Accounting 2: Exam 2 (Ch. 6 & 7)

A manufacturing company has budgeted direct labor hours of 940 at a direct labor hour rate of $15. The budgeted fixed cost is $950 per month. The total budgeted overhead cost will be $

15,050

The costing system which is considered acceptable for external reporting under U.S. GAAP is

Absorption costing

A ___ format income statement reports variable costs separately from fixed costs.

Contribution

Regardless of whether variable costing or absorption costing is used, if quantity produced differs from quantity sold, income will be ___

Different

When using absorption costing when production is greater than sales, a portion of fixed overhead is allocated to:

Ending inventory

Production planning is important because producing too much can lead to ___ inventory.

Excess

Managers should accept special orders if the special-order price

Is greater than variable costs

Over the ___ run, selling prices must cover both fixed and variable costs.

Long

If direct materials per unit are $20, direct labor per unit is $10, variable overhead per unit is $2, and fixed overhead per unit is $1, total product cost per unit is $

$33 20+10+2+1=33

A merchandising company's budget includes the following data for January: Sales: $400,000; COGS: $270,000; Administrative salaries: $1,250; Sales commissions: 5% of sales; Advertising: $10,000; Depreciation on store equipment: $25,000; Rent on administrative building: $30,000; Miscellaneous administrative expenses: $5,000. The total general and administrative expenses on the January general and administrative expense budget will be $

$61,250 1,250 + 25,000 + 30,000+ 5,000 = 61,250

Loudon Company has the following unit costs: direct materials $6, direct labor $3, variable overhead $2, fixed overhead $1. Under absorption costing, total unit cost is:

12 6+3+2+1=12

A manufacturing company has budgeted direct labor hours of 600 at a variable overhead rate per direct labor hour of $20. The budgeted fixed cost is $500 per month. The total budgeted overhead cost will be $

12,500

JP Service Company has budgeted direct labor hours of 100 and direct labor cost per hour of $25 for data analysis personnel and budgeted direct labor hours of 50 and direct labor cost per hour of $30 for staff accountants. JP Service Company's cost of direct labor is $

4,000 (100x25) + (50x30) = 4,000

RST Company produces a product that has a variable cost of $6 per unit. The company's fixed costs are $30,000. The product sells for $10 per unit. RST desires to earn a profit of $20,000. The contribution margin ratio is

40% Contribution Margin = Selling price - Variable cost Contribution margin = $10 - $6 = $4 Contribution margin ratio = (Contribution margin / Selling price) *100 Contribution margin ratio = ($4 / $10) * 100 Contribution margin ratio = 40%

Cost information from ___ costing method(s) is helpful to management in setting prices.

Both

A(n) ___ is a formal statement of a company's plans in dollars.

Budget

The formula to compute the budgeted direct labor cost for a service firm is:

Budgeted direct labor hours times direct labor cost per hour

To calculate the units to purchase in a merchandise purchases budget, the formula is:

Budgeted sales units + desired ending merchandising inventory units - budgeted merchandise inventory units

Budgeting guidelines that help insure budgeting is a positive motivating force include: (Check all that apply.)

The opportunity to explain differences between actual and budgeted amounts, participatory budgeting, and attainable goals.

True or false: Depreciation on non-manufacturing assets and property taxes are considered general and administrative expenses and, therefore, are included on the general and administrative expense budget.

True

True or false: When units produced are less than units sold, net income under absorption costing will be less than net income computed under variable costing.

True

A company has sales of $125,000, variable costs of $45,000 and fixed costs of $30,000. The contribution margin ratio is ___

64% Total sales-variable cost: 125,000-45,000=80,000 Contribution margin/sales= 80,000/125,000= 0.64

The percent by which a product's unit selling price exceeds its total unit variable cost is the:

Contribution margin ratio

A manufacturing company would typically prepare all of the following budgets except:

Merchandise inventory budget

When units produced equals units sold, income under absorption costing will be ___ net income under variable costing.

=

Makum Company is using variable costing. Which of the items below would you see on Makum's income statement?

Net income, contribution margin, and variable expenses

Makum Company is using a traditional (absorption) costing system. Which of the items below would you see on Makum's income statement?

Net income, cost of goods sold, and gross margin

If management incentives are tied to income under absorption costing, which of the following may occur:

Possible inventory obsolescence

All of the following are guidelines that should be followed for budgets to be a positive motivating force except:

Budgets should be prepared using a top-down approach

An income statement which separately reports variable costs from fixed costs is known as a(n) ___

Contribution format

An income statement which shows the excess of sales over variable costs is referred to as a ___ ___ income statement.

Contribution margin

If management incentives are tied to income under absorption costing, which of the following may occur (select all that apply):

Possible obsolescence, increased financing costs, and increased storage costs.

Service firms should focus on _____ costs in managerial decisions.

Variable

Under the ___costing method, only variable costs are assigned to products.

Variable