ACC 212 Exam 2 Study Guide

The absorption costing approach assigns all manufacturing costs to products. (True/False)

True

The extent, or relative size, of fixed costs in the total cost structure is known as operating leverage. (True/False)

True

Wind Fall, a manufacturer of leaf blowers, began operations this year. During this year, the company produced 10,000 leaf blowers and sold 8,500. At year-end, the company reported the following income statement using absorption costing: Production costs per leaf blower total $20, which consists of $16 in variable production costs and $4 in fixed production costs (based on the 10,000 units produced). Fifteen percent of total selling and administrative expenses are variable. Compute net income under variable costing. A. $146,500 B. $158,500 C. $237,500 D. $206,500 E. $246,500

A. $146,500 Income under absorption costing = Income under variable costing + FOH in Ending inventory − FOH in Beginning inventory$152,500 = Income under variable costing + (1,500 units × FOH $4) − (0 units × FOH $4)$152,500 = Income under variable costing + $6,000 − $0$146,500 = Income under variable costing

Given the Scavenger Company data, what is net income using absorption costing? A. $201,250 B. $181,250 C. $150,000 D. $177,600 E. $276,250

A. $201,250 Sales = $15(55,000) = $825,000COGS = DM + DL + VOH + FOHFixed overhead production costs per unit = $240,000/60,000 units = $4.00 per unit[($2.50 + $3.00 + $0.75 + $4.00) × 55,000 units] = $563,750Sales − COGS − non-production costs = Net Income$825,000 − $563,750 − $10,000 − $50,000 = $201,250

A cost that remains unchanged in total despite variations in volume of activity within a relevant range is a: A. fixed cost B. curvilinear cost C. variable cost D. step-wise variable cost E. standard cost

A. fixed cost

When graphing cost-volume-profit data on a CVP chart: A. units are plotted on the horizontal axis; costs on the vertical axis B. units are plotted on the vertical axis; costs on the horizontal axis C. both units and costs are plotted on the horizontal axis D. both units and costs are plotted on the vertical axis E. data points always always represent expected future points

A. units are plotted on the horizontal axis; costs on the vertical

From an ABC perspective, what causes costs to be incurred?

Activities

A company's product sells at $12.34 per unit and has a $5.51 per unit variable cost. The company's total fixed costs are $96,300. The break-even point in units is: A. 7,804 B. 14,100 C. 17,477 D. 4,837 E. 7,050

B. 14,100 ($96,300/($12.34 − $5.51) = 14,100 units)

A cost that changes as volume changes, but at a nonconstant rate, is called a: A. variable cost B. curvilinear cost C. step-wise variable cost D. fixed cost E. differential cost

B. curvilinear cost

Which of the following is not a product cost under variable costing? A. direct materials B. fixed manufacturing overhead C. direct labor D. variable manufacturing overhead E. all variable manufacturing costs

B. fixed manufacturing overhead

A method that estimates cost behavior by using just the highest and lowest volume levels is called the: A. scatter method B. high-low method C. least-squares method D. break-even method E. step-wise method

B. high-low method

A graph used to analyze past cost behaviors by displaying costs and unit data for each period as points on a diagram is called a: A. least-squares diagram B. step-wise diagram C. scatter diagram D. break-even diagram E. composite diagram

C. scatter diagram

Which one of the following statements is not true? A. total fixed costs remain the same regardless of volume within the relevant range B. total variable costs change with volume C. total variable costs decrease as the volume increase D. fixed costs per unit per unit increase as the volume decrease E. variable costs per unit remain the same regardless of the volume

C. total variable costs decrease as the volume increase

Kluber, Inc. had net income of $900,000 based on variable costing. Beginning and ending inventories were 55,000 units and 52,000 units, respectively. Assume the fixed overhead per unit was $1.25 for both the beginning and ending inventory. What is net income under absorption costing? A. $833,125 B. $903,750 C. $966,875 D. $896,250 E. $900,000

D. $896,250 Income under variable costing + FOH in End. Inv. − FOH in Beg. Inv. = Income under absorption costing$900,000 + (52,000 units × $1.25) − (55,000 × $1.25) = $896,250

The sales level at which a company neither earns a profit nor incurs a loss is the: A. relevant range B. margin of safety C. step-wise variable level D. break-even point E. contribution margin

D. break-even point

Which of the following statements is true regarding absorption costing? A. it is not the traditional costing approach B. it is not permitted to be used for financial reporting C. it is not permitted to be used for tax reporting D. it assigns all manufacturing costs to products E. it requires only variable costs to be treated as product costs

D. it assigns all manufacturing costs to products

A product sells for $180 per unit, and its variable costs are 65% of sales. The fixed costs are $360,500. What is the break-even point in sales dollars? (Do not round intermediate calculations.) A. $2,003 B. $360,500 C. $5,722 D. $554,615 E. $1,030,000

E. $1,030,000 Contribution margin ratio = ($180 − $117)/$180 = 35%Break-even point in sales dollars = $360,500/0.35 = $1,030,000

Using absorption costing, which of the following manufacturing costs are assigned to products? A. direct materials and direct labor B. direct labor and variable manufacturing overhead C. fixed manufacturing overhead, direct materials, and direct labor D. variable manufacturing overhead, direct materials, and direct labor E. variable manufacturing, direct materials, direct labor, and fixed manufacturing overhead

E. variable manufacturing, direct materials, direct labor, and fixed manufacturing overhead

Assume that the Oregon Ice Cream Company is considering the costs of two of their product lines—ice cream sandwiches and dessert bars. The company identified the following partial list of activities, costs, and activity drivers expected for the next year.

Extrusion activity rate: $637,500/(400 + 350) batches = $850 per batchPackaging activity rate: $44,000/(350,000 + 200,000) units = $0.08 per unitIce cream sandwich product line allocations:Extrusion: $850 × 400 batches = $340,000Packaging: $.08 × 350,000 units = $28,000Total = $368,000

Which of the following statements is true with regard to the departmental overhead rate method?

It is logical to use this method when overhead resources are consumed by various products in substantially different ways throughout multiple departments.

A company uses activity-based costing to determine the costs of its three products: A, B, and C. The budgeted cost and activity for each of the company's three activity cost pools are shown in the following table:

The activity rate under the activity-based costing system for Activity 2 is $1.50.$45,000/(7,000 + 15,000 + 8,000) = $1.50