Cost Accounting Test 3
Which of the following statements is false concerning a management control system? Select one: a. A management control system may be referred to as a black box b. A management control system should help implement strategies c. A management control system should serve as a guide to organizations d. A management control system is separate from a cost management system
d. A management control system is separate from a cost management system
A cost management system should provide the means to develop Select one: a. a product or service cost that does not include any non-value-added overhead b. a costing system that traces all costs directly to individual products or services c. the most accurate product or service costs d. a reasonably accurate product or service cost given cost-benefit considerations
d. a reasonably accurate product or service cost given cost-benefit considerations
A cost management system should Select one: a. identify and evaluate new activities b. determine whether the organization is effective and efficient c. identify the cost of consumed resources within the organization d. all of the above
d. all of the above
The total labor variance can be subdivided into all of the following except Select one: a. rate variance. b. mix variance. c. yield variance. d. learning curve variance.
d. learning curve variance.
Joint cost allocation is useful for Select one: a. evaluating managers' performance. b. control. c. decision making. d. product costing
d. product costing
When allocating joint process cost based on tons of output, all products will Select one: a. have the same joint cost per ton. b. have a sales value greater than their costs. c. be salable at split-off. d. have no disposal costs at the split-off point.
a. have the same joint cost per ton.
Witte Company produces three products from a joint process. The products can be sold at split-off or processed further. In deciding whether to sell at split-off or process further, management should Select one: a. ignore the joint cost in making the decision. b. allocate the joint cost to the products based on a physical quantity measure prior to making the decision. c. subtract the joint cost from the total sales value of the products before determining relative sales value and making the decision. d. allocate the joint cost to the products based on relative sales value prior to making the decision.
a. ignore the joint cost in making the decision.
The use of separate variable and fixed overhead rates is better than a combined rate because such a system Select one: a. is more effective in assigning overhead costs to products. b. is easier to develop. c. is less expensive to operate and maintain. d. does not result in underapplied or overapplied overhead.
a. is more effective in assigning overhead costs to products.
Which of the following is not a primary component of a control system? Select one: a. operator b. effector c. assessor d. communications network
a. operator
A management information system should do which of the following? Select one: a. Collect data Organize data for managers Analyze data for management Yes No Yes b. Collect data Organize data for managers Analyze data for management Yes Yes No c. Collect data Organize data for managers Analyze data for management No No Yes d. Collect data Organize data for managers Analyze data for management Yes Yes Yes
b. Collect data Organize data for managers Analyze data for management Yes Yes No
Which of the following is considered a "feeder" system to the cost management system? Select one: a. Payroll Budgeting Inventory valuation Yes No Yes b. Payroll Budgeting Inventory valuation Yes Yes Yes c. Payroll Budgeting Inventory valuation No No No d. Payroll Budgeting Inventory valuation Yes Yes No
b. Payroll Budgeting Inventory valuation Yes Yes Yes
A primary purpose of using a standard cost system is Select one: a. to make things easier for managers in the production facility. b. to provide a distinct measure of cost control. c. to minimize the cost per unit of production. d. b and c are correct.
b. to provide a distinct measure of cost control.
Which of the following should be able to provide the financial information needed for budget preparation? Select one: a. Cost management system Financial accounting system Cost accounting system Yes No Yes b. Cost management system Financial accounting system Cost accounting system No Yes Yes c. Cost management system Financial accounting system Cost accounting system No Yes No d. Cost management system Financial accounting system Cost accounting system Yes Yes Yes
d. Cost management system Financial accounting system Cost accounting system Yes Yes Yes
Campbell Manufacturing The following information is available for Campbell Manufacturing Company for the month of June when the company produced 2,100 units: Standard: Material 2 pounds per unit @ $5.80 per pound Labor 3 direct labor hours per unit @ $10.00 per hour Actual: Material 4,250 pounds purchased and used @ $5.65 per pound Labor 6,300 direct labor hours at $9.75 per hour Refer to Campbell Manufacturing Company. What is the labor rate variance? Select one: a. $0 b. $1,575 U c. $1,594 U d. $1,575 F
d. $1,575 F Labor Rate Variance = (AP - SP) * AQ =($9.75 - $10.00) * 6,300 hrs = $1,575 F The correct answer is: $1,575 F
Benjamin Company Benjamin Company produces two products from a joint process: X and Z. Joint processing costs for this production cycle are $8,000. Yards Sales price per yard at split-off Disposal cost per yard at split-off Further processing per yard Final sale price per yard X 1,500 $6.00 $3.50 $1.00 $7.50 Z 2,200 9.00 5.00 3.00 11.25 If X and Z are processed further, no disposal costs will be incurred or such costs will be borne by the buyer. Refer to Benjamin Company. Using sales value at split-off, what amount of joint processing cost is allocated to Product X (round to the nearest dollar)? Select one: a. $5,500 b. $3,243 c. $4,000 d. $2,500
d. $2,500 Yards Sales price at Split-off Total X 1,500 $6.00 $9,000 Z 2,200 $9.00 $19,800 $28,800 $(9,000/28,800) * $8,000 = $2,500 The correct answer is: $2,500
Sell or process further Winn Mills processes cotton in a joint process that yields two joint products: fabric and yarn. May's joint cost is $96,000, and the sales value at split-off are $288,000 for fabric and $240,000 for yarn. If the products are processed beyond split-off, the final sales value will be $432,000 for fabric and $336,000 for yarn. Additional costs of processing are expected to be $96,000 for fabric and $81,600 for yarn. Should the products be processed further?
Solution: Fabric Yarn Final revenues $432,000 $336,000 Revenues at split-off (288,000) (240,000) Incremental revenues $144,000 $96,000 Incremental costs (96,000) (81,600) Net benefit (cost) of further processing $48,000 $14,400 Both products should be processed further.
Accounting for by-product Potato skins are generated as a by-product in making potato chips and frozen hash browns at Zeena Foods. The skins are sold to restaurants for use in appetizers. Processing and disposal costs associated with by-product sales are $0.06 per pound of potato skins. During May, Zeena Foods produced and sold 108,000 pounds of potato skins for $16,200. In addition, the joint cost for producing potato chips and hash browns was $65,600; separate costs of production were $38,400. In May, 90 percent of all joint production was sold for $255,200. Non-factory operating expenses for May were $38,280. a. Prepare an income statement for Zeena Foods assuming that by-product sales are shown as Other Revenue and the processing and disposal costs for the by-product are shown as additional cost of goods sold of the joint products. Note: Do not use a negative sign with your answers. b. Prepare an income statement for Zeena Foods assuming that the net realizable value of the by-product is shown as Other Income. Note: Do not use a negative sign with your answers. c. Prepare an income statement for Zeena Foods assuming that the net realizable value of the by-product is subtracted from the joint cost of the main products. Note: Do not use a negative sign with your answers.
Solution: Sales of by-product $16,200 Cost of by-product sales (6,480) = 108,000 x $0.06 Net realizable value of by product $9,720 a. Zeena Foods Income Statement For Month Ended May 31 Sales revenue (joint products) Cost of goods sold: $255,200 Joint cost1 $59,040 Separate costs2 34,560 By-products 6,480 100,080 Gross profit $155,120 Non-factory expenses (38,280) Income from operations $116,840 Other revenues (by-product sales) 16,200 Income before taxes $133,040 1 90% x $65,600 = $59,040 2 90% x $38,400 = $34,560 b. Zeena Foods Income Statement For Month Ended May 31 Sales revenue (joint products) $255,200 Cost of goods sold3 (93,600) Gross profit $161,600 Non-factory expenses (38,280) Income from operations $123,320 Other income (by-product sales) 9,720 Income before taxes $133,040 3 $59,040 + 34,560 = $93,600 c. Joint cost $65,600 NRV of by-product (9,720) Joint cost to allocate $55,880 Zeena Foods Income Statement For Month Ended May 31 Sales revenue $255,200 Cost of goods sold4 (84,852) Gross profit $170,348 Non-factory expenses (38,280) Income before taxes $132,068 4 (90% x $55,880) + 34,560 = $84,852
Performance reports are useful only to the extent that performance is measured against Select one: a. a meaningful benchmark b. competitors' achievements c. the budget as adopted for the period d. the performance of all other units or managers
a. a meaningful benchmark
Bennett Company Bennett Company produces two products from a joint process: A and C. Joint processing costs for this production cycle are $9,000. Yards Sales price per yard at split-off Disposal cost per yard at split-off Further processing per yard Final sale price per yard A 1,800 $7.00 $4.50 $1.50 $8.00 C 2,600 10.00 6.00 3.50 12.25 If A and C are processed further, no disposal costs will be incurred or such costs will be borne by the buyer. Refer to Bennett Company. Using sales value at split-off, what amount of joint processing cost is allocated to Product C (round to the nearest dollar)? Select one: a. $2,938 b. $3,682 c. $4,500 d. $6,062
d. $6,062 Yards Sales price at Split-off Total A 1,800 $7.00 $12,600 C 2,600 $10.00 $26,000 $38,600 $(26,000/38,600)*$9,000 = $6,062 The correct answer is: $6,062
Processing beyond split-off and cost allocations All-A-Buzz makes three products from a joint production process using honey. Joint cost for the process for the year is $98,560. Per Unit Incremental Units of Selling Price Processing Final Sales Product Output at Split-Off Cost Price Honey butter 8,000 4.00 $3.00 $6.00 Honey jam 16,000 6.40 4.00 14.00 Honey syrup 800 3.00 0.40 3.60 Each container of honey butter, jam, and syrup, respectively, contains 16 ounces, 8 ounces, and 3 ounces of product. a. Determine which products should be processed beyond the split-off point. b. Assume honey syrup should be treated as a by-product. Allocate the joint cost based on (1) units produced, (2) weight, and (3) sales value at split-off. Use the net realizable value approach, assuming by-product revenues reduce joint production costs. (1) joint cost allocated based on units produced (2) joint cost allocated based on weight (3) joint cost allocated based on sales value at split-off Note: Round proportions to the nearest whole percentage and dollar amounts to the nearest whole dollar.
Solution: a. Final Product Sales Value Split-Off Sales Value Increm. Revenue Increm. Cost Increm. Profit Butter $6.00 $4.00 $2.00 $3.00 $(1.00) Jam 14.00 6.40 7.60 4.00 3.60 Syrup 3.60 3.00 0.60 0.40 0.20 Only jam and syrup should be processed beyond the split-off point. b. Joint cost $98,560 Less NRV of syrup ($3.60 - $0.40) × 800 2,560 Joint cost to be allocated $96,000 (1) Unit-based allocation: Butter ( 8,000 / 24,000 ) x $96,000 = $32,000 Jam ( 16,000 / 24,000 ) x $96,000 = 64,000 Total $96,000 (2) Weight-based allocation: Butter ( 8,000 x 16 ounces) = $128,000 50% Jam ( 16,000 x 8 ounces) = 128,000 50% Total $256,000 100% Butter 50% x $96,000 = $48,000 Jam 50% x $96,000 = 48,000 Total $96,000 (3) Sales value at split-off allocation [from (a)] Butter 8,000 x $4.00 = $32,000 24% Jam 16,000 x $6.40 = 102,400 76% NRV $134,400 100% Butter 24.00% x $96,000 = $23,040 Jam 76.00% x $96,000 = 72,960 Total $96,000
Cost control is an important function of the Select one: a. Financial accounting system Cost accounting system Cost management system No Yes Yes b. Financial accounting system Cost accounting system Cost management system No No Yes c. Financial accounting system Cost accounting system Cost management system Yes Yes No d. Financial accounting system Cost accounting system Cost management system No Yes No
a. Financial accounting system Cost accounting system Cost management system No Yes Yes
Wheeler Company Wheeler Company has the following information available for December when 3,500 units were produced (round answers to the nearest dollar). Standards: Material 3.5 pounds per unit @ $4.50 per pound Labor 5.0 hours per unit @ $10.25 per hour Actual: Material produced 12,300 pounds @ $4.25 Material used 11,750 pounds 17,300 direct labor hours @ $10.20 per hour Refer to Wheeler Company. What is the material quantity variance? Select one: a. $2,250 F b. $2,250 U c. $225 F d. $2,475 U
a. $2,250 F Material quantity variance = (AQ - SQ) * SP = (11,750 - (3,500 units * 3.5 hr/unit)) * $4.25 = $2,250 F The correct answer is: $2,250 F
Parker Company The following information is for Parker Company's July production: Standards: Material 3.0 feet per unit @ $4.20 per foot Labor 2.5 hours per unit @ $7.50 per hour Actual: Production 2,750 units produced during the month Material 8,700 feet used; 9,000 feet purchased @ $4.50 per foot Labor 7,000 direct labor hours @ $7.90 per hour (Round all answers to the nearest dollar.) Refer to Parker Company. What is the labor rate variance? Select one: a. $2,800 U b. $2,800 F c. $3,480 U d. $3,480 F
a. $2,800 U Labor Rate Variance = (AP - SP) * AQ = ($7.90 - $7.50) * 7,000 hr used = $2,800 U The correct answer is: $2,800 U
Campbell Manufacturing The following information is available for Campbell Manufacturing Company for the month of June when the company produced 2,100 units: Standard: Material 2 pounds per unit @ $5.80 per pound Labor 3 direct labor hours per unit @ $10.00 per hour Actual: Material 4,250 pounds purchased and used @ $5.65 per pound Labor 6,300 direct labor hours at $9.75 per hour Refer to Campbell Manufacturing Company. What is the material quantity variance? Select one: a. $290 U b. $275 U c. $275 F d. $290 F
a. $290 U Material quantity variance = (AQ - SQ) * SP = (4,250 - (2 lbs/unit * 2,100 units))* $5.80/unit = $290 U The correct answer is: $290 U
Commercial Solutions Company: Commercial Solutions Company manufactures a cleaning solvent. The company employs both skilled and unskilled workers. To produce one 55-gallon drum of solvent requires Materials A and B as well as skilled labor and unskilled labor. The standard and actual material and labor information is presented below: Standard: Material A: 30.25 gallons @ $1.25 per gallon Material B: 24.75 gallons @ $2.00 per gallon Skilled Labor: 4 hours @ $12 per hour Unskilled Labor: 2 hours @ $ 7 per hour Actual: Material A: 10,716 gallons purchased and used @ $1.50 per gallon Material B: 17,484 gallons purchased and used @ $1.90 per gallon Skilled labor hours: 1,950 @ $11.90 per hour Unskilled labor hours: 1,300 @ $7.15 per hour During the current month Commercial Solutions Company manufactured 500 55-gallon drums. Round all answers to the nearest whole dollar. Refer to Commercial Solutions Company. What is the labor rate variance? Select one: a. $2,583 U b. $0 c. $1,083 U d. $1,083 F
b. $0 Labor Rate Variance = Actual Mix, Qty,Price - Actual Mix,Qty,Std Price = $(32,500 - 32,500) = $0 The correct answer is: $0
Commercial Solutions Company: Commercial Solutions Company manufactures a cleaning solvent. The company employs both skilled and unskilled workers. To produce one 55-gallon drum of solvent requires Materials A and B as well as skilled labor and unskilled labor. The standard and actual material and labor information is presented below: Standard: Material A: 30.25 gallons @ $1.25 per gallon Material B: 24.75 gallons @ $2.00 per gallon Skilled Labor: 4 hours @ $12 per hour Unskilled Labor: 2 hours @ $ 7 per hour Actual: Material A: 10,716 gallons purchased and used @ $1.50 per gallon Material B: 17,484 gallons purchased and used @ $1.90 per gallon Skilled labor hours: 1,950 @ $11.90 per hour Unskilled labor hours: 1,300 @ $7.15 per hour During the current month Commercial Solutions Company manufactured 500 55-gallon drums. Round all answers to the nearest whole dollar. Refer to Commercial Solutions Company. What is the total material mix variance? Select one: a. $3,596 F b. $3,596 U c. $4,864 U d. $4,864 F
b. $3,596 U Total Material Mix Variance = Actual Mix,Qty, Std Price - Std Mix, Price,Actual Qty = $(48,363 - 44,767) = $3,596 U The correct answer is: $3,596 U
The definition of a sunk cost is Select one: a. a cost that relates to money poured into the ground. b. a cost that cannot be recovered regardless of what happens. c. considered the original cost of an item. d. also known as an opportunity cost.
b. a cost that cannot be recovered regardless of what happens.
The variance least significant for purposes of controlling costs is the Select one: a. fixed overhead spending variance. b. fixed overhead volume variance. c. material quantity variance. d. variable overhead efficiency variance.
b. fixed overhead volume variance.
All costs that are incurred between the split-off point and the point of sale are known as Select one: a. joint cost. b. incremental separate costs. c. sunk costs. d. committed costs.
b. incremental separate costs.
Focus on cost control and assessing core competencies are part of which cost management element? Select one: a. motivational b. informational c. reporting d. all of the above
b. informational
A responsibility accounting system provides information to top management about the Select one: a. organizational responsibilities of each subunit manager b. performance of each organizational subunit and its manager c. ability of each subunit manager to ensure a satisfactory cost to revenue relationship d. all of the above
b. performance of each organizational subunit and its manager
Bennett Company Bennett Company produces two products from a joint process: A and C. Joint processing costs for this production cycle are $9,000. Yards Sales price per yard at split-off Disposal cost per yard at split-off Further processing per yard Final sale price per yard A 1,800 $7.00 $4.50 $1.50 $8.00 C 2,600 10.00 6.00 3.50 12.25 If A and C are processed further, no disposal costs will be incurred or such costs will be borne by the buyer. Refer to Bennett Company. Using approximated net realizable value at split-off, what amount of joint processing cost is allocated to Product C (round to the nearest dollar)? Select one: a. $6,062 b. $6,282 c. $5,986 d. $4,500
c. $5,986 Yards Final Sales Price Separate Cost per Yard Net Sales Price Approximate d NRV A 1,800 $8.00 $6.00 $2.00 $3,600 C 2,600 $12.25 $9.50 $2.75 $7,150 $10,750 $(7,150/10,750) * $9,000 = $5,986 The correct answer is: $5,986
In analyzing manufacturing overhead variances, the volume variance is the difference between the Select one: a. predetermined overhead application rate and the flexible budget application rate times actual hours worked. b. amount shown in the flexible budget and the amount shown in the debit side of the overhead control account. c. budget allowance based on standard hours allowed for actual production for the period and the amount budgeted to be applied during the period. d. actual amount spent for overhead items during the period and the overhead amount applied to production during the period.
c. budget allowance based on standard hours allowed for actual production for the period and the amount budgeted to be applied during the period.
In a decentralized organization, Select one: a. functions such as financing and product/ service pricing are typically retained by top management b. subunits under the control of a single manager are normally grouped by organizational structure c. it would be difficult to group geographically related subunits pursuing different missions under the same manager d. all functions are delegated to subunit managers who are closest to the information
c. it would be difficult to group geographically related subunits pursuing different missions under the same manager
If a company obtains two salable products from the refining of one ore, the refining process should be accounted for as a(n) Select one: a. extractive process. b. mixed cost process. c. joint process. d. reduction process.
c. joint process.