Posted: August 25th, 2016

What is the markup on Cost of Goods sold?

1. The income statement for Thomas Manufacturing Company for 2006 is as follows:
Sales (10,000 units) $120,000
Variable expenses 72,000
Contribution margin $ 48,000
Fixed expenses 36,000
Operating income $ 12,000
What is the contribution margin per unit?
a. $7.20
b. $1.20
c. $4.80
d. $120,000
2. Baker Company sells its product for $60. In addition, it has a variable cost ratio of 40 percent and total fixed costs of $9,000. How many units must be sold in order to obtain a before-tax profit of $12,000?
a. 350 units
b. 584 units
c. 875 units
d. 333 units
3. Lewis Production Company had the following projected information for 2006:
Selling price per unit $150
Variable cost per unit $90
Total fixed costs $300,000
What is the break-even point in units?
a. 2,000 units
b. 5,000 units
c. 3,333 units
d. 60,000 units
4. Assume the following cost behavior data for Portrait Company:
Sales price $18.00 per unit
Variable costs $13.50 per unit
Fixed costs $22,500
Tax rate 40%
What volume of sales dollars is required to earn a before-tax income of $27,000?
a. $198,000
b. $180,000
c. $90,000
d. $270,000
5. Assume the following cost behavior data for Portrait Company:
Sales price $18.00 per unit
Variable costs $13.50 per unit
Fixed costs $22,500
Tax rate 40%
What volume of sales dollars is required to earn an after-tax income of $40,500?
a. $360,000
b. $90,000
c. $252,000
d. $495,000
6. Which of the following statements is TRUE when making a decision between two alternatives?
a. Variable costs may not be relevant when the decision alternatives have the same activity levels.
b. Variable costs are not relevant when the decision alternatives have different activity levels.
c. Sunk costs are always relevant.
d. Fixed costs are never relevant.
7. Which of the following costs is NOT relevant to a special-order decision?
a. the direct labor costs to manufacture the special-order units
b. the variable manufacturing overhead incurred to manufacture the special-order units
c. the portion of the cost of leasing the factory that is allocated to the special order
d. all of these costs are relevant
8. Which of the following costs is NOT relevant to a make-or-buy decision?
a. $10,000 of direct labor used to manufacture the parts
b. $30,000 of depreciation on the plant used to manufacture the parts
c. the supervisor’s salary of $25,000 that will be avoided if the part is purchased from an outside supplier
d. $15,000 in rent from leasing the production space to another company if the part is purchased from an outside supplier
9. Foster Industries manufactures 20,000 components per year. The manufacturing cost of the components was determined as follows:
Direct materials $150,000
Direct labor 240,000
Inspecting products 60,000
Providing power 30,000
Providing supervision 40,000
Setting up equipment 60,000
Moving materials 20,000
Total $600,000
If the component is not produced by Foster, inspection of products and provision of power costs will only be 10 percent of the production costs; moving materials costs and setting up equipment costs will only be 50 percent of the production costs; and supervision costs will amount to only 40 percent of the production amount. An outside supplier has offered to sell the component for $25.50.
What is the effect on income if Foster Industries purchases the component from the outside supplier?
a. $25,000 increase
b. $45,000 increase
c. $90,000 decrease
d. $90,000 increase
10. Foster Industries manufactures 20,000 components per year. The manufacturing cost of the components was determined as follows:
Direct materials $150,000
Direct labor 240,000
Variable manufacturing overhead 90,000
Fixed manufacturing overhead 120,000
Total $600,000
An outside supplier has offered to sell the component for $25.50.
Foster Industries can rent its unused manufacturing facilities for $45,000 if it purchases the component from the outside supplier.
What is the effect on income if Foster purchases the component from the outside supplier?
a. $45,000 increase
b. $15,000 increase
c. $75,000 decrease
d. $105,000 increase
11. Jamie Corporation had the following information:
Revenues $250,000
Cost of goods sold:
Direct materials $50,000
Direct labor 37,500
Overhead 62,500 150,000
Gross profit $100,000
Selling and administrative expenses 37,500
Operating income $ 62,500
What would be the price for a product that has a cost of $500, assuming that the markup is based on cost of goods sold?
a. $834
b. $625
c. $708
d. $2,000
12. Gage Company had the following information:
Revenues $600,000
Cost of Goods Sold 60%
Selling and administrative expenses $130,000
What is the markup on Cost of Goods sold?
a. .1833
b. .6667
c. .3611
d. none of these

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