Accounting Module 7

During the year, it took 2,000 machine hours and 6,000 direct labor hours to produce the mountain bikes. How much manufacturing overhead was allocated to the mountain bikes during the year?

600,000/10,000= 60 60 * 2000 = 120,000

Which of the following should NOT be used to evaluate the production manager's performance?

Depreciation on factory

How much manufacturing overhead was allocated

OH Rate = Estimated OH / Estimated Hours OH Rate x Actual Hours Manufacturing Overhead + Personnel/Labor Overhead = Total

Laying off employees by outsourcing

Qualitative

A product should be eliminated if its

contribution margin is negative

Put the following steps in an Activity-Based-Costing system in the proper order.

1. Separate total overhead into cost pools 2. Identify a logical cost driver as an allocation base for each cost pool 3. Calculate an overhead rate 4. Allocate the costs to the cost object by multiplying the overhead rate by the actual amount of the cost driver used by the cost object

What will the company's breakeven point in units equal if BBQ Tanning Beds were to replace some of its hourly employees with a machine?

Contribution Margin (CM) = Sales Price - Variable Cost per unit Breakeven in units = Fixed Cost/CM

The sales manager will be evaluated based on the amount of advertising incurred because the manager can choose to decrease advertising should circumstances warrant. This is an example of a

Controllable Cost

Impress, Inc., makes books and is trying to decide whether one particular book which sells for $25 should be printed in-house or outsourced. For each of the following items, indicate if it is relevant or irrelevant to the decision.

Cost of having the printing done by the printing company - Relevant Salary of the accounting manager of Impress, Inc. - Irrelevant Original price of the printing equipment owned by Impress, Inc. - Irrelevant

Which of the following should be used to evaluate the production manager's performance?

Defect rate of products Hours spent on production per unit Cost of direct materials

Calculate the relevant incremental cost of making each unit

Direct Labor + Direct Materials (Per Unit)

Calculate the incremental savings (or loss) per pound if the company outsources the product

Direct Labor + Direct Materials (Per pound) = Relevant Costs (.50 + .40 = .9 per pound) Relevant Cost - Outsourced Cost (20,000/20,000 = $1 per pound) .9 - 1 = -.10

Determine the amount of overhead allocated to each sprinkler

Each overhead rate x Planned Activity Add them all Together 6 Parts= (.20 x 6) + (1.5/hr) + (.2 x 6) + [(.1) PER FINISHED UNIT]

Which of the following statements is true concerning the allocation of overhead?

Indirect costs are allocated to cost objects to determine a more accurate cost.

Which of the following accounts would be a product cost rather than a period cost?

Insurance on factory assets Production manager's salary Shipping costs on purchases of inventory Depreciation on manufacturing machinery

Impress, Inc., makes books and is trying to decide whether one particular book which sells for $25 should be printed in-house or outsourced. For each of the following items, indicate whether it is a quantitative or qualitative factor.

Laying off employees by outsourcing = Qualitative

Will eliminating product X increase Applesoft's Net Income?

No

How much manufacturing overhead was allocated to the mountain bikes during the year?

OH rate = Estimated Total OH / Estimated Total Level of Activity (machine hours) OH Rate x Actual Activity

The Sweet Dairy Air, Inc., makes and sells ice cream cones. Management is trying to decide whether to have its hourly employees produce the ice cream cones or purchase the cones from an outside vendor. For each of the following items, indicate if it is a quantitative or qualitative factor relative to this decision.

Quantitative: Ingredient costs to make the ice cream cones Ingredient costs to make the ice cream Wages of Sweet Dairy Air's employees Qualitative: Quality of the ice cream cones from the outside vendor Delivery reliability

When trying to decide between multiple alternatives, a cost that occurs in the future and differs between alternatives is a

Relevant Cost

The normal selling price is $50.00 per unit. An order has been received from an overseas company for 100 units at the special price of $40.00 per unit. What would be the additional income (or loss) of taking on this special order?

Sales Revenue - (Direct Material + Direct Labor + Allocated Variable Overhead) x (# of units Sold)

How much would Net Income decrease if Microhard were to eliminate the tablets?

Should the product be eliminated, the company will lose the contribution margin. In this example, the allocated overhead is unavoidable and thus is irrelevant to the decision. If some of the overhead is avoidable, then the loss in contribution margin should be compared to the savings in overhead. If the contribution margin is less than the savings, then the product should be eliminated. Module 7, LO 7.4 Continue or Eliminate Decisions

Which of the following costs are irrelevant to business decisions?

Sunk Costs

If Wok Around the Clock accepts a special order from Hard Wok Cafe to purchase 1,000 woks at $75 each plus $1,200 in shipping costs, how much would it make or lose on this special order?

The additional revenue minus the variable cost minus the shipping cost is the additional income or loss. Revenue - Variable Costs - Shipping 75,000 - (84,000) - 1,200 (Shipping) = (-10,200) Module 7, LO 7.3 Special Order Decisions

What is the additional profit (loss) of accepting the offer?

The allocated overhead is irrelevant since the costs will not change if the company decides to accept the special order. Thus, the special price should be compared to the relevant incremental costs (only the costs that will increase if the order is accepted), not the total cost. Module 7, LO 7.3 Special Order Decisions

Total Cost

Total Costs = Direct Labor + Direct Material + Overhead Direct Labor = Wage per hour x Number of hours Overhead = Overhead Rate per hour x Number of direct labor hours

For a manufacturing company which is an example of a period cost rather than a product cost?

Wages of sales person