Cost & Managerial Accounting - C250 Practice Questions
Which element of product cost is treated differently between variable and absorption costing systems? Fixed manufacturing overhead Variable manufacturing overhead Direct materials Direct labor
Fixed manufacturing overhead PA
A company has a job order costing system and uses predetermined overhead rates in applying manufacturing overhead cost to individual jobs. The predetermined overhead rate in Department A is based on machine hours, and the rate in Department B is based on direct labor hours. At the beginning of the most recent year, the company's management made the following estimates for the year: Description Dept. A Dept. B Machine hours - 30,000 - 60,000 Direct labor hours - 70,000 - 20,000 Manufacturing overhead cost - $420,000 - $600,000 Job 243 entered into production on April 1 and was completed on April 30. The company's cost records show the following information about the job: Description Dept. A Dept. B Machine hours - 250 - 60 Direct labor hours - 70 - 120 Direct materials cost - $840 - $1,100 Direct labor cost - $610 - $880 What is the total manufacturing cost of Job 243? $5,530 $7,530 $8,530 $10,530
$10,530 PA
A company makes two products: Product A and Product B. Information for the two products is as follows: Description - Product A - Product B Selling Price - $ 50 - $ 125 Materials - $ 20 - $ 40 Labor - $ 7.50 - $ 22.50 Variable Costs - $ 5 - $ 12.50 Material is a scarce resource. Product A takes two pounds of material and Product B takes four pounds. Labor takes one hour for Product A and three hours for Product B. How much would the company be willing to pay for one more pound of materials?
$12.50 Explanation: Variable costs per UNIT of Manufacture: Description - Produce A - Product B Materials - 20 - 40 Labor - 7.5 - 22.5 Variable Costs - 5 - 12.5 Variable Cost per unit - 32.5 - 75 Description - Product A - Product B Selling price per unit - 50 - 125 Variable cost per unit - 32.5 - 75 Contribution margin per unit (a) - 17.5 - 50 Pounds of material required to produce one unit (b) - 2 - 4 Contribution margin per unit of the constrained resource (a)/(b) - 8.75 - 12.5 Differential Costs - Constrained Resources PA
A baker sells cakes for $40 each. The materials cost $10 per cake. Fixed overhead costs, such as building rent and insurance, total $2,000 per month. Variable overhead costs, such as electricity and phone, total $4 per cake. The baker thinks it should take one hour to bake a cake and has set a standard of baking 200 cakes per month. May has been a busy month, as the baker spent 220 hours baking 250 cakes. When the bills came in for this month, the fixed costs totaled $2,200, and the variable overhead costs totaled $900. What is the variable overhead efficiency variance? $120 favorable $120 unfavorable $420 favorable $420 unfavorable
$120 Favorable PA
Company C has provided the following data for the month of February: Finished goods inventory, February 1 - $42,000 Finished goods inventory, February 28 - $19,000 Cost of goods sold - $158,000 How much was the cost of goods manufactured for February? $97,000 $135,000 $181,000 $219,000
$135,000 PA
The forecasted cash receipts and cash payments for a company for the first four months of the year are as follows: Description - Jan - Feb - Mar - Apr Bud. Cash Collections - $100,000 - $80,000 - $75,000 - $146,000 Bud. Cash Payments: OP Exp. - $127,000 - $105,000 - $92,000 - $120,000 Dividends - 0 - $20,000 - 0 - 0 Equipment Purchase - 0 - $40,000 - 0 - 0 Total bud. cash pmts - $127,000 - $165,000 - $92,000 - $120,000 On January 1, the company had a cash balance of $40,000. This company has a policy of maintaining a cash balance of at least $15,000 at the end of each month. How much money should this company plan to borrow in March? $0 $13,000 $17,000 $32,000
$17,000 PA
A company estimates that it has $400,000 in variable overhead costs annually and $265,000 in fixed rate overhead costs annually. Last year the variable and fixed overhead costs were $300,000 and $200,000, respectively. The firm estimates that it will have 32,500 direct labor hours this year. What is the firm's predetermined overhead rate? $20.46 $15.38 $12.31 $8.15
$20.46 PA
A company is projecting sales of $500,000 this year and profits of $180,000. The firm needs to sell at least $270,000 to break even for the year. What is its margin of safety, in dollars? $90,000 $180,000 $230,000 $320,000
$230,000 M.S. ($) = (500,000 - 270,000) = 230,000 M.S. (%) = (500,000 - 270,000)/500,000 = 46% PA
A company provides the following data: Net Income - $20,000 Sales - $70,000 Degree of operating leverage - 3.00 If sales go up by 10%, what would be the company's net income?
$26,000 Explanation: If sales increase by 10%, net income will increase by (10*DOL) = (10*3) = 30% Increase in net income = 0.30*20,000 = 6,000 Therefore, net income will be = current net income + increase in net income Net Income = 20,000+6,000 = 26,000 Cost Volume Profit Analysis PA
A manufacturing company provided the following data: Estimated Costs for Year 1: Direct labor - $31,000 Bonuses paid to factory supervisors - $9,000 Interest expense - $32,000 Depreciation on manufacturing equipment - $18,000 Indirect labor - $11,000 Direct materials - $36,000 Factory utilities - $26,000 Indirect materials - $14,000 Property taxes on the corporate office building - $18,000 Direct labor hours were 40,000 Actual Data for Year 1: Total manufacturing overhead - $120,000 Direct labor hours - 60,000 The predetermined manufacturing overhead rate is based on direct labor hours. What is the amount of overapplied or underapplied overhead for the company for Year 1? $24,000 underapplied $24,000 overapplied $3,000 underapplied $3,000 overapplied
$3,000 underapplied PA
A candy factory makes one-pound boxes of candy. The factory expects to make 1,000 boxes of candy this month. The ingredients for the candy are expected to cost $3 per box. During November, the factory made 1,200 boxes of candy and used 1,300 pounds of candy at a total ingredients cost of $3,700. What is the material quantity variance and the reason for the variance?
$300 unfavorable Explanation: Material Quantity Variance (MQV) = (Actual Quantity (AQ) - Standard Quantity (SQ)) x Standard Price (SP) = (1,300 - (1,200 x 1)) x 3 = $300 unfavorable Variances PA
A company has provided the following data for last month: Sales 6,000 units Sales price $25 per unit Variable cost $15 per unit Fixed cost $12,000 Assume the sales volume decreases by 20%, the variable cost per unit increases by 10%, and all other factors remain the same next month. How will break-even sales be affected next month?
$5,294 Explanation: Current BEP = Fixed Costs / Contribution Margin per Unit = 12,000/(25-15) = 1,200 units sold or (1,200 x 25) = $30,000 Projected BEP = 12,000/(25-(15 x 1.10)) = 1,411.76 units or (1,411.76 x 25) = $35,294 Increase in BEP($) = 35,294 - 30,000 = $5,294 Cost Volume Profit Analysis PA
A company has been offered a special order to sell 1,000 units of a product at $65 per unit. The normal selling price per unit is $60. The company can typically produce standard units using direct materials that cost $20 per unit, direct labor costs of $20 per unit, and manufacturing overhead costs of $11 per unit. Fixed costs will not be affected by this special order. However, the firm does not have enough trained employees to make its normal production and the special order, so it will have to pay overtime to employees at 1 ½ times the normal rate in order to get the special order produced. This will raise the per unit labor by 50%. What will be the effect on net income from accepting the special order? $4,000 increase $4,000 decrease $14,000 increase $14,000 decrease
$4,000 Increase PA
A company has total traceable fixed expenses of $100,000, and common fixed expenses of $50,000. The company also has $400,000 in total sales and an overall contribution margin of $125,000. What is the company-wide break-even point? $400,000 $480,000 $600,000 $1,200,000
$480,000 PA
Given the following data: Initial contribution margin ratio 20% Fixed costs $ 750,000 Initial break-even level of sales 60,000 units What selling price per unit is required to generate a profit of $300,000 with a sales volume of 100,000 units?
$60.50 per unit Explanation: Beginning Earnings Profit (BEP) ($) = 750,000/0.20 = $3,750,000 Selling Price (S.P) per unit = 3,750,000/60,000 = $62.50 per unit Volume Cost (V.C.) per unit = S.P x (1-Cost Margin ratio) = 62.50 x (1-0.20) = $50 per unit Sales Revenue - variable costs - fixed costs = Profit (100,000 x $X) - (100,000 x 50) - 750,000 = 300,000 X = $60.50 per unit Cost Volume Profit Analysis PA
Company W has provided the following data for the month of September: Work-in-process inventory, Sept 1 - $83,000 Work-in-process inventory, Sept 30 - $51,000 Finished goods inventory, Sept 1 - $52,000 Finished goods inventory, Sept 30 - $36,000 Cost of goods manufactured for the month - $622,000 Actual manufacturing overhead cost incurred - $259,000 Applied manufacturing overhead cost - $245,000 What is the adjusted cost of goods sold that would appear on the income statement for September? $624,000 $638,000 $652,000 $668,000
$652,000 PA
A company is in the process of putting together its manufacturing overhead budget. The variable overhead rate is budgeted at $2.00 per labor hour. Fixed overhead per month includes depreciation of $10,000; salaries of $15,000; and property taxes of $5,000. The budgeted number of units to be produced is 10,000 for January; 12,000 for February; and 13,000 for March. Each unit takes 2.5 hours of labor to make. What is the budgeted cash disbursement for March? $52,500 $56,000 $85,000 $95,000
$85,000 PA
A company is in the process of preparing its selling and administrative budget for next year. Variable selling and administrative expenses are budgeted at $3.50 per unit sold. Monthly fixed selling and administrative expenses include $10,000 for advertising; $20,000 for salaries; $5,000 for depreciation; and $3,000 for insurance. In addition, the company needs to pay $4,000 in property taxes in February and plans on purchasing two new computers in January for $2,500 and one in March for $1,250. The company has budgeted 15,000, 14,000, and 13,000 units to be sold in January, February, and March, respectively. What is the February budgeted cash outflow for selling and administrative expenses? $82,000 $86,000 $87,000 $91,000
$86,000 PA
The following data was recorded for Company A and for Job 383, which was recently completed: Direct materials = $5,330 Direct labor hours worked on the job = 170 Estimated annual total direct labor hours for the company = 30,000 Machine hours used on the job = 135 Estimated annual total machine hours for the company = 25,000 Direct labor wage rate = $12 per labor hour Estimated annual total overhead costs = $450,000 Number of units produced in job = 50 Note: Company A applies manufacturing overhead on the basis of machine hours. What is the total cost for Job 383? $8,990 $9,395 $9,800 $9,920
$9,800 PA
A company sells two different products with the following average monthly revenues and costs over the past year: Product A Sales quantity - 10,000 units Price per unit $12 Contribution margin percentage 30% Product B Sales quantity 20,000 Units Price per unit $4 Contribution margin percentage 40% Fixed costs are $306,000. What is the company's break-even point, assuming a constant product mix?
$900,000 Explanation: CM per unit (A) = $12 x .3 = 3.60 CM per unit (B) = $4 x .4 = 1.60 Overall Contribution Margin Ratio = ((3.60 x 10,000)+(1.60 x 20,000))/((10,000 x 12)+(20,000 x 4)) = 0.34 BEP ($) = Fixed costs / Overall Contribution Margin Ratio = 306,000/0.34 = $900,000 Cost Volume Profit Analysis PA
Raw materials purchased on account totaled $1 million and were the only items purchased on account. Sales on account totaled $1.5 million. The beginning amount that was owed to the company was $500,000. The ending amount that was owed by the company was $1.7 million. There was $300,000 received in payment of accounts receivable, and $200,000 was paid out as payments on accounts payable. What was the beginning balance of accounts payable? $700,000 $800,000 $900,000 $1.7 million
$900,000 PA
A ski retailer sells skis for an average cost of $100 a pair. All skis are purchased from a manufacturer for an average cost of $55 a pair. This company had 100 pairs in beginning inventory at the start of the month, purchased 1,000 pairs during the month, and had 25 pairs remaining at the end of the month. In addition, the company has variable selling expenses of $3 per pair and fixed costs of $5,000 for depreciation, $3,000 for taxes, and $40,000 for salaries. What is the net income or net loss? ($5,100) ($2,850) ($2,250) $375
($2850) PA
A corporation's three divisions had the following operating data last year: Description - Division A - Division B - Division C Total assets - $400,000 - $350,000 - $200,000 Variable costs - $ 85,000 - $130,000 - $100,000 Revenue - $210,000 - $240,000 - $190,000 Controllable fixed costs - $ 45,000 - $ 65,000 - $ 55,000 The required minimum rate of return is 15%. What is the residual income for Division B?
($7,500) Explanation: Net operating income for Division B = 240,000 - $130,000 - $65,000 = $45,000 Residual income for Division B = $45,000 - ($350,000 x .15) $45,000 - $52,500 = ($7,500) Performance Evaluation PA
Classify the factory cost as direct or indirect. 1 -Wood used to make a bookshelf 2 - Utilities 3 - Property taxes 4 - Wages of assembly line worker 5 - Building depreciation 6 - Freight cost of raw materials
1 - Wood used to make a bookshelf - direct 2 - Utilities - indirect 3 - Property taxes - indirect 4 - Wages of assembly line worker - direct 5 - Building depreciation - indirect 6 - Freight cost of raw materials - direct (part of cost of material Job Order Costing PA
A taxi company was just formed, and a taxi was bought for $30,000. The owner plans to depreciate this taxi over five years using the straight line method and depreciating $6,000 per year. The company calculates averages based on the beginning and the end-of-year balances. The owner expects to earn $30,000 of net income per year, but before taxes and interest, the net operating income (EBIT) will only be $40,000. What is the owner's return on investment at the end of Year 2?
190% Explanation: Assets: Year 1 begin $30,000; end $30,000 - 6,000 = $24,000 Year 2 begin $24,000; end $24,000 - 6,000 = $18,000 Average assets year 2= (24,000 + 18,000) / 2 = $21,000 Net operating income = $40,000 ROI = 40,000 / 21,000 = 1.90 or 190% Performance Evaluation PA
A company has $300,000 in sales; a contribution margin of $60,000; and a net operating income of $30,000. What is its degree of operating leverage? 0.5 2 5 10
2 PA
It is January 1 of Year 2. Company sales for January. February, and March are forecasted as follows: January: $20,000 February: $40,000 March: $50,000 Seventy percent of sales are credit sales, and the remaining 30% of sales are cash sales. Of these credit sales. 40% are collected during the month of sale. 50% in the following month. 5% in the second following month, and 5% are never collected. Total sales for November and December of Year 1 were $20,000 and $40,000. respectively. What is the expected amount of total cash collections from sales in January?
26,300 Explanation: Cash Collections = Jan cash sales + Jan credit sales + Dec credit sales + Nov credit sales Cash collections = (20000*.30) + (20000*.70*.40)+(40000*.70*.50)+(20000*.70*.05) = 26,300 Budgeting PA
A company reported the following data for its operations for the most recent year: Sales $4,500,000 Total Fixed Costs $854,000 Net Income $500,000 The company has 6 stores. Each store is open an average of 12 hours per day each day of the year. The average sales amount per customer is $4.00. What is the average number of customers who must visit each store per hour to break even for the year? 27 37 43 108
27 PA
A break-even graph for Company A revealed the following information: Coordinates for the point where the lines of total costs and total revenues intersect are 20 units and $200 of revenue. The total costs line crosses the y-axis at the $80 point. (see attached) What is the contribution margin ratio for Company A?
40% Explanation: Break- even is 20 units sold for a total Revenue and Costs of $200 and fixed costs are $80 200-80 =120 variable costs in total 120/20 =6 VC per unit Sales Price per unit = 200/20 = 10 sales price per unit CM per unit = 10-6 = 4 CM ratio = Unit CM margin / Selling price 4/10 0.4 40% Cost Volume Profit Analysis PA
A company is projecting sales of $500,000 dollars this year and profits of $180,000. The firm needs to sell at least $270,000 to break even for the year. What is the margin of safety percentage? 18% 36% 46% 64%
46% Explanation: M.S. (%) = (Budgeted sales - Breakeven sales)/Budgeted Sales M.S (%) = (500,000-270,000)/500,000 = 0.46 or 46% Cost Volume Profit Analysis PA Possibility
A company provides the following labor-related data: Standard labor hours for output 16,000 hours Standard labor rate $11 per hour Actual labor rate $9 per hour Actual labor hours 18,500 hours What should the labor rate variance be recorded as?
=(37,000) favorable Explanation: Labor Rate Variance = (AR - SR) x AH (9-11) x 18,500 = (37,000) favorable Variances PA
A company provides the data below: Contribution margin ratio 40% Fixed costs $200,000 Selling price in units $10 What is break-even sales amount in units?
50,000 units Explanation: CM/unit = $10 x 0.4 = $4 BEP (units) = 200,000/4 = 50,000 units Cost Volume Profit Analysis PA
The following cost information is available for a company: Actual results Total cost of purchasing material - $16,000 Number of labor hours worked - 5000 hours Number of material pounds used in production - 2200 pounds Number of units produced - 210 units Number of material pounds purchased - 2400 pounds Total labor cost - $60,000 The company established the following standards: Price per pound of materials - $7.40 per pound Standard labor rate - $12.00 per hour During the year, the material quantity variance was debited for $3,148. What is the standard number of pounds of material needed to produce one unit?
8.45 lbs per unit Explanation: Material Quantity Variance = (AQ - SQ) x SP3 ((2,200)-(SQ x 210)) x 7.40 = 3,148 (2,200 x 7.40) - (SQ x 210 x 7.40) = 3,148 SQ=8.45 lbs. per unit Variances PA
Define Absorption Costing
A costing method that includes all manufacturing costs - DM, DL, VMOH and FMOH - in unit productions costs.
Define Variable Costing
A costing method that includes only variable manufacturing costs - DM, DL and VMOH - in unit production costs
What is an opportunity cost? A difference in costs between any two alternatives A cost difficult to trace to a specified cost object A potential benefit lost by choosing an alternative A cost that has already been incurred
A potential benefit lost by choosing an alternative PA
Which characteristic distinguishes process costing from job order costing? A simplifying assumption is that process costing should be used when each unit or batch has unique characteristics. A simplifying assumption is that the notion of equivalent units is important in job order costing and is not often used with process costing. A simplifying assumption is that 100% of the direct labor in process costing is introduced to production at the beginning of the production process. A simplifying assumption in process costing is that all units started are successfully completed, meaning there are no spoiled units to worry about.
A simplifying assumption in process costing is that all units started are successfully completed, meaning there are no spoiled units to worry about. PA
Describe activity based costing
ABC considers nonmanufacturing and manufacturing costs. Activity Based Costing (ABC)
Which statement describes activity-based costing (ABC)? ABC considers nonmanufacturing and manufacturing costs. ABC includes all manufacturing costs in calculating product costs. ABC considers only manufacturing costs in evaluating product costs. ABC includes only costs related to selling and distributing the product.
ABC considers nonmanufacturing and manufacturing costs. PA
Corporation D uses an activity-based costing, (ABC) system with the following three activity cost pools: Activity Cost Pool - Total Activity Design - 300 orders Assembly - 21,000 machine hours Other - Not applicable The 'other* activity cost pool category is made up of the costs of idle capacity and organization-sustaining costs. The company has provided the following data concerning its costs: Wages and Salaries - $320,000 Depreciation - $ 70,000 Building costs - $124,000 Total - $514,000 Distribution of resource consumption across activity cost pools: Description - Design - Assembly - Other Wages and Salaries - 50% - 40% - 10% Depreciation - 15% - 45% - 40% Building Costs - 25% - 50% - 25% What is the activity rate for the design activity cost pool?
Activity rate = ((320000 x .50)+(70000 x .15)+(124000 x .25))/300 = 671.67/order Activity Based Costing (ABC) PA
A hairstyling salon owner constructed a flexible budget projecting 1,000 and 1,100 customers for the month of June. The owner expects 1,000 customers but hopes for 1,100 customers. Average sale per customer is $40. Costs include rent of $5,000; payments to hairstylists of $20 per customer; and overhead of $10 per customer. In June, the owner had 1,000 customers, and the actual revenue was $45,000. What was the salon's revenue variance?
Actual Results (1,000 x 45) = $45,000 Flexible Budget (1,000 x 40) = $40,000 Revenue Variance = 45,000-40,000 = 5,000 Favorable Flexible Budgeting PA
How is the cost of goods manufactured calculated? Add the direct materials and applied overhead minus ending finished goods inventory. Add the direct materials, direct labor, and applied overhead plus beginning work-in-process inventory minus ending work-in-process inventory. Add the direct materials and applied overhead minus ending work-in-process inventory. Add the direct materials, direct labor, and applied overhead plus beginning finished goods inventory minus ending finished goods inventory.
Add the direct materials, direct labor, and applied overhead plus beginning work-in-process inventory minus ending work-in-process inventory. PA
What is the formula for: Adjusted COGS
Adjusted COGS = Beginning Finished Goods Inventory + Cost of Goods Manufactured - Ending Finished Goods Inventory +/- Under/Over Applied Manufacturing Overhead Job Order Costing
What is the formula for: Applied manufacturing overhead
Applied Manufacturing Overhead = Actual Units of Allocation Base * Pre-determined Manufacturing Overhead Rate Job Order Costing
What are two reasons a restaurant might prepare a flexible budget? Choose 2 answers Because they want to evaluate actual performance Because a flexible budget is easier to make than a static budget Because they want to compare the actual and planning budget costs Because they want to know how net income might change if sales increase
Because they want to evaluate actual performance Because they want to know how net income might change if sales increase PA
A company expects to have sales of $1 million this quarter based on its per-unit wholesale selling price of $20. The firm tries to end each quarter with 15,000 units of finished inventory in case of large last-minute orders. At the start of the current quarter, the company has 12,800 finished units in inventory. How many units should the firm produce this quarter?
Budgeted Production - 52,200 Explanation: Budgeted Sales for the quarter in units = 1,000,000/20 = 50,000 Budgeted Production = 50,000+15000-12,800=52,200 Budgeting PA
On September 30 of Year 1. a company had finished goods inventory of 1,500 units. Starting in October, the company intends to have an inventory policy of maintaining ending inventory at the end of every month equal to the next month's sales. Forecasted sales for the months October. Year 1, through January. Year 2 are as follows: October 4,000 units November 5,500 units December 3,500 units January 2,000 units What is the amount of budgeted production units for November?
Budgeted Production for November - 3500 Explanation: Budgeted Production = Budgeted Sales + Desired Ending Inventory - Beginning Inventory Budgeted Production for November = 5500+3500-5500=3500 Budgeting PA
A manufacturing company has the following information available for the year: Work-in-process inventory, beginning balance - $ 71,850 Work-in-process inventory, ending balance - $ 74,290 Direct materials costs $ 182,430 Direct labor costs - $ 196,570 Actual manufacturing overhead costs - $ 138,000 Applied manufacturing overhead costs - $ 142,000 Finished goods inventory, beginning balance - $ 60,000 Finished goods inventory, ending balance - $ 72,000 What is the cost of goods manufactured?
COGM = 518,560 Explanation: COGM = 182,430+196,579+142,000+(71,850-74,290) = 518,560 Job Order Costing PA
A company forecasted the following purchases: January: $200,000 February: $400,000 March: $500,000 Thirty percent of purchases are for cash. Of the credit purchases. 40% are paid during the month of the purchase. 35% in the month following the purchase, and 25% in the second month following the purchase. Actual purchases for November and December of Year 1 were $300,000 and $350,000, respectively. What is the forecasted amount of total cash disbursements for purchases in March?
Cash disbursements for March - 423,000 Explanation: Cash disbursements for March = March cash purchases + March credit purchases + Feb credit purchases + Jan credit purchases Cash disbursements for March = (500,000*.30) + (500,000*.70*.40)+(400,000*.70*.35)+(200,000*.70*.25) = 423,000 Budgeting PA
Which production characteristic would make process costing appropriate? Continuous production Costs tracked for each job Production with unique orders Different requirements from each customer
Continuous production PA
What is the formula for: Cost of Goods Manufactured
Cost of Goods Manufactured = Direct Materials used + Direct Labor + Applied Manufacturing Overhead + Beginning WIP - Ending WIP Job Order Costing
The following work-in-process inventory information is provided for a company: All direct materials are added at the beginning of the production process. Beginning inventory is 70% complete for conversion, and ending inventory is 40% complete for conversion. Description - Units - DM Costs - Conversion Costs Beginning work in process - 8,000 - $11,000 - $29,000 Cost added - 0 - $74,000 - $161,000 Ending work in process - 12,000 - NA - NA Units completed/transferred - 33,000 - NA - NA What is the total production cost of the ending work in process using weighted average process costing? $46,794 $61,217 $73,333 $82,984
Cost of ending WIP = 46,793.65 Explanation: See attached Process Costing PA
Manufacturing Company A produces a single product and has provided the following data for last month: Selling Price - $150 Units in beg inv - 0 Units produced - 2500 Units sold - 1800 Units in end inv - 700 Variable cost per unit - $30 DM - $30 DL - $36 VMOH - $8 VSG&A - $6 FMOH - $36,000 FSG&A - $10,000 Calculate amounts under absorption and variable costing. Classify each income statement calculation with the method used to determine it. Select your answer from the choices below Cost of goods sold $159,120 Cost of goods sold $133,200 Net income of $90,080 Net income of $80,000 Ending finished goods inventory of $61,880 Ending finished goods inventory of $51,800 Absorption costing Variable Costing
Cost of goods sold $159,120 - Absorption costing Cost of goods sold $133,200 - Variable costing Net income of $90,080 - Absorption costing Net income of $80,000 - Variable costing Ending finished goods inventory of $61,880 - Absorption costing Ending finished goods inventory of $51,800 - Variable costing PA
A manufacturer uses weighted average process costing. At the end of 2014, the manufacturer had work-in-progress (WIP) ending inventory of 1,000 units that were 30% complete. During 2014, all materials were added at the beginning of the process. Costs in WIP beginning inventory were $5,000 of materials and $21,350 of conversion costs. The manufacturer completed and transferred 5,000 units to finished goods. Costs added during the period were $4,000 of materials and $17,075 of conversion costs. What was the total cost of goods transferred out?
Costs of Goods Transferred = 43,750 Explanation: See attached Process Costing PA
In January, a processing department had a beginning work-in-process inventory of $24,000 and an ending work-in-process inventory of $39,000. During the month, $248,000 of costs were added to production and the cost of units transferred out from the department was $233,000. What is the total cost to be accounted for and costs accounted for in the department's cost reconciliation report for January using the weighted average processing method?
Costs to be accounted for = 272,000 Costs accounted for = 272,000 Explanation: Costs to be accounted for = Beginning WIP + Cost added during period = 24,000+248,000 = 272,000 Costs accounted for = Cost of units transferred out + Ending WIP = 233,000 + 39,000 = 272,000 Process Costing PA
For the year, a company had Actual Manufacturing Overhead of $100,000 and Applied Manufacturing Overhead of $117,000. What should be included in the journal entry to close the Manufacturing Overhead account? Credit to Cost of goods sold for $17,000 Credit to Manufacturing Overhead for $17,000 Debit to Cost of Goods sold for $17,000 Debit to Manufacturing Overhead for $100,000 Credit to Manufacturing Overhead for $100,000
Credit to Cost of goods sold for $17,000 PA
A company has decided that direct labor hours are a good basis on which to apply overhead to production. The following data are for the most recent year: Budgeted number of direct labor hours worked = 20,000 hours Budgeted amount of manufacturing overhead = $100,000 Actual number of direct labor hours worked = 25,000 hours Actual amount of manufacturing overhead = $115,000 The company applied manufacturing overhead during the year. What should be included in the journal entry in order to record this application of manufacturing overhead? Credit to Manufacturing Overhead for $115,000 Credit to Manufacturing Overhead for $125,000 Credit to Work-in-Process Inventory for $115,000 Credit to Work-in-Process Inventory for $125,000
Credit to Manufacturing Overhead for $125,000 JE = WIP Inventory 125,000 Manufacturing Overhead 125,000 Explanation: Predetermined overhead rate = 100,000/20,000 = $5/hr Applied overhead = 25,000*5 = 125,000 Job Order Costing PA
Which performance measure appears on a balanced scorecard? Suppliers Employees Customers Stockholders
Customers PA
A bookstore company, who buys and sells books, has the following information available: Number of books sold - 30,000 Selling price - $10 per book Cost = $4.00 per book Wages and salaries - $2.00 per book plus $10,000 Supplies - $1.00 per book plus $5,000 Selling and administrative expenses - $1.50 per book plus $20,000 What is the gross margin?
DGM $ = 180,000 Explanation: Description - Price - Number - Amount Sales - 10 - 30,000 - 300,000 Cost - 4 - 30,000 - 120,000 GM - NA - NA - 180,000 Job Order Costing PA
A company has the following work in process inventory information: 6,000 units were in beginning inventory. 12,000 units were started. 5,000 units were in ending inventory. Beginning inventory is 60% complete for materials and 40% complete for conversion. Ending inventory is 30% complete for materials and 80% complete for conversion. What is the number of equivalent units for materials using weighted average process costing?
Equivalent Units = 14,500 Explanation: Units Transferred = Beginning Inventory + Units Started - Ending Inventory = 6,000 + 12,000 - 5,000 = 13,000 Description - Materials Units Transferred - 13,000 Ending Inventory (5,000* .30) - 1,500 Equivalent Units - 14,500 Process Costing PA
A company's actual results for Year 1 are as follows: Income Statement Sales $ 2,000 Cost of goods sold $ 1,400 Gross profit $ 600 Depreciation expense $ (15) Other operating expenses $ (430) Income before taxes $ 155 Income taxes $ (62) Net income $ 93 In Year 2, sales are expected to increase by 50%. Management has made the following preliminary decisions: a. Gross profit percentage will decrease from 30% to 25%. b. Other operating expenses as a percentage of sales will decrease from 21.5% to 16.0%. c. The income tax rate will decrease from 40% to 20%. What is the forecasted net income for Year 2?
Forecasted Net Income = 204 Explanation: Sales - 3000 (150% of 2000) GP - 750 (25% of sales) Dep Exp - (15) Other Op Exp - (480) (16% of sales) IBT =255 Income before Taxes (IBT) = 255 less Income Taxes (20%) = (51) = Forecasted Net Income = 204 Budgeting PA
A company currently has three product lines: paper, stamps, and ink cartridges. The company is profitable overall but is considering discontinuing the stamp line because of losses from that line. The following is current data on the stamp line: Sales revenue $ 26,000 Variable costs $ 18,000 Direct avoidable fixed costs $ 6,000 Indirect allocated fixed costs $ 8,000 Net Income (Loss) on stamp line $ (6,000) How much will overall company net income change if the company decides to discontinue the stamp line?
If eliminated, net income will decrease by 2,000. Explanation: Segment margin = 26,000-18000-6,000 = 2,000 (positive - Keep it). Differential Costs - Product Elimination PA
A company is considering whether it should drop business segment A. After analyzing their cost structure, the company determines that it has $400,000 in total company-wide fixed costs and that $40,000 of these fixed costs are associated with segment A. Avoidable costs equal $30,000, and unavoidable costs equal $10,000. Should the company continue or discontinue Segment A if the segment's contribution margin is $25,000?
If eliminated, net income will increase by 5,000 Explanation: Contribution Margin = Sales Revenue - Variable Costs = 25,000 Segment Margin = Contribution Margin - Avoidable FC = 25,000 - 30,000 = -5,000 (negative should be eliminated) Differential Costs - Product Elimination PA
A company manufactures computers. The cost to manufacture one computer is as follows: DM - $60 DL - $58 VMOH - $40 FMOH - $35 Total cost per unit - $193 This company has received a special order for 600 computers at $180 per unit. The company will need to pay $2.00 a unit for selling expenses. Fixed costs are unaffected by the special order. How much will overall company net income change if the order is accepted? Increase by $13,200 Decrease by $7,800 Increase by $12,000 Decrease by $9,000
Increase by $12,000 PA
A company that currently produces final product A is considering stopping processing earlier in the production process and selling the intermediary product on the market. The final product sells for $110 per unit, whereas the firm believes it can sell the partially processed intermediary product for $90 per unit. The firm sells 1,000 units per quarter and faces a total finish processing cost of $50,000 per year after split- Should the firm sell the intermediary good or the final good?
Increase in annual income of 30,000 or 7,500 per quarter. Explanation: Incremental Profit = ((110-90)*4,000) - 50,000 = 30,000 (positive - should be processed further to final good) Differential Costs - Sell or Process Further PA
What are two advantages of budgeting? Choose 2 answers It helps coordinate customer activities. It forces managers to think about and record the past. It helps to ensure everyone in the organization is pulling in the same direction. It defines goals and objectives that serve as benchmarks for evaluating subsequent performance.
It helps to ensure everyone in the organization is pulling in the same direction. It defines goals and objectives that serve as benchmarks for evaluating subsequent performance. PA
What are two characteristics of a traceable fixed cost? Choose 2 answers It supports the organization as a whole. It supports the operations of more than one segment. It is incurred because of the existence of the segment. It is eliminated if the segment is discontinued.
It is incurred because of the existence of the segment. It is eliminated if the segment is discontinued. PA
If a product has a positive unit contribution margin, how will net income behave when activity increases? It will increase. It will decrease. It will remain the same. It cannot be determined.
It will increase. PA
What is the formula for: Job Order Cost
Job Order Cost = Direct Materials used + Direct Labor + Applied Manufacturing Overhead Job Order Costing
A segmented income statement is being prepared for a particular airline flight from Detroit to New York City. Classify each cost as being a cost that should be included or should not be included in this statement. Landing fees Passenger meals Airplane depreciation Routine airplane maintenance Should be included Should not be included
Landing fees - Should be included Passenger meals - Should be included Airplane depreciation - Should not be included Routine airplane maintenance - Should not be included PA
What is a disadvantage of decentralization? The response time to customers is slower. Lower-level management's motivation is decreased. Lower-level decision-making coordination may be lacking. Top management needs to concentrate on daily problem solving.
Lower-level decision-making coordination may be lacking. PA
What is value added time (i.e., process time) divided by throughput (i.e., manufacturing cycle) time? Manufacturing cycle efficiency Delivery cycle time Inspection time Economic value added
Manufacturing cycle efficiency PA
Which two types of companies should use job order costing? Choose 2 answers Soda bottler Meal catering company Paper towel manufacturer Commercial aircraft manufacturer
Meal catering company Commercial aircraft manufacturer PA
A company has the following three manufacturing overhead cost drivers: Cost Driver - Level of Activity - Overhead Cost Design changes - 100 changes per year - $ 5,000 Machine setups - 2,000 setups per year - $ 18,000 Electricity usage - 12,000 kilowatt hours per year - $ 36,000 The company started and completed work on 25 different jobs during the year. One of these jobs was Job 781. Job 781 required 8 design changes, 20 machine setups, and 700 kilowatt hours of electricity. How much manufacturing overhead should be allocated to Job 781 if the company uses activity-based costing?
Overhead allocated to Job 781 = ((5000/100) x 8) + ((18000/2000) x 20) + ((36000/12000) x 700) = $2,680 Activity Based Costing (ABC) PA
What is the formula for: Pre-determined Manufacturing Overhead Rate
Pre-determined Manufacturing Overhead Rate = Estimated Manufacturing Overhead/Estimated units of Allocation Base Job Order Costing
A retailer is trying to choose how to allocate 100 square feet of unused floor space and is considering two different product options. Both products require all of the available space, so the retailer cannot mix and match between the two products. Product A requires 2 square feet per unit and carries a wholesale cost of $30 per unit. The retailer can sell Product A for $50 per unit and sell through the displayed inventory twice per month. Product B requires 5 square feet per unit and carries a wholesale cost of $100 per unit. The retailer can sell Product B for $300 per unit and sell through the displayed inventory once per month. Which product should the retailer stock, and what will be its annual effect on profits? Product B and $48,000 Product B and $24,000 Product A and $12,000 Product A and $20,000
Product B and $48,000 PA
A company currently sells a product at a price of $40 per unit. The fixed costs in producing the product are $10 per unit, while the variable costs at the company's current production level are $5 per unit. The company's supplier is now raising prices and plans to charge $5 more per unit in variable costs for materials. What effect will this have on profits if sales remain at the current 2,000 units per month level? Profits will decrease $10,000 per month. Profits will decrease $15,000 per month. Profits will decrease $20,000 per month. Profits will decrease $25,000 per month.
Profits will decrease $10,000 per month. PA
A company plans on selling 200,000 items at $100 each. The selling and administrative expense budget is projected to be $3 million. The net income is projected to be $5 million. What is the projected cost of goods sold?
Projected COGS = 12,000,000 Explanation: Sales Revenue- COGS - SG&A = Net income (200,000*100) - COGS - 3,000,000 = 5,000,000 Budgeting PA
A company determines that it needs to produce 30,000 units of a given product this quarter. Each product requires 5 minutes of labor. and the company's labor cost is $20 per hour. However, the firm's workforce can only do 2,000 hours of labor in a standard quarter. Thus any time above this amount must come from overtime labor. which costs 50% more. What is the firm's projected total labor cost for the quarter?
Projected Labor Cost - 55,000 Explanation: Units - 30000 Minutes per product - 5 Total Minutes - 150000 1 hour - 60 Total hours - 2500 Regular rate - 2000 x 20 = 40000 1.5 rate - 500 x 30 = 15000 Projected labor costs - 55,000 Budgeting PA
What are two examples of a batch-level activity? Set up hours Purchase orders Factory administration Warehouse security
Purchase orders Set-up hours Activity Based Costing (ABC) PA
A company is at machine capacity and is considering purchasing an additional machine. Purchasing the new machine will allow for an increase in the number of units produced and sold. The new machine will also result in the company using fewer materials to make each product. Classify each cost as relevant or not relevant in the decision to purchase the machine. Select your answer from the choices below. Purchase price of the old machine Purchase price of the new machine Direct materials Direct labor Depreciation of the old machine Factory taxes General manager's salary Sales Not a relevant cost Relevant cost
Purchase price of the old machine - Not a relevant cost Purchase price of the new machine - Relevant cost Direct materials - Relevant cost Direct labor - Relevant cost Depreciation of the old machine - Not a relevant cost Factory taxes - Not a relevant cost General manager's salary - Not a relevant cost Sales - Relevant cost PA
A company presently manufactures and assembles all parts for its toy truck product. Another toy company has offered to sell the parts for $3.00 per truck. If the company buys the truck parts instead of making them, the space used in producing the parts could be used for a new toy monster, which is scheduled to begin production next year. If the company continues to produce the parts, it will have to lease space in an adjacent building for $20,000 per year to produce the parts for the new toy monster. Cost information related to the production of the toy truck parts: Cost per unit: Direct materials $ 1.20 Direct labor $ 0.40 Variable manufacturing overhead $ 0.30 Fixed manufacturing overhead $ 0.20 Total manufacturing costs $ 2.10 The marketing department estimated that sales for the toy truck will be approximately 15,000 units per year for the next three years. The fixed manufacturing overhead is indirect and will still be incurred regardless of what decision is made. How much will overall annual net income change if this company decides to buy the parts?
The annual net income will increase by $3,500 as shown below Explanation: Make 15,000 1.90 28,500 20,000 48,500 Buy 15,000 3.00 45,000 Differential Costs - Make or Buy PA
A hairstyling salon owner constructed a flexible budget projecting 1,000 and 1,100 customers for the month of June. The owner expects 1,000 customers but hopes for 1,100 customers. Average sale per customer is $40. Costs include rent of $5,000; payments to hairstylists of $20 per customer; and overhead of $10 per customer. In June, the owner had 1,000 customers and the net income was $8,000. What will the owner find concerning the net income variance while reviewing the bottom line of the flexible budget and the actual monthly results? This net income shows a favorable $8,000 variance. This net income shows a favorable $3,000 variance. This net income shows a favorable $6,000 variance. This net income shows a favorable $2,000 variance.
This net income shows a favorable $3,000 variance PA
The owner of a nail salon constructed a flexible budget projecting 1,000 and 1,100 customers for the month of June. The owner expects 1,000 customers but hopes for 1,100 customers. The average sale per customer is $40. Costs include rent of $5,000; payments to manicurists of $20 per customer; and overhead of $10 per customer. In June, the owner had 1,000 customers and the net income was $8,000. What will the owner find concerning the net income variance while reviewing the bottom line of the flexible budget and the actual monthly results? This net income shows a favorable $8,000 variance. This net income shows a favorable $3,000 variance. This net income shows a favorable $6,000 variance. This net income shows a favorable $2,000 variance.
This net income shows a favorable $3,000 variance. PA
The following information is provided for a company: • Equivalent units is 6,000 for materials and 5,000 for conversion. • Cost of beginning work in process included $12,000 of materials and $8,000 of conversion. • Cost added during the period included $85,200 of materials and $64,000 of conversion. What is the total cost per equivalent unit using the weighted average process method?
Total Cost per equivalent unit = 30.60 Description - Materials - Conversion Beg Costs - 12,000 - 8,000 Added - 85,200 - 64,000 Total Cost - 97,200 - 72,000 Equiv Units - 6,000 - 5,000 Per unit - 16.2 - 14.4 Total cost per equivalent unit = (16.2 + 14.4) 30.6 Process Costing PA
In June, an auto repair shop experienced a $3,000 favorable net income activity variance. What is a possible cause of this variance? Total customers were higher than planned. Total costs per customer were lower than planned. Actual revenues per customer were higher than planned. Actual net income per customer was higher than planned.
Total customers were higher than planned. PA
Which type of fixed costs should be included in an income statement of a division that is evaluated based upon costs they control? Common fixed costs Traceable fixed costs Corporate headquarters fixed costs Administrative fixed costs
Traceable fixed costs PA
What is the formula for: Unadjusted COGS
Unadjusted COGS = Beginning Finished Goods Inventory + Cost of Goods Manufactured - Ending Finished Goods Inventory Job Order Costing
What is the formula for: Under/Over Applied Manufacturing Overhead
Under/Over Applied Manufacturing Overhead = Actual Manufacturing Overhead - Applied Manufacturing Overhead Job Order Costing
