BEC - Operations Management - Cost Accounting

In the computation of manufacturing cost per equivalent unit, the weighted-average method of process costing considers

Current costs plus cost of beginning work-in-process inventory

A manufacturing company that produces trivets has established the following standards for the current year: Standard price per pound $3.00 Standard material usage per trivet 2.00 During April, the company purchased 10,000 pounds of material for $33,000 and used 9,400 pounds to produce 4,500 trivets. Four thousand trivets were sold during April. What amount should be reported as the materials' quantity (usage) variance?

$1,200 unfavorable Actual material costs used = 9,400 pounds × $3.00 per unit = $28,200 Standard material costs = 4,500 trivets × 2 units per trivet × $3.00 per unit = $27,000 Materials quantity (usage) variance = $28,200 - $27,000 = $1,200 Since actual material costs are greater than standard material costs, variance is unfavorable.

Using the two-way analysis of overhead variances, what is the budget (controllable) variance for June?

$1,500 favorable 4 Variance Model = Variable Overhead Spending Variance + Variable Overhead Efficiency Variance + Fixed Overhead Spending Variance + Production Volume Variance 3 Variance Model = Spending Variance (Variable Overhead Spending Variance + Fixed Overhead Spending Variance) + Variable Overhead Efficiency Variance + Production Volume Variance 2 Variance Model = Controllable Variance (Variable Overhead Spending Variance + Fixed Overhead Spending Variance + Variable Overhead Efficiency Variance) + Uncontrollable Variance (Production Volume Variance)

Wright has a standard absorption and flexible budgeting system, and uses the two-variance method (two-way analysis) for overhead variances. The volume (denominator) variance for June is

$1,500 unfavorable

Milo Corp. sells washers for $350 per unit and incurs product costs of $300. Prime costs for the washers are $150 and the fixed portion of the overhead is $90. Milo receives a special order for 2,000 washers from Adobe. Additional variable manufacturing costs to meet Adobe specifications are $40 per unit. Milo has sufficient excess capacity and has determined that this sale will not interfere with regular business. What price must Milo charge Adobe to obtain a 20% markup on variable manufacturing costs?

$300

Fount Company uses a standard cost system. For April, total overhead is budgeted at $80,000 based on the normal capacity of 10,000 direct labor hours. At standard, each unit of finished product requires 2 direct labor hours. The following data are available for the April production activity: Equivalent units of product 4,750 Direct labor hours worked 9,250 Actual total overhead incurred $79,500 What amount should Fount credit to the applied factory overhead account for April?

$76,000

The cost of goods manufactured for May was

$77,700

What is the total cost per pound for the premium coffee using the new activity-based costing method?

$9.75

A direct labor overtime premium should be charged to a specific job when the overtime is caused by the

Customer's requirement for early completion of job

A ceramics manufacturer sold cups last year for $7.50 each. Variable costs of manufacturing were $2.25 per unit.The company needed to sell 20,000 cups to break even.Net income was $5,040. This year,the company expects the following changes: sales price per cup to be $9.00; variable manufacturing costs to increase 33.3%; fixed costs to increase 10%; and the income tax rate to remain at 40%. Sales in the coming year are expected to exceed last year's sales by 1,000 units. How many units does the company expect to sell this year?

22,600

The accompanying diagram depicts a manufacturing total cost flexible budget line KI and standard cost line OI. Line OJ is parallel to line KI, and revenues are represented by line OH. Which line on the graph represents the budgeted gross profit at volume OE, assuming no change between beginning and ending inventories?

AB Budgeted gross profit is the difference between revenue and budgeted cost.

Which of the following is (are) acceptable regarding the allocation of joint product cost to a by-product? #Some portion allocated None allocated

Acceptable Acceptable

When only differential manufacturing costs are taken into account for special order pricing, an essential assumption is that

Acceptance of the order will not affect regular sales. When only differential manufacturing costs are taken into account for special order pricing, it is essential to assume that acceptance of the order will not affect regular sales. It is not necessary to assume that costs are linear or that they will not change.

The performance of a standard cost center should be evaluated by comparing

Actual costs with flexible budget costs.

On the accompanying diagram, the line OA represents the standard labor cost at any output volume expressed in direct labor hours. Point S indicates the actual output at standard cost, and Point A indicates the actual hours and actual costs required to produce S. The budgeted total variable overhead cost for C machine hours is

BC minus DO

In an income statement prepared using the variable costing method, fixed factory overhead would:

Be used in the computation of operating income but not in the computation of the contribution margin

In an income statement prepared as an internal report using the variable costing method, variable selling and administrative expenses would

Be used in the computation of the contribution margin

A company manufactures chairs and stores them in rented warehouses. Due to changes in rent rules, the rent of warehouses has increased significantly. This would cause an increase in which of the following?

Conversion costs Conversion costs are the costs that are incurred to convert raw material to finished goods. It comprises direct labor and manufacturing overheads. Manufacturing overheads are costs other than direct material and labor, which are related to the overall production.

If a product required a great deal of electricity to produce, and crude oil prices increased, which of the following costs most likely increased?

Conversion costs The cost of electricity is certain to increase as crude oil prices increase. Electricity is identified as a manufacturing overhead expense. Conversion cost is the sum of the direct labor and manufacturing overhead. Therefore, conversion costs will most likely increase.

The most likely strategy to reduce the breakeven point, would be to

Decrease the fixed costs and increase the contribution margin The breakeven point is computed by dividing fixed costs by the contribution margin.

If the market value of P at split-off increases and all other costs and selling prices remain unchanged, then the gross margin of #P Q

Decreases Increases

The essence of responsibility accounting is

Developing performance reports emphasizing costs and revenues that managers can control.

Which of the following costs includes all the product costs?

Direct material and conversion costs Conversion costs are the manufacturing costs needed to convert direct materials into products. Therefore, conversion costs exclude the cost of direct materials but include direct labor costs and manufacturing overhead costs

Which of the following types of costs are prime costs?

Direct materials and direct labor

Which of the following types of variances would a purchasing manager most likely influence?

Direct materials price

Which of the following choices shows the proper treatment of sales commissions and abnormal spoilage charges when calculating a manufactured good's inventoriable cost? #Sales Commissions Abnormal Spoilage

Exclude Exclude Manufactured goods inventoriable costs include materials, labor, manufacturing overhead, and normal spoilage.

Which of the following is not a basic approach to allocating costs for costing inventory in joint-cost situations?

Flexible budget amounts

Lynn Manufacturing Co. prepares income statements using both standard absorption and standard variable costing methods. For Year 2, unit standard costs were unchanged from Year 1. In Year 2, the only beginning and ending inventories were finished goods of 5,000 units. How would Lynn's ratios using absorption costing compare with those using variable costing? CurrentRatio Return onStockholders' Equity

Greater Smaller

Jago Co. has 2 products that use the same manufacturing facilities and cannot be subcontracted. Each product has sufficient orders to utilize the entire manufacturing capacity. For short-run profit maximization, Jago should manufacture the product with the:

Greater contribution margin per hour of manufacturing capacity

In calculating the break-even point for a multi-product company, which of the following assumptions are commonly made when variable (direct) costing is used? Sales volume equals production volume. Variable costs are constant per unit. A given sales mix is maintained for all volume changes.

II and III Using absorption costing, break-even analysis assumes: (I) sales volume equals production volume (i.e., inventory levels remain constant), (II) unit variable costs are unchanged over the relevant range and (III) a given sales mix is maintained for all volume changes. Using direct variable costing, no fixed manufacturing costs are applied to inventory because all fixed costs are expensed when incurred. Hence, it does not matter if sales volume equals production volume.

Which of the following costing methods provide(s) the added benefit of usefulness for external reporting purposes? Variable Absorption

II only Variable (or direct) costing is not acceptable for external financial reporting (GAAP) or federal income tax reporting. Absorption costing inventories both fixed and variable costs, in accordance with GAAP.

Lake Company increased its direct labor wage rates. All other budgeted costs and revenues were unchanged. How did this increase affect Lake's budgeted break-even point and budgeted margin of safety? #Budgeted break-even point Budgeted margin of safety

Increase Decrease The increase in the direct labor wage rates increased the variable cost per unit, thereby decreasing the contribution margin ratio because the selling price per unit is unchanged. With unchanged budgeted fixed costs and a decreased contribution margin ratio, the budgeted break-even point increases. The margin of safety is the excess of budgeted revenues over the level of revenues at the break-even point. Since budgeted revenues were unchanged and the budgeted break-even point increased, the budgeted margin of safety decreased.

What is the normal effect on the numbers of cost pools and allocation bases when an activity-based cost (ABC) system replaces a traditional cost system? #Cost pools Allocation bases

Increase Increase

Which of the following costing method identifies individual batches or units as cost objectives?

Job costing

Which of the following costing method identifies individual batches or units as cost objectives?

Job costing Job costing is the assignment of costs by specific jobs (i.e., physical units, distinct batches, or job lots). This costing method is appropriate when direct costs can be identified with specific units, or groups of units, of production.

Bing Company had no beginning work-in-process inventory, and the ending work-in-process inventory is 50% complete as to conversion costs. The number of equivalent units as to conversion costs would be

Less than the units placed in process Assuming no beginning work-in-process (WIP), the number of equivalent units (EU) as to conversion costs will be the sum of the number of units finished during the period, plus the product of multiplying the number of units in ending WIP by the percentage of completion of those units. Thus, the number of EU of conversion costs will be greater than the number of units finished, but less than the number of units initially placed in production.

In an activity-based costing system, what should be used to assign a department's manufacturing overhead costs to products produced in varying lot sizes?

Multiple cause and effect relationships

Which of the following statement(s) is(are) true regarding the relationship between absorption costing net income and variable costing income? When production exceeds sales, variable costing income exceeds absorption costing net income. When sales exceeds production, absorption costing income exceeds variable costing net income.

Neither I nor II When production exceeds sales, inventories increase. In absorption costing, fixed manufacturing costs are charged to inventory. When inventories increase, absorption costing defers the fixed manufacturing costs charged to inventory to future periods. Variable costing expenses all fixed costs; resulting in lower net income than under absorption costing when inventories increase. When inventories decrease, absorption costing expenses all the current period's fixed costs plus the fixed costs included in inventory, while variable costing expenses only current-period fixed costs.

For purposes of allocating joint costs to joint products, the sales price at point of sale, reduced by cost to complete after split-off, is assumed to be equal to the

Net sales value at split-off

Using the variable costing method, which of the following costs are assigned to inventory? #Variable selling and administrative costs Variable factory overhead costs

No Yes Under variable costing, only variable production costs are treated as inventoriable or product costs. Fixed overhead cost is treated as a period cost. Variable factory overhead costs are assigned to inventory. However, under both variable and absorption costing, selling and administrative costs (whether variable or fixed) are period costs, not product costs assigned to inventory.

Weighted average and first in, first out (FIFO) equivalent units would be the same in a period when which of the following occurs?

No beginning inventory exists.

In computing the current period's manufacturing cost per equivalent unit, the FIFO method of process costing considers current period costs

Only

The direct (variable) costing method includes in inventory

Only variable manufacturing costs

Which of the following standard costing variances would be least controllable by a production supervisor?

Overhead volume The overhead volume variance is a measure of the utilization of available plant facilities; it does not measure the efficient use of inputs used in production.

Which technique would be most precise in determining the variable cost component of manufacturing overhead costs?

Regression analysis

A process costing system was used for a department that began operations in January. Approximately the same number of physical units, at the same degree of completion, were in work in process at the end of both January and February. Monthly conversion costs are allocated between ending work in process and units completed. Compared to the FIFO method, would the weighted average method use the same or a greater number of equivalent units to calculate the monthly allocations? Equivalent units forweighted average compared to FIFO #January February

Same Greater number

During June, Delta Co. experienced scrap, normal spoilage, and abnormal spoilage in its manufacturing process. The cost of units produced includes

Scrap and normal spoilage, but not abnormal spoilage

Under which of the following circumstances would an Activity-Based Costing system prove to be effective or useful?

Several product lines that share overheads

Dowell Co. manufactures a wooden item. Which of the following is included with the inventoriable cost under absorption costing and excluded from the inventoriable cost under variable costing?

Straight-line depreciation on factory equipment

The diagram below is a cost-volume-profit chart. At point A compared to point B, as a percentage of sales revenues #Variable costs are Fixed costs are

The same Greater

The CPA reviewed the minutes of a board of director's meeting of LQR Corp., an audit client. An order for widget handles was outsourced to SDT Corp. because LQR couldn't fill the order. By having SDT produce the order, LQR was able to realize $100,000 in sales profits that otherwise would have been lost. The outsourcing added a cost of $10,000, but LQR was ahead by $90,000 when the order was completed. Which of the following statements is correct regarding LQR's action?

The use of resource markets outside of LQR involves opportunity cost.

A department's three-variance overhead standard costing system reported unfavorable spending and volume variances. The activity level selected for allocating overhead to the product was based on 80% of practical capacity. If 100% of practical capacity had been selected instead, how would the reported unfavorable spending and volume variances be affected? #Spending variance Volume variance

Unchanged Increased

Are the February material price variance and March material net variance favorable or unfavorable? February Price March Net

Unfavorable Favorable

Are the January material price variance and material usage variance favorable or unfavorable?v

Unfavorable Favorable

Are the rate variance and efficiency variance favorable or unfavorable? #Rate Efficiency

Unfavorable Favorable

The contribution margin ratio always increases when the:

Variable costs as a percentage of net sales decrease.

Each of the following should be considered in the selection of appropriate cost drivers for an activity-based costing system, except

Volume-based production

Which of the following variances would be useful in calling attention to a possible short-term problem in the control of overhead costs? #Spending variance Volume variance

Yes No

A company would most benefit from using an activity-based costing (ABC) system as opposed to a traditional costing system under which of the following conditions?

When indirect costs are a high percentage of total costs

Which of the following statements is correct regarding the difference between the absorption costing and variable costing methods?

When production is greater than sales, absorption costing income is greater than variable costing income.

Operating income using direct costing as compared to absorption costing would be higher

When the quantity of beginning inventory is more than the quantity of ending inventory

In process 2, material G is added when a batch is 60% complete. Ending work-in-process units, which are 50% complete, would be included in the computation of equivalent units for #Conversion costs Material G

Yes No

Smart Co. uses a static budget. When actual sales are less than budget, Smart would report favorable variances on which of the following expense categories? #Sales commissions Building rent

Yes No

Under the two-variance method for analyzing overhead, which of the following variances consists of both variable and fixed overhead elements? #Controllable (budget) variance Volume variance

Yes No The controllable (budget) variance consists of both variable and fixed overhead elements. On the other hand, the volume variance consists only of a fixed overhead element.

In accounting for by-products, the value of the by-product may be recognized at the time of #Production Sale

Yes Yes

Under the three-variance method for analyzing factory overhead, which of the following is used in the computation of the spending variance? #Actual factory overhead Budget allowance based on actual hours

Yes Yes

Box Co. uses regression analysis to estimate the functional relationship between an independent variable (cost driver) and overhead cost. Assume that the following equation is being used: y = A + Bx. What is the symbol for the independent variable?

x