The MEC Company has two divisions: the Computer Division and the Printer Division. Cost
and revenue information for the two divisions for the year is as follows.
Computer
Division
$1,100,000
Revenue
Variable cost per unit
Number of units sold
Fixed costs:
Costs unique to each division
Costs allocated by corporate headquarters
75,000 units
450,000
50,000
Printer
Division
$750,000
$7
52,000 units
$6
375,000
70,000
Compute the SEGMENT MARGIN for both the Computer Division and the Printer
Division.
Computer, $65,000; Printer, $3,000
Computer, $125,000; Printer, $63,000
Computer, $575,000; Printer, $438,000
Computer, $450,000; Printer, $375,000
Computer, $75,000; Printer, negative $7,000
Bookmark question for later
The following cost information is for Leslie Company.
Actual results
Total cost of purchasing material
Number of labor hours worked
Number of material pounds used in production
Total labor cost
Number of units produced
Number of material pounds purchased
Leslie Company has established the following standards.
Price per pound of materials
Number of pounds of material to produce one unit
Standard labor rate
Number of labor hours to produce one unit
Compute Leslie’s Materials Price Variance.
$58,000
1,000 hours
5,850 pounds
$48,000
300 units
6,250 pounds
$10.00 per pound
20 pounds
$50.00 per hour
3 hours
$1,500 Favorable
$2,500 Favorable
$1,500 Unfavorable
$4,500 Unfavorable
$4,500 Favorable
$2,500 Unfavorable
Bookmark question for later
ophie Company has decided that direct labor hours is a good basis on which to apply overhead to production.
S
Budgeted manufacturing overhead for the coming year is $500,000. Budgeted direct materials purchases is
$400,000. Budgeted direct labor cost is $720,000. Budgeted direct labor hours for the coming year is 20,000
hours.
What is Sophie Company’s PREDETERMINED OVERHEAD RATE?
$56 per hour
$20 per hour
$25 per hour
$36 per hour
$61 per hour
Bookmark question for later
ophie Company is considering closing one of its product lines. Current data on the product line are as
S
follows.
Sales revenue
Variable costs
Direct avoidable fixed costs*
Indirect allocated fixed costs**
Net Income (Loss) on the product line
$27,000
19,000
5,000
7,000
($4,000)
*The direct avoidable fixed costs will be eliminated if the product line is closed.
**The indirect allocated fixed costs will remain the same whether the product line is continued or closed.
Assume that Sophie decides to discontinue this product line. By how much will overall company net income
change?
Company net income will INCREASE by $3,000 if the product line is
discontinued.
Company net income will INCREASE by $4,000 if the product line is
discontinued.
Company net income will DECREASE by $3,000 if the product line is
discontinued.
Company net income will DECREASE by $4,000 if the product line is
discontinued.
Bookmark question for later
What is BUDGETARY SLACK?
Bottom-up planning of budgetary goals
Top-down planning of budgetary goals
Process prioritizing, also known as profit planning
Intentionally creating easy budget targets
Constructive response to budget deviations
Bookmark question for later
Speedy Print Shop is considering whether it should take a job to print 5,000 copies of an
announcement. The costs associated with this special order have been identified as follows.
○
○
○
○
○
○
Paper cost: 5,000 sheets at $0.01 each.
Labor cost: The job will take 5 hours. This job must be done on a rush basis
after regular business hours; the special labor rate will be $24 per hour.
Printing plate cost: The cost to make a plate to print the announcements is
$100.
Printing press usage: Speedy has determined that maintenance costs and
depreciation associated with the usage of the printing press is $10 per hour. If
the printing press is not used, it does not need any maintenance and it does not
depreciate.
Building depreciation: Speedy normally allocates $5 of building depreciation
for each direct labor hour worked on a job. However, the building depreciates
strictly with the passing of time; printing one more job does not cause any extra
building depreciation.
Manager’s salary: The manager makes $20 per hour, on average. However, the
manager is on a salary and does not get paid extra for working extra hours.
What is the minimum amount that Speedy Print Shop should charge for this job?
$170
$245
$295
$220
$320
Bookmark question for later
Estimated data for Lorien Company for Year 1 are as follows:
Direct materials to be purchased……………………………………………… $35,000
Indirect labor……………………………………………………………………………… 10,000
Wages of janitors in corporate office building…………………………… 47,000
Factory building rent………………………………………………………………….. 60,000
Depreciation on production equipment……………………………………… 20,000
Administrative office supplies……………………………………………………. 25,000
Estimated direct labor hours: 40,000 hours
Actual data for Year 1 are as follows:
Total manufacturing overhead: $110,000
Direct labor hours: 35,000 hours
The predetermined manufacturing overhead rate is determined on the basis of direct labor hours. Which ONE
of the following statements is TRUE?
Applied overhead was MORE than actual overhead by $10,000
Applied overhead was LESS than actual overhead by $10,000
Applied overhead was MORE than actual overhead by $12,250
Applied overhead was LESS than actual overhead by $20,000
Applied overhead was MORE than actual overhead by $31,250
Applied overhead was LESS than actual overhead by $31,250
Applied overhead was LESS than actual overhead by $12,250
Applied overhead was MORE than actual overhead by $20,000
Bookmark question for later
I t is January 1 of Year 2. Purchases for Yosef Company for January, February, and March are forecasted to be
as follows: January, $200,000; February $400,000; March, $500,000. 40% of purchases are for cash. Of the
credit purchases, 30% are paid during the month of the purchase, 50% in the month following the purchase,
and 20% in the second month following the purchases. TOTAL purchases for November and December of
Year 1 were $200,000 and $400,000, respectively.
What is the forecasted amount of total CASH PAYMENTS FOR PURCHASES in March? Note: This is the
sum of immediate payments from cash purchases, same-month cash payments of credit purchases, and cash
payments for credit purchases made in prior months.
$374,000
$434,000
$460,000
$472,000
$348,000
Bookmark question for later
elow are the forecasted cash receipts and cash payments for Kaden Company for the first four months of the
B
year.
Budgeted cash collections
Budgeted cash payments:
Operating expenses
Dividends
Equipment purchase
Total budgeted cash payments
January
100,000
February
80,000
March
75,000
April
146,000
127,000
105,000
20,000
40,000
165,000
92,000
120,000
0
0
127,000
0
0
92,000
0
0
120,000
On January 1, Kaden Company had a cash balance of $50,000. Kaden has a policy of maintaining a cash
balance of at least $10,000 at the end of each month.
How much must Kaden Company plan to borrow in March?
$7,000
$14,000
$17,000
$4,000
$24,000
Bookmark question for later
Which ONE of the following is a possible cause for an UNFAVORABLE LABOR RATE variance?
Skilled workers doing jobs intended for less skilled workers
Machines in need of repair
Inexperienced workers
Low-quality materials
High factory machinery depreciation rates
Bookmark question for later
During January, Sophie Toys expects to produce 2,000 toys. The following are needed to make one toy:
Wood (direct materials): 2 board feet at $3 per foot
Metal (direct materials): $3 per toy
Direct labor: 1 hour at $16 per hour
Manufacturing overhead is applied at a rate of $4 per direct labor hour.
What is Sophie’s budgeted TOTAL MANUFACTURING COST for January?
$50,000
$58,000
$64,000
$52,000
Bookmark question for later
ird’s Eye View manufactures three different sizes of bird cages: small (for finches and canaries), medium (for
B
cockatiels and small parrots), and large (for cockatoos and other large parrots). The company has recently
implemented an activity-based costing system. Bird’s Eye View has identified five different production
activities as well as the best cost driver for each activity. Each activity and driver is listed below, along with the
budgeted amount that is associated with each activity for next year.
Activity
Materials handling
Automated processing
Plastic parts insertion
Inspections
Packaging
Total indirect manufacturing cost
Cost Driver
Labor hours
Machine hours
Number of parts
Labor hours
Orders shipped
Budgeted
Costs
$ 55,000
40,000
6,000
29,000
31,000
$161,000
The following information relates to each size of bird cage and next year’s anticipated manufacturing
operations:
Units to be produced
Large
350
Medium
Small
400
600
Orders to be shipped
Number of parts per unit
Machine hours per unit
Labor hours per unit
180
8
4
2
200
6
2
2
250
4
1
2
Under an activity-based costing system, what is the per unit cost for manufacturing overhead of a
SMALL cage (rounded)?
$151
$100
$136
$120
Bookmark question for later
ogan Company manufactures several toy products. Logan presently manufactures and assembles all the parts
L
for its toy truck product. Another toy company has offered to sell the parts to Logan for $2.00 per truck. Logan
is considering this offer. If Logan buys the truck parts instead of making them, the space used in producing the
parts could be used for a new toy monster, which is scheduled to begin production next year. If Logan
continues to produce the parts for the toy truck, then Logan will have to lease manufacturing space from
another company in an adjacent building in order to produce the parts for the new toy monster. The rent that
Logan would have to pay would be $8,000 per year.
Cost information related to the production of the toy truck parts is as follows.
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead
Total manufacturing costs
$1.10
0.30
0.20
0.20
$1.80
The marketing department has estimated that sales for the toy truck will be approximately 16,000 units per
year for the next three years. The fixed manufacturing overhead is indirect and will still be incurred regardless
of which decision is made.
By how much will overall Logan Company’s net income change if Logan decides to stop making the parts
itself and instead BUY the parts from another toy company?
Logan Company net income will INCREASE by $1,600 if Logan stops
making the parts itself and instead buys them from another toy
company.
Logan Company net income will DECREASE by $6,400 if Logan stops
making the parts itself and instead buys them from another toy
company.
Logan Company net income will DECREASE by $3,200 if Logan stops
making the parts itself and instead buys them from another toy
company.
Logan Company net income will DECREASE by $1,600 if Logan stops
making the parts itself and instead buys them from another toy
company.
Logan Company net income will INCREASE by $3,200 if Logan stops
making the parts itself and instead buys them from another toy
company.
Logan Company net income will INCREASE by $6,400 if Logan stops
making the parts itself and instead buys them from another toy
company.
Bookmark question for later
ollins Company had the following cost data available. The Collins accountant believes that direct labor
C
hours is the correct cost driver to use to predict and manage these costs.
$100,000; 15,000 direct labor hours for January
$80,000; 12,000 direct labor hours for February
$90,000; 14,000 direct labor hours for March
$75,000; 11,000 direct labor hours for April
$85,000; 12,500 direct labor hours for May
$70,000; 10,000 direct labor hours for June
Use the high-low method to compute the total amount of monthly fixed costs for Collins Company.
$30,000
$10,000
$15,000
$90,000
$60,000
$0
Bookmark question for later
Estimated data for Lorien Company for Year 1 are as follows.
Total manufacturing overhead
Direct labor hours
$650,000
130,000 hours
Actual data for Lorien Company for Year 1 are as follows.
Total manufacturing overhead
$500,000
Direct labor hours
110,000 hours
The manufacturing overhead rate is determined on the basis of direct labor hours. Which ONE of the following
statements is TRUE?
Applied overhead was MORE than actual overhead by $50,000
Applied overhead was LESS than actual overhead by $150,000
Applied overhead was MORE than actual overhead by $150,000
Applied overhead was MORE than actual overhead by $10,000
Applied overhead was LESS than actual overhead by $10,000
Applied overhead was LESS than actual overhead by $50,000
Bookmark question for later
Which ONE of the following BEST describes an opportunity cost?
A cost that does not change as the result of a decision
A cost representing the loss of benefits from selecting a course of
action
A cost that is specifically traceable to segment being analyzed
A cost requiring a direct outlay of cash
A cost that is directly charged to expense in the income statement
Bookmark question for later
n September 30 of Year 1, Julian Company had finished goods inventory of 2,000 units. Starting in October,
O
Julian intends to have an inventory policy of maintaining ending inventory at the end of every month equal to
the next month’s sales. For example, ending inventory at the end of October should be equal to forecasted sales
in November.
Forecasted sales for the months October, Year 1 through January, Year 2 are as follows.
October
4,500 units
November
December
January
6,000 units
2,000 units
1,000 units
What is the amount of budgeted PRODUCTION for October?
8,000 units
10,500 units
6,000 units
4,000 units
8,500 units
Bookmark question for later
A standard cost system is a cost-accumulation process based on
costs that should be incurred rather than costs that were are incurred.
costs that will be incurred rather than costs that might be incurred.
costs that were incurred rather than costs that should be incurred.
costs that might be incurred rather than costs that will be incurred.
Bookmark question for later
Which ONE of the following statements is FALSE with respect to the master budget?
The master budget begins with a forecast of sales.
In preparing the master budget, the cash budget should be prepared
AFTER the production budget.
The master budget represents the overall operating plans for a specific
time period.
The capital budget is a critical part of the master budget.
Bookmark question for later
ioche Company is considering selling a “premium” version of one of its products. The following information
P
is available. The “additional processing costs” are the costs needed to transform the units from “standard” to
“premium.”
Number of units produced
Selling price of “standard” units
Additional processing costs
100,000
$10 per unit
$500,000
Selling price of “premium” units
$17 per unit
Before any additional processing costs, the total production cost for the 100,000 units is $900,000. What will
be the change in Pioche Company’s net income if the company decides to sell a “premium” version of this
product?
Increase of $200,000
No change
Decrease of $200,000
Increase of $100,000
Decrease of $400,000
Bookmark question for later
ayley Company reported the following data.
H
Price per unit = $10
Variable cost per unit = $7
Fixed cost = $1,500
Given these data, compute the BREAKEVEN number of UNITS.
88 units
612 units
150 units
500 units
214 units
Bookmark question for later
Kamili Company has the following three manufacturing overhead cost drivers.
Cost Driver
Design changes
Machine setups
Electricity usage
Overhead
Level of Activity
Cost
100 changes per year
$ 5,000
2,000 setups per year
18,000
12,000 kilowatt-hours per year
36,000
Kamili Company started and completed work on 25 different jobs during the year. One of these jobs was Job
#781. Job #781 required eight design changes, 40 machine setups, and 700 kilowatt-hours of electricity. How
much manufacturing overhead should be allocated to Job #781? Note: Kamili uses activity-based costing.
$3,580
$3,080
$1,550
$2,360
$2,680
$2,860
Bookmark question for later
The following data are for Kylie Ramona Company.
Variable cost ratio
Fixed costs
15%
$100,000
Calculate the breakeven sales revenue.
$15,000
$123,986
$115,000
$85,000
$117,647
Bookmark question for later
ophie Company is considering closing one of its product lines. Current data on the product line are as
S
follows.
Sales revenue
Variable costs
Direct avoidable fixed costs*
Indirect allocated fixed costs**
Net Income (Loss) on the product line
$25,000
19,000
7,000
5,000
($6,000)
*The direct avoidable fixed costs will be eliminated if the product line is closed.
**The indirect allocated fixed costs will remain the same whether the product line is continued or closed.
IN ADDITION, if Sophie closes the product line, Sophie can sublease its production facility to another
company and earn sublease revenue of $1,500 per year.
Assume that Sophie decides to discontinue this product line. By how much will overall company net income
change?
Company net income will DECREASE by $2,500 if the product line is
discontinued.
Company net income will INCREASE by $6,000 if the product line is
discontinued.
Company net income will DECREASE by $1,000 if the product line is
discontinued.
Company net income will DECREASE by $6,000 if the product line is
discontinued.
Company net income will INCREASE by $1,000 if the product line is
discontinued.
Company net income will INCREASE by $2,500 if the product line is
discontinued.
Bookmark question for later
Which ONE of the following statements is TRUE?
If the actual materials purchase price is LESS than the standard price,
the materials PRICE variance is UNFAVORABLE.
If the actual materials purchase price is MORE than the standard price,
the materials PRICE variance is FAVORABLE.
If the actual materials purchase price is LESS than the standard price,
the materials PRICE variance is FAVORABLE.
If the actual materials purchase price is LESS than the standard price,
the materials QUANTITY variance is FAVORABLE.
Bookmark question for later
The Smith Company manufactures insulated windows. Costs for March were as follows.
Indirect materials
Interest expense
Salary of factory supervisors
Insurance on manufacturing equipment
Direct labor
Indirect labor
Salary of corporate vice president for advertising
Direct materials
$ 4,000
7,500
25,000
2,000
53,000
18,000
3,000
48,000
What is Smith Company’s actual manufacturing overhead for March?
$5,000
$97,000
$9,000
$49,000
Bookmark question for later
The following cost information is for Leslie Company.
Actual results
Total cost of purchasing material
Number of labor hours worked
Number of material pounds used in production
Total labor cost
Number of units produced
Number of material pounds purchased
$58,000
1,000 hours
5,850 pounds
$48,000
300 units
6,250 pounds
Leslie Company has established the following standards.
Price per pound of materials
Number of pounds of material to produce one unit
Standard labor rate
Number of labor hours to produce one unit
$10.00 per pound
20 pounds
$50.00 per hour
3 hours
Compute Leslie’s Materials Quantity Variance.
$4,500 Favorable
$2,500 Unfavorable
$1,500 Favorable
$4,500 Unfavorable
$1,500 Unfavorable
$2,500 Favorable
Bookmark question for later
aggie’s Motors manufactures boat motors. Maggie is shifting from a traditional costing system to an
M
activity-based costing system. She has started by identifying four overhead cost activities. Listed below is the
table that Maggie created identifying the cost activities and the percentage of time spent on each activity by
various factory employees.
Ordering
parts
Repairing
equipment
Inspecting
motors
Engineering
changes
Maintenance person
Production foreman
Factory superintendent
Accountant
0%
15%
10%
50%
75%
15%
0%
0%
0%
40%
50%
0%
25%
30%
40%
50%
Maggie also gathered the total overhead cost associated with each factory employee which is shown below:
Maintenance person
Production foreman
Factory superintendent
Accountant
$ 75,000
90,000
105,000
85,000
Using the information above, compute the amount of the cost pool associated with inspecting motors.
$88,500
$66,500
$85,000
$69,750
Bookmark question for later
arazzz Company manufactures computers. The following cost information for the manufacture of one
T
computer has been compiled.
Direct materials
Direct labor
Variable manufacturing overhead
*Fixed manufacturing overhead
Total cost per unit
$48
64
40
48
$200
*The $48 amount reflects the amount of indirect cost allocated to each unit. However, as indicated, the total of
these indirect costs is fixed.
Tarazzz has received a special order for 1,000 computers at a price of $150 per unit. By how much will overall
company net income change if the order is accepted?
Company net income will DECREASE by $50,000 if the order is
accepted.
Company net income will INCREASE by $2,000 if the order is accepted.
Company net income will DECREASE by $2,000 if the order is
accepted.
Company net income will INCREASE by $50,000 if the order is
accepted.
Bookmark question for later
The Smith Company manufactures insulated windows. Costs for March were as follows.
Direct labor
Indirect labor
Salary of corporate vice president for advertising
Direct materials
Indirect materials
Interest expense
Salary of factory supervisor
Insurance on manufacturing equipment
$53,000
18,000
25,000
48,000
4,000
7,500
3,000
2,000
What is Smith Company’s actual manufacturing overhead for March?
$75,000
$5,000
$9,000
$27,000
Lorien Company manufactures baby car seats. Which ONE of the following is NOT a PRODUCT cost?
Wages of the janitors in the executive office building
Wages of the janitors in the car seat manufacturing building
Property taxes on the car seat manufacturing building
Cost of plastic used in the construction of the car seats
Cost of the electricity used in the car seat manufacturing building
Salary of the factory quality control inspector
Salary of the manufacturing production supervisor
FEEDBACK
1 / 1 (100.0%)
Correct Answer: Wages of the janitors in the executive office building
PRODUCT costs are all of those costs that are associated with activities in the manufacturing
facilities. Because the janitors in the executive office building do not work in the factory, their
wages are not a PRODUCT cost but are a PERIOD cost.
aggie’s Motors manufactures boat motors. Maggie is shifting from a traditional costing system to an
M
activity-based costing system. She has started by identifying four overhead cost activities. Listed below is the
table that Maggie created identifying the cost activities and the percentage of time spent on each activity by
various factory employees.
Maintenance person
Production foreman
Factory superintendent
Accountant
Ordering Repairing
Inspecting
Engineering
parts
equipment
motors
changes
0%
75%
0%
25%
15%
15%
40%
10%
0%
50%
50%
0%
0%
50%
30%
40%
Maggie also gathered the total overhead cost associated with each factory employee which is shown below:
Maintenance person
Production foreman
Factory superintendent
Accountant
$ 75,000
90,000
105,000
85,000
Using the information above, compute the amount of the cost pool associated with inspecting motors.
$85,000
$88,500
$69,750
$66,500
FEEDBACK
1 / 1 (100.0%)
Correct Answer: $88,500
Cost pool for inspecting motors: ($75,000 x 0%) + ($90,000 x 40%) + ($105,000 x 50%) +
($85,000 x 0%) = $88,500
hen determining the amount of cash payments for manufacturing overhead, which costs are removed from
W
the budgeted manufacturing overhead?
Depreciation
Direct materials
Indirect labor
Direct labor
Indirect materials
FEEDBACK
1 / 1 (100.0%)
Correct Answer: Depreciation
Depreciation is a non-cash expense and is therefore excluded from consideration in the
cash budget.
hich ONE of the following is NOT a likely cause of an UNFAVORABLE MATERIALS QUANTITY
W
VARIANCE?
Inaccurate materials quantity standard
Overtime premiums for direct labor workers
Low-quality materials
Poor workmanship
Inexperienced workers
Machines in need of repair
FEEDBACK
1 / 1 (100.0%)
Correct Answer: Overtime premiums for direct labor workers
Materials quantity variances may be caused by quality defects, poor workmanship, poor
choice of materials, inexperienced workers, machines that need repair, or an inaccurate
materials quantity standard. Just as the purchasing manager must explain significant price
variances, generally the production manager must analyze significant quantity variances to
determine their cause.
What is BUDGETARY SLACK?
Process prioritizing, also known as profit planning
Constructive response to budget deviations
Top-down planning of budgetary goals
Intentionally creating easy budget targets
Bottom-up planning of budgetary goals
FEEDBACK
1 / 1 (100.0%)
Correct Answer: Intentionally creating easy budget targets
Budgetary slack is the process of inflating a department’s budget request for resource
inputs (such as materials, labor, time, and so forth) or deflating the department’s budget
commitment to output (products, services, sales, etc.) so that the department manager can
more easily achieve the budget.
I n a graph used for breakeven analysis, what is represented by the VERTICAL INTERCEPT of the TOTAL
COST LINE?
Fixed cost per unit
Total revenue
Price per unit
Total fixed cost
Variable cost per unit
FEEDBACK
1 / 1 (100.0%)
Correct Answer: Total fixed cost
The fixed cost can be thought of as the cost that will be there even when the level of activity
is zero. This corresponds to the place where the total cost line intercepts the vertical axis.
The following data are for Jay Robert Company.
Breakeven sales revenue
Fixed costs
$250,000
$150,000
Calculate the sales revenue necessary to generate net income of $100,000.
$416,667
$533,333
$625,000
$400,000
$618,667
FEEDBACK
1 / 1 (100.0%)
Correct Answer: $416,667
Sales revenue
– variable cost
= Contribution margin
– fixed cost
= Net income
$250,000
-???????
$???????
– 150,000
$0
Contribution margin must equal $150,000.
Variable cost must equal $100,000.
Variable cost ratio must equal 40% ($100,000 / $250,000).
Sales – Variable Cost – Fixed Cost = Net Income
(Price per unit x Number of units) – (Variable Cost per unit x Number of units) – Fixed
Cost = Net Income
R – 0.40R – $150,000 = $100,000
0.60R = $250,000
R = $416,667
Which ONE of the following statements is TRUE?
Operations budgeting is the planning for the acquisition of
property, plant, and equipment.
Operations budgeting is the planning for how to obtain the
financing for both short-term and long-term projects.
Capital budgeting is the planning for how to obtain the financing
for both short-term and long-term projects.
Capital budgeting is the planning for the acquisition of property,
plant, and equipment.
FEEDBACK
1 / 1 (100.0%)
Correct Answer: Capital budgeting is the planning for the acquisition of property,
plant, and equipment.
There are two basic types of planning:
○
○
Long-run planning, which includes strategic planning and capital
budgeting
Short-run planning, which includes production and process prioritizing,
and operations budgeting
The planning for the acquisition of long-term assets such as building or equipment is called
capital budgeting.
orm’s Furniture Company manufactures custom furniture only and uses a job order costing system to
N
accumulate costs. Actual direct materials and direct labor costs are accumulated for each job, but a
predetermined overhead rate is used to apply manufacturing overhead costs to individual jobs. Manufacturing
overhead is applied on the basis of direct labor hours. In computing a predetermined overhead rate, the
controller estimated that manufacturing overhead costs for the year would be $200,000 and direct labor hours
would be 20,000. The following summary information is available for the year. Note: This summary
information represents cost data related to hundreds of different job orders started or completed during the
year.
a.
Raw materials purchased during the year were $250,000.
b.
Raw materials used in production during the year were $230,000.
c.
Wages paid to the furniture craftsmen during the year totaled $440,000 (22,000 hours).
d.
Wages paid to factory maintenance workers during the year totaled $65,000.
e.
Depreciation on machinery and equipment during the year was $100,000.
f.
Rent and utilities for the factory building during the year totaled $30,000.
g.
Manufacturing overhead was applied to Work-in-Process Inventory using the predetermined overhead
rate.
h.
Work-in-Process Inventory costing $800,000 was completed and transferred to Finished Goods
Inventory.
i.
Goods costing $750,000 were sold.
Assume that the beginning balance in the Work-in-Process Inventory account was $0. What is the
ENDING balance in the Work-in-Process Inventory account?
$90,000
$65,000
$20,000
$70,000
$50,000
$115,000
$800,000
$890,000
FEEDBACK
1 / 1 (100.0%)
Correct Answer: $90,000
Beginning balance
+ Raw materials used
+ Direct labor
+ Applied overhead
– Good completed
= Ending balance
0
230,000
440,000
220,000
– 800,000
90,000
The following data are for Kylie Ramona Company.
Contribution margin ratio
Fixed costs
Calculate the breakeven sales revenue.
15%
$100,000
$578,647
$623,459
$666,667
$150,000
$415,000
FEEDBACK
1 / 1 (100.0%)
Correct Answer: $666,667
Contribution margin ratio + Variable cost ratio = 100%
15% + Variable cost ratio = 100%
Variable cost ratio = 85%
Sales – Variable Cost – Fixed Cost = Net Income
(Price per unit x Number of units) – (Variable Cost per unit x Number of units) – Fixed
Cost = Net Income
X – 0.85X – $100,000 = $0
0.15X = $100,000
X = $666,667
The following data are for Lily Kay Company.
Total sales revenue
Number of units sold
Contribution margin per unit
Fixed costs
$250,000
50,000 units
$3.50
$100,000
Calculate the number of units that must be sold to generate net income of $80,000.
5,714 units
13,333 units
22,857 units
51,429 units
120,000 units
FEEDBACK
1 / 1 (100.0%)
Correct Answer: 51,429 units
Selling price per unit: $250,000 / 50,000 units = $5.00
Variable cost per unit: $5.00 – $3.50 = $1.50
Sales – Variable Cost – Fixed Cost = Net Income
(Price per unit x Number of units) – (Variable Cost per unit x Number of units) – Fixed
Cost = Net Income
$5.00X – $1.50X – $100,000 = $80,000
$3.50X = $180,000
X = 51,429 units
ioche Company is considering selling a “premium” version of one of its products. The following information
P
is available. The “additional processing costs” are the costs needed to transform the units from “standard” to
“premium.”
Number of units produced
Selling price of “standard” units
Additional processing costs
Selling price of “premium” units
100,000
$10 per unit
$900,000
$15 per unit
Before any additional processing costs, the total production cost for the 100,000 units is $700,000. What will
be the change in Pioche Company’s net income if the company decides to sell a “premium” version of this
product?
Increase of $200,000
Decrease of $200,000
Increase of $100,000
No change
Decrease of $400,000
FEEDBACK
1 / 1 (100.0%)
Correct Answer: Decrease of $400,000
Number of units produced
Increased price per unit
Increased revenue
100,000
Additional processing costs
900,000
$5
$500,000
Net change in profit
– $400,000
The $700,000 production cost from before the additional processing is not relevant. That
cost will occur whether or not additional processing is performed.
n September 30 of Year 1, Lily Company had finished goods inventory of 1,000 units. Starting in October,
O
Lily intends to have an inventory policy of maintaining ending inventory at the end of every month equal to
the next TWO months’ sales. For example, ending inventory at the end of October should be equal to
forecasted sales in November plus forecasted sales in December.
Forecasted sales for the months October, Year 1 through January, Year 2 are as follows.
October
November
December
January
2,300 units
3,000 units
1,000 units
700 units
What is the amount of budgeted PRODUCTION for November?
3,000 units
1,700 units
4,700 units
2,000 units
3,300 units
700 units
FEEDBACK
0 / 1 (0.0%)
Correct Answer: 700 units
October
FINISHED GOODS:
Forecasted sales
+ Required ending inventory
Requirement
– Beginning inventory
Budgeted production
2,300
4,000
—–6,300
-1,000
—–5,300
November
3,000
1,700
—–4,700
-4,000
—–700
December
1,000
???
January
700
???
====
====
ella Brown is the manager of one of the stores in the nationwide EatRite supermarket chain. Della’s store has
D
three departments; she evaluates the managers of each of those three departments using a Department Margin
number. The following information has been gathered about the performance of Della’s store in the most recent
month.
Operating Departments
Groceries
Fresh produce
Dry goods
ContributionRevenue
Margin Ratio
$600,000
20%
200,000
40%
500,000
35%
Fixed costs controllable by:
Manager of grocery department
Manager of fresh produce department
Manager of dry goods department
Store manager
Corporate headquarters
Total
$50,000
70,000
80,000
100,000
130,000
$430,000
Compute the STORE MARGIN number that can be used to appropriately measure the performance of
Della Brown, the store manager, who is evaluated as a manager of a profit center. Remember that Della
is the manager of the entire store meaning that she has responsibility for the store itself and for each of
the departments in the store.
$100,000
$175,000
$375,000
$75,000
$200,000
FEEDBACK
0 / 1 (0.0%)
Correct Answer: $75,000
Store
Revenues
$1,300,000
Less: Variable costs
925,000
Groceries
Fresh
Produce
Dry
Goods
$600,000
$200,000
$500,000
480,000
120,000
325,000
Contribution margin
375,000
Less: Department-controllable fixed costs
200,000
Department margin
175,000
Less: Store-controllable fixed costs
100,000
Store margin
$75,000
120,000
80,000
175,000
50,000
70,000
80,000
70,000
10,000
95,000
laine Avenue Company manufactures three products. Profit computations for these three products for Year 1
B
are given below.
Sales
Direct materials
Direct labor
Manufacturing Overhead
Profit
Product X
$300,000
(70,000)
(50,000)
(100,000)
$80,000
Product Y
$700,000
(150,000)
(200,000)
(400,000)
($50,000)
Product Z
$800,000
(200,000)
(250,000)
(500,000)
($150,000)
Blaine Avenue has a total of $1,000,000 in manufacturing overhead costs. Of this amount, $700,000 is directly
related to the number of product batches produced during the year. The number of batches of the three products
for Year 1 was as follows: Product X, 20 batches; Product Y, 30 batches; Product Z 50 batches. The remaining
$300,000 in overhead is for facility support (property taxes, security costs, general administration, etc.) and
doesn’t not vary at all with the level of activity. What would total company NET INCOME be if the
Product X line were dropped? Assume that Blaine Avenue has no other costs or expenses except those
described here.
profit of $40,000
loss of $270,000
profit of $180,000
$0 – no profit or loss
loss of $160,000
loss of $120,000
profit of $300,000
profit of $30,000
FEEDBACK
0 / 1 (0.0%)
Correct Answer: loss of $160,000
Batch-level overhead: $700,000 / 100 batches = $7,000 per batch
Batch-level overhead
Total
Manufacturing
Overhead
Costs
Product X Product Y
$700,000
$140,000 $210,000
Product Z
$350,000
Before eliminating Product X
Product X
Sales
$300,000
Direct materials
(70,000)
Direct labor
(50,000)
Manufacturing Overhead
(140,000)
Product Line Profit
$40,000
Less: Facility support overhead
Company profit
Company
Product Y Product Z
Total
$700,000
$800,000 $1,800,000
(150,000)
(200,000)
(420,000)
(200,000)
(250,000)
(500,000)
(210,000)
(350,000)
(700,000)
$140,000
$0
$180,000
(300,000)
($120,000)
After eliminating Product X
Sales
Direct materials
Direct labor
Manufacturing Overhead
Product Line Profit
Less: Facility support overhead
Company profit
Product Y
$700,000
(150,000)
(200,000)
(210,000)
$140,000
Company
Product Z
Total
$800,000 $1,500,000
(200,000)
(350,000)
(250,000)
(450,000)
(350,000)
(560,000)
$0
$140,000
(300,000)
($160,000)
The Smith Company manufactures insulated windows. Costs for March were as follows.
Direct labor
Indirect labor
Salary of corporate vice president for advertising
Direct materials
Indirect materials
Interest expense
Salary of factory supervisor
Insurance on manufacturing equipment
$53,000
18,000
25,000
48,000
4,000
7,500
3,000
2,000
What is Smith Company’s actual manufacturing overhead for March?
$75,000
$9,000
$5,000
$27,000
FEEDBACK
1 / 1 (100.0%)
Correct Answer: $27,000
Manufacturing overhead is defined as all costs incurred in the manufacturing process other than
direct materials and direct labor. Thus, in this problem the amount Smith Company incurred for
Manufacturing Overhead in March is the sum of the costs for indirect labor, indirect materials,
salary of factory supervisor, and insurance on manufacturing equipment.
$27,000 = $18,000 + $4,000 + $3,000 + $2,000
The corporate vice president for advertising does her work OUTSIDE the factory, so that cost is
not a product cost. Similarly, interest expense is incurred OUTSIDE the factory so is not a
product cost.
n September 30 of Year 1, Julian Company had finished goods inventory of 2,000 units. Starting in October,
O
Julian intends to have an inventory policy of maintaining ending inventory at the end of every month equal to
the next month’s sales. For example, ending inventory at the end of October should be equal to forecasted sales
in November.
Forecasted sales for the months October, Year 1 through January, Year 2 are as follows.
October
November
December
January
4,500 units
6,000 units
2,000 units
1,000 units
What is the amount of budgeted PRODUCTION for October?
8,000 units
4,000 units
8,500 units
10,500 units
6,000 units
FEEDBACK
1 / 1 (100.0%)
Correct Answer: 8,500 units
October
FINISHED GOODS:
Forecasted sales
+ Required ending inventory
Requirement
– Beginning inventory
Budgeted production
4,500
6,000
—–10,500
-2,000
—–8,500
====
November
6,000
2,000
—–8,000
-6,000
—–2,000
====
The following cost information is for Leslie Company.
Actual results
Total cost of purchasing material
Number of labor hours worked
Number of material pounds used in production
Total labor cost
Number of units produced
Number of material pounds purchased
$58,000
1,000 hours
5,850 pounds
$48,000
300 units
6,250 pounds
Leslie Company has established the following standards.
Price per pound of materials
Number of pounds of material to produce one unit
Standard labor rate
Number of labor hours to produce one unit
$10.00 per pound
20 pounds
$50.00 per hour
3 hours
Compute Leslie’s Materials Quantity Variance.
$2,500 Favorable
$1,500 Unfavorable
$2,500 Unfavorable
$1,500 Favorable
$4,500 Favorable
$4,500 Unfavorable
December
2,000
1,000
—–3,000
-2,000
—–1,000
====
FEEDBACK
0 / 1 (0.0%)
Correct Answer: $1,500 Favorable
The materials quantity variance is based on the quantity of materials used, compared to
the quantity that should have been used according to the standard. The amount is
computed using the standard price.
AQ x SP = 5,850 pounds x $10.00
$58,500
SQ x SP = 6,000* pounds x $10.00
60,000
* 6,000 pounds = 300 units produced x 20 standard pounds/unit
Quantity variance
$1,500 favorable
The variance is favorable because we used less than the standard.
Which ONE of the following would most likely not be considered a BATCH-LEVEL activity?
Purchase orders
Movements of materials
Factory security
Number of inspections
Set-up hours
FEEDBACK
1 / 1 (100.0%)
Correct Answer: Factory security
Set-up hours — BATCH
Purchase orders — BATCH
Number of inspections — BATCH
Factory security – FACILITY SUPPORT
Movements of materials — BATCH
laine Avenue Company manufactures three products. Profit computations for these three products for Year 1
B
are given below.
Sales
Direct materials
Product X
$300,000
(70,000)
Product Y
$700,000
(150,000)
Product Z
$800,000
(200,000)
Direct labor
Manufacturing Overhead
Profit
(50,000)
(200,000)
(250,000)
(100,000)
(400,000)
(500,000)
$80,000
($50,000)
($150,000)
Blaine Avenue has a total of $1,000,000 in manufacturing overhead costs. Of this amount, $700,000 is directly
related to the number of product batches produced during the year. The number of batches of the three products
for Year 1 was as follows: Product X, 20 batches; Product Y, 30 batches; Product Z 50 batches. The remaining
$300,000 in overhead is for facility support (property taxes, security costs, general administration, etc.) and
doesn’t not vary at all with the level of activity. What would total company NET INCOME be if the
Product Z line were dropped? Assume that Blaine Avenue has no other costs or expenses except those
described here.
profit of $40,000
loss of $120,000
loss of $260,000
profit of $180,000
loss of $270,000
profit of $300,000
profit of $30,000
$0 – no profit or loss
FEEDBACK
0 / 1 (0.0%)
Correct Answer: loss of $120,000
Batch-level overhead: $700,000 / 100 batches = $7,000 per batch
Total
Manufacturing
Overhead
Costs
Z
Batch-level overhead
Product X
Product Y
Product
$700,000
$140,000
$210,000
Product X
$300,000
(70,000)
(50,000)
(140,000)
$40,000
Company
Product Y
Product Z
Total
$700,000
$800,000
$1,800,000
(150,000)
(200,000)
(420,000)
(200,000)
(250,000)
(500,000)
(210,000)
(350,000)
(700,000)
$140,000
$0
$350,000
Before eliminating Product Z
Sales
Direct materials
Direct labor
Manufacturing Overhead
Product Line Profit
$180,000
Less: Facility support overhead
Company profit
(300,000)
($120,000)
After eliminating Product Z
Company
Total
Sales
Direct materials
Direct labor
Manufacturing Overhead
Product Line Profit
Less: Facility support overhead
Company profit
Product X
Product Y
$300,000
(70,000)
(50,000)
(140,000)
$40,000
$700,000
(150,000)
(200,000)
(210,000)
$140,000
$1,000,000
(220,000)
(250,000)
(350,000)
$180,000
(300,000)
($120,000)
Which ONE of the following is NOT one of the steps in establishing and operating a standard cost system?
Report the variances to the responsible managers
Record the variances
Identify variances (differences between actual and standard costs)
Develop standard costs
Apply manufacturing overhead
Collect actual costs
Take action to eliminate variances (or revise the standard)
Analyze causes of significant, controllable variances
FEEDBACK
1 / 1 (100.0%)
Correct Answer: Apply manufacturing overhead
The steps in establishing and operating a standard cost system are as follows.
○
○
○
○
○
○
○
Develop standard costs
Collect actual costs
Identify variances (differences between actual and standard costs)
Record the variances
Report the variances to the responsible managers
Analyze causes of significant, controllable variances
Take action to eliminate variances (or revise the standard)
Which ONE of the following statements is FALSE with respect to the master budget?
The master budget represents the overall operating plans for a
specific time period.
The master budget begins with a forecast of sales.
The capital budget is a critical part of the master budget.
In preparing the master budget, the cash budget should be
prepared AFTER the production budget.
FEEDBACK
0 / 1 (0.0%)
Correct Answer: The capital budget is a critical part of the master budget.
There are two basic types of planning:
○
○
Long-run planning, which includes strategic planning and capital
budgeting
Short-run planning, which includes production and process prioritizing,
and operations budgeting
The planning for the acquisition of long-term assets such as building or equipment is called
capital budgeting. The long-term capital budget is SEPARATE FROM the periodic master
(operating) budget.
hich ONE of the following budgets is based on the expected sales volume and the desired ending inventory
W
of finished goods and is adjusted for the expected beginning inventory of finished goods?
Sales budget
Building acquisition budget
Advertising budget
Production budget
FEEDBACK
1 / 1 (100.0%)
Correct Answer: Production budget
Production budget
Forecasted sales
+ Desired ending inventory
= Units needed
— Beginning inventory (that is, units already available)
= Budgeted production
Which ONE of the following is NOT one of the three general categories of product costs?
Direct materials
Manufacturing overhead
Direct labor
CEO and other executive salaries
FEEDBACK
1 / 1 (100.0%)
Correct Answer: CEO and other executive salaries
orton Company has two divisions. Sales, direct materials cost, direct labor cost, and manufacturing overhead
M
data for Morton’s two divisions are available below. Note: All of Morton Company’s products are sold in
competitive markets.
Missile
Salt
Products
Products
Sales
$1,500,000
$1,000,000
Direct labor
(300,000)
(800,000)
Direct materials
(100,000)
(40,000)
Manufacturing overhead*
(150,000)
(400,000)
Gross profit
$950,000
($240,000)
*Manufacturing overhead is allocated to production based on the amount of direct labor cost.
Morton has determined that its total manufacturing overhead cost of $550,000 is a mixture of
batch-level costs and product line costs. Morton has assembled the following information concerning the
manufacturing overhead costs, the annual number of production batches, and the number of product lines in
each division.
Total
Manufacturing
Overhead
Costs
Batch-level overhead
$250,000
Product line overhead
300,000
$550,000
Missile
Products
10 batches
3 lines
Salt
Products
90 batches
7 lines
Which ONE of the following statements is MOST CORRECT?
If the activity-based costing system had been used in the most
recent year in place of the traditional overhead allocation
technique, profit for the Salt Division would have decreased by
$285,000.
If the activity-based costing system had been used in the most
recent year in place of the traditional overhead allocation
technique, profit for the Missile Division would have decreased by
$260,000.
If the activity-based costing system had been used in the most
recent year in place of the traditional overhead allocation
technique, profit for the Missile Division would have decreased by
$35,000.
If the activity-based costing system had been used in the most
recent year in place of the traditional overhead allocation
technique, profit for the Missile Division would have increased by
$260,000.
If the activity-based costing system had been used in the most
recent year in place of the traditional overhead allocation
technique, profit for the Salt Division would have increased by
$285,000.
If the activity-based costing system had been used in the most
recent year in place of the traditional overhead allocation
technique, profit for the Missile Division would have increased by
$35,000.
FEEDBACK
0 / 1 (0.0%)
Correct Answer: If the activity-based costing system had been used in the most recent year in
place of the traditional overhead allocation technique, profit for the Missile Division would
have increased by $35,000.
Batch-level overhead: $250,000 / 100 batches = $2,500 per batch
Product line overhead: $300,000 / 10 lines = $30,000 per line
Sales
Direct labor
Direct materials
Batch-level overhead
Product line overhead
Gross profit
Missile
Products
$1,500,000
(300,000)
(100,000)
(25,000)
(90,000)
$985,000
Salt
Products
$1,000,000
(800,000)
(40,000)
(225,000)
(210,000)
($275,000)
*Manufacturing overhead is allocated based on number of batches and number of product lines.
Old gross profit
New gross profit
Change in gross profit
Missile
Salt
Products
Products
$950,000
($240,000)
985,000
(275,000)
increase $35,000
decrease $35,000
The following cost information is for Rocky Company.
Actual results:
Total cost of purchasing material……………………………………………. $15,000
Number of labor hours worked……………………………………………… 450 hours
Number of material pounds used in production……………… 2,000 pounds
Number of units produced……………………………………………………… 200 units
Number of material pounds purchased…………………………… 1,500 pounds
Total labor cost………………………………………………………………………… $12,500
Rocky Company has established the following standards:
Price per pound of materials……………………………………….. $8.00 per pound
Standard labor rate……………………………………………………… $30.00 per hour
During the year, Rocky Company’s total STANDARD COST for direct labor was $12,000 of direct labor.
Given these data, which ONE of the following PAIRS of variances is correct with respect to DIRECT
LABOR?
Labor Efficiency Variance UNFAVORABLE for $500; Labor Rate
Variance FAVORABLE for $1,000
Labor Efficiency Variance UNFAVORABLE for $1,000; Labor Rate
Variance FAVORABLE for $1,500
Labor Efficiency Variance FAVORABLE for $1,000; Labor Rate
Variance UNFAVORABLE for $500
Labor Efficiency Variance FAVORABLE for $1,000; Labor Rate
Variance UNFAVORABLE for $1,500
Labor Efficiency Variance FAVORABLE for $500; Labor Rate
Variance UNFAVORABLE for $1,000
Labor Efficiency Variance UNFAVORABLE for $1,000; Labor Rate
Variance FAVORABLE for $500
Labor Efficiency Variance UNFAVORABLE for $1,500; Labor Rate
Variance FAVORABLE for $1,000
Labor Efficiency Variance FAVORABLE for $1,500; Labor Rate
Variance UNFAVORABLE for $1,000
FEEDBACK
1 / 1 (100.0%)
Correct Answer: Labor Efficiency Variance UNFAVORABLE for $1,500; Labor Rate
Variance FAVORABLE for $1,000
Direct Labor is added to WIP Inventory at the standard rate. So, we can compute the
standard number of hours.
$12,000 = $30.00 standard rate per hour × Standard number of hours
Standard number of hours = 400
We can compute the Labor Efficiency Variance as follows.
(450 actual hours – 400 standard hours) × $30.00 per hour = $1,500 Unfavorable
The TOTAL labor variance (RATE + EFFICIENCY) is UNFAVORABLE of $500 ($12,500
actual labor cost compared to $12,000 standard labor cost).
If the TOTAL labor variance is $500 UNFAVORABLE and the EFFICIENCY variance
alone is $1,500 UNFAVORABLE, then the Labor Rate Variance must be $1,000
FAVORABLE.
Labor Rate Variance
Labor Efficiency Variance
Total Labor Variance
$1,000 Favorable
$1,500 UNfavorable
$500 UNfavorable
n September 30 of Year 1, Julian Company had finished goods inventory of 1,000 units. Starting in October,
O
Julian intends to have an inventory policy of maintaining ending inventory at the end of every month equal to
the next month’s sales. For example, ending inventory at the end of October should be equal to forecasted sales
in November.
Forecasted sales for the months October, Year 1 through January, Year 2 are as follows.
October
November
December
January
2,300 units
3,000 units
1,000 units
700 units
What is the amount of budgeted PRODUCTION for October?
4,300 units
2,000 units
3,000 units
5,300 units
3,300 units
FEEDBACK
1 / 1 (100.0%)
Correct Answer: 4,300 units
FINISHED GOODS:
Forecasted sales
+ Required ending inventory
Requirement
– Beginning inventory
Budgeted production
October
November
2,300
3,000
—–5,300
-1,000
—–4,300
====
3,000
1,000
—–4,000
-3,000
—–1,000
====
December
1,000
700
—–1,700
-1,000
—–700
====
olar Salt Company has two divisions. Sales, direct materials cost, and direct labor cost data for Solar Salt’s
S
two divisions are not available. However, manufacturing overhead and gross profit data for the two divisions
are available, as follows.
Agricultural
Retail
Products
Products
Manufacturing overhead*
$450,000
$250,000
Gross profit
150,000
100,000
*Manufacturing overhead is allocated to production based on the amount of direct labor cost.
Solar Salt has determined that its total manufacturing overhead cost of $700,000 is a mixture of
unit-level costs, batch-level costs, and product line costs. Solar Salt has assembled the following information
concerning the manufacturing overhead costs, the annual number of units produced, production batches, and
number of product lines in each division.
Unit-level overhead
Total
Manufacturing
Overhead
Costs
$210,000
Agricultural
Products
7,500 units
Retail
Products
13,500 units
Batch-level overhead
Product line overhead
280,000
210,000
$700,000
50 batches
10 lines
90 batches
18 lines
How much will GROSS PROFIT in each of the divisions be if Solar Salt adopts an activity-based
costing system?
Agricultural, $350,000; Retail, loss of $100,000
Agricultural, loss of $50,000; Retail, loss of $100,000
Agricultural, $350,000; Retail, $300,000
Agricultural, $150,000; Retail, $100,000
Agricultural, $250,000; Retail, $450,000
Agricultural, $50,000; Retail, $200,000
Agricultural, $350,000; Retail, $100,000
Agricultural, loss of $50,000; Retail, $300,000
FEEDBACK
1 / 1 (100.0%)
Correct Answer: Agricultural, $350,000; Retail, loss of $100,000
Unit-level overhead: $210,000 / 21,000 units = $10 per unit
Batch-level overhead: $280,000 / 140 batches = $2,000 per batch
Product line overhead: $210,000 / 28 lines = $7,500 per line
Total
Manufacturing
Overhead
Costs
Unit-level overhead
$210,000
Batch-level overhead
280,000
Product line overhead
210,000
Total
$700,000
Less: original overhead
700,000
Difference
$0
Agricultural
Products
$75,000
100,000
75,000
$250,000
450,000
down $200,000
Change in gross profit
Gross profit
up $200,000
$350,000
no change
$250,000
Retail
Products
$135,000
180,000
135,000
$450,000
250,000
up $200,000
down $200,000
($100,000)
orton Company has two divisions. Sales, direct materials cost, direct labor cost, and manufacturing overhead
M
data for Morton’s two divisions are available below. Note: All of Morton Company’s products are sold in
competitive markets.
Sales
Direct labor
Direct materials
Manufacturing overhead*
Gross profit
Missile
Products
$1,500,000
(800,000)
(100,000)
(400,000)
$200,000
Salt
Products
$1,000,000
(300,000)
(40,000)
(150,000)
$510,000
*Manufacturing overhead is allocated to production based on the amount of direct labor cost.
Morton has determined that its total manufacturing overhead cost of $550,000 is a mixture of
batch-level costs and product line costs. Morton has assembled the following information concerning the
manufacturing overhead costs, the annual number of production batches, and the number of product lines in
each division.
Total
Manufacturing
Overhead
Costs
Batch-level overhead
$250,000
Product line overhead
300,000
$550,000
Missile
Products
10 batches
1 line
Salt
Products
90 batches
9 lines
Which ONE of the following statements is MOST CORRECT?
If the activity-based costing system had been used in the most
recent year in place of the traditional overhead allocation
technique, profit for the Missile Division would have increased by
$25,000.
If the activity-based costing system had been used in the most
recent year in place of the traditional overhead allocation
technique, profit for the Missile Division would have increased by
$345,000.
If the activity-based costing system had been used in the most
recent year in place of the traditional overhead allocation
technique, profit for the Salt Division would have decreased by
$285,000.
If the activity-based costing system had been used in the most
recent year in place of the traditional overhead allocation
technique, profit for the Missile Division would have decreased by
$345,000.
If the activity-based costing system had been used in the most
recent year in place of the traditional overhead allocation
technique, profit for the Salt Division would have increased by
$285,000.
If the activity-based costing system had been used in the most
recent year in place of the traditional overhead allocation
technique, profit for the Missile Division would have decreased by
$25,000.
FEEDBACK
0 / 1 (0.0%)
Correct Answer: If the activity-based costing system had been used in the most recent year in
place of the traditional overhead allocation technique, profit for the Missile Division would
have increased by $345,000.
Batch-level overhead: $250,000 / 100 batches = $2,500 per batch
Product line overhead: $300,000 / 10 lines = $30,000 per line
Sales
Direct labor
Direct materials
Batch-level overhead
Product line overhead
Gross profit
Missile
Products
$1,500,000
(800,000)
(100,000)
(25,000)
(30,000)
$545,000
Salt
Products
$1,000,000
(300,000)
(40,000)
(225,000)
(270,000)
$165,000
*Manufacturing overhead is allocated based on number of batches and number of product lines.
Old gross profit
New gross profit
Change in gross profit
Missile
Salt
Products
Products
$200,000
$510,000
545,000
165,000
increase $345,000
decrease $345,000
Kamili Company has the following three manufacturing overhead cost drivers.
Cost Driver
Design changes
Machine setups
Electricity usage
Overhead
Level of Activity
Cost
100 changes per year
$ 5,000
2,000 setups per year
18,000
12,000 kilowatt-hours per year
36,000
Kamili Company started and completed work on 25 different jobs during the year. One of these jobs was Job
#781. Job #781 required eight design changes, 40 machine setups, and 700 kilowatt-hours of electricity. How
much manufacturing overhead should be allocated to Job #781? Note: Kamili uses activity-based costing.
$3,080
$3,580
$2,860
$1,550
$2,360
$2,680
FEEDBACK
1 / 1 (100.0%)
Correct Answer: $2,860
In order to find the correct amount of manufacturing overhead to allocate to Job #781, the
cost per cost driver unit must be found by dividing the total manufacturing overhead cost
per year by the level of activity per year. The following are the cost per cost driver unit
computations.
Design changes: $5,000 / 100 changes = $50 per change
Machine setups: $18,000 / 2,000 setups = $9 per setup
Electricity: $36,000 / 12,000 kilowatt-hours = $3 per kilowatt-hour
After finding the cost per cost driver unit, the amount of manufacturing overhead
allocated to Job #781 can be found by multiplying the activity level for the job by the cost
per cost driver unit and then summing the costs of the manufacturing activities.
Manufacturing Activity
Design changes
Machine setups
Electricity
Total
8 × $50
40 × $9
700 × $3
Job #781
$400
360
2,100
$2,860
n September 30 of Year 1, Lily Company had finished goods inventory of 1,000 units. Starting in October,
O
Lily intends to have an inventory policy of maintaining ending inventory at the end of every month equal to
the next TWO months’ sales. For example, ending inventory at the end of October should be equal to
forecasted sales in November plus forecasted sales in December.
Forecasted sales for the months October, Year 1 through January, Year 2 are as follows.
October
November
December
January
2,300 units
3,000 units
1,000 units
700 units
What is the amount of budgeted PRODUCTION for November?
700 units
3,000 units
1,700 units
3,300 units
2,000 units
4,700 units
FEEDBACK
0 / 1 (0.0%)
Correct Answer: 700 units
October
FINISHED GOODS:
Forecasted sales
+ Required ending inventory
Requirement
– Beginning inventory
Budgeted production
Within the relevant range, the fixed cost per unit
2,300
4,000
—–6,300
-1,000
—–5,300
====
November
3,000
1,700
—–4,700
-4,000
—–700
====
December
1,000
???
January
700
???
Decreases as activity level increases
Decreases as activity level decreases
Increases as activity level increases
Remains constant as activity level increases
FEEDBACK
0 / 1 (0.0%)
Correct Answer: Decreases as activity level increases
Total fixed costs do NOT change with changes in activity level, within the relevant range.
Fixed costs are FIXED in TOTAL but VARY per UNIT depending on the level of
production. Fixed cost per unit DECREASES with an increase in the number of units.
ophie Company has decided that direct labor hours is a good basis on which to apply overhead to production.
S
Budgeted manufacturing overhead for the coming year is $500,000. Budgeted direct materials purchases is
$400,000. Budgeted direct labor cost is $720,000. Budgeted direct labor hours for the coming year is 20,000
hours.
What is Sophie Company’s PREDETERMINED OVERHEAD RATE?
$36 per hour
$20 per hour
$61 per hour
$25 per hour
$56 per hour
FEEDBACK
1 / 1 (100.0%)
Correct Answer: $25 per hour
$500,000 budgeted overhead / 20,000 budgeting direct labor hours = $25 per hour
Which ONE of the following is NOT one of the steps in establishing and operating a standard cost system?
Take action to eliminate variances (or revise the standard)
Collect actual costs
Identify variances (differences between actual and standard costs)
Develop standard costs
Record the variances
Report the variances to the responsible managers
Apply manufacturing overhead
Analyze causes of significant, controllable variances
FEEDBACK
1 / 1 (100.0%)
Correct Answer: Apply manufacturing overhead
The steps in establishing and operating a standard cost system are as follows.
○
○
○
○
○
○
○
Develop standard costs
Collect actual costs
Identify variances (differences between actual and standard costs)
Record the variances
Report the variances to the responsible managers
Analyze causes of significant, controllable variances
Take action to eliminate variances (or revise the standard)
The following cost information is for Harry Company.
Actual results
Total cost of purchasing material
Number of labor hours worked
Number of material pounds used in production
Total labor cost
Number of units produced
Number of material pounds purchased
$58,000
1,000 hours
5,850 pounds
$48,000
300 units
6,250 pounds
Harry Company has established the following standards.
Price per pound of materials
Number of pounds of material to produce one unit
Standard labor rate
Number of labor hours to produce one unit
$10.00 per pound
20 pounds
$40.00 per hour
3 hours
Compute Harry’s Labor Rate Variance.
$2,000 Favorable
$8,000 Unfavorable
$8,000 Favorable
$2,000 Unfavorable
$3,000 Unfavorable
$3,000 Favorable
FEEDBACK
0 / 1 (0.0%)
Correct Answer: $8,000 Unfavorable
The labor rate variance is the difference between the actual amount spent on direct labor
and the amount that would have been spent if the standard wage rate had been paid for
the actual number of direct labor hours worked.
AH x AR = Actual direct labor cost
AH x SR = 1,000 hours x $40.00
Labor rate variance
$48,000
40,000
UNfavorable $8,000
The variance is UNfavorable because the actual cost incurred is MORE than the cost that
would have been incurred had the standard rate been paid.
ollins Company had the following cost data available. The Collins accountant believes that direct labor
C
hours is the correct cost driver to use to predict and manage these costs.
$50,000; 15,000 direct labor hours for January
$40,000; 12,000 direct labor hours for February
$35,000; 10,000 direct labor hours for March
$38,000; 11,000 direct labor hours for April
$45,000; 12,500 direct labor hours for May
$45,000; 14,000 direct labor hours for June
Use the high-low method to compute the total amount of monthly fixed costs for Collins Company.
$45,000
$0
$5,000
$15,000
$30,000
$8,000
FEEDBACK
1 / 1 (100.0%)
Correct Answer: $5,000
The high-low method analyzes mixed costs on the basis of total costs incurred at both
the highest and the lowest levels of activity. Usually (but not always) the highest and
lowest levels of activity will also correspond to the highest and lowest costs. The
amount of fixed costs can be found using four steps.
1.
Identify the highest and lowest activity levels
○
○
2.
Determine the differences between the high and low points
○
○
Highest = 15,000 direct labor hours in January; Cost = $50,000
Lowest = 10,000 direct labor hours in March; Cost = $35,000
Difference/Change in Direct Labor Hours = 15,000 – 10,000 = 5,000
Difference/Change in Cost = $50,000 – $35,000 = $15,000
3.
Calculate the variable cost rate = Change in costs / Change in direct labor
hours
$3.00 per direct labor hour = $15,000 / 5,000 hours
4.
Determine fixed costs based on variable cost rate. (Using highest or lowest
point will yield the same answer.)
Fixed Costs = Total Costs – Variable Costs
a. At Highest Point: FC = $50,000 – ($3 x 15,000) = $5,000
b. At Lowest Point: FC = $35,000 – ($3 x 10,000) = $5,000
Derrald Company manufactures snowboards. Estimated costs for Year 1 were as follows:
Direct labor………………………………………………………………………………. $31,000
Bonuses paid to factory supervisors……………………………………………. 9,000
Interest expense…………………………………………………………………………. 32,000
Depreciation on manufacturing equipment………………………………. 18,000
Indirect labor……………………………………………………………………………… 11,000
Direct materials………………………………………………………………………….. 36,000
Income tax expense…………………………………………………………………… 26,000
Indirect materials……………………………………………………………………….. 14,000
Property taxes on the corporate office building…………………………. 18,000
Estimated direct labor hours were 40,000.
Actual data for Year 1 are as follows:
Total manufacturing overhead: $120,000
Direct labor hours: 60,000 hours
The predetermined manufacturing overhead rate is determined on the basis of direct labor hours. Which ONE
of the following statements is TRUE?
Applied overhead was LESS than actual overhead by $68,000
Applied overhead was LESS than actual overhead by $42,000
Applied overhead was MORE than actual overhead by $52,000
Applied overhead was MORE than actual overhead by $42,000
Applied overhead was LESS than actual overhead by $52,000
Applied overhead was LESS than actual overhead by $22,000
Applied overhead was MORE than actual overhead by $68,000
Applied overhead was MORE than actual overhead by $22,000
FEEDBACK
1 / 1 (100.0%)
Correct Answer: Applied overhead was LESS than actual overhead by $42,000
Bonuses paid to factory supervisors……………………………………………. 9,000
Depreciation on manufacturing equipment………………………………. 18,000
Indirect labor……………………………………………………………………………… 11,000
Indirect materials……………………………………………………………………….. 14,000
Total estimated manufacturing overhead……………………………….. $52,000
Predetermined rate: $52,000 / 40,000 hours = $1.30 per hour
Actual…………………………………………………………………………………….. $120,000
Applied: 60,000 hours × $1.30 per hour…………………………………….. 78,000
Underapplied……………………………………………………………………………. $42,000
toneWorks is a company that sells tile. It has three profit centers: ceramic, stone and granite. Below is
S
financial information for the three centers for the year.
Ceramic
Stone
Granite
Revenue
$100,000
$125,000
$150,000
Variable costs as a percentage of sales
40%
60%
64%
Fixed costs:
Costs unique to the profit center
Costs allocated by the retail store
30,000
6,000
45,000
7,000
64,000
8,000
Which ONE of the following statements is TRUE?
Assuming that these data are reliable, only the Ceramic Division
should be closed.
Assuming that these data are reliable, only the Granite Division
should be closed.
Assuming that these data are reliable, only the Stone Division
should be closed.
Assuming that these data are reliable, both the Stone and the
Granite Divisions should be closed.
Assuming that these data are reliable, none of the three divisions
should be closed.
FEEDBACK
1 / 1 (100.0%)
Correct Answer: Assuming that these data are reliable, only the Granite Division should be
closed.
Revenue
Variable costs
Contribution margin
Fixed costs unique to
the center
Segment margin
Allocated fixed costs
Net income
Entire
Company
$375,000
211,000
$164,000
Ceramic
Stone Granite
$100,000 $125,000 $150,000
40,000
75,000 96,000
$ 60,000 $ 50,000 $ 54,000
139,000
30,000
45,000
$ 25,000
$ 30,000 $
5,000 $(10,000)
21,000
$ 4,000
64,000
ella Brown is the manager of one of the stores in the nationwide EatRite supermarket chain. Della’s store has
D
three departments; she evaluates the managers of each of those three departments using a Department Margin
number. The following information has been gathered about the performance of Della’s store in the most recent
month.
Operating Departments
Groceries
Fresh produce
Dry goods
ContributionRevenue
Margin Ratio
$600,000
20%
200,000
40%
500,000
35%
Fixed costs controllable by:
Manager of grocery department
Manager of fresh produce department
Manager of dry goods department
Store manager
Corporate headquarters
Total
$50,000
70,000
80,000
100,000
130,000
$430,000
Compute the STORE MARGIN number that can be used to appropriately measure the performance of
Della Brown, the store manager, who is evaluated as a manager of a profit center. Remember that Della
is the manager of the entire store meaning that she has responsibility for the store itself and for each of
the departments in the store.
$175,000
$200,000
$75,000
$100,000
$375,000
FEEDBACK
1 / 1 (100.0%)
Correct Answer: $75,000
Store
Revenues
$1,300,000
Less: Variable costs
925,000
Contribution margin
375,000
Less: Department-controllable fixed costs
200,000
Department margin
175,000
Less: Store-controllable fixed costs
Groceries
Fresh
Produce
Dry
Goods
$600,000
$200,000
$500,000
480,000
120,000
325,000
120,000
80,000
175,000
50,000
70,000
80,000
70,000
10,000
95,000
100,000
Store margin
$75,000
elow are the forecasted cash receipts and cash payments for Kaden Company for the first four months of the
B
year.
Budgeted cash collections
Budgeted cash payments:
Operating expenses
Dividends
Equipment purchase
Total budgeted cash payments
January
100,000
February
80,000
March
April
75,000
146,000
127,000
105,000
20,000
40,000
165,000
92,000
0
0
127,000
120,000
0
0
0
92,000
0
120,000
On January 1, Kaden Company had a cash balance of $50,000. Kaden has a policy of maintaining a cash
balance of at least $10,000 at the end of each month.
Assume that Kaden Company had no outstanding loans on January 1. Also assume that there is no interest cost
for its loans. What it the balance in Kaden Company’s loans as of the end of April?
$9,000
$26,000
$0
$17,000
$63,000
FEEDBACK
0 / 1 (0.0%)
Correct Answer: $63,000
Beginning cash balance
Budgeted cash collections
Cash available
January
50,000
100,000
150,000
February
23,000
80,000
103,000
March
10,000
75,000
85,000
April
10,000
146,000
156,000
Budgeted cash payments:
Operating expenses
Dividends
Equipment purchase
Total budgeted cash payments
127,000
0
0
127,000
105,000
20,000
40,000
165,000
92,000 120,000
0
0
0
0
92,000 120,000
Preliminary budgeted cash balance
23,000
(62,000)
(7,000)
Borrowing
Loan repayment (ignore interest)
0
0
72,000
0
17,000
0
0 (26,000)
Ending cash balance
23,000
10,000
10,000
Borrowing
Repayment
Remaining loans
Loan
Totals
89,000
(26,000)
63,000
36,000
10,000
hich ONE of the following is NOT a likely cause of an UNFAVORABLE MATERIALS QUANTITY
W
VARIANCE?
Inexperienced workers
Machines in need of repair
Overtime premiums for direct labor workers
Poor workmanship
Inaccurate materials quantity standard
Low-quality materials
FEEDBACK
1 / 1 (100.0%)
Correct Answer: Overtime premiums for direct labor workers
Materials quantity variances may be caused by quality defects, poor workmanship, poor
choice of materials, inexperienced workers, machines that need repair, or an inaccurate
materials quantity standard. Just as the purchasing manager must explain significant price
variances, generally the production manager must analyze significant quantity variances to
determine their cause.
redit sales are $92,000 in June and $80,500 in July; 80% are collected in the month of sale and 20% collected
C
in the following month. Total July cash collections are:
$64,400
$80,500
$82,800
$27,600
FEEDBACK
1 / 1 (100.0%)
Correct Answer: $82,800
July collections: ($80,500 x 80%) + ($92,000 x 20%) = $82,800
ird’s Eye View manufactures three different sizes of bird cages: small (for finches and canaries), medium (for
B
cockatiels and small parrots), and large (for cockatoos and other large parrots). The company has recently
implemented an activity-based costing system. Bird’s Eye View has identified five different production
activities as well as the best cost driver for each activity. Each activity and driver is listed below, along with the
budgeted amount that is associated with each activity for next year.
Activity
Materials handling
Automated processing
Plastic parts insertion
Inspections
Packaging
Total indirect manufacturing cost
Cost Driver
Labor hours
Machine hours
Number of parts
Labor hours
Orders shipped
Budgeted
Costs
$ 55,000
40,000
6,000
29,000
31,000
$161,000
The following information relates to each size of bird cage and next year’s anticipated manufacturing
operations:
Units to be produced
Large
350
Medium
Small
400
600
Orders to be shipped
Number of parts per unit
Machine hours per unit
Labor hours per unit
180
8
4
2
200
6
2
2
250
4
1
2
Under an activity-based costing system, what is the per unit cost for manufacturing overhead of a
SMALL cage (rounded)?
$151
$120
$136
$100
FEEDBACK
0 / 1 (0.0%)
Correct Answer: $100
Number of Driver Events
Cost Driver
Large
Medium
Small
Total
Labor hours
(materials)
350 × 2
400 × 2
600 × 2
2,700
Machine hours
350 × 4
Number of parts
350 × 8
400 × 6
600 × 4
7,600
Labor hours
(inspections)
350 × 2
400 × 2
600 × 2
2,700
180
200
250
630
Orders shipped
400 × 2
600 × 1
2,800
Cost per cost driver
Cost Driver
Labor hours
(materials)
Total
Driver Events
Total
Cost per
costs
2,700
driver
$55,000
Machine hours
2,800
40,000
14.29
Number of parts
7,600
6,000
0.79
Labor hours
(inspections)
2,700
29,000
10.74
Orders shipped
630
31,000
49.21
Total manufacturing overhead cost of SMALL cages:
$20.37
Activity
Materials handling
Automated processing
Plastic parts insertion
Inspections
Packaging
Total
Cost per
driver
$20.37
14.29
0.79
10.74
49.21
Number of
drivers
Total
1,200 $24,444
600
8,574
2,400
1,896
1,200
12,888
250
12,303
$60,105
Manufacturing cost per unit: $60,105 / 600 = $100 (rounded)
orm’s Furniture Company manufactures custom furniture only and uses a job order costing system to
N
accumulate costs. Actual direct materials and direct labor costs are accumulated for each job, but a
predetermined overhead rate is used to apply manufacturing overhead costs to individual jobs. Manufacturing
overhead is applied on the basis of direct labor hours. In computing a predetermined overhead rate, the
controller estimated that manufacturing overhead costs for the year would be $200,000 and direct labor hours
would be 20,000. The following summary information is available for the year. Note: This summary
information represents cost data related to hundreds of different job orders started or completed during the
year.
a.
Raw materials purchased during the year were $250,000.
b.
Raw materials used in production during the year were $230,000.
c.
Wages paid to the furniture craftsmen during the year totaled $440,000 (22,000 hours).
d.
Wages paid to factory maintenance workers during the year totaled $65,000.
e.
Depreciation on machinery and equipment during the year was $100,000.
f.
Rent and utilities for the factory building during the year totaled $30,000.
g.
Manufacturing overhead was applied to Work-in-Process Inventory using the predetermined overhead
rate.
h.
Work-in-Process Inventory costing $800,000 was completed and transferred to Finished Goods
Inventory.
i.
Goods costing $750,000 were sold.
Assume that the beginning balance in the Raw Materials Inventory account was $0. What is the
ENDING balance in the Raw Materials Inventory account?
$230,000
$90,000
$250,000
$70,000
$50,000
$20,000
FEEDBACK
1 / 1 (100.0%)
Correct Answer: $20,000
Beginning balance
+ Purchases
– Raw materials used
= Ending balance
0
250,000
– 230,000
20,000
idwest Company manufactures lamps. Shop Smart, a large retail merchandiser, wants to buy 200,000 lamps
M
from Midwest Company for $12 each. The lamp would carry Shop Smart’s name and would be sold in its
stores.
Midwest Company normally sells 420,000 lamps a year at $16 each; its production capacity is a total of
550,000 units a year. Cost information for the lamps is as follows:
Production costs:
Variable production costs
Fixed manufacturing overhead ($2,100,000 / 420,000 units)
$6 per unit
$5 per unit
Selling and administrative expenses:
Fixed ($840,000 / 420,000 units)
$2 per unit
Shop Smart has indicated that the company is not interested in signing a contract for less than 200,000 lamps.
Total fixed costs will not change regardless of whether the Shop Smart order is accepted.
By how much will overall Midwest Company’s net income change if the Shop Smart order is accepted?
Midwest Company net income will DECREASE by $1,200,000 if the
order is accepted.
Midwest Company net income will INCREASE by $1,200,000 if the
order is accepted.
Midwest Company net income will DECREASE by $500,000 if the
order is accepted.
Midwest Company net income will INCREASE by $500,000 if the
order is accepted.
Midwest Company net income will DECREASE by $200,000 if the
order is accepted.
Midwest Company net income will INCREASE by $200,000 if the
order is accepted.
FEEDBACK
0 / 1 (0.0%)
Correct Answer: Midwest Company net income will INCREASE by $500,000 if the order is
accepted.
Differential sales (200,000 × $12)
Differential variable costs (200,000 × $6)
Differential contribution margin
Opportunity cost (70,000 × $10)
Differential PROFIT
$2,400,000
(1,200,000)
$1,200,000
(700,000)
$500,000
Yes, accept the offer.
The opportunity cost is the contribution margin ($16 – $6) lost on the 70,000 units in lost
regular sales because Midwest Company has a capacity constraint.
420,000 current lamp sales – 70,000 lost regular sales + 200,000 Shop Smart sales = 550,000
n September 30 of Year 1, Julian Company had finished goods inventory of 1,000 units. Starting in October,
O
Julian intends to have an inventory policy of maintaining ending inventory at the end of every month equal to
the next month’s sales. For example, ending inventory at the end of October should be equal to forecasted sales
in November.
Forecasted sales for the months October, Year 1 through January, Year 2 are as follows.
October
November
December
January
2,300 units
3,000 units
1,000 units
700 units
What is the amount of budgeted PRODUCTION for October?
3,300 units
2,000 units
3,000 units
4,300 units
5,300 units
FEEDBACK
1 / 1 (100.0%)
Correct Answer: 4,300 units
October
November
December
FINISHED GOODS:
Forecasted sales
+ Required ending inventory
Requirement
– Beginning inventory
Budgeted production
2,300
3,000
—–5,300
-1,000
—–4,300
====
3,000
1,000
—–4,000
-3,000
—–1,000
====
1,000
700
—–1,700
-1,000
—–700
====
randon Company prices its products using a 50% markup on total manufacturing cost to cover selling and
B
administrative expenses and to provide a reasonable return on investment.
Direct materials
Direct labor
Variable manufacturing overhead
Variable selling and administrative expenses
Cost per Unit
$39
20
27
10
Fixed manufacturing overhead totals $200,000 per year. Fixed selling and administrative expenses are
$100,000 per year. The average number of units sold per year is 10,000.
Using these data and the functional cost approach to pricing products, estimate the NORMAL SELLING
PRICE. Note: The markup will end up being 50% of the selling price.
$192
$152
$212
$202
$172
FEEDBACK
0 / 1 (0.0%)
Correct Answer: $212
The estimated selling price is $202 per unit, as shown below:
Cost per Unit
Direct materials……………………………………………………………………..
$39
Direct labor…………………………………………………………………………….
20
Variable manufacturing overhead……………………………………….
27
Fixed manufacturing overhead ($200,000 ÷ 10,000 units)….
20
Total manufacturing costs……………………………………………..
Man. costs as a percentage of selling price (1 – 0.5)…………….
Estimated normal selling price……………………………………………..
$106
÷ 0.5
$212
Markup = $212 – $106 = $106
$106/ $212 = 50%
vonne Company reported the following data.
Y
Price per unit = $20
Fixed cost = $6,000
Variable cost per unit = $11
How many units must Yvonne Company sell in order to reach a TARGET PROFIT OF $30,000?
3,000 units
4,000 units
6,000 units
5,000 units
7,000 units
FEEDBACK
1 / 1 (100.0%)
Correct Answer: 4,000 units
Sales – Variable Cost – Fixed Cost = Net Income
(Price per unit x Number of units) – (Variable Cost per unit x Number of units) – Fixed
Cost = Net Income
(UNITS × $20) – (UNITS × $11) – $6,000 = $30,000
UNITS × $9 = $36,000
UNITS = 4,000
Kamili Company has the following three manufacturing overhead cost drivers.
Overhead
Cost Driver
Level of Activity
Cost
Design changes
100 changes per year
$ 5,000
Machine setups
2,000 setups per year
18,000
Electricity usage
12,000 kilowatt-hours per year
36,000
Kamili Company started and completed work on 25 different jobs during the year. One of these jobs was Job
#781. Job #781 required 16 design changes, 40 machine setups, and 700 kilowatt-hours of electricity. How
much manufacturing overhead should be allocated to Job #781? Note: Kamili uses activity-based costing.
$3,260
$3,080
$2,680
$3,580
$1,550
$2,860
FEEDBACK
0 / 1 (0.0%)
Correct Answer: $3,260
In order to find the correct amount of manufacturing overhead to allocate to Job #781, the
cost per cost driver unit must be found by dividing the total manufacturing overhead cost
per year by the level of activity per year. The following are the cost per cost driver unit
computations.
Design changes: $5,000 / 100 changes = $50 per change
Machine setups: $18,000 / 2,000 setups = $9 per setup
Electricity: $36,000 / 12,000 kilowatt-hours = $3 per kilowatt-hour
After finding the cost per cost driver unit, the amount of manufacturing overhead
allocated to Job #781 can be found by multiplying the activity level for the job by the cost
per cost driver unit and then summing the costs of the manufacturing activities.
Manufacturing Activity
Design changes
Machine setups
Electricity
Total
16 × $50
40 × $9
700 × $3
Job #781
$800
360
2,100
$3,260
orton Company has two divisions. Sales, direct materials cost, direct labor cost, and manufacturing overhead
M
data for Morton’s two divisions are available below. Note: All of Morton Company’s products are sold in
competitive markets.
Missile
Salt
Products
Products
Sales
$1,500,000
$1,000,000
Direct labor
(300,000)
(800,000)
Direct materials
(100,000)
(40,000)
Manufacturing overhead*
(150,000)
(400,000)
Gross profit
$950,000
($240,000)
*Manufacturing overhead is allocated to production based on the amount of direct labor cost.
Morton has determined that its total manufacturing overhead cost of $550,000 is a mixture of
batch-level costs and product line costs. Morton has assembled the following information concerning the
manufacturing overhead costs, the annual number of production batches, and the number of product lines in
each division.
Total
Manufacturing
Overhead
Costs
Batch-level overhead
$250,000
Product line overhead
300,000
$550,000
Missile
Products
10 batches
3 lines
Salt
Products
90 batches
7 lines
Which ONE of the following statements is MOST CORRECT?
If the activity-based costing system had been used in the most
recent year in place of the traditional overhead allocation
technique, profit for the Missile Division would have increased by
$35,000.
If the activity-based costing system had been used in the most
recent year in place of the traditional overhead allocation
technique, profit for the Salt Division would have increased by
$285,000.
If the activity-based costing system had been used in the most
recent year in place of the traditional overhead allocation
technique, profit for the Missile Division would have decreased by
$35,000.
If the activity-based costing system had been used in the most
recent year in place of the traditional overhead allocation
technique, profit for the Salt Division would have decreased by
$285,000.
If the activity-based costing system had been used in the most
recent year in place of the traditional overhead allocation
technique, profit for the Missile Division would have increased by
$260,000.
If the activity-based costing system had been used in the most
recent year in place of the traditional overhead allocation
technique, profit for the Missile Division would have decreased by
$260,000.
FEEDBACK
1 / 1 (100.0%)
Correct Answer: If the activity-based costing system had been used in the most recent year in
place of the traditional overhead allocation technique, profit for the Missile Division would
have increased by $35,000.
Batch-level overhead: $250,000 / 100 batches = $2,500 per batch
Product line overhead: $300,000 / 10 lines = $30,000 per line
Missile
Products
$1,500,000
(300,000)
(100,000)
(25,000)
(90,000)
$985,000
Sales
Direct labor
Direct materials
Batch-level overhead
Product line overhead
Gross profit
Salt
Products
$1,000,000
(800,000)
(40,000)
(225,000)
(210,000)
($275,000)
*Manufacturing overhead is allocated based on number of batches and number of product lines.
Old gross profit
New gross profit
Change in gross profit
Missile
Salt
Products
Products
$950,000
($240,000)
985,000
(275,000)
increase $35,000
decrease $35,000
The following data are for Julian Mark Company.
Total sales revenue
Number of units sold
Fixed costs
Net income
$250,000
50,000 units
$100,000
$40,000
Calculate the breakeven point in number of units.
24,678 units
28,000 units
35,714 units
39,286 units
45,455 units
FEEDBACK
1 / 1 (100.0%)
Correct Answer: 35,714 units
Sales revenue
– variable cost
= Contribution margin
– fixed cost
= Net income
$250,000
??????
??????
– 100,000
$40,000
Sales revenue
– variable cost
= Contribution margin
– fixed cost
= Net income
$250,000
– 110,000
$140,000
– 100,000
$40,000
Selling price per unit: $250,000 / 50,000 units = $5.00
Variable cost per unit: $110,000 / 50,000 units = $2.20
$5.00X – $2.20X – $100,000 = $0
$2.80X = $100,000
X = 35,714 units
ioche Company is considering selling a “premium” version of one of its products. The following information
P
is available. The “additional processing costs” are the costs needed to transform the units from “standard” to
“premium.”
Number of units produced
Selling price of “standard” units
Additional processing costs
Selling price of “premium” units
100,000
$10 per unit
$900,000
$15 per unit
Before any additional processing costs, the total production cost for the 100,000 units is $700,000. What will
be the change in Pioche Company’s net income if the company decides to sell a “premium” version of this
product?
Decrease of $200,000
No change
Increase of $200,000
Increase of $100,000
Decrease of $400,000
FEEDBACK
0 / 1 (0.0%)
Correct Answer: Decrease of $400,000
Number of units produced
Increased price per unit
Increased revenue
100,000
Additional processing costs
900,000
Net change in profit
– $400,000
$5
$500,000
The $700,000 production cost from before the additional processing is not relevant. That
cost will occur whether or not additional processing is performed.
laine Avenue Company manufactures three products. Profit computations for these three products for Year 1
B
are given below.
Sales
Direct materials
Direct labor
Manufacturing Overhead
Profit
Product X
$300,000
(70,000)
(50,000)
(100,000)
$80,000
Product Y
$700,000
(150,000)
(200,000)
(400,000)
($50,000)
Product Z
$800,000
(200,000)
(250,000)
(500,000)
($150,000)
Blaine Avenue has a total of $1,000,000 in manufacturing overhead costs. Of this amount, $700,000 is directly
related to the number of product batches produced during the year. The number of batches of the three products
for Year 1 was as follows: Product X, 20 batches; Product Y, 30 batches; Product Z 50 batches. The remaining
$300,000 in overhead is for facility support (property taxes, security costs, general administration, etc.) and
doesn’t not vary at all with the level of activity. What would total company NET INCOME be if the
Product X line were dropped? Assume that Blaine Avenue has no other costs or expenses except those
described here.
$0 – no profit or loss
loss of $120,000
profit of $300,000
profit of $180,000
loss of $270,000
profit of $40,000
loss of $160,000
profit of $30,000
FEEDBACK
0 / 1 (0.0%)
Correct Answer: loss of $160,000
Batch-level overhead: $700,000 / 100 batches = $7,000 per batch
Batch-level overhead
Total
Manufacturing
Overhead
Costs
Product X Product Y
$700,000
$140,000 $210,000
Product Z
$350,000
Before eliminating Product X
Product X
Sales
$300,000
Direct materials
(70,000)
Direct labor
(50,000)
Manufacturing Overhead
(140,000)
Product Line Profit
$40,000
Less: Facility support overhead
Company profit
Company
Product Y Product Z
Total
$700,000
$800,000 $1,800,000
(150,000)
(200,000)
(420,000)
(200,000)
(250,000)
(500,000)
(210,000)
(350,000)
(700,000)
$140,000
$0
$180,000
(300,000)
($120,000)
After eliminating Product X
Sales
Direct materials
Direct labor
Manufacturing Overhead
Product Line Profit
Less: Facility support overhead
Company profit
Product Y
$700,000
(150,000)
(200,000)
(210,000)
$140,000
Company
Product Z
Total
$800,000 $1,500,000
(200,000)
(350,000)
(250,000)
(450,000)
(350,000)
(560,000)
$0
$140,000
(300,000)
($160,000)
J eff Co. sells its giant cheese wheels for $36 per wheel. The contribution margin ratio is 75% and total fixed
costs are $270,000. How many wheels must Jeff sell in order to generate a profit of $54,000?
12,000 wheels
2,000 wheels
9,000 wheels
36,000 wheels
43,200 wheels
11,500 wheels
FEEDBACK
1 / 1 (100.0%)
Correct Answer: 12,000 wheels
The easiest way to find this answer is to first manipulate the CVP equation so that the
desired output (number of wheels needed to generate a certain profit) can be easily
calculated.
(Sales price x Units) – (Variable cost x Units) – Fixed costs = Target profit
Units (Sales price – Variable cost) = Target profit + Fixed costs
Units (Contribution Margin per unit) = Target profit + Fixed costs
Units = (Target profit + Fixed costs) / (Contribution Margin per unit)
Contribution Margin (CM) per unit = Sales price per unit x CM %
Using some algebra, we can find the total units very easily.
Units = (Target income + Fixed costs) / (Sales price per unit x CM %)
Units = ($54,000 + $270,000) / ($36 x 0.75) = $324,000 / 27 = 12,000 wheels
Which ONE of the following is the BEST description of JOB ORDER COSTING?
A system in which manufacturing costs are accumulated by
separate product orders or batches
A system commonly used in the home construction industry in
order to generate market-wide selling price information
A system commonly used in the oil exploration industry in order to
generate world-wide oil and natural gas information
A system in which period costs are systematically allocated to
weekly budget reports
FEEDBACK
1 / 1 (100.0%)
Correct Answer: A system in which manufacturing costs are accumulated by separate
product orders or batches
iller Manufacturing builds and markets laptop computers for home and small business use. During the past
M
five years, sales have been as low as 10,000 units in a year and as high as 15,000 units in a year. The company
has been approached by an outside supplier offering to provide completed screens to the company for $65
each. The company’s marketing director negotiated the deal personally and is thrilled about how much cheaper
it will be to purchase the screens from outside. Producing the cost data outlined below, the manager proudly
proclaims, “Look, a $25 per unit savings!”
[Based on 15,000 units year]
Direct materials
Direct labor
Variable manufacturing overhead
Fixed manufacturing overhead, direct
Fixed manufacturing overhead, indirect
Total cost
Per
Unit
$40
10
3
10
27
$90
Assume that Miller Manufacturing determines that sales in future years will be 15,000 units per year. IF the
company decides to BUY the screens from the outside supplier, what will be the impact on annual company
net income?
Company net income will DECREASE by $30,000 if the company
decides to buy the screens from the outside supplier.
Company net income will INCREASE by $30,000 if the company
decides to buy the screens from the outside supplier.
Company net income will DECREASE by $375,000 if the company
decides to buy the screens from the outside supplier.
Company net income will INCREASE by $225,000 if the company
decides to buy the screens from the outside supplier.
Company net income will INCREASE by $375,000 if the company
decides to buy the screens from the outside supplier.
Company net income will DECREASE by $225,000 if the company
decides to buy the screens from the outside supplier.
FEEDBACK
1 / 1 (100.0%)
Correct Answer: Company net income will DECREASE by $30,000 if the company decides to
buy the screens from the outside supplier.
Actual cost (assuming no impact on indirect fixed manufacturing overhead)
15,000 units
Direct materials ($40 × # units)
Direct labor ($10 × # units)
Variable manufacturing overhead ($3 × # units)
Fixed manufacturing overhead, direct
Total cost of making the # units
$600,000
150,000
45,000
150,000
$945,000
Total cost of buying the units ($65 × # units)
$975,000
Cost INCREASE (DECREASE) if buy rather than make
Impact on annual net income if BUY
$30,000
($30,000)
This suggests that Miller should continue to make if sales are expected to be 15,000 units.
elow are the forecasted cash receipts and cash payments for Kaden Company for the first four months of the
B
year.
Budgeted cash collections
Budgeted cash payments:
Operating expenses
Dividends
Equipment purchase
Total budgeted cash payments
January
100,000
February
80,000
March
April
75,000 146,000
127,000
105,000
20,000
40,000
165,000
92,000 120,000
0
0
0
0
92,000 120,000
0
0
127,000
On January 1, Kaden Company had a cash balance of $50,000. Kaden has a policy of maintaining a cash
balance of at least $10,000 at the end of each month.
How much must Kaden Company plan to borrow in February?
$62,000
$75,000
$52,000
$85,000
$72,000
FEEDBACK
1 / 1 (100.0%)
Correct Answer: $72,000
Beginning cash balance
Budgeted cash collections
Cash available
January
50,000
100,000
150,000
February
23,000
80,000
103,000
Budgeted cash payments:
Operating expenses
Dividends
Equipment purchase
Total budgeted cash payments
127,000
0
0
127,000
105,000
20,000
40,000
165,000
Preliminary budgeted cash balance
23,000
(62,000)
0
0
72,000
0
23,000
10,000
Borrowing
Loan repayment (ignore interest)
Ending cash balance
Which ONE of the following statements describes a FIXED COST?
Constant per unit over the relevant range
Increasing in total over the relevant range
Decreasing in total over the relevant range
Constant in total over the relevant range
FEEDBACK
1 / 1 (100.0%)
Correct Answer: Constant in total over the relevant range
Total fixed costs do NOT change with changes in activity level, within the relevant range.
Fixed costs are FIXED in TOTAL but VARY per UNIT depending on the level of
production.
Wynne Company has a predetermined overhead rate of $15 per direct labor hour. The following
data are for the current year
○
○
○
Actual number of units sold = 2,000 units
Actual number of direct labor hours worked = 10,000 hours
Actual amount of manufacturing overhead = $145,000
What is the total amount of manufacturing overhead APPLIED to the different production jobs during the
year?
$150,000
$130,000
$30,000
$145,000
$295,000
FEEDBACK
1 / 1 (100.0%)
Correct Answer: $150,000…
Order an Essay Now & Get These Features For Free:
Turnitin Report
Formatting
Title Page
Citation
Outline
