y

Sale price of finished product\$42 per unit

Variable costs:

Division X (1 component)?

Division Y Assembly9 per unit

Division Y Packaging4 per unit

Division Y wants to buy the component from Division X. The variable costs of Division Y will be incurred whether it buys the component from Division X or from an outside supplier. Division Y can buy the component for \$30 per unit from an outside supplier. Division X has no excess capacity. What is the highest price per unit that Division Y should pay to Division X for the components?

A) \$22 per unit

B) \$29 per unit

C) \$30 per unit

D) \$32 per unit

18) Maralee Company&#39;s records reveal the following:

Division X

Market price of finished component to outsiders\$32 per unit

Variable costs per component\$24 per unit

Division Y

Sale price of finished product\$42 per unit

Variable costs:

Division X (1 component)?

Division Y Assembly9 per unit

Division Y Packaging4 per unit

Division Y wants to buy the component from Division X. The variable costs of Division Y will be incurred whether it buys the component from Division X or from an outside supplier. Assume Division X is working at full capacity; there is no excess capacity. Division Y can buy the component from an outside supplier for \$32 per unit. What is the lowest transfer price per unit Division X should accept from Division Y for the component?

A) \$8 per unit

B) \$22 per unit

C) \$24 per unit

D) \$32 per unit

19) Bernice Company&#39;s records reveal the following:

Division X

Market price of finished component to outsiders\$32 per unit

Variable costs per component\$24 per unit

Division Y

Sale price of finished product\$42 per unit

Variable costs:

Division X(1 component)?

Division Y Assembly9 per unit

Division Y Packaging4 per unit

Division Y wants to buy the component from Division X. The variable costs of Division Y will be incurred whether it buys the component from Division X or from an outside supplier. Assume Division X has excess capacity. Division Y can buy the component from an outside supplier for \$32 per unit. What is the lowest transfer price per unit at which Division X would be willing to sell to Division Y?

A) \$8

B) \$22

C) \$24

D) \$32

20) Helen Company&#39;s records reveal the following:

Division A

Market price of finished part to outsiders\$75 per unit

Variable costs per part\$51 per unit

Division B

Sale price of finished product per unit\$105 per unit

Variable costs:

Division A (1 part)?

Division B Processing27 per unit

Division B Selling12 per unit

Division B wants to buy the part from Division A. The variable costs of Division B will be incurred whether it buys the part from Division A or from an outside supplier. Division B can buy the parts from an outside supplier at \$70 per unit. Division A has no excess capacity. What is the highest price that Division B should pay to Division A for the parts per unit?

A) \$51

B) \$66

C) \$70

D) \$75

21) Campbell Company&#39;s records reveal the following:

Division A

Market price of finished part to outsiders\$74 per unit

Variable costs per part\$50 per unit

Division B

Sale price of finished product per unit\$105 per unit

Variable costs:

Division A(1 part)?

Division B Processing27 per unit

Division B Selling12 per unit

Division B wants to buy the part from Division A. The variable costs of Division B will be incurred whether it buys the part from Division A or from an outside supplier. Assume Division A is working at full capacity, and there is no excess capacity. Division B can buy the parts from an outside supplier at \$70 per unit. What is the lowest transfer price per unit Division A should accept from Division B?

A) \$24

B) \$66

C) \$70

D) \$74

22) Dersey Company&#39;s records reveal the following:

Division A

Market price of finished part to outsiders\$74 per unit

Variable costs per part\$50 per unit

Division B

Sale price of finished product per unit\$105 per unit

Variable costs:

Division A(1 part)?

Division B Processing27 per unit

Division B Selling12 per unit

Division B wants to buy the part from Division A. The variable costs of Division B will be incurred whether it buys the part from Division A or from an outside supplier. Division A has excess capacity. Division B can buy the part for \$75 per unit from an outside supplier. What is the lowest transfer price per unit Division A will accept from Division B?

A) \$24

B) \$50

C) \$66

D) \$75

23) ________ is an approach for establishing a market-based transfer price.

A) Full cost plus a normal profit markup

B) External market price less selling and delivery costs saved from selling internally

C) External market price plus a profit markup

D) Variable cost plus unavoidable fixed cost

24) If market prices are not available for transfer prices, most companies use ________ transfer prices.

A) negotiated

B) average

C) cost-based

D) activity-based

25) Cost-based transfer prices are easy to implement but can lead to ________ decisions.

A) questionable

B) negotiated

C) dysfunctional

D) autonomous

26) A general rule for transfer pricing is that the transfer price should equal the sum of outlay cost and opportunity cost.

## table 7 6 provincewide milling company uses a sales journal on june 2 the sales jour 4309046

Table 7-6

Provincewide Milling Company uses a sales journal. On June 2, the sales journal appears as you see below.

Sales Journal

 Date Invoice # Customer Post Ref. Accts Rec DR/ Sales Rev CR COGS DR/ Inventory CR June 2 909 Richardson Products \$ 4,200 \$ 1,090 Total

Other sales that took place in June are as follows:

 Inv # Sales Amount Customer Cost of Goods Sold 910 \$ 880 Anton, Michael \$390 911 1,120 A1 Repairs 560 912 500 Thompson, Al 220

39) Refer to Table 7-6, at the end of the month, what entry was made to accounts receivable?

A) Credit \$6,700

B) Debit \$6,700

C) Debit \$2,260

D) Credit \$2,260

40) Refer to Table 7-6, at the end of the month, what entry was made to inventory?

A) Credit \$2,260

B) Debit \$2,260

C) Debit \$6,700

D) Credit \$6,700

41) Refer to Table 7-6, at the end of the month, what entry was made to sales revenue?

A) Credit \$6,700

B) Debit \$6,700

C) Debit \$2,260

D) Credit \$2,260

42) Refer to Table 7-6, at the end of the month what entry was made to cost of goods sold?

A) Credit \$2,260

B) Debit \$2,260

C) Debit \$6,700

D) Credit \$6,700

Table 7-8 Nordin Avionics

J. Nordin Avionics began business on January 1, 2013. The business was started with \$10,000 in the cash account and \$30,000 of inventory in stock. Nordin uses a sales journal to record credit sales and a cash receipts journal to record all cash receipts, including both cash sales and cash collections of credit sales. At the end of January, the two journals appeared as follows:

Sales Journal

 Date Invoice # Customer Post Ref. Accts Rec DR/ Sales Rev CR COGS DR/ Inventory CR Jan   4 1000 Reed, A. \$ 5,000 \$ 4,100 6 1001 Charles, B. 1,240 990 13 1002 Reed, A. 3,200 2,800 20 1003 Williams, D. 900 820 22 1004 Charles, B. 5,100 4,600 Total \$ 15,440 \$ 13,310

Cash Receipts Journal

 Date Cash Debit Sales Revenue Credit Accts. Rec. Credit Invoice # Customer COGS DR/ Inventory CR Jan   5 \$  3,300 \$  3,300 \$ 2,700 10 5,000 \$ 5,000 1000 Reed, A. 14 9,000 9,000 8,000 18 1,240 1,240 1001 Charles, B. \$ 18,540 \$ 12,300 \$ 6,240 \$ 10,700

43) Refer to Table 7-8 at the end of January, what was the balance in accounts receivable?

A) \$ 9,200

B) \$14,200

C) \$ 7,960

D) \$ 8,000

44) Refer to Table 7-8 at the end of January, what was the balance in the subsidiary account receivable for A. Reed?

A) \$9,200 credit balance

B) \$3,200 debit balance

C) \$5,000 credit balance

D) \$3,200 credit balance

45) Refer to Table 7-8 at the end of January, what was the balance in Inventory? Assume no new inventory was acquired during January.

A) \$ 5,990 debit balance

B) \$ 6,340 debit balance

C) \$24,010 credit balance

D) \$ 5,100 debit balance

Match the following.

A) special journal

B) sales journal

C) control account

D) subsidiary ledger

E) balancing the ledgers

46) An account whose balance equals the sum of the balances in a group of related accounts in a subsidiary ledger

47) Credit sales are recorded in this special journal.

48) Book of accounts that provides supporting details on individual balances, the total of which appears in a general ledger account

49) An accounting journal designed to record one specific type of transaction

50) An important control feature that ensures the accuracy of the accounting records

## 5 3 questions 1 under absorption costing all costs are product or inventoriable cost 4308969

5.3   Questions

1) Under absorption costing, all ________ costs are product or inventoriable costs.

A) direct and indirect manufacturing

B) direct manufacturing

C) indirect manufacturing

2) Under absorption costing, product costs include direct manufacturing costs and ________.

A) variable selling and administrative expenses

B) indirect manufacturing costs?variable costs only

C) indirect manufacturing costs?fixed costs only

D) indirect manufacturing costs?variable and fixed costs

3) Under the contribution approach to the income statement, the difference between sales and ________ is contribution margin.

A) cost of goods sold

B) manufacturing costs

C) all variable expenses

D) all fixed expenses

4) The contribution approach to the income statement emphasizes the distinction between ________.

A) value chain functions

B) different functional areas in a firm

D) variable and fixed costs

5) Using absorption costing, the primary classifications of costs on the income statement are by:

A) cost behavior patterns

B) manufacturing departments

C) major management functions

D) manufacturing segments

6) Santa Company reported the following information for its only product:

Direct materials used\$450,000

Direct labor170,000

Indirect manufacturing?fixed80,000

Indirect manufacturing?variable20,000

Units produced and sold40,000

Santa Company uses the absorption approach.  What is the product cost per unit?

A) \$13.00

B) \$13.50

C) \$14.75

D) \$18.00

Direct materials used\$200,000

Direct labor80,000

Indirect manufacturing?fixed100,000

Indirect manufacturing?variable20,000

Selling price(per unit)84

Units produced and sold10,000

Colorado Company uses the absorption approach.  What is the product cost per unit?

A) \$28

B) \$30

C) \$36

D) \$40

8) The contribution approach offers several benefits to decision makers.  Which of the following is NOT a benefit of this approach?

A) This approach makes it easier to understand the impact of changes in sales demand on operating income.

B) This approach stresses the role of fixed costs in operating income.

C) This approach is used with CVP analysis.

D) This approach is accepted by U.S. Generally Accepted Accounting Principles.

9) Ohio Company has the following data about its only product:

Direct materials used\$300,000

Direct labor80,000

Indirect manufacturing?fixed100,000

Indirect manufacturing?variable20,000

Selling price(per unit)99

Units produced and sold12,000

Ohio Company uses the absorption approach.  What is the manufacturing cost of goods sold?

A) \$280,000

B) \$300,000

C) \$360,000

D) \$500,000

10) Penn Company has the following data about its only product:

Direct materials used\$200,000

Direct labor80,000

Indirect manufacturing?fixed100,000

Indirect manufacturing?variable20,000

Selling price(per unit)70

Units produced and sold10,000

Penn Company uses the absorption approach.  What is the gross margin?

A) \$300,000

B) \$390,000

C) \$450,000

D) \$470,000

## e xercises ex 10 74 componentization explain the concept of componentization as it a 4315415

Exercises

Ex. 10-74Componentization

Explain the concept of componentization as it applies to the recognition of PP&E assets.

*Ex. 10-75Plant asset accounting

During 2017 and 2018, Mauritius Corporation experienced several transactions involving plant assets. A number of errors were made in recording some of these transactions. For each item listed below, indicate the effect of the error (if any) in the blanks provided by using the following codes:

O = Overstated;U = Understated;NE = No Effect

If no error was made, write NE in each of the four columns.

Net BookNet Book

Value ofValue of

Plant2017Plant2018

Assets atNetAssets atNet

Transaction                        Dec31/2017  Income  Dec31/2018  Income

1.The cost of installing a new computer____________________

system in 2017 was not recorded in 2017.

It was charged to expense in 2018.

2.In 2018, clerical workers were trained to____________________

use the new computer system at a cost

of \$15,000, which was incorrectly

capitalized. The cost is to be written

off over the expected life of the new

computer system.

3.A major overhaul of factory machinery ____________________

in 2017, which extended its useful life

by five years, was charged to

accumulated depreciation in 2017.

4.Interest cost qualifying for capitalization ____________________

in 2017 was charged to interest expense

in 2017.

5.In 2017, land was bought for an ____________________

employee parking lot. The \$2,000

title search fee was charged to expense

in 2017.

6. The cost of moving several ____________________

manufacturing facilities from

metropolitan locations to suburban

areas in 2017 was capitalized.

The cost was written off over a

10-year period beginning in 2017.

## 11 which of the following items are not permitted to be disclosed as separate line i 4315290

11. Which of the following items are not permitted to be disclosed as separate line items on the face of the statement of financial position?

a. Investment property

b. Cash and cash equivalents

c. Deferred tax assets

d. Share of profit of associates

12.An entity is required to classify its assets and liabilities as current or non-current unless it is considered more relevant to present them according to their:

a.fair value.

b.liquidity.

c.age.

d.function.

13.The time between the acquisition of assets for processing and their realisation into cash or cash equivalents is known as the:

a.acquisition cycle.

b.payment cycle.

c.operating cycle.

d.realisation cycle.

14.Which of the following statements is incorrect?

a.Current assets are those assets that are realised or consumed within an entity’s operating cycle.

b.For entities with diverse operations, such as retail and banking activities, a mixed basis of presentation may be appropriate.

c.An entity’s operating cycle is usually 12 months but may be longer than 12 months after the reporting period.

d.An entity is permitted to classify deferred tax assets as current assets.

15.The following are normally presented in a statement of financial position as current items:

a.deferred tax liabilities.

b.accounts payable.

c.deferred tax assets.

d.property, plant and equipment.

16.Classes of property, plant and equipment do not include which of the following?

a.Office equipment

b.Furniture and fittings

c.Inventories

d.Land and buildings

17.AASB 101 Presentation of Financial Statements requires disclosure of which of the following for each class of share capital?

a.Par value per share.

b.The number of shares authorised.

c.The rights, preferences and restrictions attached to that class.

d.All of the above.

18.According to AASB 101 Presentation of Financial Statements, a required format for the presentation of the statement of profit or loss and other comprehensive income is:

a.prescribed by the Corporations Act.

b.not prescribed and no guidance is provided in the standard for a suitable format.

c.not prescribed but guidance is provided in the standard for a suitable format.

d.prescribed by the standard and further details are found in the Corporations Act.

19.Profit or loss is the total of income less expenses:

a. including the items of other comprehensive income.

b. excluding abnormal items.

c. excluding the items of other comprehensive income.

d. excluding extraordinary items.

20.AASB 101 Presentation of Financial Statements, requires which of the following items to be disclosed separately on the face of the statement of profit or loss and other comprehensive income?

ICost of sales

IIRevenue

IIIFinance costs

IVShare of the profit or loss from associates

VAudit and non-audit fees

VITotal other comprehensive income

VIIProfit or loss

a.I, II, VI and VII only

b.I, II, III and V only

c.II, III, IV, VI and VII only

d.I, III, V and VII only