02 Jan It is prepared by the

1. Question : A company has total fixed costs of $210,000 and a contribution margin ratio of 30%. How much sales are necessary to break even?

$125,000

$630,000

$700,000

$54,000

2. Question :How much sales are required to earn a target income of $70,000, if total fixed costs are $100,000 and the contribution margin ratio is 40%?

$400,000

$200,000

$330,000

$425,000

3. Question : For which one of the following budgeting aspects does the budget committee generally have the responsibility?

Setting company goals.

Expressing the budget in financial terms.

Enforcing the budget.

Serves as a review board where managers can defend budget goals and requests.

4. Question : Under what situation might a budget be most effective?

When used to evaluate a manager’s performance.

As a tool to assess blame when costs are too high.

When it is created by top management.

Budgets are equally effective in all situations.

5. Question : How does long-range planning compare to a master budget?

It focuses on meeting profit objectives instead of strategies to achieve those goals.

It is less detailed than an annual budget.

It is prepared by the president, unlike a master budget which is prepared by a budget committee.

It generally encompasses a shorter period of time than a master budget.

6. Question : Which one of the following is a source of information used to prepare the budgeted income statement?

Cash budget

Budgeted balance sheet

Selling and administrative expense budget

Capital expenditure budget

7. Question : When is a static budget most appropriate in evaluating a manager’s performance?

When actual costs incurred equal the amounts on the budget.

When the actual activity level is less than the master budget activity.

The static budget is not appropriate for evaluating managers.

When the company performed at the same activity level as the static budget level.

8. Question : Which type of center is the housekeeping department of a manufacturing company?

A segment

A profit center

A cost center

An investment center

9. Question : For which of the following is an investment center manager responsible?

Invested assets, sales, and costs

Sales, profits, and invested assets

Sales, invested assets, and assets

Revenues and costs

10. Question : Merck Pharmaceuticals is evaluating its Vioxx division, an investment center. The division has a $45,000 controllable margin and $300,000 of sales. How much will Merck’s average operating assets be when its return on investment is 10%?

$450,000

$495,000

$300,000

$255,000

11. Question : Financial and managerial accounting are both concerned with the economic events of an enterprise. Similarities between financial and managerial accounting do exist, but they have a different focus. Briefly distinguish between financial and managerial accounting as they relate to (1) the primary users, (2) the type and frequency of reports, (3) the purpose of reports, and (4) the content of reports.

12. Question : Are short-term creditors, long-term creditors, and stockholders primarily interested in the same characteristics of a company? Explain.

13. Question :In the month of September, Nixon Company sold 800 units of product. The average sales price was $30. During the month, fixed costs were $7,200 and variable costs were 60% of sales.

Instructions

(a) Determine the contribution margin in dollars, per unit, and as a ratio

(b) Using the contribution margin technique, compute the break-even point in dollars and in

units