11/2/24, 6:47 PM Yawen Zhang - 2024-10 - Core 2 - Ontario - Chartered Professional Accountants of Canada

Unit 3 Quiz - Results

Attempt 1 of Unlimited

Written Nov 2, 2024 1:32 PM - Nov 2, 2024 3:24 PM

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Question 1

Bambi’s Parka Corp. (BPC) has two products, parka jackets and parka
snow pants, and total fixed costs of $85,000. The sales information for
each is as follows:

Jacket Snow pants

(20,000 units) (15,000 units)

Sales $250,000 $240,000

Variable costs 115,000 150,000

Contribution margin
135,000 54.0% 90,000 37.5%
(CM)

CM per unit $6.75 54.0% $6.00 37.5%

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Using the sales mix above, how much is the weighted average CM to
determine the total sales BPC must attain in order to reach a target
profit of $90,000?

a) 185,105

b) 265,000

c) 381,098

d) 490,000

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Option c) is correct.
[(54.0% × $250,000) + (37.5% × $240,000)] / $490,000 = 45.92%
($85,000 + $90,000) / 45.92% = $381,098

Question 2

Russ has developed a new device that he hopes to produce and market
on a large scale. Russ will rent a production space for $500 per month
and production equipment for $800 per month. Russ estimates the
material cost per unit will be $5 and the labour cost per unit will be $3.
Advertising and promotion will cost $900 per month. He will hire
workers so he can spend his time promoting the product.

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Which one of the following is the appropriate cost classification for

the production space rental?

a) Fixed period cost

b) Variable period cost

c) Variable product cost

d) Fixed product cost

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Option d) is correct. The production space rental is a fixed monthly

amount regardless of the activity. It is also used in the manufacturing
process; therefore, it is a product cost.

Question 3

HWW Inc. has a job-order costing system. The company uses

predetermined overhead rates in applying manufacturing overhead
costs to individual jobs. The predetermined overhead rate in
Department A is based on machine hours, and the rate in Department
B is based on direct materials cost. HWW has the following estimates

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for the year:

Department Department
A B

Machine hours 50,000 68,000

Direct labour hours 45,000 60,000

Direct materials cost $250,000 $220,000

Direct labour cost $300,000 $280,000

Manufacturing $395,000 $455,000

overhead cost

Which one of the following lists the predetermined overhead rates for
Department A and Department B?

a) $7.20 and 1.81

b) $8.78 and 2.07

c) $7.20 and 1.62

d) $7.90 and 2.07

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Option d) is correct. The estimated departmental overhead/estimated

drivers for the departments are calculated as follows:
A: $395,000 / 50,000 machine hours = $7.90/machine hour
B: $455,000 / $220,000 = 2.07 times direct material cost

Question 4

Deejay Co. uses a process costing system. In Department 2, direct

materials are added at the 50% stage of completion of the process,
and conversion costs are added uniformly throughout the process.

March 1 6,000 units; 60% complete for conversion costs

Started in 42,000 units

March

March 31 8,000 units in work-in-process (WIP)

3,000 units were 40% complete as to conversion

costs

5,000 were 80% complete as to conversion costs

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No spoilage was reported during March.

Using the first in, first out (FIFO) method, which one of the following is
the number of equivalent units of production for the direct materials
for March?

a) 39,000

b) 40,000

c) 42,000

d) 45,000

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Option a) is correct.
Direct materials equivalent units
= completed beginning WIP + started and completed + ending WIP
= 0 + 34,000 + 5,000
= 39,000
· Beginning WIP: Already complete for materials, as conversion
costs were at greater than 50%.
· Started and completed: 34,000 units in the period (42,000 –
8,000); these had 100% of materials added in this period.
· Ending WIP: 5,000 units at greater than 50% completion for
conversion costs; these units would be 100% complete for direct

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materials.
Alternative calculation: 42,000 – 3,000 = 39,000

Question 5

A manufacturer processes 100,000 kilograms of direct materials to

produce two products: Product X and Product Z.

Production (kg) at split- Selling price at split-

off off

Product 15,000 $70

X

Product 40,000 $90

Z

Waste 45,000 $0

The total costs incurred in the joint manufacturing process were

$1,000,000.

Using the physical output method, which one of the following lists the
joint costs allocated to products X and Z (rounding to the nearest
dollar)?

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a) Product X: $437,500; Product Z: $562,500

b) Product X: $225,806; Product Z: $774,194

c) Product X: $500,000; Product Z: $500,000

d) Product X: $272,727; Product Z: $727,273

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Option d) is correct. It uses relative production volume to determine

the ratios.
Product X: ($1,000,000 × 15 / 55) = $272,727
Product Z: ($1,000,000 × 40 / 55) = $727,273

Question 6

The following information is available for the manufacturing

operations of ABC Ltd. for the month of March:

Direct materials purchased $82,000

Direct labour payroll $60,000

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Direct labour hours 8,000

Factory overhead applied per direct $10

labour hour

Opening inventory Ending inventory

March 1 March 31

Direct materials $38,000 $30,000

Work-in-process $18,000 $12,000

(WIP)

Finished goods $54,000 $72,000

How much is the cost of goods sold for the month of March?

a) $218,000

b) $230,000

c) $236,000

d) $290,000

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Option a) is correct. It captures the manufacturing costs incurred, the

WIP accounts, and the finished costs accounts.

Direct materials used ($38,000 + $82,000 – $30,000) $ 90,000

Direct labour used 60,000

Factory overhead applied (8,000 × $10) 80,000

Total manufacturing costs incurred 230,000

WIP inventory, March 1 18,000

WIP inventory, March 31 (12,000)

Cost of goods manufactured 236,000

Finished goods inventory, March 1 54,000

Finished goods inventory, March 31 (72,000)

Cost of goods sold $218,000

Question 7

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Tucker Couch Inc. (Tucker), an existing home furnishing retailer, has

decided to create an online marketplace for its products. It offers the
same products at a reduced price but to a much broader audience,
including international buyers.

Which one of the following strategies has Tucker adopted?

a) Increasing customer reach to lengthen the maturity stage of its

products' life cycle

b) Adding new features to make products more attractive

Moving the product life cycle back to the introductory stage by

c)
changing how the product is sold

d) Introducing substitute products to reduce competition

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Option a) is correct. Tucker is attempting to reach a much broader

audience including international buyers by shifting some products to
online sales. International sales can make up for lower domestic sales
near the end of the product life cycle.

Question 8

The levelling and initial decrease in sales growth of a product take

place in which one of the following stages of the product life cycle?

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a) The decline stage

b) The maturity stage

c) The growth stage

d) The product introduction stage

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Option b) is correct. In the maturity stage, sales growth will begin to

level off. The company will look to maximize cash flow from the
product and achieve economies of scale. (Note that the question
specified a decrease in sales growth — the flattening of the curve —
and not a decrease in sales level.)

Question 9

Which one of the following scenarios BEST describes predatory

pricing?

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a) Big Bill's, a large national store, prices milk and eggs at 15%
less than the local independent grocery stores.

Coyote Air, a new discount airline, offers round-trip airfares on

b)
select routes for $300 less than its competitors to attract
customers and gain market share.

Fanny's Frosty Fashions sells winter mittens below cost.

c)
Customers are drawn to the store to purchase the mittens and
frequently purchase other items of clothing along with the
mittens.

d) TJ's Games provides one video game with the purchase of a

gaming console, a headset, and controllers.

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Option c) is incorrect. This is loss-leader pricing, in which the store

uses a lower-priced product to draw in customers. Option a) is correct.
This is an example of predatory pricing, as it forces smaller and weaker
rivals out of business.

Question 10

ABC sells consumer electronics and personal computers. Each year,

ABC is first to release an innovative tech gadget unparalleled by its
competitors.

Which one of the following is the BEST pricing strategy for ABC to
maximize profits?
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a) Penetration pricing

b) Skimming

c) Full absorption cost

d) Value-based pricing

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Option b) is correct. Skimming is a market-based pricing strategy. With

this pricing strategy, the firm will set a high price with the goal of high
profit margins on low volumes over low profit margins on high
volumes. It is successful when there are early adopters of the
technology with a low price sensitivity. The firm must capitalize
immediately upon release of the product because of the short product
life cycle.

Question 11

Which one of the following factors would be MOST relevant to a cost-

based pricing strategy?

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a) Price sensitivity

b) Industry structure

c) Product life cycle

d) Product cost markup

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Option d) is correct. Product cost, research, marketing, and

distribution are all important costs that influence pricing under a cost-
based pricing strategy. Product cost markup is the formula applied to
the product cost in a cost-based pricing strategy.

Question 12

JYD Inc. is introducing a new product next year. Costs pertaining to

this product are budgeted as follows:

Variable manufacturing costs per $89.00

unit

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Variable selling expenses per unit $22.50

Variable administration expenses $10.90

per unit

Fixed manufacturing costs $870,000

Fixed selling expenses $545,000

Fixed administration expenses $275,000

The marketing department estimates the following sales at various

selling prices:

Price Volume

$150 120,000

$160 90,000

$170 75,000

$180 59,000

In order to maximize profits, which one of the following is the price

JYD should set for the new product?

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a) $150

b) $160

c) $170

d) $180

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Option c) is correct.

Contribution Monthly
Variable margin / contribution
Price cost / unit unit Volume margin

a) $150 $122.40 $27.60 120,000 $3,312,000

b) $160 $122.40 $37.60 90,000 $3,384,000

c) $170 $122.40 $47.60 75,000 $3,570,000

d) $180 $122.40 $57.60 59,000 $3,398,400

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Total fixed costs for this product = $870,000 + $545,000 + $275,000

= $1,690,000. The contribution margin at each price is enough to
cover fixed costs. The highest expected monthly income would occur
at a price of $170 per unit ($3,570,000 – $1,690,000 = $1,880,000),
as it has the highest monthly contribution margin.

Question 13

Gallant Supplies (Gallant) has determined that each vacuum it

produces has a unit variable cost of $175, with total fixed costs of
$400,000 for the period. Gallant expects to sell 10,000 vacuums and
has applied a markup percentage of 30%.

Assuming that Gallant uses absorption-based pricing, which one of the

following is the contribution margin that Gallant will earn from the sale
of each vacuum?

a) $52.50

b) $64.50

c) $104.50

d) $279.50

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Option b) is incorrect. This is the markup, not the contribution margin.

Incorrect calculation: ($175 + $40 = 215) × 30% = $64.50.

Option c) is correct.

Variable cost per unit $175.00

Fixed cost per unit ($400,000 / 40.00

10,000)

$215.00

Markup 30%

Price [$215 × (100% + 30%)] $279.50

Deduct variable costs 175.00

Contribution margin $104.50

Question 14

Reed sells widgets for $100 each. The variable cost for each widget is
$65, Reed’s annual fixed costs are $125,000, and the tax rate is 30%.
The current budgeted net income is $140,000.

If the variable cost for each widget increases by $5, which one of the
following is the number of widgets Reed will need to sell to maintain a
net income of $140,000?

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a) 357

b) 953

c) 1,545

d) 2,055

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Option c) is correct.
CM per widget: $100 – $65 = $35
Target CM required to cover fixed costs + required profit before tax =
$125,000 + [$140,000 / (1 – 30%)] = $325,000
Units sold = $325,000 / $35 = 9,285.7 ~ 9,290
CM per widget with a $5 variable cost increase = $100 – $70 = $30
Target CM required to cover fixed costs + required profit before tax
remains the same at $325,000
Units sold = $325,000 / $30 = 10,833.3 ~ 10,835
Additional units required = 10,835 – 9,290 = 1,545

Question 15

Which one of the following conditions provides the GREATEST risk

exposure to an organization?

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a) Poor segregation of duties

b) Poor tone at the board of directors

c) Aggressive risk appetite

d) Material weakness in a key internal control over financial

reporting

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Option b) is correct. The tone at the top of an organization is

considered a prerequisite for good corporate governance, as those at
the top are the ones overseeing the company. In the context of good
corporate governance, senior management and directors have two
roles to fill: creating appropriate codes of conduct and ensuring that
the organization is following them. A good organizational tone forms
the foundation for codes of ethics, a commitment to hiring competent
staff, and developing reward structures that align with the overall
corporate vision, mission, goals, and objectives.

Question 16

Wheaton LLC (Wheaton) provides employee pension management

services for its customers, composed of smaller companies that lack
the ability to manage their own pensions. Wheaton has a policy of
investing a significant portion of the pension assets under
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management in growth stocks such as start-up tech companies,

because the customers want to earn high returns for their employees’
pensions.

Which one of the following BEST describes the risk tolerance/appetite

in this investment scenario?

a) Risk tolerance is too low.

b) Risk appetite is too low.

c) Risk appetite and risk tolerance are misaligned.

d) Risk appetite and risk tolerance are well aligned.

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Option d) is incorrect. Wheaton should have a low risk tolerance in

order to preserve its customers' wealth, yet Wheaton's investment
policies indicate a high appetite for risky investments. Option c) is
correct. Wheaton's risk appetite and risk tolerance are misaligned.

Question 17

A food manufacturing company is completing the risk management

process and has identified food safety risks as having the biggest
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impact on its reputation and profits.

Which one of the following is a reasonable risk response for the

organization to take?

a) Increasing liability insurance coverage

b) Increasing testing of food as part of the quality control process

c) Accepting that food safety issues will occur

d) Avoiding risk by limiting products to those that have fewer

safety issues

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Option b) is correct. Increasing testing of the food before selling it will

reduce the risk of a food safety issue occurring in the future.

Question 18

Lilian is a new CPA, and she has just accepted the position of treasurer
with a small, local not-for-profit board. When reviewing the bank
statements, she notices that there is a $100 cheque each month
payable to Joe Davison. Joe is one of the directors on the board and is
also one of the three people authorized to sign cheques. When Lilian
enquires, the board chairperson, Carlos, tells her that Joe takes care of
shovelling snow, sweeping the sidewalk, and mowing the small lawn in
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front of the organization’s building. Carlos goes on to say that Joe

volunteers more than any other person. Besides, Joe needs the money
and the payments were approved by the board a few years ago.

Which one of the following describes what Lilian should do?

a) Lilian should assist the board in improving its policies.

b) Lilian should do nothing. Board approval is all that is required.

c) Lilian should check with the auditors to see whether the $100
is a material amount.

d) This payment is highly suspect and may be illegal. Lilian should

resign so as to not be associated.

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Option a) is correct. Many small boards have weak controls. Although

the payments are seemingly insignificant and were approved by the
board, there are a myriad of other issues that can arise from these
recurring payments, such as workers' compensation obligations,
payroll taxes if applicable, source deductions and reporting (there is no
threshold for EI deductions and T4 slips must be prepared if
remuneration exceeds $500), insurance concerns (in the event Joe is
injured or causes injury in the performance of his duties), and possible
conflict of interest. By assisting the board to review and strengthen its
policies, Lillian can add value to this organization.

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Question 19

Squara Corp. is a construction company that has built condominiums

over the last year. Interest rates have increased over the last two years,
and fewer purchasers are interested in buying the condominiums.

Which one of the following types of enterprise risk does this

represent?

a) Compliance

b) Operational

c) Strategic

d) Reporting

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Option c) is correct. Strategic risk arises from mistakes or

miscalculations that are made in planning, implementing, and
executing strategies. Squara did not adjust in response to
environmental changes (interest rate increases, lower customer
demand), so it did not assess the strategic risk correctly.

Question 20

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The government funds Free Living, a not-for-profit organization, to

provide free support services for people living with chronic pain. As
part of its ongoing environmental scanning, Free Living has been
tracking the average age of chronic pain sufferers, along with gender
and ethnicity trends. To do this, the organization acquired large
amounts of data and analyzed them using well-established
computerized data-modelling techniques.

Which one of the following types of macro forces with an impact on

Free Living does this statistical analysis reflect?

a) Economic

b) Social and cultural

c) Technological

d) Demographic

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Option d) is correct. Age, gender, and ethnic origin are all demographic
factors.

Question 21
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Which one of the following describes when the bargaining power of

suppliers increases?

a) When there are many local suppliers of the product

When the product is easy to acquire and requires limited skills

b)
to handle

c) When the number of suppliers increases

d) When a major customer buys in large quantities and is

frequently unable to obtain sufficient inventory

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Option d) is correct. This increases the bargaining power of suppliers

because the buyer requires the inventory and has limited options to
obtain it.

Question 22

Pretty Styles, a small clothing company, has been experiencing

competitive pressure from large retailers seeking to gain market share.
Pretty Styles distinguishes itself through customer service, price, and
community involvement.

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11/2/24, 6:47 PM Yawen Zhang - 2024-10 - Core 2 - Ontario - Chartered Professional Accountants of Canada

In a SWOT analysis, which one of the following facts would be

identified as a threat for Pretty Styles?

Pretty Styles's purchasing power is limited compared with large

a)
retailers.

b) Pretty Styles lacks a performance evaluation system.

c) Pretty Styles's rate of expansion is insufficient to maintain its

market share.

d) There is increasing competition from large retailers.

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Option d) is correct. This represents an external risk factor beyond

Pretty Styles's control and is classified as a threat in a SWOT analysis.

Question 23

Bulldog Construction (Bulldog) is preparing to bid on a contract to

supply building materials. The expected costs of the contract are
$62,000 for supplies, $90,000 for direct labour, and $3,000 for
variable overhead. The company estimates its markup based on
contract-related costs from the following profit statement for the year:

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11/2/24, 6:47 PM Yawen Zhang - 2024-10 - Core 2 - Ontario - Chartered Professional Accountants of Canada

Sales $550,000
Less: contract-related
costs:
Supplies 100,000
Direct labour 250,000
Variable overhead 25,000
Contract contribution 175,000
Administrative costs (Note (125,000)
1)
Before-tax profits $ 50,000

Note 1: Administrative costs are not affected by number of contracts.

Which one of the following is the contract price that Bulldog should
submit to bid for this job?

a) $72,333

b) $155,000

c) $227,333

d) $330,000

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11/2/24, 6:47 PM Yawen Zhang - 2024-10 - Core 2 - Ontario - Chartered Professional Accountants of Canada

Option c) is correct. The markup is $175,000 / ($100,000 + $250,000

+ $25,000) = 46.67%.

Supplies cost $62,000

Direct labour cost 90,000
Variable overhead 3,000
Total contract-related costs 155,000
Markup ($155,000 × 72,333
46.67%)
Contract price 227,333

Question 24

The mining industry is heavily regulated and is dominated by a few

leading companies, all of which are large and very profitable. The
industry leaders are challenged because they are struggling to find
skilled labour. As a result, the leaders are collaborating to find new
labour sources.

Which one of the following is consistent with the situation described

above?

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11/2/24, 6:47 PM Yawen Zhang - 2024-10 - Core 2 - Ontario - Chartered Professional Accountants of Canada

a) High bargaining power of customers

b) Low rivalry among existing competitors

c) High threat of new entrants

d) Low bargaining power of the work force

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Option b) is correct. In this situation, rivalry would be fairly low. There

seems to be room for the incumbents to operate without fierce
competition, given that they are collaborating to find new labour
sources.

Question 25

The managers of Luxe Ovens Ltd. (Luxe) are attempting to build an

improved convection oven. Their analysis indicated that customers
would pay $4,000 for the better oven.

If Luxe’s required profit margin is 20%, how much is the target cost of
the oven?

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11/2/24, 6:47 PM Yawen Zhang - 2024-10 - Core 2 - Ontario - Chartered Professional Accountants of Canada

a) $800

b) $3,200

c) $4,000

d) $4,800

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Option b) is correct. The target cost is calculated as follows:

Selling price $4,000

Profit margin (800)

Target cost $3,200

Done

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