1) The adoption of variable costing for managerial decision making is based on the premise that

fixed factory overhead costs are related to productive capacity of the manufacturing plant and are
normally not affected by the number of units produced.
True
False True

Break-even analysis is one type of cost-volume-profit analysis.

Use this information for Rusty Co. to answer the question that follow.Rusty Co. sells two
products, X and Y. Last year, Rusty sold 5,000 units of X and 35,000 units of Y. Related data are
as follows:
Unit Selling
Unit Variable
Unit Contribution
Product
Price
Cost
Margin
X
$110
$70
$40
Y
70
50
20
What was Rusty Co.'s weighted average unit selling price?
a.$180
b.$75
c.$100
d.$110 B

Total variable costs change as the level of activity changes.

Spice Inc.'s unit selling price is $50, unit variable costs are $33, fixed costs are $108,000, and
current sales are 9,500 units. How much will operating income change if sales increase by 5,300
units?
a.$251,600 increase
b.$90,100 increase
c.$161,500 decrease
d.$161,500 increase B
Charlotte Co. has budgeted salary increases to factory supervisors totaling 9%. If selling prices
and all other cost relationships are held constant, next year's break-even point
a.will decrease by 9%
b.will increase by 9%
c.cannot be determined from the data given.
d.will increase at a rate greater than 9% C

Costs that vary in total in direct proportion to changes in an activity level are called
a.sunk costs
b.fixed costs
c.variable costs
d.differential costs C

Kaden Company's fixed costs are $46,800, the unit selling price is $42, and the unit variable
costs are $24. What are the break-even sales (units)?
a.2,400
b.1,114
c.2,600
d.1,950 C

The relevant activity base for a cost depends on which base is most closely associated with the
cost and the decision-making needs of management.
True
False True

Direct materials cost that varies with the number of units produced is an example of a fixed cost
of production.
True
False False

If fixed costs are $850,000 and the unit contribution margin is $50, profit is $0 when 15,000
units are sold.
True
False False

As production increases, the fixed cost per unit

Manley Co. manufactures office furniture. During the most productive month of the year, 4,500
desks were manufactured at a total cost of $86,625. In its slowest month, the company made
1,800 desks at a cost of $49,500. Using the high-low method of cost estimation, total fixed costs
a.are $24,750
b.are $33,875
c.are $61,875
d.Cannot be determined from the data given. A

Which of the following describes the behavior of a variable cost per unit?
a.varies in decreasing proportion with changes in the activity level
b.remains constant with changes in the activity level
c.varies in direct proportion with the activity level
d.varies in increasing proportion with changes in the activity level B

If employees accept a wage contract that increases the unit contribution margin, the break-even
point will decrease.
True
False True

The capital expenditures budget is part of the planned investing activities of a company.
True
False True

Production and sales estimates for March for Robin Co. are as follows:
Estimated inventory (units), March 1
17,100
Desired inventory (units), March 31
20,000

Expected sales volume (units):

Miller and Sons' static budget for 10,000 units of production includes $50,000 for direct
materials, $44,000 for direct labor, variable utilities of $5,000, and supervisor salaries of
$24,000. A flexible budget for 12,000 units of production would show
a.direct materials of $60,000, direct labor of $52,800, utilities of $6,000, and supervisor salaries
of $28,800
b.direct materials of $60,000, direct labor of $52,800, utilities of $6,000, and supervisor salaries
of $24,000
c.the same cost structure in total
d.total variable costs of $148,000 B

Part of the cash budget is based on information drawn from the capital expenditures budget.
True
False True

Use the information below for Dove Corporation to answer the question that follow.
Dove Corporation began its operations on September 1 of the current year. Budgeted sales for
the first three months of business—September, October, and November—are $247,000,
$304,000, and $427,000, respectively. The company expects to sell 25% of its merchandise for
cash. Of sales on account, 70% are expected to be collected in the month of the sale and 30% in
the month following the sale.
The cash collections in November are
a.$399,325
b.$224,175
c.$106,750
d.$479,190 A

Use the information below for Nuthatch Corporation to answer the question that follow.
Nuthatch Corporation began its operations on September 1 of the current year. Budgeted sales
for the first three months of business—September, October, and November—are $248,000,
$315,000, and $408,000, respectively. The company expects to sell 30% of its merchandise for
cash. Of sales on account, 80% are expected to be collected in the month of the sale and 20% in
the month following the sale.
The cash collections expected in October from accounts receivable are estimated to be
a.$141,680
b.$176,400
c.$211,120
d.$253,344 C

Use the information below for Flushing Company to answer the question that follow.Below is
budgeted production and sales information for Flushing Company for the month of December.
Product XXX
Product ZZZ
Estimated beginning inventory
32,000 units
20,000 units
Desired ending inventory
34,000 units
17,000 units
Region I, anticipated sales
320,000 units
260,000 units
Region II, anticipated sales
180,000 units
140,000 units
Budgeted production for product XXX during the month is
a.498,000 units
b.534,000 units
c.502,000 units
d.566,000 units C

In preparing flexible budgets, the first step is to identify the fixed and variable components of the
various costs and expenses being budgeted.
True
False True

The flexible budget is, in effect, a series of static budgets for different levels of activity.
True
False True

The budgeted direct materials purchases is based on the sum of (1) the materials needed for
production and (2) the desired ending materials inventory, less (3) the estimated beginning
materials inventory.
True
False True

As of January 1 of the current year, Grackle Company had accounts receivable of $50,000. The
sales for January, February, and March were $120,000, $140,000, and $150,000, respectively. Of
each month's sales, 20% are for cash. Of the remaining 80% (the credit sales), 60% are collected
in the month of sale, with the remaining 40% collected in the following month. What is the total
cash collected (both from accounts receivable and cash sales) in the month of March?
a.$102,000
b.$116,800
c.$74,800
d.$146,800 D

Flexible budgeting requires all levels of management to start from zero and estimate sales,
production, and other operating data as though operations were being started for the first time.
True
False False

The first budget to be prepared is usually the cash budget.

The capital expenditures budget details future plans for acquisition of fixed assets.
True
False True
The budgeting process is used to effectively communicate planned expectations regarding profits
and expenses to the entire organization.
True
False True