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3.The Fitness Center sells three types of monthly memberships, Individual ($100), Couples ($175) and Family ($250).  In addition, the Center sells one-week passes for $35 each and lifetime individual memberships for $5,000 each.  The Center expects to sell the following number of memberships next year. Quarter 1 Quarter 2 Quarter 3 Quarter 4 Total Individual 25 10 12 20   67 Couple 15  .
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Short Answer 1.What is the CVP relation? 2.What does the CVP relation follow directly from? 3.What is breakeven volume? 4.What are breakeven revenues? 5.What is the contribution margin ratio? 6.How do taxes affect the CVP relation? 7.How can we use the CVP relation to analyze the profit effect of price changes? 8.What is the margin of safety? 9.How could.
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Problems1.Robin offers Christmas tree decorating services six days per week during late November and December.  She charges $50 per live tree regardless of the size of the tree.  Robin’s clients provide all the decorations.   Her variable cost, solution to keep the tree fresh, is $10 per tree and the fixed.
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  21.Organizations always compute the materials price variance using the actual quantity of materials used. 22.The materials price variance helps reconcile actual profit with master budget profit. 23.A favorable or unfavorable sales volume variance could arise due to a change in the market as a whole or the firm’s share of the market. 24.The.
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  11.Price gouging occurs when a firm exploits temporary excess demand to raise prices to unreasonable levels. 12.Our ultimate decision will differ when we use incremental analysis versus construct a contribution margin statement for each option. 13.Using the gross approach to choose the best decision option is preferable to the incremental method when.
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46.The Gretzky Company has budgeted the following sales for the 1st quarter of 2012: January$120,000 February$150,000 March$160,000 Only 20% of the company’s sales are made in cash.  The company expects to collect 30% of sales on account in the month of the sale, 60% in the month following the sale, and the final 10%.
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7.Which approach, incremental or totals, requires more computations? Why? 8.When might the gross approach be preferable to the incremental approach for making short-term decisions? 9.Are sales promotion decisions typically responses to an excess supply situation or an excess demand situation? 10.What is a make-or-buy decision? 11.When does it make sense to compute the contribution.
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  66.Handi-Tool Company manufactures and sells lawn and garden tools.  Handi manufactures three kinds of pruning shears:  Snip-It, Deluxe Clipper, and Limb-Away.  The demand for the pruning shears is highest in April.  Expecting this trend to continue, Handi is interested in how to best utilize available capacity.  Given the following information,.
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3.Piney Creek Manufacturing Company produces high-end extreme weather tents.  Piney Creek has established the following budget for producing its XWT model for the most recent month.  Master Budget Actual Results Number of tents sold      50      60 Sales price per tent      $650      $635 Variable cost per tent      $250      $240 Fixed costs      $10,000      $10,000 Required: a.What is Piney Creek’s.
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81.If the weighted contribution margin ratio for a multi-product manufacturing company is 45%, the weighted contribution margin per unit is $5, fixed costs are $100,000, and total revenues are $650,000, how much is profit before taxes? A.$392,500 B.$292,500 C.$192,500 D.$247,500 82.Ben’s Landscaping sells two types of mulch for residential use. Cypress mulch constitutes 35% of.
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Exercises 1.Ajay Singh plans to offer gift-wrapping services at the local mall during the month of December. Ajay will wrap each package, regardless of size, in the customer’s choice of wrapping paper and bow for a price of $3. Ajay estimates that his variable costs will total $1 per package wrapped.
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8.Why is the cash budget important? 9.What are the three main components of the cash budget? 10.Why is a firm’s credit policy important for translating the revenue budget into the budgeted inflows of cash? 11.What are the four types of cash outflows from operations? 12.What are some special items that might affect a firm’s.
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Problems 1.River Toys manufactures Angler’s Choice kayaks.  River Toys believes that the demand during the current year’s fishing season will be 4,000 units.  Additional cost data follows: Item Value per unit Selling Price $800 Variable manufacturing costs 300 Fixed manufacturing overhead      25 Gross margin $475 Variable selling costs 20 Fixed selling and administrative costs   125 Profit margin $330 Required: a. What is River Toys’ breakeven point in.
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MULTIPLE CHOICE 36.Most short-term decisions deal with temporary gaps between: A.A flexible supply of capacity and a fixed demand. B.The inability to change selling price and the ability to estimate controllable costs. C.The amount of fixed costs that can be avoided and the contribution margin. D. The demand of and the supply of available capacity. E.Company.
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  76.Quantifying the longer-term implications of short-term actions is difficult.  Consequently: A.It is impossible to make an informed decision. B.Frequently, only qualitative assessments are possible. C.Long-term implications should be ignored in the decision-making process. D.A and B only. E.A, B, and C are consequences. 77.Which consideration is most relevant for a startup manufacturing company? A.Short-term decisions regarding production. B.Implications.
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  59.A company may experience a favorable labor rate variance but an unfavorable labor efficiency variance when: A.Sales lagged behind the budgeted amounts of the sales department. B.There were breakdowns in machinery. C.The product mix changed during the period. D.The company experienced a high amount of turnover in its workforce. 60.A spending variance results when.
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Exercises 1.Ajay Singh offers gift-wrapping services at the local mall. Ajay wraps each package, regardless of size, in the customer’s choice of wrapping paper and bow for a price of $3. Ajay’s variable costs total $1 per package wrapped, and his fixed costs amount to $600 per month. Due to the.
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Exercises 1.Premium Windows makes one type of standard windows for residential buildings. Premium desires to end March with 2,500 windows in stock. Premium’s inventory on March 1 is 1,750 windows, and its budgeted production for the month is 8,000 windows. Each window sells for $60. Required: Prepare Premium’s revenue budget for March. 2.The following.
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  56.Gecko Company is evaluating the use of a supplier versus making the wheels for its skateboards internally. The currently manufactured wheels have a variable unit cost of $2. Fixed costs are $16,000 per month, however, 25% can be eliminated if wheels are no longer produced. A supplier has offered to.
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5.“Budgets are only as good as the forecasts upon which they are based.” In some industries, it is very difficult to forecast demand accurately, while in other industries demand conditions are relatively stable. Discuss the role of budgeting in these two settings. 6.Sales forecasts and overhead estimates are the two activities.
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Short Answer 1.For many organizations, what is the benchmark for evaluating actual performance? 2.What is a master budget? 3.What is a variance? 4.What does it mean when a variance is favorable?  What does it mean when a variance is unfavorable? 5.What is the total profit variance? 6.What two subsidiary variances make up the total profit variance? 7.What.
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2.The Déjà Vu Card Company offers greeting cards for every occasion at unmatched prices. The following information comes from Déjà Vu’s accounting records for December of the most recent year: Greeting cards sold 100,000 cards Selling price $1.00 per card Fixed costs: Manufacturing $0.30 per card Marketing & administrative $0.21 per.
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TRUE/FALSE 1.A temporary gap between the demand and supply of available capacity results because, in the short term, businesses have a fixed supply of capacity but confront changing demand. 2.An example of a decision that deals with excess supply is altering the product mix to focus on the most profitable ones. 3.The decision.
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  49.PVC Pro produces PVC pipe in 12 foot lengths. The following information was provided concerning its labor and materials  Actual Data Produced12,200 units Materials used4,650 lbs. @ $7.00 per pound Labor worked7,450 hrs. costing $80,460 Budget Data Budgeted units 12,000 units Budgeted materials per pipe0.40 lb. @ $7.10 per pound Budgeted labor per pipe0.60 hours @ $11.00.
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  21.Because potential longer-term effects could vary across short-term decision options, they might be relevant. 22.Quantifying the longer-term implications of short-term actions is relatively simple. 23.Because quantitative analysis of different decision options is extremely important, it should be the only input into final decision. 24.It is important for effective managers to consider the longer-term.
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4.The Gant Company produces three items in its manufacturing plant.  The plant has a total capacity of 9,600 minutes per month for production.  The following information is provided for the products: Products X Y Z Direct material $16 $10 $14 Direct labor (all variable) 15 14 15 Variable overhead 2 3 4 Fixed overhead 20 23 30 Unit cost $53 $50 $63 Minutes required per unit 5 4 6 Selling price per unit $70 $65 $80 Variable selling expense per unit $5 $4 $2 Monthly demand in.
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Short Essay 1.The definition of “short-term” depends on the business context. What would General Motors consider as short-term? Is this period longer than what a bakery would consider as short-term? Why? 2.Automobile dealers frequently advertise sales because their lots are “overflowing.” The ads suggest a shortage of storage capacity but the price-cutting.
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10.Why does operating leverage decrease as sales volume increases? 11.Why is operating leverage viewed as a measure of risk? 12.Consider a large multidivisional firm such as John Deere. Does it make sense to perform CVP analysis for such a firm as a whole? How could such firms use CVP insights effectively? 13.The text.
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Short Answer 1.What is a budget? 2.What are the three reasons firms use budgets? 3.What are: (a) an operating budget, (b) a financial budget? 4.What is the natural starting point for the budgeting process? Why? 5.What budget typically is prepared immediately after the revenue budget? 6.What budgets follow from the production budget? 7.What equation do firms use.
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56.Which of the following is not a common form of a responsibility center? a.Cost Center. b.Investment Center c.Revenue Center. d.Profit Center. e.All of the above are common forms of responsibility centers. LO4 – C  57.In relation to budgeting, which of the following does not depend on management style? a.The quality of information obtained. b.The delegation of decision rights. c.The.
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36.Donaldson Manufacturing Company’s production budget requires the following units for the upcoming year: 1st quarter 4,000 units 2nd quarter 3,500 units 3rd quarter 3,000 units 4th quarter 5,000 units Each unit requires two pounds of material.  The material cost is $1.50 per pound.  Donaldson intends to have beginning inventory equal to 10% of the current quarter’s material needs.  Budgeted.
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  TRUE/FALSE 1.Multi-year budgets are strategic plans that specify the direction in which a company desires to head. LO1 – True 2.Strategic budgets bridge short-term decisions and long-term plans. LO1 – FalseOperating budgets bridge short-term decisions and long-term plans. 3.Financial budgets quantify the outcomes of operating budgets in summary financial statements. LO1 – True 4.In a centralized.
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MULTIPLE CHOICE 26.Which of the following is not a reason why firms use budgets? A.Performance evaluation. B.Coordination. C.Planning. D. Operating leverage. E.All of the above are reasons why firms use budgets. LO1 – D 27.Which of the following is not a financial budget? A.Production budget. B.Budgeted Income Statement. C.Cash budget. D.Budgeted Balance Sheet. E.All of the above are financial budgets. LO1 – A 28.Budgets.
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Problems 1.Managers must understand the roles budgets serve in organizations. Required: Enter the identifying letters in the blanks below to indicate the term that best matches each description. A Budget F Cost center B Financial budget G Responsibility accounting C Operating budget H Investment center D Master budget I Bottom-up budgeting E Centralized decision J Responsibility center a._____ An organizational setting where a few top managers make all the decisions. b._____ A plan for using limited resources. c._____ Organizational.
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  11.A budget reconciliation is a report that uses variances to reconcile the difference between master budget profit and actual profit. 12.If a materials input price is higher than budgeted, the result is an unfavorable materials efficiency variance. 13.Small variances probably indicate random factors at work while large variances could signal a permanent.
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MULTIPLE CHOICE 29.Without a well-conceived plan against which to compare actual performance: A.It is difficult to determine how a company is doing. B.It is difficult to determine what a company could do to improve. C.A company will not be able to make a profit. D. Both A and B. E.A, B, and C. 30.The starting point for.
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  39.Variance analysis is an important tool because: A.It helps management determine where bottlenecks in the production process occurred B.It helps management determine better pricing strategies C.It helps management determine why actual profits varied from budgeted profits D.It helps management determine which department operated most efficiently. 40.A favorable materials price variance will occur when: A.Actual costs of.
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Short Answer 1.What do short-term decisions deal with in most business environments? 2.What does the term “capacity” mean? . 3.Why is the decision of how much capacity to put in place a long-term decision? 4.What are the two broad classifications of short-term decisions? List two examples of each. 5.Briefly describe the incremental or differential method.
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4.Buck’s Camo Shop sells a variety of camo-patterned outdoor garments.  Buck has built up a loyal customer base because of the quality of his garments and the customer service he provides.  In a typical month Buck’s revenue is $150,000 and he earns a net profit of $9,300.  Buck’s contribution ratio.
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4.The Cottage Bakery sells a variety of gourmet breads, cakes, pies, and pastries. Although its wares are considerably more expensive than those available at supermarkets and other bakeries, the Cottage Bakery has a loyal clientele willing to pay a premium price for premium quality. In a typical month, the Cottage.
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11.Some experts argue that budgets have to be “loose” and “flexible” for companies that are in their growth phase. Other experts believe that good planning and control through well-formulated budgets can never hurt. Which line of reasoning do you agree with? Are these two arguments necessarily inconsistent? 12.Participative, or bottom-up, budgeting.
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  46.Which of the following short-term decisions deal with excess capacity? A.Special order. B.Product mix. C.Make or buy. D.Increasing prices. 47.Beach Surf Boards is making a decision on whether to add long boards as a new product line to complement its short boards. A recent analysis determined that the average long board can be sold.
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11.Effective working capital management can save companies money in terms of interest payments on costly short-term loans. 12.LO3 – True In preparing a cash budget, from an accounting record-keeping perspective there is no need to adjust the balance of accounts receivable and reported income to reflect the uncollectible debt. LO3 – FalseFrom.
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Essay 1.Which action has a greater effect on the unit contribution margin: (1) increasing the unit selling price by 10% or (2) reducing the unit variable cost by 10%? 2.A firm reported a contribution margin equal to 40% of revenues and profit before taxes equal to 15% of revenues. If fixed costs.
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TRUE/FALSE 1.If sales volume exceeds expectations, actual profit will always be higher than budgeted profit. 2.Variance analysis may be performed to isolate the profit impact of individual input and output factors. 3.Variance analysis is a technique used for determining the profit effect due to differences between the actual and budgeted size of the.
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11.How does the notion of maximizing the contribution per unit of the scarce resource apply when some products have minimum production quantities? 12.Outsourcing is the practice of having an external party take over some business and/or manufacturing processes. How does outsourcing change a firm’s cost structure and, therefore, its ability to.
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Problems 1.Fancy Feast Bakery makes cakes for special occasions.  Fancy Feast estimates the following revenue and costs for the upcoming month. Expected sales 300 cakes @ $20 per cake Expected cost of Ingredients $4 per cake Expected labor costs $20 per hour Estimated labor hours required ½ hour per cake Estimated variable overhead $1 per baker hour Estimated total fixed costs:   .
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