You are on page 1of 12

BRADLEY UNIVERSITY

ATG 158 ACCOUNTING PRINCIPLES - MANAGERIAL

STEPHEN G. KERR
ASSISTANT PROFESSOR, PhD. CMA (CANADA)
NAME: _______________________
Instructions:
1)
2)
3)
4)
5)
6)

A maximum of two hours is allowed to complete this examination.


This is a closed book examination.
Only non-programmable calculators will be allowed.
Mark your answers in pencil on the Scantron Form.
Notes and other work will not be considered in determining a grade
If you have questions regarding this examination please refer to the TAC
student guide for direction about whom to contact.
7) Your final grade for ATG 158 will be available 30 days of the test.
8) The Scantron Form and the Examination must be returned at the end of the
examination.
9) The final examination will be based on material found in the following chapters
of the textbook Managerial Accounting, Fourth Edition, by Jackson and
Sawyers.
Chapter One:
Accounting Information and Managerial Decisions
Chapter Two:
Corporate Governance and Ethics
Chapter Three:
Product Costing, Processes and Terminology
Chapter Four:
Cost Behavior and Relevant Costs
Chapter Five:
Job Costing
Chapter Six:
Activity Based Costing
Chapter Seven:
Cost Volume Profit Analysis
Chapter Eight:
Relevant Costs and Planning
Chapter Ten:
The Use of Budgets in Planning
Chapter Eleven
Variance Analysis
Chapter Fourteen
The Strategic Use of Management Accounting

Page 1 of 12

b) direct materials and manufacturing overhead.


c) direct materials and direct labor.
d) direct materials, direct labor and
manufacturing overhead.

1. Managerial accounting:
a) is more future oriented than financial
accounting.
b) tends to summarize information more than
financial accounting
c) is primarily concerned with providing
information to external users.
d) is more concerned with precision than
timeliness.

8. The term that refers to costs incurred in the


past that are not relevant to a decision is:

2. Which of the following is not one of the three


basic activities of a manager?
a)
b)
c)
d)

Planning
Controlling
Directing and motivating
Compiling management accounting reports

3. A detailed financial plan for the future is known


as a:
a)
b)
c)
d)

budget.
performance report.
organization chart.
segment.

a)
b)
c)
d)

9. Which of the following would be classified as a


prevention cost on a quality cost report?
a)
b)
c)
d)

a) budgeted customer demand for the current


week.
b) budgeted customer demand for the following
week.
c) actual customer demand for the current week.
d) maximum production capacity for the current
week.
5. Which of the following is true regarding the
theory of constraints?
a) The theory of constraints does not apply to
companies with multiple products because of
capacity measurement difficulties.
b) In any profit-seeking company, there must be
at least one constraint.
c) Constraints or bottlenecks stop organizations
from selling an infinite number of units or
services.
d) both B and C above.
a)
b)
c)
d)

Prime cost.
Conversion cost.
Period cost.
Nonmanufacturing cost.

7. Prime cost consists of:


a) direct labor and manufacturing overhead.

Debugging software errors.


Quality training.
Test and inspection of incoming materials.
Cost of field servicing and handling
complaints.

10. If the following costs were incurred in January


what are the conversion costs for the month?
Direct material
Direct labor
Manufacturing Overhead
Selling expense
Administrative Expense

4. Ideally, how many units should be produced in


a just-in-time manufacturing system?

6. Indirect labor is a part of:

marginal cost.
indirect cost.
period cost.
sunk cost.

a)
b)
c)
d)

$33,000
$28,000
$69,000
$16,000
$21,000

$97,000
$167,000
$102,000
$61,000

11. The Sierra Manufacturing Company has


had a stable cost structure for the last 8
month. However they have noticed their
cost per unit manufactured has increased.
This cost per unit increase may be due to
_____________ costs because the level of
activity at Sierra is _______________.
a)
b)
c)
d)

fixed, decreasing
fixed, increasing
variable, decreasing
variable, increasing

12. Which of the following is unlikely to be


classified as a fixed cost with respect to the
number of units produced and sold?
a) Property taxes on a headquarters building.
b) Legal department salaries.
c) Cost of leasing the company's mainframe
computer.
d) Production supplies.
13. The high-low method is used with which of
the following types of costs?

Page 2 of 12

a)
b)
c)
d)

c) $196,000
d) $250,000

Variable.
Mixed.
Fixed.
Step-variable.

14. Contribution margin is:


a) Sales less cost of goods sold.
b) Sales less variable production, variable
selling, and variable administrative
expenses.
c) Sales less variable production expense.
d) Sales less all variable and fixed expenses.
e) none of the above.
15. Robert recently started a business
manufacturing raincoats. He made 1,000
coats in October and 2,000 in November.
His bookkeeper has given him the following
information:
Production volume

1,000

2,000

COST PER COST PER


COAT
COAT

Direct materials
Direct labor
Manufacturing overhead

$15.20
$30.20
$54.10

16. Mossfeet Shoe Company is a single


product firm. Mossfeet is predicting that a
price increase next year will not cause unit
sales to decrease. What effect would this
price increase have on the following items
for next year?
a)
b)
c)
d)

BREAK-EVEN
POINT
decrease
decrease
no effect
no effect

17. The Dog Hut hot dog stand expects the


following operating results for next year:
Sales
Net operating income
Contribution margin ratio

$280,000
$21,000
70%

What is Dog Hut's break-even point next year in


sales dollars?
a) $120,000
b) $181,300

15
2.7
30
12

19. Last year, variable expenses were 60% of


total sales and fixed expenses were 10% of
total sales. If the company increases its
selling prices by 10%, but if fixed expenses,
variable costs per unit, and unit sales remain
unchanged, the effect of the increase in
selling price on the company's total
contribution margin would be:
a decrease of 2%
an increase of 5%
an increase of 10%
an increase of 25%

20. A product sells for $10 per unit and has


variable expenses of $6 per unit. Fixed
expenses total $45,000 per month. How
many units of the product must be sold each
month to yield a monthly profit of $15,000?

$74,800
$54,100
$99,800
$33,400

CONTRIBUTION
MARGIN RATIO
increase
decrease
increase
decrease

a)
b)
c)
d)

a)
b)
c)
d)

$15.20
$30.50
$37.40

What is your best estimate of Roberts fixed


costs based upon these 2 months data:
a)
b)
c)
d)

18. Sales in East Company declined from


$100,000 per year to $80,000 per year,
while net operating income declined by 300
percent. Given these data, the company
must have had an operating leverage of:

a)
b)
c)
d)

6,000 units
3,750 units
15,000 units
10,000 units

21. All the following are considered to be


benefits of participative budgeting, except
for:
a) Individuals at all organizational levels are
recognized as being part of a team resulting
in greater support for the organization.
b) The budget estimates are prepared by those
in directly involved in activities.
c) When managers set their own targets for the
budget, top management need not be
concerned with the overall profitability of
operations.
d) Managers are held responsible for reaching
their goals and cannot easily shift
responsibility by blaming unrealistic goals
set by others.

Page 3 of 12

22. Thirty percent of Sharp Company's sales


are for cash and 70% are on account. Sixty
percent of the account sales are collected in the
month of sale, 25% in the month following sale,
and 12% in the second month following sale.
The remainder is uncollectible. The following
are budgeted sales data for the company:
JANUARY
FEBRUARY
MARCH
APRIL

TOTAL
SALES
$50,000
$60,000
$40,000
$30,000

Total cash receipts in April are expected to be:


a)
b)
c)
d)

$24,640
$35,200
$31,560
$33,640

23. On January 1, Colver Company has 6,500


units of Product A on hand. During the year, the
company plans to sell 15,000 units of Product A,
and plans to have 5,000 units on hand at year
end. How many units of Product A must be
produced during the year?
a) 16,500
b) 15,000
c) 20,000
d) 13,500

January
February
March

PRODUCTION
IN UNITS
18,000
19,000
16,000

One pound of material is required for each


finished unit. The inventory of materials at the
end of each month should equal 20% of the
following month's production needs. Purchases
of raw materials for February should be:
a)
b)
c)
d)

a)
b)
c)
d)

14,500
15,500
15,000
17,000

26. Douglas Company plans to sell 24,000


units of Product A during July and 30,000
units during August. Sales of Product A
during June were 25,000 units. Past
experience has shown that end-of-month
inventory should equal 3,000 units plus 30%
of the next month's sales. On June 30 this
requirement was met. Based on these data,
how many units of Product A must be
produced during the month of July?
a)
b)
c)
d)

28,800
22,200
24,000
25,800

27. When the actual price paid on credit for a


raw material exceeds its standard price, the
journal entry would include:
a) Debit to Raw Materials; Credit to Materials
Price Variance
b) Debit to Accounts Payable; Credit to
Materials Price Variance
c) Debit to Raw Materials; Debit to Materials
Price Variance
d) Debit to Accounts Payable; Debit to
Materials Price Variance

24. The following are budgeted data:


SALES
IN UNITS
15,000
20,000
18,000

be purchased from the supplier during the


month?

19,600 pounds
20,400 pounds
18,400 pounds
18,600 pounds

25. Sharp Company, a retailer, plans to sell


15,000 units of Product X during the month
of August. If the company has 2,500 units on
hand at the start of the month, and plans to
have 2,000 units on hand at the end of the
month, how many units of Product X must

28. The standard price per unit of materials is


used in the calculation of which of the
following variances?

a)
b)
c)
d)

MATERIALS MATERIAL
PRICE
QUANTITY
VARIANCE VARIANCE
no
no
yes
yes
yes
no
no
yes

29. Anderson Company purchased 20,000


pounds of direct material at $0.70 per pound.
The standard cost per pound of material is
$0.60 per pound. The general ledger entry
to record the issuance of materials would
include:
a) a debit to Materials Price Variance $2,000.

Page 4 of 12

b) a credit to Materials Price Variance of


$2,000.
c) a credit to Raw Materials of $0.70 per pound
times the number of pounds issued.
d) a credit to Raw Materials of $0.60 per pound
times the number of pounds issued.
30. A total of 6,850 kilograms of a raw material
was purchased at a total cost of $21,920.
The material price variance was $1,370
favorable. The standard price per kilogram
for the raw material must be:
a)
b)
c)
d)

$0.20
$3.40
$3.20
$3.00

31. The standard cost card of a particular


product specifies that it requires 4.5 direct
labor-hours at $12.80 per direct labor-hour.
During March, 2,300 units of the product
were produced and direct labor wages of
$128,300 were incurred. A total of 11,700
direct labor-hours were worked. The direct
labor variances for the month were:
a)
b)
c)
d)

Labor Rate
Variance
$4,180F
$21,460F
$21,460F
$4,180F

Labor Efficiency
Variance
$14,804U
$17,280U
$14,804U
$17,280U

32. A labor efficiency debit balance indicates


that:
a) The wage rate paid to production workers
was less the standard.
b) More labor time was spent on production
than was called for by the standard.
c) Less labor time was spent on production
than was called for by the standard.
d) The wage rate paid to production workers
was above the standard.
33. A major disadvantage of static budgets is:
a) the difficulty in developing such budgets due
to the high cost of gathering the necessary
information.
b) the cost behavior pattern of manufacturing
overhead, which is primarily fixed.
c) that the variances between actual and
budget on a static budget result from
comparing actual costs at one level of

activity to budgeted costs at a different level


of activity.
d) their length and complexity.
34. The overhead spending variance:
a) measures the variance in amount spent for
fixed overhead items.
b) includes elements of waste or excessive
usage as well as elements of price variance.
c) is generally considered to be the least useful
of all overhead variances.
d) measures the difference between
denominator activity and standard hours
allowed.
35. McGahen Medical Clinic measures its
activity in terms of patient-visits. Last month,
the budgeted level of activity was 1,080
patient-visits and the actual level of activity
was 990 patient-visits. The clinic's director
budgets for variable overhead costs of $3.30
per patient-visit and fixed overhead costs of
$10,600 per month. The actual variable
overhead cost last month was $3,380 and
the actual fixed overhead cost was $8,780.
In the clinic's flexible budget performance
report for last month, what would have been
the variance for the total overhead cost?
a)
b)
c)
d)

$113 U
$297 F
$1,707 F
$2,004 F

36. Ferro Enterprises, Inc., uses a standard


cost system in which it applies
manufacturing overhead to units of product
on the basis of standard direct labor-hours.
During the month of September, the
company applied $52,000 in fixed
manufacturing overhead cost to units of
product. At the end of the month,
manufacturing overhead was overapplied by
$3,000. If there was no volume variance in
September, then the budgeted fixed
manufacturing overhead cost for the month
was:
a)
b)
c)
d)

Page 5 of 12

$49,000
$52,000
$55,000
$58,000

that if Product X is discontinued, overall


company net operating income should:

37. At the end of April, the Manufacturing


Overhead account of Askey Company
showed a debit balance of $6,000 after
overhead had been applied for the month. If
the actual total manufacturing overhead cost
incurred in April was $108,600, and if 8,550
units were produced in April, then the total
(combined) rate for applying manufacturing
overhead cost per unit is:

a)
b)
c)
d)

a)
b)
c)
d)

a)
b)
c)
d)

$13.40
$13.00
$12.70
$12.00

increase by $2,000 per year


decrease by $2,000 per year
increase by $38,000 per year
decrease by $38,000 per year

41. Two or more products produced from a


common input are called:
common costs.
joint products.
joint costs.
sunk costs.

38. Hal Etoesus currently works as the fry guy


at Burger Breath Drive Thru but is thinking of
quitting his job to attend college full time
next semester. Which of the following would
be considered an opportunity cost in this
decision?

42. In situations where management must


decide between accepting or rejecting a
one-time-only special order where there is
sufficient idle capacity to fill the order, which
one of the following is NOT relevant in making
the decision?

a) the cost of the textbooks


b) the cost of the cola that Hal will consume
during class
c) Hal's lost wages at Burger Breath
d) both A and B above

a)
b)
c)
d)

39. Narciso Corporation is preparing a bid for a


special order that would require 880 liters of
material R19S. The company already has
280 liters of this raw material in stock that
originally cost $6.20 per liter. Material R19S
is used in the company's main product and
is replenished on a periodic basis. The
resale value of the existing stock of the
material is $5.45 per liter. New stocks of the
material can be readily purchased for $6.20
per liter. What is the relevant cost of the 880
liters of the raw material when deciding how
much to bid on the special order?

a)
b)
c)
d)

a)
b)
c)
d)

43. Relevant cash flows are:


past cash flows
future cash flows
incremental cash flows
unavoidable cash flows.

44. Frank is considering transportation modes


to a clients office. He can drive his own car, at
an incremental cost of $0.55 per mile, or take a
company car. If he takes his own car, he can
be reimbursed $0.45 per mile. If Frank makes
his decision strictly from his personal economic
point of view, what is the relevant net cost
associated with driving his own car?:
a)
b)
c)
d)

$5,006
$5,456
$4,796
$5,246

absorption costing unit product costs


variable costs
incremental costs
differential costs

40. Kahn Company produces and sells 8,000


units of Product X each year. Each unit of
Product X sells for $10 and has a
contribution margin of $6. It is estimated that
if Product X is discontinued, $50,000 of the
$60,000 in fixed costs charged to Product X
could be eliminated. These data indicate

Page 6 of 12

$0.45
$0.10
$0.55
none of the above.

45. Rewards for ethical behavior can include?


I. Integrity
II. Reputation
III. Higher Profits
a)
b)
c)
d)

I, II, III
I and II
I and III
II and III

46. A Pro Shop has a capacity of 45,000 a year.


It is currently making 40,000 units a year and
selling them for $25 each. They spend $10 on
direct material per unit, $5 on direct labor per
unit, $3 on variable overhead per unit, and $4
on Fixed Costs per unit at this level of
production. They have received an order for
7,000 units at a special price of $20 per unit.
What impact will this have on the profits of the
Pro Shop?
a)
b)
c)
d)

will not change net income.


increase by $14,000
increase by $7,000
increase by $4,000

47. In order to have a job as a Chief Financial


Officer of a manufacturing company you must
have which of the following professional
designations?

b) Certified Management Accountant (CMA)


c) Manufacturing Accounting License (MAL)
d) None of the Above
48. Lori is unemployed. She is trying to decide
whether to register as a full time student at a
nearby college or to seek a full time job. Which
of the following is not relevant to her decision?
a)
b)
c)
d)

Tuition costs
Salary of the full time job
Cost of books
Her monthly rent

49. A management bias is?


a)
b)
c)
d)

necessary to simplify decision making


based on expert opinions
ideas adopted without careful thought
always part of decision making

50. A flexible budget is:


a) an annual budget that is revised quarterly so
the company always has a budget for the 12
months ahead.
b) budget that is made after including ideas
from every manager.
c) used to make a good impression on
creditors who expect good profits.
d) completed by using the actual sales volume
for a period of time.

a) Certified Public Accountant (CPA)

END OF EXAMINATION

Page 7 of 12

BRADLEY UNIVERSITY
ATG 158: ACCOUNTING PRINCIPLES - MANAGERIAL
ANSWER KEY AND NOTES
STEPHEN G. KERR
ASSISTANT PROFESSOR, PhD. CMA (CANADA)
QUESTION
1.

2.

3.

4.

5.

6.

7.
8.

9.

ANSWER COMMENTS
A
The purpose of management accounting information is to help
managers make better decisions. In this context forward looking
information is more important. Financial accounting has a
stewardship function. That is to show external parties what
management did with the resources entrusted to them.
D
This is done by professional for managers. It is useful to have
clear idea of what the role of manager and management
accountant is. Preparing reports to aid in decision making does
not make one a decision maker.
A
Budgets are prepared to reflect the operational decisions made by
managers. Plans cannot be carried out without resources. The
budget is a reflection and manifestation of managements plans
when it is done well.
C
The underlying concept of Just In Time management is to make a
company responsive to customer needs by reducing the length of
the supply chain. One way to do that is to be so in touch with
customer needs that production matches customer needs
perfectly.
D
Provision of any service of product requires the use of resources.
At some level there is always a limit to those resources. The
theory of constraints help managers be aware of which resources
is the most restrictive in terms of productive capacity. In the short
run the company can then try to maximize returns from the
resources. In the longer run the company can attempt to increase
the availability of that resources to reduce the limitation on growth.
B
Labor refers to a production input. Indirect labor is included in
conversion costs as it is part of the production process but not
traceable to specific units of production.
C
Prime costs refer to the primary traceable production inputs.
D
A sunk cost is not relevant as the amount cannot be recovered or
changed by any current situation. While past costs are allocated
for financial accounting purposes a management accountant
recognizes that that past cannot be changed.
B
Prevention costs are part of the cost of quality framework that is
used to evaluate production systems. A prevention activity is any
investment made to reduce any failures in the design or production
of a product that will result in a defective product. Quality
inspection is not a prevention activity under this definition.
Debugging is only necessary if a faulty product is produced!

Page 8 of 12

10.
11.

A
A

12.

13.

14.

15.

16.

17.

18.

19.

20.
21.

C
C

Conversion is a labor driven process. CC = DL + OH


This is a harder question about cost behavior. Whenever volume
goes down fixed costs in total will remain the same BUT the
amount of fixed costs per unit of production will increase.
The need for production supplies will normally be proportional to
the amount of production even though this is an indirect cost.
We normally analyze cost behavior because we do not know the
nature of the cost. For example a lease is a fixed cost and we
know exactly how much it will be because of the lease contract.
Many other costs though are mixed and are thereby hard to
understand. The high low method is a crude but simple method to
determine the fixed and variable components of a cost.
Contribution margin refers to how much cash the company gains
from a transaction that can be applied to fixed costs. All variable
costs are included. The contribution margin is used for different
purposes that the gross margin which is sales less cost of goods
sold.
This simple situation can be resolved using linear algebra. Since
the DM and DL costs are all variable we can ignore this
information. Robert spent $54,100 on overhead when he made
1,000 units. This spending increased to $74,800 at 2,000 units of
production. So costs increased by $20,700 when production went
up. Assuming that the cost function is linear we could also assume
that costs would go down $20,700 if production dropped 1,000
units to 0 (zero). $54,100 20,700 = $33,400.
The sales price increase will create a larger Contribution Margin.
A larger Contribution Margin means less units have to be sold to
reach the Break-Even point.
The general CVP formula with a CMR is NI = CMR%*S-FC. In this
situation we know that $21,000 = 70%* ($280,000) FC. This
means FC must be $175,000. With this information we can now
determine the break even point. $0 = 70%* Sales-$175,000.
Operating leverage is an indication of how sensitive profits are to
changes in volume. In cases of relatively high fixed costs a great
deal of leverage is achieved through increased volume or
utilization. OL is calculated as the TCM/NI. In other words the
operating leverage is a ratio reflecting the relative change in net
income to contribution margin. In this case the company is very
sensitive to changes in volume.
This is a difficult word problem. If sales are increased by 10% the
then CMR increases from 40% to 50%. That is a 25% increase in
the CMR due to the change in price ((50-40)/40).
$15,000 = $4Q - $45,000.
Participative budgeting does not remove the top managers
responsibility for overall profits. In a participative budget feed back
is given if overall profits are not adequate. Through multiple
iterations of the budget all managers participate in working out a
budget that produces an acceptable financial outcome.

Page 9 of 12

22.

23.

24.

25.
26.

A
D

27.

28.

29.

30.

31.

32.

33.

34.
35.

B
C

The total cash receipts are:


$30,000 * 0.30
+$30,000 * 0.70*0.60
+$40,000 * 0.70 * 0.25
+$60,000 * 0.70 * 0.12
Production = End FG + Sales Beg FG.
Production = 5,000 + 15,000 6,500
Purchases = End RM + Production Need Beg RM.
Purchases = 16,000*0.2 + 19,000 19,000*0.2
2,500 + Purchases 15,000 = 2,000.
Inventory at the beginning of July is 10,200 (3,000+24,000*0.3)
Beginning of August inventory is 12,000 (3,000+ 30,000*0.3)
In order for inventory to grow 1,800 units 25,800 must be produced
given 24,000 will be sold in July
The entry would be Dr. RM, Dr. RMPV, Cr. A/P. c is the only
answer that is consistent with this entry.
The standard price is used for the MQV so answers (a) and (c) are
eliminated. It is obvious that the standard price must be utilized to
calculate the MPV so (d) is the correct answer.
Anderson would record the price variance of $2,000 at the time of
purchase. Transfers into WIP would therefore be made at the
standard price of $0.60 as the inventory would be recorded in RM
at that standard price.
(21,920-1,370)/6,850=$3.00
The price variance is based on the full amount purchased
assuming that the variance is recorded at the time of purchase.
The company standard for 2,300 units is $132,480
(4.5*12.80*2,300). The total variance labor variance is therefore a
favorable variance of $4,180. d is the only answer to produce
this total favorable variance.
efficiency has to do with the amount of the input used relative to
the standard. It is important to note that a standard does not
always reflect a reasonable expectation for the circumstances so
the answer does not assess whether the variance reflects good or
bad management control.
For example it is not necessarily meritorious if a production
manager has a favorable variance if production levels were below
the amount projected in the static budget.
Definition
The flexible budget for the VOH is $3,267 (990*3.30). The flexible
budget for the FOH is $10,600 since volume should not make a
difference to the FOH budget. So the total flexible budget is
$13,867 ( 3,267 + 10,600). The total flexible budget variance is
therefore $1,707 ($13,867 - $3,380 - $8,780).

Page 10 of 12

36.

37.

38.

39.

40.
41.

A
B

42.

43.

44.

45.

This is a difficult question that examines overhead allocation


vocabulary. A volume variance would mean additional costs were
applied because of higher than expected production levels. Since
there is n volume variance the standard cost at volume was
applied to production. The over applied situation must then have
arisen because expenditures on overhead were less than
budgeted for!
Askey has under applied overhead costs to WIP during April. The
actual credit (application) to overhead control was $102,600
($108,600- $6,000). $102,600/8,550 = $12.00
An opportunity cost is the amount that is given up by not following
the next best alternative. To go to school Hal must give up his job.
An Opportunity cost does not have to be an actual expenditure. In
this case Hal must eliminate his income from the job to go to
school so it becomes part of his cost (opportunity).
Careful consideration of the circumstances is needed in this case
to determine the correct answer. The resale value of the direct
material is not relevant as the material is used in the process of
making an ongoing product. That same consideration also
eliminates the possibility of considering the raw material inventory
on hand to be a sunk cost. As a result the relevant incremental
cost is 880 @ $6.20.
The company will lose $48,000 (8,000*$6) of contribution margin.
Different products that arise from a common business process are
referred to as joint products and are an especially difficult costing
problem.
Absorption costs means that fixed production costs are included.
Since will not change whether an order is accepted or not they
become irrelevant. Unless there are special business risks it is
usually a good idea to accept any special order at a price that
exceeds the incremental costs as the overall profit of the company
will improve.
Relevance relates to future decision making. Incremental costs
are those that change with the decision and are therefore the only
costs that need to be considered in a decision making context.
That does not negate the need to report all costs in a financial
reportjust that the clearest decisions result from incremental
analysis.
His incremental cost is $0.55 less the incremental revenue of
$0.45 is $0.10. There may be non-economic benefits of driving his
own car that would cause him to take this loss such as a greater
feeling of safety in a vehicle he is familiar with.
Ethics can be expensivepassing up a deal or taking
responsibility for a bad decision or harm caused by a product.
However, it is widely recognized that over time, high ethical
standards produce a reputation and trust that earn a company
higher profits. Integrity is a form of ethical behavior so it is not a
reward.

Page 11 of 12

46.

47.

48.

49.

50.

The answer to this question requires 2 steps. The variable costs


associated with making the product are $18. So the $20 price will
earn them a $2 per unit contribution margin. So 7,000 unit will
increase profits by $14,000. However there is an additional
problem. In order to make the 7,000 units they will have to reject
2,000 regular orders because they are over capacity! The
contribution margin on these units is ((25-18)*2000) $14,000! So
unless the company has inventory or some other way to increase
capacity the order will have no impact on net income
A chief financial officer is an important corporate official. While
many have a professional accounting designation there is no legal
requirement for them to do so. Ultimately the only thing you need
to be a CFO is a company to be willing to hire you. It is worth
noting that having a professional designation will help you get a
CFO position!
Incremental costs are the factors that will determine a decision.
Since Lori will have an apartment whether she goes to college or
takes a job the cost will not change and is therefore not an
incremental factor. Rent could become relevant if the college, for
example required her to move into their dormitory facilities.
A bias is an idea which you adopt without careful thought. Biases
taint decision making processes and make quality decision making
more difficult. For example you may have a bias that a student
blog has excellent information about Bradley courses. That bias
may cause you to ignore the Bradley curriculum list for ATG 158.
As a result you will make study decisions that may cause you to be
ignorant about items that appeared on the examination.
There are many different budget approaches such a target
budgeting and participative budgeting. A flexible budget is used
for variance analysis and is a budget that is prepared after the fact
on the basis of actual volume results.

Page 12 of 12

You might also like