10/22/24, 9:30 PM Yawen Zhang - 2024-10 - Core 2 - Ontario - Chartered Professional Accountants of Canada

Unit 1 Quiz - Results

Attempt 1 of Unlimited

Written Oct 20, 2024 6:12 PM - Oct 22, 2024 6:26 PM

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Question 1

Company XYZ sells three products: rocks, paper, and scissors. The rocks’ contribution
margin (CM) per unit is highest and the scissors’ CM per unit is lowest.

Which one of the following events will increase the company’s overall break-even point?

a) A decrease in the cost of direct materials used in all three products

b) Increasing scissors' selling price

c) An increase in the cost of direct materials used in all three products

d) An increase in the demand for rocks

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Option c) is correct. As the cost of direct materials increases, the CM per unit will
decrease, causing the break-even point to increase.

Question 2

A company has provided the following data:

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Sales 2,000 units

Sales price $50/unit

Variable cost $30/unit

Fixed cost $25,000

If the variable cost per unit is decreased by 10%, the total fixed cost is increased by 20%,
and all other factors remain the same, which one of the following will be the effect on
operating income?

a) $5,000 decrease

b) $1,000 decrease

c) $1,000 increase

d) $6,000 increase

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Option c) is correct. Change in operating income = savings in variable cost – increase in

fixed cost = ($30 × 10% × 2,000 units) – ($25,000 × 20%) = $6,000 – $5,000 = $1,000
increase in operating income.

Question 3

UCB has the following financial results for the month of June:

Sales $3,120,000

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Variable costs 1,920,000

Contribution margin (CM) 1,200,000

Fixed costs 1,380,000

Profit/loss $(180,000)

A total of 200,000 units were produced and sold during the month of June.

In order to break even, which one of the following is the number of units that should be
produced and sold?

a) 143,750 units

b) 200,000 units

c) 230,000 units

d) 3,588,000 units

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Option c) is correct. The CM per unit is $1,200,000 / 200,000 = $6. Break-even quantity
= fixed cost / CM per unit = $1,380,000 / $6 = 230,000 units.

Question 4

James Co. requires 22,223 units to be sold to break even. The sales price per unit is $10
and variable costs per unit are $5.50.

How much are the total fixed costs for this company?

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a) $100,004

b) $111,115

c) $122,227

d) $222,230

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Option a) is correct. At the break-even point, the expected profit is zero: 22,223 × ($10 –
$5.50) – fixed costs = $0. Therefore, fixed costs = 22,223 × ($10 – $5.50) = $100,004.

Question 5

Which one of the following represents the contribution margin (CM) ratio?

a) Revenues equal to costs

The CM converted to a percentage by dividing the CM dollar value by the variable

b)
costs

c) Fixed costs less target profit

d) The CM converted to a percentage by dividing the CM dollar value by the sales

dollar value

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Option d) is correct. The CM ratio is the CM converted to a percentage by dividing the

CM dollar value by the sales dollar value.

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Question 6

J&J Co. produces alarm system keypads. The sales price of each unit is $12.50, and the
variable costs per unit are $10. The total fixed costs are $100,000.

Which one of the following represents the number of units J&J needs to sell in order to
earn a profit of $150,000?

a) 20,000

b) 25,000

c) 40,000

d) 100,000

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Option d) is correct. It divides total fixed costs plus desired profit by the contribution
margin per unit. ($150,000 + $100,000) / ($12.50 – $10.00) = 100,000 units.

Question 7

Ringo Corp. has a line of edible straws with the following cost breakdown:
· Fixed costs of $88,000
· Break-even of 27,000 units
· Variable costs of $20,000
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How much is the contribution margin per unit of the edible straws?

a) $3.26

b) $4.00

c) $5.75

d) Indeterminable with the information provided

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Option a) is correct. Break-even units = fixed costs / contribution margin

Contribution margin = fixed costs / break-even units
Contribution margin = $88,000 / 27,000
Contribution margin = $3.26

Question 8

Mane and Guchey Ltd. (MGL) has the following results:

Total Per unit

Sales (10,000 units) $250,000 $25.00

Variable costs:

Direct manufacturing 90,000 9.00

Manufacturing overhead 20,000 2.00

Selling and administration 5,000 0.50

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Contribution margin (CM) 135,000 13.50

Fixed costs:

Selling and administration 20,000 2.00

Manufacturing overhead 25,000 2.50

Pre-tax income $90,000 9.00

MGL is considering a new piece of machinery that is estimated to increase sales by 2,000
units and will increase variable manufacturing overhead by 0.50 per unit. To
accommodate the new machinery, it will need to expand its operations plant to the
factory next door, increasing its lease by $20,000 in fixed costs.

How much is the change to pre-tax income if MGL installs this new piece of machinery?

a) $21,000 decrease

b) $1,000 increase

c) $21,000 increase

d) $30,000 increase

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Option b) is correct.

Total

Sales (12,000 units) $300,000

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Variable costs:

Direct manufacturing 108,000

Manufacturing overhead 30,000

Selling and administration 6,000

CM 156,000

Fixed costs:

Selling and administration 20,000

Manufacturing overhead 45,000

Pre-tax income $91,000

The new projected net income is $91,000, which is $1,000 more than the prior year's net
income, before the new piece of machinery is purchased and installed.

Question 9

Which one of the following BEST describes advertising and promotion costs for a
manufacturer?

a) Variable product cost

b) Fixed product cost

c) Fixed period cost

d) Variable period cost

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Option c) is correct. Advertising and promotion is not attributable to the manufacturing

process and therefore is a period cost. Advertising and promotion costs do not vary with
activity and are therefore fixed.

Question 10

The factory manager is paid an annual salary, and all of their job duties relate to the
manufacturing process.

Which one of the following BEST describes the factory manager’s salary?

a) Variable product cost

b) Fixed period cost

c) Variable period cost

d) Fixed product cost

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Option d) is correct. The factory manager's salary is related to the manufacturing process
and thus is a product cost. Also, it is fixed for the period.

Question 11

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Matilda Ma Home Accessories has determined that for its Floorina model of lamp, the
direct materials cost is $5 per unit and the direct labour cost is $4 per unit. Based on 20
monthly observations, the company ran a regression that projected the overhead
associated with this model of lamp as follows:

Overhead = $16,500 + $0.75X, where X is the direct labour cost.

The selling price for the Floorina lamp is $17 per unit.

How much is the expected gross profit from sales of the Floorina lamp next month if
sales volume is estimated to be 5,000 units?

a) $8,500

b) $23,500

c) $40,000

d) $68,500

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Option a) is correct.
Variable cost per unit: $5 + $4 + ($0.75 × $4) = $12
Total contribution margin = ($17 – $12) × 5,000 = $25,000
Gross profit = $25,000 – $16,500 = $8,500

Question 12

A company has the following machine hours and production costs for the last six months
of last year:

Month Machine hours Production cost

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July 15,000 $12,330

August 13,500 10,300

September 11,500 9,580

October 15,500 12,080

November 14,800 11,692

December 12,100 9,922

If the company expects to incur 14,000 machine hours in January, which one of the
following will be the total production cost estimate using the high-low method?

a) $ 2,393

b) $8,750

c) $11,143

d) $11,544

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Option c) is correct. The highest and lowest values of the independent variable (machine
hours) are used:
Variable costs = ($12,080 – $9,580) / (15,500 – 11,500) = $0.625
Fixed costs = $12,080 – ($0.625 × 15,500) = $2,392.50
$2,393 + (14,000 × $0.625) = $11,143

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Question 13

A company produces three products — A, B, and C — all using the same direct materials.
The company is experiencing an unexpected spike in the demand for these products and
a shortage in the supply of direct materials. The price of materials is $16 per gram, and
only 6,000 grams of material are currently available each week. Per-unit data is as
follows:

Product A Product B Product C

Sales price $120 $180 $190

Costs:

Direct materials 24 64 32

Direct labour 54 28 110

Variable manufacturing 6 16 8
overhead

Fixed manufacturing overhead 1 38 7

Which one of the following BEST describes the order in which the company should
produce its products?

a) A, C, B

b) B, C, A

c) B, A, C

d) A, B, C

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Option a) is correct. It is based on the contribution margin per unit of the constrained
resource.

Product A B C

Sales price $120 $180 $ 190

Less variable costs:

Materials (24) (64) (32)

Labour (54) (28) (110)

Manufacturing overhead (6) (16) (8)

(1) Contribution margin per unit $ 36 $ 72 $ 40

(2) Direct materials cost per unit $ 24 $ 64 $ 32

(3) Direct materials cost per gram $ 16 $ 16 $ 16

(4) Direct materials grams required per

unit: (2) / (3) 1.5 4.0 2.0

Contribution margin per gram of

material: (1) / (4) $ 24 $ 18 $ 20

Question 14

Betty Scoops (Scoops) is a rapidly growing company that is deciding whether to add a
new product, lipstick, to its makeup line. Existing products include lip gloss, lip liner, and a
lip mask. The additional product requires new moulds to be created to produce the

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lipstick as well as an increase in capacity, as there is limited excess capacity.

Which one of the following is the BEST potential argument against adding lipstick as a
new product?

a) Scoops risks maintaining an inventory of several different moulds.

b) Scoops risks alienating current customers.

c) Scoops risks having to increase its factory capacity.

d) Scoops risks having to source new suppliers.

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Option a) is incorrect. While Scoops would need to purchase and maintain the moulds,
the cost is significantly less than the expansion to increase factory capacity. Option c) is
correct. A company's need to increase factory capacity is a barrier that could impact its
profitability.

Question 15

Candy Factory Inc. recently acquired new factory space and machinery for the sole
purpose of producing one of two new products. The company needs to decide whether it
should produce hard candies (HC) or gummy candies (GC). Information regarding these
products is as follows:

· Estimated expenses to complete retooling of GC equipment ($10,000)

· Annual head office cost allocation to produce GC ($60,000) and HC ($100,000)
· Funds previously spent on market research for GC ($60,000) and HC ($50,000)
· Factory space for GC (1,500 square feet) and HC (1,200 square feet)

Which one of the following is the MOST significant factor in deciding which product to
produce in the short term?
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a) Funds spent on market research

b) Retooling expenses

c) Costs from head office allocation

d) Lease cost per square foot for the factory space

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Option b) is correct. The estimated additional retooling costs are incremental costs that
are relevant to the production decision.

Question 16

The MXM Hockey Company (MXM) manufactures a line of composite hockey sticks for
professional and semi-professional hockey teams around the world. The sales forecast for
its three main sticks for the coming year has been prepared and is presented below.

CX-24 DR-53 JX-250

Sales volume (units) 12,500 12,500 22,800

Unit selling price $225 $325 $450

Variable manufacturing cost per unit 85 110 165

Contribution margin (CM) per unit $140 $215 $285

CX-24 DR-53 JX-250 Total

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Budgeted sales $2,812,500 $4,062,500 $10,260,000 $17,135,000

Variable costs 1,062,500 1,375,000 3,762,000 6,199,500

CM $1,750,000 $2,687,500 $6,498,000 $10,935,500

Fixed costs 4,800,000

Operating income $6,135,500

After preparing its original estimates, management determined that the variable
manufacturing cost of JX-250 would increase by 20%, while overall fixed costs are
expected to decline by 12%.

Which one of the following is the expected change in operating income from the original
budget scenario, rounded to two decimal places?

a) 4.86% increase

b) 2.88% decrease

c) 3.21% increase

d) 4.39% decrease

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Option b) is correct.

The new variable cost per unit is $165 × 1.20 = $198.

The new fixed costs are $4,800,000 × 0.88 = $4,224,000.

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CX-24 DR-53 JX-250

Sales volume (units) 12,500 12,500 22,800

Unit selling price $225 $325 $450

Variable manufacturing cost per

New variable
unit 85 110 198 cost

CM per unit $140 $215 $252

CX-24 DR-53 JX-250 Total

Budgeted sales $2,812,500 $4,062,500 $10,260,000 $17,135,000

Variable costs 1,062,500 1,375,000 4,514,400 6,951,900

CM $1,750,000 $2,687,500 $5,745,600 $10,183,100

Fixed costs (reduced by 12%) 4,224,000

Operating income $5,959,100

Revised operating income $5,959,100

Operating income of original

budget $6,135,500

Reduction in operating income $ (176,400)

Change as a percentage of original operating income 2.88%

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Question 17

Jerry’s Superstore (JS) has three major departments: electronics, housewares, and office
furniture. Recent financial data is shown below:

Electronics Housewares Office

furniture

Sales $2,280,000 $2,760,000 $840,000

Variable costs 1,368,000 1,932,000 672,000

Fixed costs 336,000 450,000 270,000

Management is studying whether to drop the office furniture department. If it is dropped,

the following changes are expected to occur:

· The vacated space will be remodelled as an addition to housewares at a cost of

$148,800.
· Sales of housewares are expected to increase by $600,000; the housewares
department’s contribution margin (CM) percentage will increase by 6% on this
incremental revenue.
· JS can avoid 30% of the fixed costs allocated to office furniture.
· JS will increase advertising by $100,000 to promote the new housewares products.
· Customers who purchased office furniture often purchased electronics as well;
electronics sales are expected to fall by 15%.

How much is the resulting income/(loss) of closing the office furniture department?

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a) $256,600 loss

b) $220,600 loss

c) $148,600 loss

d) $129,000 income

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Option a) is correct.

Office
Electronics Housewares furniture

$2,280,000 $2,760,000 $ 840,000

Sales
Variable 1,368,000 1,932,000 672,000
costs
912,000 828,000 168,000
CM
Fixed 336,000 450,000 270,000
costs
Operating $ 576,000 $ 378,000 $(102,000)
income

CM % 40.00% 30.00% 20.00%

Relevant cost analysis if the office furniture department

is closed:

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Loss of office furniture CM $(168,000)

Remodelling (148,800)

Added CM on increase sales of

housewares 216,000 †

Fixed cost savings ($270,000 ×

30%) 81,000

Decreased CM on lost sales in

electronics (136,800)††

Increased advertising (100,000)

Income/(loss) from closure of

office furniture department $(256,600)

†Additional sales on housewares

Current
CM % 30.00%($828,000 / $2,760,000)

Add: 6.00%(given in the question)

New CM
% 36.00%

Additional
revenue $600,000

Additional
CM $216,000†

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††Lost CM $ on electronics due to not having office furniture

Current electronics sales $2,280,000

Reduction 15%

New proposed sales $1,938,000

Assume CM % stays 40.00%

constant

New CM $ $775,200

Reduction over current $(136,800) ($775,200 –

CM $ $912,000)

Question 18

Davis Co. sells cellphone cases at a price of $28 a unit. The per-unit cost data is as
follows: direct materials $6, direct labour $3, and overhead $11 (25% fixed and 75%
variable). Davis has sufficient capacity to accept a special order for 10,000 units. Selling
costs associated with this order are $2 per unit.

Which one of the following is the minimum selling price per unit for the special order?

a) $17.25

b) $19.25

c) $22.00

d) $28.00

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Option c) is incorrect. Only 75% of the overhead costs should be included. Incorrect
calculation: $6 + $3 + $11 + $2 = $22.00. Option b) is correct.

Direct materials $6.00

Direct labour 3.00
Variable overhead ($11 × 75%) 8.25
Selling costs 2.00
Minimum selling price $19.25

Question 19

Alpha Leather Company (ALC) manufactures and sells two products: wallets and belts.
Operating data pertaining to the two products is as follows:

Wallets Belts

Selling price per unit $30 $50

Cost per unit:

Variable manufacturing costs $8 $15

Variable marketing costs $2 $3

Fixed manufacturing costs $5 $5

Fixed marketing costs $6 $1

Manufacturing

Wallets (per unit) 15 minutes

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Belts (per unit) 40 minutes

Quarterly direct labour hour (DLH)

capacity 3,600 hours

The maximum expected sales of wallets and belts for the next quarter are 7,500 units
and 4,500 units, respectively.

Which one of the following is the MOST important factor for ALC to consider in
determining the optimal production plan for the next quarter?

a) The selling price of wallets and belts

b) The unit contribution margin of wallets and belts

c) The contribution margin per DLH of wallets and belts

d) The total cost of wallets and belts

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Option c) is correct. As is demonstrated below, the DLHs represent a production

constraint. To maximize profits, ALC should try to maximize the contribution of the
constrained resource (the DLHs).

DLH requirement at maximum demand for the next quarter:

Manufacturing = (15 / 60 × 7,500) + (40 / 60 × 4,500) = 4,875 DLHs

Question 20

Which one of the following is MOST important for an organization consider when
deciding whether to accept a special order?

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a) Whether variable costs exceed fixed costs

b) Both opportunity costs and sunk costs

c) Quantitative factors only

d) Short-term and long-term impacts

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Option d) is correct. When considering whether to accept a special order, organizations

need to consider short- and long-term impacts.

Question 21

Which one of the following BEST describes a disadvantage of the strategy formulation
process?

a) It can be time-consuming and complex.

b) It requires resources to develop the vision, mission, and values.

c) It is the stage that requires that the organization be aligned with its organizational
goals.

d) It is the stage that requires ensuring that resources and activities are aligned to
achieve the intended strategy.

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Option a) is correct. The strategy formulation process often requires significant time and
resources to implement, which is a key disadvantage.

Question 22

Which one of the following is the definition of a value proposition?

a) The promise a business makes to price-match the competition

b) The unique service or feature that is attractive to customers

c) The pricing strategy designed to maximize profits

d) The assurance of product quality, price, and placement

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Option b) is correct. This is the definition of a value proposition.

Question 23

Joe Newbie quit his job with an accounting firm to start his own bookkeeping business.
His strategy is to provide highly personal, low-cost, flat-rate service. His goal is to be the
largest bookkeeping firm in the city. Despite a growing business and the addition of
several assistants, his company remains unprofitable. His employees are too slow and,
although he has tried to motivate them, they cannot deliver the services quickly enough.
Even with Joe’s careful budgeting, significant employee time overruns are the norm. To
make matters worse, his clients often complain about costs and threaten to go elsewhere.

Which one of the following is the MOST likely cause of Joe’s lack of profitability?

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a) His generic competitive position strategy is to be the lowest-cost provider and to

provide personal service.

b) He needs to screen employees more carefully to ensure efficiency.

c) His strategic goal is to be the largest bookkeeping firm in the city.

d) His performance management system tracks employee time by customer and by

job.

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Option a) is correct. His goal to undercut the competition has backfired. To be successful,
he has to choose between being a low-cost provider and differentiating his company
based on customer intimacy. He attracts clients who do not value his expertise or
service. They put continued pressure on him to lower his costs while still providing
personalized service, making it difficult to make a fair profit. Customer intimacy comes
with a cost.

Question 24

A call centre has the following vision statement:

Providing courteous and speedy call centre services to our customers.

Which one of the following is the BEST critique of the vision statement?

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a) This is a strong vision statement because it refers to the type of service provided
by the organization, which is call centre services.

b) This is not a strong vision statement because it is not motivational or

inspirational.

c) This is a strong vision statement because it describes why the organization exists.

d) This is not a strong vision statement because it does not refer to the call centre's
values.

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Option b) is correct. A vision statement includes a vivid description of where the

organization is going. To be most effective, the vision statement should be inspirational
and memorable, but this vision statement is not.

Question 25

Which one of the following is the BEST example of a mission statement?

a) We build our business on creativity, customer-centric experiences, and honesty.

b) To be a local leader in serving the community through innovative services

c) To deliver exceptional products to our customers and business partners

d) To attract customers by offering premium products and by providing the most

satisfying customer experience in the city

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Option d) is correct. A mission statement describes the purpose of the organization and
is broadly disseminated to communicate that purpose to the world.

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