ACCT 230 - Concept Overview Questions

Which of the following is true of the contribution approach?

It separates costs into fixed and variable categories

Differential costs are always ________.

relevant in making business decisions

In the cost formula (Y = a + bX) that is used to estimate the total manufacturing overhead cost for a given period, the letter "a" refers to the estimated ________.

total fixed manufacturing overhead cost

Items such as indirect materials, indirect labor, maintenance and repairs on production equipment, depreciation, and insurance on manufacturing facilities are included in ________.

manufacturing overhead costs

The ________ requires that the costs incurred to generate a particular revenue should be recognized as expenses in the same period that the revenue is recognized.

matching principle

Companies can improve job cost accuracy by using ________.

multiple predetermined overhead rates

The traditional income statement uses which of the following cost categories?

Cost of goods sold and selling and administrative expenses.

Which of the following is a major factor that should be taken into consideration while planning the desired level of inventories?

Costs of carrying inventory

Lubricating oil, waste cotton, and solder are used in the factory.

DEBIT: Manufacturing Overhead CREDIT: Raw Materials

Salary of the Production Supervisor is payable.

DEBIT: Manufacturing Overhead CREDIT: Salaries and Wages Payable

Manufacturing overhead is applied to jobs using a predetermined overhead rate.

DEBIT: Work in Process CREDIT: Manufacturing Overhead

Direct materials are issued into production for a specific job.

DEBIT: Work in Process CREDIT: Raw Materials

The wages of direct laborers who worked on a particular job are payable.

DEBIT: Work in Process CREDIT: Salaries and Wages Payable

Which of the following is deducted from the total selling and administrative expense budget to determine the cash disbursements for selling and administrative expense budget? Advertising expense Depreciation expense Selling commissions Utilities expense

Depreciation expense

________ is sometimes called "touch labor."

Direct labor

The management of Blue Ocean Company estimates that 50,000 machine-hours will be required to support the production planned for the year. It also estimates $300,000 of total fixed manufacturing overhead cost for the coming year and $4 of variable manufacturing overhead cost per machine-hour. What is the predetermined overhead rate?

$10.00 per machine hour.

Film Studio, Inc. has beginning retained earnings of $80,000 and expects to earn net income of $70,000 during the budget period. What would be the budgeted ending balance in retained earnings if the company pays dividends of $50,000?

$100,000

Wilson Products uses a plantwide predetermined overhead rate of $10 per direct labor-hour. Direct material and direct labor associated with Job X23 are $4,000 and $1,200, respectively. If Job X23 used 100 direct labor-hours to produce 50 audio controllers, what is this job's unit product cost (per audio controller)?

$124

For the month of October, Janus Corporation used $30,000 worth of direct materials in production and incurred direct labor costs of $60,000. Actual manufacturing overhead costs were $40,000, whereas $45,000 was the manufacturing overhead applied to work in process. What is the amount of total manufacturing costs that would appear in the Schedule of Cost of Goods Manufactured for October?

$135,000

Audio Corporation purchased $20,000 of DVDs during the current year. The company had DVD inventory of $15,000 at the beginning of the year. An end of the year audit revealed that the company had DVD inventory of $10,000. The amount that would be reported as cost of goods sold in the income statement for the current year is ________.

$25,000

How should the wages of a sheet metal worker in a fabrication plant be classified?

Product cost

Future Corporation has a single product; the product selling price is $100 and variable costs are $60. The company's fixed expenses are $10,000. What is the company's break-even point in sales dollars?

$25,000

Taylor Company has current sales of 1,000 units, at a selling price of $190 per unit, variable costs per unit of $76 and fixed expenses of $96,000. The company believes sales will increase by 300 units if the company introduces sales commissions as an incentive for the sales staff. The change will decrease the selling price to $175 per unit, increase variable cost per unit to $100 and decrease fixed expenses by $20,000. What is the net operating income after the changes?

$21,500

In a small manufacturing facility, one welder is needed for every 200 hours of machine-hours or fewer in a month. The welder is paid a monthly salary of $2,500. If the total monthly requirement is 1,300 machine-hours, the total salaried employee expense is ________.

$17,500

Pro Clean Company, a manufacturer of hand sanitizers, intends to produce 40,000 units in the third quarter and 35,000 units in the fourth quarter. Each unit requires 0.50 direct labor-hours (DLHs) and the cost of direct labor per hour is $18. What would be the total direct labor cost for the fourth quarter?

$315,000

Zimmer, Inc. started the month of January with beginning finished goods inventory of $20,000. The cost of goods manufactured during the month was $120,000 and the ending finished goods inventory was $50,000. What is the unadjusted cost of goods sold for January?

$90,000

Frank Corporation has a single product. Its selling price is $80 and the variable costs are $30. The company's fixed expenses are $5,000. What is the company's break-even point in unit sales?

100 units

The following information is extracted for m the records of Johnson Corporation Target Profit______________________$120,000 Unit Contribution Margin____$40 Fixed Expenses_________________$40,000 CM Ratio__________________________$0.40 Selling Price______________________$100 What are the unit sales required to attain a target profit of $120,000?

4,000 Units

Precision Company estimates its machine-hour requirements for the four quarters to be 35,000 hours, 20,000 hours, 15,000 hours, and 30,000 hours respectively. The variable manufacturing overhead rate is $4 per machine-hour. The fixed manufacturing overhead is $50,000 per quarter, which includes $20,000 of depreciation expense A) What is the budgeted variable manufacturing overhead for the year? B) What is the predetermined overhead rate for the year?

A) $400,000 B) $6 per machine hour

Which of the following statements about opportunity costs is not correct?

An opportunity cost cannot be changed by any decision made now or in the future.

Which of the following is not a benefit of self-imposed budgets? A) A manager who is not able to meet a budget that has been imposed from above can always say that the budget was unrealistic and impossible to meet. B) Budget estimates prepared by front-line managers are often more accurate and reliable C) Lower-level managers are encouraged to create budgetary slack since they are more knowledgeable of day-to-day operations. D) Motivation is generally higher.

C) Lower-level managers are encouraged to create budgetary slack since they are more knowledgeable of day-to-day operations.

All of the following are product costs except ________. A) manufacturing overhead costs B) raw materials C) sales commissions D) direct labor

C) sales commissions

The following information is available for the current year ending December 31: Manufacturing overhead applied: $150,000 Actual amount of manufacturing overhead costs: 120,000 _________________________________________ What is the balance of the Manufacturing Overhead account and is overhead underapplied or overapplied at the end of the year?

Credit of $30,000,overapplied.

Which of the following occurs when manufacturing overhead is applied to Work in Process?

Credit to Manufacturing Overhead

Which of the following occurs when a job has been completed and transferred to the finished goods warehouse?

Credit to Work in Process.

The budgeting process begins with the preparation of the ______ budget. A) cash B) direct materials C) production D) sales

D) sales

What is usually plotted as a horizontal line on the CVP graph?

Fixed expenses

Which of the following is always an irrelevant cost?

Sunk cost

What is represented on the X axis of a cost-volume-profit (CVP) graph?

Unit volume

Walton Corporation is currently selling 104 units of its product. The company is deciding the price that it should charge for a bulk order of 40 units. The variable cost per unit is $200. This order will not involve any additional fixed costs and the company's current sales will not be affected. The company targets a profit of $4,000 on the bulk order. What selling price per unit should the company quote for the bulk order? (Round your answer to the nearest whole dollar.)

Variable Cost Per Unit = 200 4000/40 = 100 _______________________ 200+100=300 Answer = $300

The following information is available for the current year ending December 31: Manufacturing overhead applied: $150,000 Actual amount of manufacturing overhead costs: 120,000 Amount of overhead applied during the year that is in: Work in Process: $37,500------------25% Finished Goods: 52,500--------------35% COGS: 60,000------------------------40% ___________________________________________________________ Total overhead applied: $150,000---100% [A] If the Manufacturing Overhead account is closed to Cost of Goods Sold, the related entry will ________. [B] If the Manufacturing Overhead account is closed proportionally to Work in Process, Finished Goods, and Cost of Goods Sold, the related entry will include a ________.

[A] decrease the cost of goods sold by $30,000 [B] credit to Cost of Goods Sold for $12,000

Manufacturing costs include all of the following categories except ________.

administrative costs

Companies prepare direct labor budgets to

avoid labor shortages

For a production budget, the ______ is the beginning inventory for the year

beginning inventory for the first quarter

The direct materials required to manufacture each unit of product are listed on a ________.

bill of materials

A normal cost system applies overhead to jobs ________.

by multiplying a predetermined overhead rate by the actual amount of the allocation base incurred by the job

All of the following are product costs except ________ a) manufacturing overhead costs b) raw materials c) sales commissions d) direct labor

c) sales commissions

A ___________ is a cost that is incurred to support a number of cost objects but cannot be traced to them individually.

common cost

In a direct materials budget, the desired ending raw materials inventory for the year is equal to the ________.

desired ending raw materials inventory for the last period

Adventure Holiday sells thousands of tour packages each month through its various branches. A branch manager's salary would be a(n) _________ of the branch.

direct cost

Materials that become an integral part of the finished product and whose costs can be conveniently traced to the finished product are called ________.

direct materials

When companies incur selling and administrative costs, those costs

do not flow through the three inventory accounts

Adventure Holiday sells thousands of tour packages each month through its various branches. A branch manager's salary would be a(n) _________ of selling a tour package.

indirect cost

Which of the following methods do managers use to estimate the fixed and variable components of mixed costs by analyzing past records of cost and activity data?

least-squares regression

A fixed cost is a cost which ________.

remains constant in total with changes in the level of activity

Contribution margin equals ________.

sales minus variable cost

Once the break-even point has been reached, net operating income will increase by the amount of the _____ for each additional unit sold.

unit contribution margin

Striker Company estimates its expected cash receipts for the period to be $80,000 and its expected cash disbursements to be $70,000. The beginning cash balance for the period was $5,000. The management wants to maintain a minimum cash balance of $40,000. How much cash will the company need to borrow?

$25,000

Spartan Corporation estimates that it will incur $200,000 of total manufacturing overhead cost at an estimated activity level of 10,000 direct labor-hours. What is the amount of manufacturing overhead that would be applied to a job that required 200 direct labor-hours?

$4,000

Davidson Company has sales of $100,000, variable cost of goods sold of $40,000, variable selling expenses of $15,000, variable administrative expenses of $5,000, fixed selling expenses of $7,000, and fixed administrative expenses of $9,000. What is Davidson's contribution margin?

$40,000

For the budget period ending December 31 of the current year, Aaron Corporation estimates its ending balances for cash as $4,000, accounts receivable as $16,000, finished goods inventory as $12,000, and raw materials inventory as $8,000. Invoices relating to raw materials in the amount of $14,000 are expected to be unpaid as of December 31. What is the amount of total current assets that will be reported on the budgeted balance sheet?

$40,000

Smarton Company is in the process of preparing its budgeted income statement. It has determined its estimated gross margin to be $90,000. The company also expects to incur selling and administrative expenses of $30,000 and interest expense of $12,000. What is Smarton's budgeted net income?

$48,000

William Corporation has a contract with the labor union which guarantees its workers pay for at least 40,000 hours every quarter. Based on its direct labor budget for the current year, the company estimated it will need 39,000 direct labor-hours during the fourth quarter to produce 13,000 units of finished goods. Each unit requires 3 direct labor-hours (DLHs) and the cost of direct labor per hour is $12 per hour. What is the total direct labor cost for the fourth quarter?

$480,000

Cyber Devices manufactures PCTV products that enable people to watch television content on their computers. It sells its product to retailers for $50. A tuner component that goes into each of these devices costs $5 to acquire. The total variable cost at an activity level of 1,000 units equals ________.

$5,000

Wilson Products uses a plantwide predetermined overhead rate of $10 per direct labor-hour. Direct material and direct labor associated with Job X23 are $4,000 and $1,200, respectively. If Job X23 used 100 direct labor-hours, what is the total cost assigned to this job?

$6,200

Vineyard Corporation, a manufacturer of fine wines, began the year with 20,000 bottles in inventory. The company estimated the budgeted sales for the four quarters of the current year to be 200,000 bottles, 150,000 bottles, 250,000 bottles, and 400,000 bottles, respectively. The management feels that an ending inventory of 10% of the subsequent quarter's sales is appropriate. What are the production needs for the first quarter?

195,000 bottles

Vineyard Corporation, a manufacturer of fine wines, began the year with 20,000 bottles in inventory. The company estimated the budgeted sales for the four quarters of the current year to be 200,000 bottles, 150,000 bottles, 250,000 bottles, and 400,000 bottles, respectively. The management feels that an ending inventory of 10% of the subsequent quarter's sales is appropriate. What is the desired ending inventory for the second quarter?

25,000 bottles

Cartier Corporation currently sells its products for $50 per unit. The company's variable costs are $20 per unit. Fixed expenses amount to a total of $5,000 per month. What is the company's variable cost ratio?

40%

Cartier Corporation currently sells its products for $50 per unit. The company's variable costs are $20 per unit. Fixed expenses amount to a total of $5,000 per month. What is the company's contribution margin ratio?

60%

Which of the following is true of self-imposed (participative) budgets? A) Self-imposed budgets give managers at all levels of an organization an opportunity to provide input into the budgeting process. B) Self-imposed budgets are prepared without consulting lower-level managers. C) The estimates used in self-imposed budgets rely primarily on the inputs and insights of top managers. D) Managers who create self-imposed budgets do not have an opportunity to embed budgetary slack within their estimates.

A) Self-imposed budgets give managers at all levels of an organization an opportunity to provide input into the budgeting process.

Which of the following is not a benefit of budgeting? A) The budgeting process enables managers to uncover bottlenecks as they occur. B) Budgets communicate management's plans throughout the organization. C) Budgets define goals and objectives that can serve as benchmarks for evaluating subsequent performance.

A) The budgeting process enables managers to uncover bottlenecks as they occur.

Which of the following best describes the journal entry to record the withdrawal of raw materials from the storeroom for use as direct and indirect materials in production?

Debit Work in Process, debit Manufacturing Overhead, and credit Raw Materials.

Which of the following best describes the journal entry to record the use of direct and indirect labor in production?

Debit Work in Process, debit Manufacturing Overhead, and credit Salaries and Wages Payable.

Which of the following occurs when finished jobs are shipped to customers?

Debit to Cost of Goods Sold.

In a budgeted income statement, _________ ____ __________ ________ is subtracted from sales to arrive at gross margin

cost of goods sold

The purpose of preparing a direct materials budget is to

estimate the quantity of raw materials to be purchased

If a firm increases its activity level, ________.

some costs will change, other costs will remain the same

A company determines that the number of units sold is the cost driver for its variable selling and administrative expense budget. The product of its variable selling and administrative rate and budgeted unit sales will be ________.

total budgeted variable selling and administrative expenses

Break-even point is the level of sales at which ______.

total revenue equals total costs

The value of the ending inventory is calculated by multiplying the number of units in ending inventory by the ________.

unit product cost