Question

10) Matthew's Fish Fry has a monthly target operating income of $200. Variable expenses are 40% of sales and monthly fixed expenses are $1,800. What is the monthly margin of safety in dollars if the business achieve operating income goal? A) $18,000 B) $13.500 C) None of them are correct D) $12,000 11) Martin Enterprises has a predicted operating income of $100 total variable expenses are $50,000 and its total fixed expenses are $20,000. The unit contribution margins for the company's sole product is $10. The number of units that Martin Enterprises needs to sell to achieve the predicted operating income would be A) 11.000 B) 12.000 C) 21,000 D) 16,000 12) Halcyon Inc. completed Job 10B last month. The cost details of Job 10B are shown below. Direct labor cost Direct materials cost Machine hours used Direct labor hours Predetermined overhead allocation rate per direct bor hour $32 Calculate the total job cost for Job 10B. A) $2.640 B) $4,590 C) $4,680 D) $2,550 13) The fixed costs per unit will A) decrease as production increases B) increase as production increases C) remain the same as production levels change D) decrease as production decreases 14) Four basic steps are used in an ABC system. List the proper order of these steps, which are currently scrambled below: a. Identify the primary activities and estimate a total cost pool for each. b. Allocate the costs to the cost object using the activity cost allocation rates. c. Select an allocation base for each activity. d. Calculate an activity cost allocation rate for each activity. Alca,b,d B) b, a, cd C) a, c, d, b D) a, d, c,b D-4

Answer 1

Ans. 10	Option D $12,000
	Variable costs are 40% of sales, it means that the contribution margin ratio will be
	60% of sales because contribution margin is the difference between sales and variable cost.
	Margin of safety =   Operating income / Contribution margin ratio
	$7,200 / 60%
	$12,000
Ans. 11	Option B 12,000
	Sales units for target profit   =    (Fixed cost + Target profit) / Contribution margin per unit
	($20,000 + $100,000) / $10
	$120,000 / $10
	12,000 units
Ans. 12	Option B   $4,590
	Particulars	Amount
	Direct materials	$90.00
	Direct labor cost	$2,040.00
	Overhead applied	$2,460.00
	Total Job Cost	$4,590.00
	*Overhead cost applied = Predetermined overhead rate * Actual direct labor hours
		$32.80 * 75
		$2,460
Ans. 13	Option   A
	*Total fixed cost remain constant on each level of activity.
	Fixed cost per unit decreases as per activity increase and increases as per activity
	decrease.
Ans. 14	Option C
	In Activity based costing (ABC) system first of all activities cost pools are indentified, then
	allocation base for each activity is calculated.
	After the above steps activity rate for each activity is calculated by using the following
	formula:
	Activity rate = Overhead cost / Activity drivers
	Finally, the costs are allocated as per the activity rates by the following way:
	Allocated overhead cost =   Activity rate * Actual activity incurred