ACCTG 231

23. The following are budgeted data: Sales in Units 15,000 (January) 20,000 (February) 18,000 (March) Production in Units 18,000 (January) 19,000 (February) 16,000 (March) One pound of material is required for each finished unit. The inventory of materials at the end of each month should equal 20% of the following month's production needs. Purchases of raw materials for February would be budgeted to be: a. 19,600 pounds b. 20,400 pounds c. 18,600 pounds d. 18,400 pounds

(19000*1) + (16000*1*20%) - (19000*1*20%) = 18400 pounds d. 18,400 pounds

13. Lucas Corporation uses the weighted-average method in its process costing system. The company adds materials at the beginning of the process in the Forming Department, which is the first of two stages in its production process. Information concerning operations in the Forming Department in October follows: Work in Process on October 1 6,000 (Units) $ 3,000 (Materials Cost) Units started during October 50,000 (Units) $ 25,560 (Materials Cost) Units completed and transferred to the next Department during October 44,000 (Units) What was the materials cost of work in process at October 31? a. $3,060 b. $5,520 c. $6,000 d. $6,120

(Units Work in Process on October 1 + Units started during October)/ (Materials Cost Work in Process on October 1 + Materials cost Units started during October) (50,000 + 6,000)/(3,000 + 25,560)= 56,000/28,560 = .51 per unit Units completed and transferred to the next Department during October x .51 per unit 44,000 x .51 = 22,440 56,000 - 44,000= 12,000 28,560 - 22,440 = $6,120 d. $6,120

Which TWO of the following statements are true? 1. Indirect materials and indirect labor are included in manufacturing overhead. 2. Examples of selling costs include sales commissions, advertising, shipping and the costs of operating finished goods warehouses. 3. For financial accounting purposes, product costs include direct materials, direct labor and selling costs. 4. For financial accounting purposes, period costs are also referred to as inventoriable costs.

1. Indirect materials and indirect labor are included in manufacturing overhead. 2. Examples of selling costs include sales commissions, advertising, shipping and the costs of operating finished goods warehouses.

Which TWO of the following statements are true? 1. Product costs are expensed on the income statement in the period incurred. 2. Direct labor is a manufacturing cost and a product cost. 3. Conversion costs include direct materials and direct labor. 4. Nonmanufacturing costs are treated as period costs.

2. Direct labor is a manufacturing cost and a product cost. 4. Nonmanufacturing costs are treated as period costs.

Dilly Farm Supply is in a small town in the rural west. Data regarding the store's operations follow: · Sales are budgeted at $290,000 for November, $310,000 for December, and $210,000 for January. · Collections are expected to be 65% in the month of sale and 35% in the month following the sale. · The cost of goods sold is 80% of sales. · The company desires to have an ending merchandise inventory at the end of each month equal to 70% of the next month's cost of goods sold. Payment for merchandise is made in the month following the purchase. · Other monthly expenses to be paid in cash are $21,100. · Monthly depreciation is $21,000. · Ignore taxes. Balance Sheet October 31 Assets Cash = $25,000 A/R = 77,000 Inventory = 162,400 PP&E, net of $624,000 accumulated depreciation = 1,026,000 Total assets = $1,290,400 Liabilities and Stockholders' Equity A/P = $239,000 Common Stock = 740,000 Retained Earnings = 311,400 Total liabilities and stockholders' equity = $1,290,400 25. Expected cash collections in December are: a. $310,000 b. $101,500 c. $303,000 d. $201,500 26. Retained earnings at the end of December would be: a. $325,100 b. $311,400 c. $353,400 d. $347,200

25. Sales + Collection from current month sales(65%) + (collection from debtors/ 35% of pervious month sales) = total collection for the month =$310,000 + $201,500 + $101,500 = $303,000 c. $303,000 26. d. $347,200

15. Sumter Corporation uses the weighted-average method in its process costing system. The following data pertain to operations in the first processing department for a recent month: Work in process, beginning Units in process = 6,000 Percent complete with respect to materials = 60% Percent complete with respect to conversion = 20% Costs in the beginning inventory Materials cost = $ 78,200 Conversion cost = $ 3,600 Units started during the month = ? Units completed and transferred out during the month = 70,000 Costs added to production during the month Materials cost = $ 286,600 Conversion cost = $ 216,000 Work in process, ending Units in process = 8,000 Percent complete with respect to materials = 75% Percent complete with respect to conversion = 25% What was the cost per equivalent unit for conversion during the month? a. $5.45 b. $6.95 c. $4.00 d. $3.05

Answer to first question: 72,000 units were started into production. There were 70,000 completed and transferred out and 8,000 at the ending, which is a total of 78,000 to account for. They had 6,000 at the beginning, so 72,000 were started into production. (70,000 + 8,000 - 6,000 = 72,000) Answer to second question: $3.05 cost per equivalent unit for conversion costs Equivalent units for conversion: 70,000 equivalent units completed and transferred out (100% complete) + 2,000 in ending inventory (8,000*25% complete) = 72,000 equivalent units Costs: 3600 (beginning) + 216,000 (added) = 219,600 Cost per equivalent unit for conversion costs = 219,600/72,000 = $3.05 d. $3.05

20. A tile manufacturer has supplied the following data: Boxes of tiles produced and sold = $ 520,000 Sales revenue = $ 2,132,000 Variable manufacturing expense = $ 650,000 Fixed manufacturing expense = $ 464,000 Variable selling and administrative expense = $ 260,000 Fixed selling and administrative expense = $ 312,000 Net operating income = $ 446,000 What is the company's unit contribution margin? a. $0.86 per unit b. $2.35 per unit c. $4.10 per unit d. $1.75 per unit

Contribution per unit. = Contribution/ no.of units = $1220000/520000 b. $2.35 per unit

rewrite the false statement to make them true: Conversion costs include direct materials and direct labor.

Conversion costs include manufacturing overhead and direct labor. OR Prime costs include direct materials and direct labor.

14. Walbin Corporation uses the weighted-average method in its process costing system. The beginning work in process inventory in a particular department consisted of 12,000 units, 100% complete with respect to materials cost and 20% complete with respect to conversion costs. The total cost in the beginning work in process inventory was $39,400. A total of 42,000 units were transferred out of the department during the month. The costs per equivalent unit were computed to be $2.40 for materials and $4.50 for conversion costs. The total cost of the units completed and transferred out of the department was: a. $250,200 b. $289,800 c. $250,400 d. $189,000

Direct Material = $2.40 Conversion Costs = $4.50 Equivalent Costs per unit = $6.90 # of units completed and transferred = 42,000 Equivalent Costs per unit x # of units completed and transferred $6.90 x 42,000 = $289,800 b. $289,800

rewrite the false statement to make them true: For financial accounting purposes, period costs are also referred to as inventoriable costs.

For financial accounting purposes, product costs are also referred to as inventoriable costs. or For financial accounting purposes, period costs are also referred to as selling and administrative costs.

rewrite the false statement to make them true: For financial accounting purposes, product costs include direct materials, direct labor and selling costs.

For financial accounting purposes, product costs include direct materials, direct labor and manufacturing overhead.

29. Magno Cereal Corporation uses a standard cost system for its "crunchy pickle" cereal. The materials standard for each batch of cereal produced is 1.4 pounds of pickles at a standard cost of $3.00 per pound. During the month of August, Magno purchased 78,000 pounds of pickles at a total cost of $253,500. Magno used all of these pickles to produce 60,000 batches of cereal. What is Magno's materials quantity variance for August? a. $1,500 Unfavorable b. $18,000 Favorable c. $19,500 Unfavorable d. $54,000 Unfavorable

Material quantity variance = ( standard quantity required per product *Actual production - actual quantity used for production) = $3.00 * (1.4*60,000 -78,000) = $18,000 Favorable b. $18,000 Favorable

40. Pool Corp has provided the following data related to a 5 year investment project that it is evaluating: Initial investment in equipment = $500,000 Annual net cash inflow = $140,000 Salvage value of equipment at the end of the project = $14,000 Working capital required = $50,000 Period 1 : 0.893 (Present value of $1) 0.893 (Present value of an annuity) Period 2: 0.797 (Present value of $1) 1.690 (Present value of an annuity) Period 3: 0.712 (Present value of $1) 2.402 (Present value of an annuity) Period 4: 0.636 (Present value of $1) 3.037 (Present value of an annuity) Period 5: 0.567 (Present value of $1) 3.605 (Present value of an annuity) The working capital is put into the project immediately and is released back to the company at the end of the project. If the company's discount rate is 12%, the net present value of the project is closest to (factors from Exhibit 12B-1 and Exhibit 12B-2 for an interest rate of 12% are provided below). a. ($37,362) b. ($ 9,012) c. $34,288 d. $49,838

NPV = PV of cash inflow - PV of cash outflow (140,000 x 3.605) - (14,000 x .567) = -9,012 b. ($ 9,012)

39. McDougal Products is considering the purchase of new equipment to place in its factory. The equipment would cost $365,000, have a ten-year useful life and a salvage value at the end of its useful life of $65,000. The company estimates that annual revenues and expenses associated with the equipment would be as follows: Revenues $210,000 Less operating expenses: Salaries $100,000 Depreciation 30,000 Maintenance 20,000 =150,000 Net operating income = $60,000 The payback period of the new equipment is closest to: a. 3.3 years b. 4.1 years c. 5.0 years d. 6.1 years

Net Cash flow = 60,000 + 30,000 = 90,000 Payback period = Initial investment/Annual cash flow = 365,000 / 90,000 = 4.05 or 4.1 b. 4.1 years

rewrite the false statement to make them true: Product costs are expensed on the income statement in the period incurred.

Period costs are expensed on the income statement in the period incurred. or Product costs are expensed on the income statement in the period in which the products are sold. or Product costs are carried as assets on the balance sheet until the period in which the products are sold.

19. Tropp Corporation sells a product for $10 per unit. The fixed expenses are $420,000 per month and the unit variable expenses are 60% of the selling price. What sales would be necessary in order for Tropp to realize a profit of 10% of sales? a. $1,050,000 b. $945,000 c. $1,400,000 d. $840,000

Sales = Fixed expenses ÷ 30% = $420,000 ÷ 0.30 = $1,400,000 c. $1,400,000

44. Dinno Corp makes three products; X, Y and Z. The bottleneck (constraint) in the production process is time required on Dinno's cutting machine, which has only 700 hours available each month. Rank the products in the order in which Dinno should focus in order to maximize profits under its constrained resource. X Y Z Sales price per unit $20 (X) $16 (Y) $25 (Z) Variable costs per unit 8 (X) 10 (Y) 20 (Z) Hours of cutting machine time required per unit 1.5 (X) 0.5 (Y) 1.0 (Z) a. X, Y, Z b. X, Z, Y c. Y, X, Z d. Z, X, Y

Selling price = 20(X) 25(Y) 16(Z) Variable cost = 8(X) 20(Y) 10(Z) Contribution margin=(Selling price-Variable cost)= 12(X) 5(Y) 6(Z) Machine time per hour = 1.5(X) 1(Y) 0.50(Z) CM per minute = 8(X) 5(Y) 12(Z) c. Y, X, Z

3. The Lofty Company has provided the following information Direct materials $ 6.20 (Cost per Unit) Direct labor $ 2.80 (Cost per Unit) Variable manufacturing overhead $ 1.45 (Cost per Unit) Fixed manufacturing overhead $ 12,000.00 (Cost per Period) Sales Commissions $ 1.00 (Cost per Unit) Variable administrative expense $ 0.55 (Cost per Unit) Fixed selling and administrative expense $ 4,000.00 (Cost per Period) If 5,000 units are produced, the total amount of manufacturing overhead is: a.$18,000 b.$19,250 c.$18,625 d.$20,500

Variable manufacturing overhead $ 1.45 (Cost per Unit) x 5000 = $7250 Fixed manufacturing overhead $ 12,000.00 + $7250= $19250 b.$19,250

24. The manufacturing overhead budget at Franklyn Corporation is based on budgeted direct labor-hours. The direct labor budget indicates that 4,400 direct labor-hours will be required in January. The variable overhead rate is $1.30 per direct labor-hour. The company's budgeted fixed manufacturing overhead is $60,280 per month, which includes depreciation of $17,160. All other fixed manufacturing overhead costs represent current cash flows. The January cash disbursements for manufacturing overhead on the manufacturing overhead budget should be: a. $5,720 b. $43,120 c. $48,840 d. $66,000

Variable overhead = (1.30*4400) = 5,720 Fixed overhead = ($60280 - $17160) = 43,120 Total cash disbursement = 48,840 c. $48,840

30. Hermansen Corporation produces large commercial doors for warehouses and other facilities. In the most recent month, the company budgeted production of 5,100 doors. Actual production was 5,400 doors. According to standards, each door requires 3.8 machine-hours. The actual machine-hours for the month were 20,880 machine-hours. The standard supplies cost is $7.90 per machine-hour. The actual supplies cost for the month was $152,063. Supplies cost is an element of variable manufacturing overhead. The variable overhead efficiency variance for supplies cost is: a. $10,045 Favorable b. $10,045 Unfavorable c. $2,844 Favorable d. $2,844 Unfavorable

Variable overhead efficiency variance = (Standard hours - Actual hours) x Standard rate={(5,400 x 3.8) - 20,880) x $7.90 d. $2,844 Unfavorable

13. Lucas Corporation uses the weighted-average method in its process costing system. The company adds materials at the beginning of the process in the Forming Department, which is the first of two stages in its production process. Information concerning operations in the Forming Department in October follows: Work in Process on October 1 6,000 (Units) $ 3,000 (Materials Cost) Units started during October 50,000 (Units) $ 25,560 (Materials Cost) Units completed and transferred to the next Department during October 44,000 (Units) What was the materials cost of work in process at October 31? a. $3,060 b. $5,520 c. $6,000 d. $6,120

Work in Process on October 1 + d. $6,120

33. Micro Corp produces and sells a number of products each month including 20,000 units of Product X. Information related to the monthly sales of Product X is provided below: Sales = $450,000 Variable expenses = 380,000 Fixed expenses (traceable to Product X) = 80,000 Common fixed expenses (allocated to Product X) = 20,000 Net operating income (loss) = ($ 30,000) Assume all traceable fixed expenses could be avoided if Product X is discontinued, while none of the common fixed expenses are avoidable. The monthly financial advantage (disadvantage) of eliminating the division should be: a. $ 10,000 b. $ 20,000 c. $ 30,000 d. $100,000

a. $ 10,000

2. Which of the following statements is NOT correct concerning the Cash Budget? a. It is not necessary to prepare any other budgets before preparing the Cash Budget. b. The Cash Budget should be prepared before the Budgeted Income Statement. c. The Cash Budget should be prepared before the Budgeted Balance Sheet. d. The Cash Budget builds on earlier budgets and schedules as well as additional data.

a. It is not necessary to prepare any other budgets before preparing the Cash Budget.

37. The average rate of return that a company pays its long-term creditors and shareholders for the use of funds is referred to as the company's: a. cost of capital. b. internal rate of return. c. net present value. d. simple rate of return.

a. cost of capital.

28. Variable manufacturing overhead is applied to products on the basis of standard direct labor-hours. If the labor efficiency variance is favorable, the variable overhead efficiency variance will be: a. favorable. b. unfavorable. c. zero. d. can't determine without more information on overhead usage.

a. favorable.

4. Dranock Corporation has two manufacturing departments - Forming and Finishing. The company used the following data at the beginning of the year to calculate predetermined overhead rates: Est. total machine hours (MH) 7,000 (Forming) 3,000 (Finishing) 10,000 (Total) Est. total fixed manufacturing overhead cost $ 40,600 (Forming) $ 8,100 (Finishing) $ 48,700 (Total) Est. variable manufacturing overhead cost per MH $ 1.30 (Forming) $ 2.80 (Finishing) Assume that the company uses a plantwide predetermined manufacturing overhead rate based on machine hours. That predetermined overhead rate is closest to: a.$6.62 b.$4.87 c.$4.10 d.$7.10

a.$6.62

6. In a job-order costing system, indirect labor cost is usually recorded as a debit to a.Manufacturing Overhead b.Finished Goods c.Work-in-Process d.Cost of Goods Solid

a.Manufacturing Overhead

36. Which of the following is true when using the net present value method to evaluate investments? a. If a project requires working capital, the working capital is ordinarily included as a cash inflow at the beginning of the project and a cash outflow as the end of a project. b. An assumption of the net present value method is that cash flows can be immediately reinvested at a rate of return equal to the discount rate used to evaluate the project. c. The discount rate is the maximum rate of return that the project must earn to be considered acceptable. d. Depreciation is ordinarily included as a cash outflow in each year of a project's life.

b. An assumption of the net present value method is that cash flows can be immediately reinvested at a rate of return equal to the discount rate used to evaluate the project.

8. In the Schedule of Cost of Goods Manufactured and Cost of Goods Sold, how is the cost of goods manufactured calculated? a. Cost of goods manufactured = Total manufacturing costs + Ending work in process inventory - Beginning work in process inventory b. Cost of goods manufactured = Total manufacturing costs + Beginning work in process inventory - ending work in process inventory c. Cost of goods manufactured = Total manufacturing costs + Beginning finished goods inventory - ending finished goods inventory d. Cost of goods manufactured = Total manufacturing costs + Ending finished goods inventory - Beginning finished goods inventory

b. Cost of goods manufactured = Total manufacturing costs + Beginning work in process inventory - ending work in process inventory

17. Which of the following is true regarding the contribution margin ratio of a company that produces only a single product? a. As fixed expenses decrease, the contribution margin ratio increases. b. The contribution margin ratio multiplied by the selling price per unit equals the contribution margin per unit. c. The contribution margin ratio will decline as unit sales decline. d. The contribution margin ratio equals the selling price per unit less the variable expense ratio.

b. The contribution margin ratio multiplied by the selling price per unit equals the contribution margin per unit.

27. A favorable labor rate variance indicates that a. actual hours exceed standard hours. b. the standard rate exceeds the actual rate. c. standard hours exceed actual hours. d. the actual rate exceeds the standard rate.

b. the standard rate exceeds the actual rate.

12. A process costing system is employed in those situations where: a. many different products, jobs, or batches of production are being produced each period. b. where manufacturing involves a single, homogeneous product that flows evenly through the production process on a continuous basis. c. a service is performed such as in a law firm or an accounting firm. d. full or absorption cost approach is not employed.

b. where manufacturing involves a single, homogeneous product that flows evenly through the production process on a continuous basis.

1. The cost of a hard drive installed in a computer is a: a.Direct Labor Cost b.Direct Materials Cost c.Manufacturing Overhead Cost d.Selling Cost

b.Direct Materials Cost

5.Assigning manufacturing overhead to a specific job is complicated by all of the following EXCEPT: a.Manufacturing overhead is an indirect cost that is either impossible or difficult to trace to a particular job. b.Manufacturing overhead is incurred only to support some jobs. c.Manufacturing overhead consists of both variable and fixed costs d.The average cost of actual fixed manufacturing overhead expenses will vary depending on how many units are produced in a period.

b.Manufacturing overhead is incurred only to support some jobs.

18. If the degree of operating leverage is 4, then a one percent change in quantity sold should result in a four percent change in: a. Unit contribution margin. b. Revenue. c. Net operating income d. Variable expense.

c. Net operating income

16. If a company increases its selling price by $2 per unit due to an increase in its variable labor cost of $2 per unit, the break-even point in units will: a. Decrease b. Increase c. Not change d. Change but direction cannot be determined

c. Not change

31. A company is considering the following two alternatives: Revenue: $100,000(Alternative X) $120,000 (Alternative Y) Variable Costs $ 50,000(Alternative X) $ 50,000 (Alternative Y) Fixed Costs $ 20,000(Alternative X) $ 25,000 (Alternative Y) Which of the above are relevant in choosing between the two alternatives? a. Revenues, variable costs and fixed costs. b. Revenues and variable costs. c. Revenues and fixed costs. d. Variable costs and fixed costs.

c. Revenues and fixed costs.

35. Jordan Corporation produces Products X and Y from a single input in a joint production process. Total joint processing costs are $200,000. Product X Product Y Units produced 2,000 (Product X) 2,000 (Product Y) Per unit sales value at split-off $38.00 (Product X) $52.00 (Product Y) Per unit sales value if processed further $55.00 (Product X) $70.00 (Product Y) Total costs to process further $20,000 (Product X) $38,000 (Product Y) Based on the information above, which of the products should be processed further? a. Yes (Product X) Yes (Product Y) b. No (Product X) No (Product Y) c. Yes (Product X) No (Product Y) d. No (Product X) Yes (Product Y)

c. Yes (Product X) No (Product Y)

9. During March, Zeal Corp. transferred $50,000 from Work in Process to Finished Goods and recorded a Cost of Goods Sold of $56,000. The journal entries to record these transactions would include a: a. credit to Cost of Goods Sold of $56,000 b. debit to Finished Goods of $56,000 c. credit to Work in Process of $50,000 d. credit to Finished Goods of $50,000

c. credit to Work in Process of $50,000

7. When manufacturing overhead is applied to production, it is added to: a. the Cost of Goods Sold account. b. the Raw Materials account. c. the Work-in-Process account. d. the Finished Goods inventory account.

c. the Work-in-Process account.

21. There are various budgets within the master budget. One of these budgets is the production budget. Which of the following BEST describes the production budget? a.It details the required direct labor hours. b.It details the required raw materials purchases. c.It is calculated based on the sales budget and the desired ending inventory. d.It summarizes the costs of producing units for the budget period.

c.It is calculated based on the sales budget and the desired ending inventory.

11. In process costing, a separate work in process account is kept for each: a.Individual Orders b.Equivalent Units c.Processing Department d.Cost Category (i.e. materials, conversion cost)

c.Processing Department

38. The management of Lee Corporation is considering a project that would require an investment of $400,000 and would last for 8 years. The annual net operating income from the project would be $140,000, which includes depreciation of $43,000. The salvage value of the project's assets at the end of the project would be $56,000. The payback period of the project is closest to: a. 2.2 years b. 2.9 years c. 3.5 years d. 4.1 years

d. 4.1 years

32. When a company wants to maximize profits while working under a constraint, it should focus on the products with the highest: a. selling price per unit. b. selling price per unit of constrained resource. c. contribution margin per unit. d. contribution margin per unit of constrained resource

d. contribution margin per unit of constrained resource

2. The salary of the assembly shop's supervisor is a: a.Administrative Cost b.Selling Cost c.Direct Labor Cost d.Manufacturing Overhead Cost

d.Manufacturing Overhead Cost

10. Pacer Corporation uses direct labor hours in its predetermined overhead rate. At the beginning of the year, the estimated direct labor hours were 21,800 hours and the total estimated manufacturing overhead was $497,040. At the end of the year, actual direct labor hours for the year were 21,500 and the actual manufacturing overhead for the year was $492,040. Overhead at the end of the year was: a. $6,840 overapplied b. $6,840 underapplied c. $1,840 underapplied d. $1,840 overapplied

total estimated manufacturing overhead / estimated direct labor hours = per direct labor-hour $497,040 / 21,800 = 22.8 per direct labor-hour x direct labor hours 22.8 x 21,500 = $490200 actual manufacturing overhead - Manufacturing overhead applied to Work in Process $492,040 - $490200 c. $1,840 underapplied