EQE Unit: 1, 16, 4, 2 [Ch 1, 2, 10, 3, 4]

How much does each additional sales dollar contribute toward profit for a firm with $4 million breakeven level of revenues and $1.2 million in fixed costs including depreciation?

$0.30

Based upon the data derived from the regression analysis, 420 maintenance hours in a month would mean the maintenance costs would be budgeted at

$3,746

Fact Pattern above Delphi Company's management has stipulated that it will not approve the continued manufacture of the new product after the next fiscal year unless the after-tax profit is at least $75,000 the first year. The unit selling price to achieve this target profit must be at least

$39.00

FP above How much is the transfer price for Product Zee?

$5.00

FP above The best predetermined overhead rate to be used to apply overhead to individual jobs during Baehr's fiscal year is

$5.05 per DLH.

The work-in-process of Parrott Corporation increased $11,500 from the beginning to the end of November. Costs incurred during November included $12,000 for direct materials, $63,000 for direct labor, and $21,000 for overhead. What was the cost of goods manufactured during November?

$84,500

FP above Blum's year-end direct materials amounted to

$880,000

Madtack Company's beginning and ending inventories for the month of November areNovember 1 November 30 Direct materials $ 67,000 $ 62,000 Work-in-process 145,000 171,000 Finished goods 85,000 78,000 Production data for the month of November follows: Direct labor $200,000 Actual manufacturing overhead 132,000 Direct materials purchased 163,000 Transportation in 4,000 Purchase returns and allowances 2,000 Madtack uses one overhead control account and charges overhead to production at 70% of direct labor cost. The company does not formally recognize over- or underapplied overhead until year end. Madtack Company's prime cost for November is

*$370,000* Beginning direct materials inventory $ 67,000 Plus: Purchases 163,000 Plus: Transportation in 4,000 Minus: Purchase returns (2,000) Direct materials available for use $232,000 Minus: Ending direct materials inventory (62,000) Direct materials used $170,000 Plus: Direct labor 200,000 Prime costs $370,000

The coefficient of correlation between direct materials cost and units produced is nearest

1.00

Fact Pattern above If the company had an operating income of $22,000, the unit sales must have been

13,000 32,500

A company is reviewing its financial forecast. The selling price of the company's product is $22.50, the per unit contribution margin is $12.50, and total fixed costs are $175,000. How many units of the product must be sold to generate $50,000 of profit?

18,000

Fact Pattern above How many surge protectors (rounded to the nearest hundred) must Bruell Electronics sell at a selling price of $14 per unit to gain $30,000 additional income before taxes?

25,000 units.

Which of the following would decrease unit contribution margin the most?

A 15% decrease in selling price.

Period costs

Are always expensed in the same period in which they are incurred.

Indirect materials are a

Conversion Cost - Yes Manufacturing Cost - Yes Prime Cost - No

Which of the following costs includes all the product costs?

Direct material and conversion costs.

In a regression analysis, the coefficient of determination measures

Goodness of fit.

Just-in-time manufacturing practices are based in part on the belief that

Goods should be "pulled" through the production process, not "pushed."

The primary reason for adopting total quality management is to achieve

Greater customer satisfaction.

Multiple regression differs from simple regression in that it

Has more independent variables.

Multicollinearity occurs when

Independent variables are correlated with each other.

In a capital-intensive industry, which is most likely to be an appropriate basis for applying overhead?

Machine hours.

The perpetual inventory method

Maintains a continuous record of transactions affecting the inventory balances.

Which professional organization represents management accountants in the United States?

The Institute of Management Accountants (IMA).

The least exact method for separating fixed and variable costs is

The high-low method.

Which measure of capacity applies the least amount of overhead to units of production?

Theoretical capacity.

Cost-volume-profit analysis assumes that over the relevant range

Unit variable costs are unchanged.

Fact Pattern: The usual formula for the simple regression equation is y = a + bx + e. The y-axis intercept is

a

Fact Pattern above If Product R is discontinued and a consequent loss of customers causes a decrease of 200 units in sales of Q, the total effect on income will be

$1,250 decrease.

Using the original $6 million projection, the wholesale distributing company's margin of safety in terms of revenues for Year 4 would be

$1,320,000

Fact Pattern of above The contribution by Division 1 was

$190,000

Fact Pattern above The plant in which R is produced can be used to produce a new product, T. Total variable costs and expenses per unit of T are $8.05, and 1,600 units can be sold at $9.50 each. If T is introduced and R is discontinued, the total effect on income will be

$3,220 increase.

At 400 hours of activity, Armer management can be approximately two-thirds confident that the maintenance costs will be in the range of

$3,565.54 - $3,634.47

T-accounts The cost of goods sold is

$300,000

Lucy Sportswear manufactures a specialty line of T-shirts using a job-order cost system. During March, the following costs were incurred in completing Job ICU2: direct materials, $13,700; direct labor, $4,800; administrative, $1,400; and selling, $5,600. Overhead was applied at the rate of $25 per machine hour, and Job ICU2 required 800 machine hours. If Job ICU2 resulted in 7,000 good shirts, the cost of goods sold per unit would be

$5.50

West Co.'s manufacturing costs for the month just ended were as follows: Direct materials and direct labor $700,000 Other variable manufacturing costs 100,000 Depreciation of factory building and manufacturing equipment 80,000 Other fixed manufacturing overhead 18,000 What amount should be considered product cost for external reporting purposes?

$898,000

The results of regressing y against x are as follows: Coefficient Intercept 5.23 Slope 1.54 When the value of x is 10, the estimated value of y is

20.63

Information related to the revenue and costs of a product are as follows: Total fixed cost per month $3,600 Desired net income per month 480 Selling price per unit 20 Variable cost per unit 15 What number of units above the breakeven level must be sold to earn the desired level of net income per month?

96

The percentage of the total variance that can be explained by the regression equation is

99.724%

A company services office equipment. Some customers bring their equipment to the company's service shop; other customers prefer to have the company's service personnel come to their offices to repair their equipment. The most appropriate costing method for the company is

A job costing system.

The fixed portion of the semivariable cost of electricity for a manufacturing plant is a

Conversion Cost - Yes Product Cost - Yes

At the breakeven point, the contribution margin equals total

Fixed costs.

Which of the following is a characteristic of a contribution income statement?

Fixed expenses are listed separately from variable expenses.

Depreciation based on the straight-line method is classified as what type of cost?

Fixed.

Given actual amounts of a semivariable cost for various levels of output, which of the following will give the least precise mathematical measure of the fixed and variable components but be easiest to compute?

High-low method.

Accounting for manufacturing overhead costs involves averaging in

Job Costing Process Costing Yes Yes

A company must decide which one of the following four products to manufacture: Sales Variable Direct Labor Product Price Cost Hours per Unit M $10 $ 7 1.5 N 20 12 2.0 O 5 2 0.5 P 8 4 1.0 Which product will result in the highest contribution margin per hour?

O.

Which of the following is assigned to goods that were either purchased or manufactured for resale?

Product cost.

The IMA Statement of Ethical Professional Practice includes an integrity standard. It requires an IMA member to

Refrain from conduct that prejudices the ability to perform duties ethically.

The difference between the sales price and total variable costs is

The contribution margin.

Bias occurs when

The parameters obtained from random sampling fail to represent the population.

A management accountant performs a linear regression of maintenance cost vs. production using a computer spreadsheet. The regression output shows an "intercept" value of $322,897. How should the accountant interpret this information?

The value of y is $322,897 when x equals zero.

In a traditional manufacturing operation, direct costs would normally include

Wood in a furniture factory.

Fact Pattern above Part of the plant in which P is produced can easily be adapted to the production of S, but changes in quantities may make changes in sales prices advisable. If production of P is reduced to 500 units (to be sold at $12 each) and production of S is increased to 2,500 units (to be sold at $10.50 each), the total effect on income will be

$1,515 decrease.

Fact Pattern above If the sales price of R is increased to $8 with a decrease in the number of units sold to 1,500, the effect on income will be

$1,650 increase.

Ajax Corporation transferred $72,000 of materials to its production department in February and incurred $37,000 of conversion costs ($22,000 of direct labor and $15,000 of overhead). At the beginning of the period, $14,000 of inventory (direct materials and conversion costs) was in process. At the end of the period, $18,000 of inventory was in process. What was the cost of goods manufactured?

$105,000

The following information relates to a corporation, which produced and sold 50,000 units during a recent accounting period: Sales $850,000 Manufacturing costs: Fixed 210,000 Variable 140,000 Selling and administrative costs: Fixed 300,000 Variable 45,000 Income tax rate 40% For the next accounting period, if production and sales are expected to be 40,000 units, the company should anticipate a contribution margin per unit of

$13.30

Fact Pattern above Assuming that XYZ Company sells 80,000 units, what is the maximum that can be paid for an advertising campaign while still breaking even?

$135,000

FP above Assume the predetermined overhead rate is $4.50 per direct labor hour. The total cost of Job 83-50 is

$135,750

The following information pertains to Clove Co. for the month just ended: Budgeted sales $1,000,000 Breakeven sales 700,000 Budgeted contribution margin 600,000 Cash flow breakeven 200,000 Clove's margin of safety is

$300,000

FP above The carrying value of Farber Company's work-in-process inventory at December 31 is

$300,000.

Mulvey's predetermined fixed manufacturing overhead rate would be

$4.80 per machine hour.

Fact Pattern above Production of P can be doubled by adding a second shift, but higher wages must be paid, increasing the variable cost of goods sold to $3.50 for each additional unit. If the 1,000 additional units of P can be sold at $10 each, the total effect on income will be

$5,330 increase.

On January 1, Maples had two jobs in process: #506 with assigned costs of $10,500 and #507 with assigned costs of $14,250. During January, three new jobs, #508 through #510, were started and three jobs, #506, #507, and #508, were completed. Materials and labor costs added during January were as follows: Job Number Materials Labor 506 $ 0 $2,000 507 0 1,500 508 4,000 3,600 509 3,800 2,000 510 2,600 3,100 Manufacturing overhead is assigned at the rate of 200% of labor. What is the January cost of goods manufactured and transferred from work-in-process?

$50,050

Fact Pattern above How much is Cobb's breakeven point in dollars?

$544,000

Brewster Co. has the following financial information: Fixed costs $20,000 Variable costs 60% Sales price $50 What amount of sales is required for Brewster to achieve a 15% return on sales?

$80,000

What coefficient of correlation results from the following data? X: 1,2,3,4,5 Y: 10,8,6,4,2

-1

Fact Pattern above According to ABC analysis, how many units must be sold to generate operating income of $30,000?

16,500

Fact Pattern above How many units does XYZ Company need to produce and sell to make a before-tax profit of 10% of sales?

90,000 units.

Cost-volume-profit relationships that are curvilinear may be analyzed linearly by considering only

A relevant range of volume.

The segmented income statement for a retail company with three product lines is presented below: Total Product Product Product Company Line 1 Line 2 Line 3 Volume (in units) 20,000 28,000 50,000 Sales revenue $2,000,000 $800,000 $700,000 $500,000 Costs & expenses: Administrative $ 180,000 $ 60,000 $ 60,000 $ 60,000 Advertising 240,000 96,000 84,000 60,000 Commissions 40,000 16,000 14,000 10,000 Cost of sales 980,000 360,000 420,000 200,000 Rent 280,000 84,000 140,000 56,000 Salaries 110,000 54,000 32,000 24,000 Total costs & expenses $1,830,000 $670,000 $750,000 $410,000 Operating profit (loss) $ 170,000 $130,000 $(50,000) $ 90,000 The company buys the goods in the three product lines directly from manufacturers' representatives. Each product line is directed by a manager whose salary is included in the administrative expenses. Administrative expenses are allocated to the three product lines equally because the administration is spread evenly among the three product lines. Salaries represent payments to the workers in each product line and therefore are traceable costs of each product line. Advertising promotes the entire company rather than the individual product lines. As a result, the advertising is allocated to the three product lines in proportion to the sales revenue. Commissions are paid to the salespersons in each product line based on 2% of gross sales. Rent represents the cost of the retail store and warehouse under a lease agreement with 5 years remaining. The product lines share the retail and warehouse space, and the rent is allocated to the three product lines based on the square footage occupied by each of the product lines. The segmented income statement for this retail company does not facilitate performance evaluation because it does not distinguish between controllable and uncontrollable costs. The only costs and expenses controllable at the product-line level for this retail company are

Commissions, cost of sales, and salaries.

The costs included in Huron's fixed overhead are

Committed costs.

Cost and managerial accounting systems are goods in the economic sense and, as such, their benefits must exceed their costs. When managerial accounting systems change, the cost that is frequently ignored is the cost of

Educating users.

The moving-average method of forecasting

Includes each new observation in the average as it becomes available and discards the oldest observation.

Cost-volume-profit analysis assumes that over the relevant range total

Revenues are linear.

An example of a carrying cost is

Spoilage.

Management should implement a different or more expensive accounting system only when

The benefits of the system exceed the cost.

Breakeven analysis assumes over the relevant range that

Total costs are linear.

In a job-order cost system, direct labor costs usually are recorded initially as an increase in

Work-in-process control.

In a job-order cost system, the application of manufacturing overhead is usually reflected in the general ledger as an increase in

Work-in-process control.

During Year 1, Thor Lab supplied hospitals with a comprehensive diagnostic kit for $120. At a volume of 80,000 kits, Thor had fixed costs of $1 million and a profit before income taxes of $200,000. Because of an adverse legal decision, Thor's Year 2 liability insurance increased by $1.2 million over Year 1. Assuming the volume and other costs are unchanged, what should the Year 2 price be if Thor is to make the same $200,000 profit before income taxes?

$135.00

Regan Company operates its factory on a two-shift basis and pays a late-shift differential of 15%. Regan also pays a premium of 50% for overtime work. Because Regan manufactures only for stock, the cost system provides for uniform direct-labor hourly charges for production done without regard to shift worked or work done on an overtime basis. Overtime and late-shift differentials are included in Regan's factory overhead application rate. The May payroll for production workers is as follows: Wages at base direct-labor rates $325,000 Shift differentials 25,000 Overtime premiums 10,000 For the month of May, what amount of direct labor should Regan charge to work-in-process?

$325,000

Luna Co.'s year-end manufacturing costs were as follows: Direct materials and direct labor $500,000 Depreciation of manufacturing equipment 70,000 Depreciation of factory building 40,000 Janitor's wages for cleaning factory premises 15,000 How much of these costs should be inventoried for external reporting purposes?

$625,000

Alpha's total overhead cost for an estimated activity level of 20,000 direct labor hours would be

$82,000

FP above Farber Company's total direct labor cost for the year is

$937,500

Fact Pattern: Data available for the current year are presented below. Whole Company Division 1 Division 2 Variable manufacturing cost of goods sold $ 400,000 $220,000 $180,000 Unallocated costs (e.g., president's salary) 100,000 Fixed costs controllable by division managers (e.g., advertising, engineering supervision costs) 90,000 50,000 40,000 Net revenue 1,000,000 600,000 400,000 Variable selling and administrative costs 130,000 70,000 60,000 Fixed costs controllable by others (e.g., depreciation, insurance) 120,000 70,000 50,000 Based upon the information presented above, the contribution margin for the company was

*$470,000* = ($1,000,000 net revenues - $400,000 variable COGS - $130,000 variable S&A costs).

A company is concerned about its operating performance, as summarized below: Revenues ($12.50 per unit) $300,000 Variable costs 180,000 Operating loss (40,000) How many additional units should have been sold in order for the company to break even in Year 8?

8,000

Which one of the following best describes direct labor?

Both a product cost and a prime cost.

The professional certification program most suited for one interested in a career in management accounting leads to which of the following designations?

CMA.

For a retailer, the income statement includes cost of goods sold. Cost of goods sold is, in effect, purchases adjusted for changes in inventory. For a manufacturer, purchases is replaced by

Cost of goods manufactured.

Which of the following items is not included in (charged to) manufacturing overhead?

Costs of marketing departments.

Wages earned by machine operators in producing the firm's product should be categorized as

Direct Labor Controllable by the Machine Operators' Supervisor A.Yes Yes

The breakeven point in units increases when unit costs

Increase and sales price remains unchanged.

The total overhead cost of $27.00 for Huron's Product B is a

Mixed cost.

When a decision is made in an organization, it is selected from a group of alternative courses of action. The loss associated with choosing the alternative that does not maximize the benefit is the

Opportunity cost.

Cost-volume-profit analysis assumes that over the relevant range

Selling prices are unchanged.

Generally, individual departmental rates rather than a plantwide rate for applying manufacturing overhead are used if

The manufactured products differ in the resources consumed from the individual departments in the plant.

If $200 of direct materials and $125 of supplies were issued to work-in-process, which of the following entries is correct?

Work-in-process $200 Overhead control 125 Stores control $325

The management of an airline is interested in the relationship between maintenance costs and the level of operations of its aircraft. Using regression analysis on cost and activity data collected over 12 months, the relationship below was estimated. *** goes up*** The estimated increase in the monthly maintenance cost for each additional hour of operation is

$150 per hour.

Following are Mill Co.'s production costs for the month just ended: Direct materials $100,000 Direct labor 90,000 Factory overhead 4,000 What amount of costs should be traced to specific products in the production process?

$190,000

FP above Assume Baehr's predetermined overhead rate is $4.50 per direct labor hour. The total amount of overhead applied to jobs during November was

$38,250

Del Co. has fixed costs of $100,000 and breakeven sales of $800,000. What is its projected profit at $1,200,000 sales?

$50,000

The following information pertains to Syl Co.: Sales $800,000 Variable costs 160,000 Fixed costs 40,000 What is Syl's breakeven point in sales dollars?

$50,000

In regression analysis, which of the following coefficients of correlation represents the strongest linear relationship between the independent and dependent variables?

-.89

Wren Co. manufactures and sells two products with selling prices and variable costs as follows: A B Selling price $18.00 $22.00 Variable costs 12.00 14.00 Wren's total annual fixed costs are $38,400. Wren sells four units of A for every unit of B. If operating income last year was $28,800, what was the number of units Wren sold?

10,500

A company is contemplating marketing a new product. Fixed costs will be $800,000 for production of 75,000 units or less and $1,200,000 if production exceeds 75,000 units. The variable cost ratio is 60% for the first 75,000 units. Variable costs will decrease to 50% of sales for units in excess of 75,000. If the product is expected to sell for $25 per unit, how many units must the company sell to break even?

111,000

Fact Pattern above The total number of units needed to break even if the budgeted direct labor costs were $2 for plastic frames instead of $3 is

144,444 units.

A retail company determines its selling price by marking up variable costs 60%. In addition, the company uses frequent selling price markdowns to stimulate sales. If the markdowns average 10%, what is the company's contribution margin ratio?

30.6%

All of the following are assumptions underlying the validity of linear regression output except

Certainty.

Indirect labor is a

Conversion cost.

An internal auditor for a large automotive parts retailer wishes to perform a risk analysis and wants to use an appropriate statistical tool to help identify stores that are at variance with the majority of stores. The most appropriate statistical tool to use would be

Cross-sectional regression analysis.

The treasury function usually is not responsible for

Financial reporting.

Quo Co. rented a building to Hava Fast Food. Each month Quo receives a fixed rental amount plus a variable rental amount based on Hava's sales for that month. As sales increase, so does the variable rental amount but at a reduced rate. Which of the following curves reflects the monthly rentals under the agreement?

I

Units of production is an appropriate method of assigning overhead when

Only one product is manufactured.

Departmental overhead rates are usually preferred to plant-wide overhead rates when

The activities of each of the various departments in the plant are not homogeneous.

Which of the following changes would cause a company's breakeven point in sales to increase?

The company's total fixed costs increases.

Which is the best description of traditional cost accounting?

The general ledger and subsidiary accounts and related records, etc., used to accumulate the costs of goods or services provided by an entity.

Assuming all manufacturing costs for finished goods are known, which of the following statements explains why the accountant's unit cost used in inventory valuation for the annual financial statements would differ from the economist's marginal unit cost?

The manufacturing cost per unit reflected in financial statements includes fixed costs.

What is the correct journal entry if $5,000 of direct labor and $1,250 of indirect labor were incurred?

Work-in-process $5,000 Overhead control 1,250 Accrued payroll $6,250

Fixed manufacturing overhead costs totaled $150,000 and variable selling costs totaled $75,000. How should these costs be classified under variable costing?

$225,000 period costs; $0 product costs.

Product Cott has sales of $200,000, a contribution margin of 20%, and a margin of safety of $80,000. What is Cott's fixed cost?

$24,000

When the number of units manufactured increases, the most significant change in average unit cost will be reflected as

A decrease in the nonvariable element.

In a simple linear regression model, the standard error of the estimate of y represents

A measure of variability of the actual observations from the least squares line.

A cost that always can be directly traced to a cost object is

A prime cost.

Which of the following are usually considered period costs?

A. Sales materials, advertising costs, Sales commissions, admin supplies expense, admin labor, depreciation on admin building, cost of research on customer demographics

An accounting system that collects financial and operating data on the basis of the underlying nature and extent of the cost drivers is

Activity-based costing.

If the error term is normally distributed about zero,

All of the answers are correct.

The difference between the $99.98 suggested selling price for Huron's Product B and its total unit cost of $88.00 represents the unit's

Gross profit.

The wages of the factory janitorial staff should be classified as

Manufacturing overhead cost.

If the coefficient of correlation between two variables is zero, how might a scatter diagram of these variables appear?

Random points.

Research and development costs for Huron's two new products are

Sunk costs.

Many companies recognize three major categories of costs of manufacturing a product. These are direct materials, direct labor, and overhead. Which of the following is an overhead cost in the production of an automobile?

The cost of small tools used in mounting tires on each automobile.

In the standard regression equation y = a + bx, the letter b is best described as a(n)

Variable coefficient.

The contribution margin increases when revenues remain the same and

Variable cost per unit decreases.

The following data were collected from the records of the shipping department of a company: Cost ofMonth Units Shipped Shipping Supplies 1 7,000 $35,000 2 5,000 25,000 3 3,000 14,900 4 13,000 65,000 5 11,000 55,200 6 10,000 50,200 7 15,000 74,900 The cost of shipping supplies is most likely to be a

Variable cost.

In a job-order cost system, the use of direct materials previously purchased usually is recorded as an increase in

Work-in-process control.

Fact Pattern: The usual formula for the simple regression equation is y = a + bx + e. The slope of the line is

b

Fact Pattern: The usual formula for the simple regression equation is y = a + bx + e. The independent variable is

x.

Fact Pattern: The usual formula for the simple regression equation is y = a + bx + e. The dependent variable is

y

Sago Co. uses regression analysis to develop a model for predicting overhead costs. Two different cost drivers (machine hours and direct materials weight) are under consideration as the independent variable. Relevant data were run on a computer using one of the standard regression programs, with the following results: Machine hours Coefficient y-intercept 2,500 b 5.0 r² = .70 Direct materials weight y-intercept 4,600 b 2.6 r² = .50 Which regression equation should be used?

y = 2,500 + 5.0x

When the relationship between the independent and dependent variables is not expected to remain constant, an appropriate method of analysis is

Curvilinear regression.

A direct labor overtime premium should be charged to a specific job when the overtime is caused by the

Customer's requirement for early completion of the job.

Fact Pattern of previous Jackson's management expects machine hours for the month of May to be 1,400 hours. What is their expected total cost for the month of May using the high-low method?

$720

The following information for a company is given: Fixed cost per month $2,500 Unit selling price $ 100 Variable cost as a percentage of sales 60% What amount of annual sales must the company achieve to break even?

$75,000

The regression analysis results for ABC Co. is shown as y = 90x + 45. The standard error (Sb) is 30 and coefficient of determination (r²) is 0.81. The budget calls for production of 100 units. What is ABC's estimate of total costs?

$9,045

How does a job costing accounting system differ from a process cost accounting system?

Subsidiary ledgers for the work-in-process and finished goods inventories are necessary in job costing.

If regression analysis is applied to the data shown below, *** dots go down*** the coefficients of correlation and determination will indicate the existence of a

High inverse linear relationship, high explained variation ratio.

Fact Pattern: Blum Corp. manufactures plastic-coated metal clips. The information below was among Blum's year-end manufacturing costs. Wages Machine operators $200,000 Maintenance workers 30,000 Factory supervisors 90,000 Materials Used Metal wire $500,000 Lubricant for oiling machinery 10,000 Plastic coating 380,000 Blum's year-end direct labor amounted to

$200,000

Fact Pattern: The T-accounts below provide selected data about a company's financial results for the year.Materials InventoryJan. 1 bal.$22,500 ?CreditsDebits75,000 Dec. 31 bal.$18,000 Work-in-ProcessJan. 1 bal.$ 52,500 $282,000CreditsDirect mat.72,000 Direct labor90,000 Overhead112,500 Dec. 31 bal.$ ? Finished GoodsJan. 1 bal.$90,000 ?CreditsDebits? Dec. 31 bal.$72,000 Manufacturing Wages PayableDebits$100,500 $66,000Jan. 1 bal. 99,000CreditsManufacturing OverheadDebits$111,000 ?CreditsCost of Goods Sold The amount of over- (under-) applied overhead is

$1,500

Schneider, Inc., had the following information relating to Year 1: Budgeted manufacturing overhead $74,800 Actual manufacturing overhead $78,300 Applied manufacturing overhead $76,500 Estimated direct labor hours 44,000 If Schneider decides to use the actual results from Year 1 to determine the Year 2 overhead rate, what is the Year 2 overhead rate?

$1.740

Von Stutgatt International's breakeven point is 8,000 racing bicycles and 12,000 five-speed bicycles. If the selling price and variable costs are $570 and $200 for a racer and $180 and $90 for a five-speed, respectively, what is the weighted-average contribution margin?

$202

Fact Pattern: Jackson Co. has the following information for the first 4 months of this year: Machine Cleaning Hours Expense January 2,100 $ 900 February 2,600 1,200 March 1,600 800 April 2,000 1,000 Using the high-low method, what is Jackson's fixed cost?

$160

FP above Over- or underapplied manufacturing overhead should be closed to the cost of goods sold account at February 28 in the amount of

$2,000 underapplied.

Data from the duplicating department of a company for the last 2 months are as follows: Number of Duplicating Copies Made Department's Costs January 100,000 $8,500 February 150,000 9,500 What is total variable cost at 110,000 copies?

$2,200

Based on potential sales of 500 units per year, a new product has estimated traceable costs of $990,000. What is the target price to obtain a 15% profit margin on sales?

$2,329

Day Mail Order Co. applied the high-low method of cost estimation to customer order data for the first 4 months of the current year. What is the estimated variable order-filling cost component per order? Month/No. of Orders/ Cost January 1,200 $ 3,120 February 1,300 3,185 March 1,800 4,320 April 1,700 3,895 =6,000 =$14,520

$2.00

The breakeven point in units sold for Tierson Corporation is 44,000. If fixed costs for Tierson are equal to $880,000 annually and variable costs are $10 per unit, what is the contribution margin per unit for Tierson Corporation?

$20.00

Armer can be 95% confident that what interval contains the true value of the marginal maintenance cost?

$7.02 - $7.56

Fact Pattern: A company that sells its single product for $40 per unit had after-tax net income for the past year of $1,188,000 after applying an effective tax rate of 40%. The projected costs for manufacturing and selling its single product in the coming year are listed below. Variable costs per unit: Direct material $ 5.00 Direct labor 4.00 Manufacturing overhead 6.00 Selling and administrative costs 3.00 Total variable cost per unit $18.00 Annual fixed operating costs: Manufacturing overhead $6,200,000 Selling and administrative costs 3,700,000 Total annual fixed cost $9,900,000 The dollar sales volume required in the coming year to earn the same after-tax net income as the past year is

$21,600,000

A manufacturer employs a job-order cost system. All jobs ordinarily pass through all three production departments, and Job 101 and Job 102 were completed during the current month.ProductionDirectManufacturing OverheadDepartmentsLabor RateApplication RatesDepartment 1$12.00150% of direct materials costDepartment 218.00$8.00 per machine hourDepartment 315.00200% of direct labor cost Job 101Job 102Job 103BWIP$25,500$32,400$ - 0 -DM:Department 1$40,000$26,000$58,000Department 23,0005,00014,000Department 3- 0 -- 0 -- 0 -DL:Department 1500400300Department 2200250350Department 31,5001,8002,500MH:Department 1- 0 -- 0 -- 0 -Department 21,2001,5002,700Department 3150300200The cost of completed Job 101 is

$215,200

Company management would like to calculate the breakeven point in sales dollars of its lone product, a farm combine-planter. The following cost information is available: Combine-planter unit selling price $ 1,000 Variable manufacturing expenses per unit 800 Other variable expenses 100 Fixed manufacturing expenses 15,000 Marketing expense (fixed) 7,000 What amount is the company's breakeven point in sales?

$220,000

A company with $280,000 of fixed costs has the following data: Product A Product B Sales price per unit $5 $6 Variable costs per unit $3 $5 Assume three units of A are sold for each unit of B sold. How much will sales be in dollars of product B at the breakeven point?

$240,000

Fact Pattern: The Mulvey Company derived the following cost relationship from a regression analysis of its monthly manufacturing overhead cost. C = $80,000 + $12M If: C = monthly manufacturing overhead cost M = machine hours The standard error of the estimate of the regression is $6,000. The standard time required to manufacture one six-unit case of Mulvey's single product is 4 machine hours. Mulvey applies manufacturing overhead to production on the basis of machine hours, and its normal annual production is 50,000 cases. Mulvey's estimated variable manufacturing overhead cost for a month in which scheduled production is 5,000 cases will be

$240,000

In preparing the annual profit plan for the coming year, Fine Company wants to determine the cost behavior pattern of the maintenance costs. Fine has decided to use linear regression by employing the equation y = a + bx for maintenance costs. The results of the regression analysis are given below. a = 684.65 b = 7.2884 Based upon the data derived from the regression analysis, 420 maintenance hours in a month would mean that Fine Co.'s maintenance costs (rounded to the nearest dollar) would be budgeted at

$3,746

A company manufactures plastic products for the home and restaurant market. The company also does contract work for other customers and uses a job-order costing system. The flexible budget covering next year's expected range of output is Direct labor hours 50,000 80,000 110,000 Machine hours 40,000 64,000 88,000 Variable OH costs $100,000 $160,000 $220,000 Fixed OH costs 150,000 150,000 150,000 Total OH costs $250,000 $310,000 $370,000 A predetermined overhead rate based on direct labor hours is used to apply total overhead. Management has estimated that 100,000 direct labor hours will be used next year. The predetermined overhead rate per direct labor hour to be used to apply total overhead to the individual jobs next year is

$3.50

During the current accounting period, a manufacturing company purchased $70,000 of raw materials, of which $50,000 of direct materials and $5,000 of indirect materials were used in production. The company also incurred $45,000 of total labor costs and $20,000 of other manufacturing overhead costs. An analysis of the work-in-process control account revealed $40,000 of direct labor costs. Based upon the above information, what is the total amount accumulated in the overhead control account?

$30,000

Fact Pattern: Delphi Company has developed a new product that will be marketed for the first time during the next fiscal year. Although the Marketing Department estimates that 35,000 units could be sold at $36 per unit, Delphi's management has allocated only enough manufacturing capacity to produce a maximum of 25,000 units of the new product annually. The fixed costs associated with the new product are budgeted at $450,000 for the year, which includes $60,000 for depreciation on new manufacturing equipment. Data associated with each unit of product are presented as follows. Delphi is subject to a 40% income tax rate.Direct material$ 7.00Direct labor3.50Manufacturing overhead4.00Variable manufacturing cost$14.50Selling expenses1.50Total variable cost$16.00 The maximum after-tax profit that can be earned by Delphi Company from sales of the new product during the next fiscal year is

$30,000

Under Pick Co.'s job costing system, manufacturing overhead is applied to work-in-process using a predetermined annual overhead rate. During January, Pick's transactions included the following:Direct materials issued to production$ 90,000Indirect materials issued to production8,000Manufacturing overhead incurred125,000Manufacturing overhead applied113,000Direct labor costs107,000Pick had neither beginning nor ending work-in- process inventory. What was the cost of jobs completed in January?

$310,000

A corporation wishes to determine the fixed portion of its maintenance expense (a semivariable expense), as measured against direct labor hours, for the first 3 months of the year. The inspection costs are fixed; the adjustments necessitated by errors found during inspection account for the variable portion of the maintenance costs. Information for the first quarter is as follows: Direct Labor Hours Maintenance Expense January 34,000 $610 February 31,000 $585 March 34,000 $610 What is the fixed portion of maintenance expense, rounded to the nearest dollar?

$327

An auditor used regression analysis to evaluate the relationship between utility costs and machine hours. The following information was developed using a computer software program: Intercept 2,050 Regression coefficient .825 Correlation coefficient .800 Standard error of the estimate 200 Number of observations 36 What is the expected utility cost if the company's 10 machines will be used 2,400 hours next month?

$4,030

Jackson, Inc., is preparing a flexible budget for next year and requires a breakdown of the cost of steam used in its factory into the fixed and variable elements. The following data on the cost of steam used and direct labor hours worked are available for the last 6 months of this year: Month Cost of Steam Direct Labor Hours July $ 15,850 3,000 August 13,400 2,050 September 16,370 2,900 October 19,800 3,650 November 17,600 2,670 December 18,500 2,650 Total $101,520 16,920 Assuming that Jackson uses the high-low method of analysis, the estimated variable cost of steam per direct labor hour is

$4.00

The following were among Gage Co.'s costs during the month just ended:Normal spoilage$ 5,000Freight out10,000Excess of actual manufacturing costs over standard costs20,000Standard manufacturing costs100,000Actual prime manufacturing costs80,000Gage's actual manufacturing overhead was

$40,000

A controller developed the following direct-costing income statement for Year 1: Per Unit Sales (150,000 units at $30) $ 4,500,000 $30 Variable costs: Direct materials $1,050,000 $ 7 Direct labor 1,500,000 10 Mfg. overhead 300,000 2 Selling & mktg. 300,000 2 (3,150,000) (21) Contribution margin $ 1,350,000 $ 9 Fixed costs: Mfg. overhead $ 600,000 $ 4 Selling & mktg. 300,000 2 (900,000) (6) Operating income $ 450,000 $ 3 The controller based the next year's budget on the assumption that fixed costs, unit sales, and the sales price would remain as they were in Year 1, but with operating income being reduced to $300,000. By July of Year 2, the controller was able to predict that unit sales would increase over Year 1 levels by 10%. Based on the Year 2 budget and the new information, the predicted Year 2 operating income would be

$420,000

Fact Pattern: Baehr Company is a manufacturing company with a fiscal year that runs from July 1 to June 30. The company uses a job costing system for its production costs. A predetermined overhead rate based upon direct labor hours is used to apply overhead to individual jobs. A flexible budget of overhead costs was prepared for the fiscal year as shown below. Direct labor hours 100,000 120,000 140,000 Variable overhead costs $325,000 $390,000 $455,000 Fixed overhead costs 216,000 216,000 216,000 Total overhead $541,000 $606,000 $671,000 Although the annual ideal capacity is 150,000 direct labor hours, company officials have determined 120,000 direct labor hours to be normal capacity for the year. The information presented below is for November. Jobs 83-50 and 83-51 were completed during November. Inventories November 1: Raw materials and supplies $ 10,500 Work-in-process (Job 83-50) 54,000 Finished goods 112,500 Purchases of raw materials and supplies: Raw materials $135,000 Supplies 15,000 $150,000 Materials and supplies requisitioned for production: Job 83-50 $ 45,000 Job 83-51 37,500 Job 83-52 25,500 Supplies 12,000 $120,000 Factory direct labor hours: Job 83-50 3,500 Job 83-51 3,000 Job 83-52 2,000 8,500 Labor costs: Direct labor wages $51,000 Indirect labor wages (4,000 hours) 15,000 Supervisory salaries 6,000 $72,000 Building occupancy costs (heat, light, depreciation, etc.): Factory facilities $6,500 Sales offices 1,500 Administrative offices 1,000 $9,000 Factory equipment costs: Power $4,000 Repairs and maintenance 1,500 Depreciation 1,500 Other 1,000 $8,000 Assume Baehr's predetermined overhead rate is $4.50 per direct labor hour. Actual manufacturing overhead incurred during November was

$47,500

Birk Co. uses a job-order cost system. The following debits (credit) appeared in Birk's work-in-process account for the month just ended: April Description Amount 1 Balance $ 4,000 30 Direct materials 24,000 30 Direct labor 16,000 30 Factory overhead 12,800 30 To finished goods (48,000) Birk applies overhead to production at a predetermined rate of 80% of direct labor cost. Job No. 5, the only job still in process at month end, has been charged with direct labor of $2,000. What was the amount of direct materials charged to Job No. 5?

$5,200

The budget for a product is as follows. Sales $10,000,000 Materials and labor 4,000,000 Fixed manufacturing overhead 1,500,000 Sales commissions 500,000 Advertising (fixed) 200,000 Other marketing costs (fixed) 800,000 Allocated administrative costs 2,000,000 Income $ 1,000,000 The budgeted contribution margin for this product is

$5,500,000

Jonathan Manufacturing adopted a job-costing system. For the current year, budgeted cost driver activity levels for direct labor hours and direct labor costs were 20,000 and $100,000, respectively. In addition, budgeted variable and fixed factory overhead costs were $50,000 and $25,000, respectively. Actual costs and hours for the year were as follows:Direct labor hours21,000Direct labor costs$110,000Machine hours35,000For a particular job, 1,500 direct-labor hours were used. Using direct-labor hours as the cost driver, what amount of overhead should be applied to this job?

$5,625

Fact Pattern: A wholesale distributing company has budgeted its before-tax profit to be $643,500 for Year 3. The company is preparing its annual budget for Year 4 and has accumulated the following data: Year 4 Data Projected annual revenues $6,000,000 Variable costs as a percent of revenues: Cost of merchandise 30% Sales commissions 5% Shipping expenses 10% Annual fixed operating costs: Selling expenses $ 772,200 Administrative expenses $1,801,800 If the wholesale distributing company wants to earn the same before-tax operating income in Year 4 as budgeted for Year 3, the annual revenues would not be the projected $6 million but would have to be

$5,850,000

The accountant for Champion Brake, Inc., applies overhead based on machine hours. The budgeted overhead and machine hours for the year are $260,000 and 16,000, respectively. The actual overhead and machine hours incurred were $275,000 and 20,000. The cost of goods sold and inventory data compiled for the year is as follows:Direct materials$ 50,000COGS$450,000WIP (units)100,000Finished goods (units)150,000 What is the amount of over/underapplied overhead for the year?

$50,000

The following information is taken from Wampler Co.'s current-year contribution income statement: Sales $200,000 Contribution margin 120,000 Fixed costs 90,000 Income taxes 12,000 What was Wampler's margin of safety?

$50,000

A company has the opportunity to increase annual sales by $100,000 by selling to a new, riskier group of customers. Based on sales, the uncollectible expense is expected to be 15%, and collection costs will be 5%. The company's manufacturing and selling expenses are 70% of sales, and its effective tax rate is 40%. If the company accepts this opportunity, after-tax profit will increase by

$6,000

Carley Products has no work-in-process or finished goods inventories at year end. The balances of Carley's accounts include the following: Cost of goods sold $2,040,000 General selling and administrative expenses 900,000 Sales 3,600,000 Manufacturing overhead control 700,000 Manufacturing overhead applied 648,000 Carley's pretax income for the year is

$608,000

FP above The amount of indirect materials in the manufacturing overhead account is

$7,500

Using the least squares method of computation, the fixed monthly production cost of trivets is approximately

$7,500

Tillman Corporation uses a job costing system and has two production departments, M and A. Budgeted manufacturing costs for the year are Dept. M Dept. A Direct materials $700,000 $100,000 Direct labor 200,000 800,000 Manufacturing overhead 600,000 400,000 The actual materials and labor costs charged to Job No. 432 during the year were as follows: Direct materials $25,000 Direct labor: Dept. M $ 8,000 Dept. A 12,000 20,000 Tillman applies manufacturing overhead to production orders on the basis of direct labor cost using separate departmental rates predetermined at the beginning of the year based on the annual budget. The total annual manufacturing costs associated with Job No. 432 should be

$75,000

Worley Company has underapplied overhead of $45,000 for the year. Before disposition of the underapplied overhead, selected year-end balances from Worley's accounting records were Sales $1,200,000 Cost of goods sold 720,000 Direct materials inventory 36,000 Work-in-process inventory 54,000 Finished goods inventory 90,000 Under Worley's cost accounting system, over- or underapplied overhead is assigned to appropriate inventories and COGS based on year-end balances. In its year-end income statement, Worley should report COGS of

$757,500

Fact Pattern: Hamilton Company uses job-order costing. Manufacturing overhead is applied to production at a predetermined rate of 150% of direct labor cost. Any over- or underapplied overhead is closed to the cost of goods sold account at the end of each month. Additional information is available as follows: • Job 101 was the only job in process at January 31, with accumulated costs as follows: Direct materials $4,000 Direct labor 2,000 Applied manufacturing overhead 3,000 Total manufacturing costs $9,000 Jobs 102, 103, and 104 were started during February. Direct materials requisitions for February totaled $26,000. Direct labor cost of $20,000 was incurred for February. Actual manufacturing overhead was $32,000 for February. The only job still in process on February 28 was Job 104, with costs of $2,800 for direct materials and $1,800 for direct labor. The cost of goods manufactured for February was

$77,700

Fact Pattern: Kaden Corp. has two divisions -- Ace and Bow. Ace has a job costing system and manufactures machinery on special order for unrelated customers. Bow has a process cost system and manufactures Product Zee, which is sold to Ace as well as to unrelated companies. Ace's work-in-process account at April 30 included the following: Ace applies manufacturing overhead at 90% of direct labor cost. Job No. 125, which was the only job in process at April 30, has been charged with manufacturing overhead of $4,500. Bow's cost to manufacture Product Zee is $3.00 per unit, which is sold to Ace for $5.00 per unit and to unrelated customers for $6.00 per unit. Balance, April 1 $ 24,000 Direct materials (including transferred-in cost) 80,000 Direct labor 60,000 Manufacturing overhead 54,000 Transferred to finished goods (200,000) Direct materials (including transferred-in cost) charged to Job No. 125 amounted to

$8,500

Lucas Co. has a job-order cost system. For the month of April, the following debits (credits) appeared in the general ledger account, work-in-process: April 1 Balance $ 24,000 30 Direct materials 80,000 30 Direct labor 60,000 30 Factory overhead 54,000 30 To finished goods (200,000) Lucas applies overhead to production at a predetermined rate of 90% based on direct labor cost. Job No. 100, the only job still in process at the end of April, has been charged with factory overhead of $4,500. The amount of direct materials charged to Job No. 100 was

$8,500

For the year just ended, a company's sales revenue was $450,000. The company's fixed costs were $120,000 and its variable costs amounted to $270,000. For the current year, sales are forecasted at $500,000. If the fixed costs do not change, the company's profits this year will be

$80,000

Fact Pattern: Farber Company employs a normal (nonstandard) absorption cost system. The following information is from the financial records of the company for the year.• Total manufacturing costs were $2,500,000.• Cost of goods manufactured was $2,425,000. • Applied factory overhead was 30% of total manufacturing costs. • Factory overhead was applied to production at a rate of 80% of direct labor cost. • Work-in-process inventory at January 1 was 75% of work-in-process inventory at December 31. Total cost of direct material used by Farber Company for the year is

$812,500

FP above Assume the predetermined overhead rate is $4.50 per direct labor hour. The manufacturing overhead costs applied to Job 83-52 during November were

$9,000

A not-for-profit social agency provides home health care assistance to as many patients as possible. Its budgeted appropriation (X) for next year must cover fixed costs of $5 million, and the annual per-patient cost (Y) of its services. However, the agency is preparing for a possible 10% reduction in its appropriation that will lower the number of patients served from 5,000 to 4,000. The reduced appropriation and the annual per-patient cost equal Reduced Appropriation Per-Patient Annual Cost

$9,000,000 $1,000

Fact Pattern: The officers of Bradshaw Company are reviewing the profitability of the company's four products and the potential effects of several proposals for varying the product mix. An excerpt from the income statement and other data follow: Totals Product P Product Q Product R Product S Revenues $62,600 $10,000 $18,000 $12,600 $22,000 Cost of goods sold 44,274 4,750 7,056 13,968 18,500 Gross profit $18,326 $ 5,250 $10,944 $ (1,368) $ 3,500 Operating expenses 12,012 1,990 2,976 2,826 4,220 Income before income taxes $ 6,314 $ 3,260 $ 7,968 $ (4,194) $ (720) Units sold 1,000 1,200 1,800 2,000 Sales price per unit $10.00 $15.00 $7.00 $11.00 Variable cost of goods sold per unit 2.50 3.00 6.50 6.00 Variable operating expenses per unit 1.17 1.25 1.00 1.20 Each of the following proposals is to be considered independently of the other proposals. Consider only the product changes stated in each proposal; the activity of other products remains stable. Ignore income taxes. If Product R is discontinued, the effect on income will be

$900 increase.

The Childers Company manufactures widgets. During the fiscal year just ended, the company incurred prime cost of $1.5 million and conversion cost of $1.8 million. Overhead is applied at the rate of 200% of direct labor cost. How much of the above costs represent direct materials cost?

$900,000

If the COGS for the Cole Manufacturing Co. is $105,000 and FG inventory decreased by $9,000 during the year, what was the year-end COGM?

$96,000

Fact Pattern above Suppose the sales manager chooses to devote the entire $160,000 to increased advertising for BD-4. The minimum increase in sales dollars of BD-4 required to offset the increased advertising would be

$960,000

The following information appeared in the accounting records of a retail store for the previous year: Sales $300,000 Purchases 140,000 Inventories January 1 70,000 December 31 100,000 Sales commissions 10,000 The gross margin was

*$190,000* =[$300,000 - ($70,000 + $140,000 - $100,000)].

The following information pertains to the manufacturing activities of Griss Co. during the month just ended: Beginning work-in-process (BWIP) $12,000 Ending work-in-process (EWIP) 10,000 Cost of goods manufactured (COGM) 97,000 Direct materials issued to production 20,000 Factory overhead is assigned at 150% of direct labor cost. What was the direct labor cost incurred?

*$30,000* $ 12,000 BWIP + $ 20,000 DM + DL + 1.5DL OH - $ 10,000 EWIP = $ 97,000 COGM 2.5 DL = $ 75,000 DL = $ 30,000

Glen Company has the following data pertaining to the year ended December 31: Purchases $450,000 Beginning inventory 170,000 Ending inventory 210,000 Freight-in 50,000 Freight-out 75,000 How much is the cost of goods sold for the year?

*$460,000* =170k+450k+50k-210k

Madtack Company's cost of goods transferred to finished goods inventory for November is

*$484,000* Total manufacturing costs are adjusted for the change in work-in-process to calculate the cost of goods transferred. Total manufacturing cost was $510,000, so the cost of goods transferred (COGM) is $484,000 ($510,000 + $145,000 BWIP - $171,000 EWIP).

A manufacturing firm planned to manufacture and sell 100,000 units of product during the year at a variable cost per unit of $4.00 and a fixed cost per unit of $2.00. The firm fell short of its goal and only manufactured 80,000 units at a total incurred cost of $515,000. The firm's manufacturing cost variance was

*$5,000 favorable.* The firm planned to produce 100,000 units at $6 each ($4 variable + $2 fixed cost), or a total of $600,000, consisting of $400,000 of variable costs and $200,000 of fixed costs. Total production was only 80,000 units at a total cost of $515,000. The flexible budget for a production level of 80,000 units includes variable costs of $320,000 (80,000 units × $4). Fixed costs would remain at $200,000. Thus, the total flexible budget costs are $520,000. Given that actual costs were only $515,000, the variance is $5,000 favorable.

Madtack Company's total manufacturing cost for November is

*$510,000* Total manufacturing costs consist of direct materials, direct labor, and manufacturing overhead. Total prime costs were $370,000 ($170,000 direct materials + $200,000 direct labor). Overhead applied was $140,000 ($200,000 DL × 70%). Therefore, total manufacturing cost is $510,000 ($370,000 prime costs + $140,000 overhead applied).

Based on the following data, what is the gross profit for the company? Sales $1,000,000 Net purchases of raw materials 600,000 Cost of goods manufactured 800,000 Marketing and administrative expenses 250,000 Indirect manufacturing costs 500,000 Beginning Ending Inventory Inventory Work-in-process $500,000 $400,000 Finished goods 100,000 500,000

*$600,000* =1,000,000sales-400,000cogs

Madtack Company's net charge to overhead control for the month of November is

*$8,000 credit, overapplied.* The overhead control account would have been debited for $132,000 of actual overhead. Credits would have totaled $140,000 representing 70% of direct labor costs of $200,000. Hence, the $140,000 credit exceeds the $132,000 debit. Overhead was overapplied by $8,000.

The following cost data were taken from the records of a manufacturing company: Depreciation on factory equipment $ 1,000 Depreciation on sales office 500 Advertising 7,000 Freight-out (shipping) 3,000 Wages of production workers 28,000 Raw materials used 47,000 Sales salaries and commissions 10,000 Factory rent 2,000 Factory insurance 500 Materials handling 1,500 Administrative salaries 2,000 Based upon this information, the manufacturing cost incurred during the year was

*$80,000* =28k+47k+2k+500+1000+1500

A manufacturer has a limited supply of 1,200 lbs of raw materials that can be used to produce either Product X or Y, details of which are given below. Product X Product Y Selling price per unit $200 $250 Variable costs per unit $176 $200 Raw materials used per unit 8 lbs 10 lbs Which one of the following should the manufacturer produce in order to maximize contribution margin?

120 units of Product Y.

A company has sales of $500,000, variable costs of $300,000, and operating income of $150,000. If the company increased the sales price per unit by 10%, reduced fixed costs by 20%, and left variable cost per unit unchanged, what would be the new breakeven point in sales dollars?

*$88,000* Fixed costs are $50,000 ($500,000 sales - $300,000 variable costs - $150,000 operating income). If sales increase by 10% ($500,000 × 1.10 = $550,000) and fixed costs decrease by 20% ($50,000 × .80 = $40,000), the new contribution margin is 45.45% [($550,000 - $300,000) ÷ $550,000]. The new breakeven point can be calculated as follows: BEP in dollars = Fixed costs ÷ CMR = $40,000 ÷ .4545 = $88,000

Hoyt Co. manufactured the following units: Salable 5,000 Unsalable (normal spoilage) 200 Unsalable (abnormal spoilage) 300 Manufacturing costs totaled $99,000. What amount should Hoyt debit to finished goods?

*$93,600* = {$99,000 - [300 ÷ (5,000 + 200 + 300) × $99,000]}.

Fact Pattern: MultiFrame Company has the following revenue and cost budgets for the two products it sells: Plastic Glass Frames Frames Sales price $10.00 $15.00 Direct materials (2.00) (3.00) Direct labor (3.00) (5.00) Fixed overhead (3.00) (4.00) Net income per unit $ 2.00 $ 3.00 Budgeted unit sales 100,000 300,000 The budgeted unit sales equal the current unit demand, and total fixed overhead for the year is budgeted at $975,000. Assume that the company plans to maintain the same proportional mix. In numerical calculations, MultiFrame rounds to the nearest cent and unit. The total number of units MultiFrame needs to produce and sell to break even is

*150,000 units.* $5 ($10 - $2 - $3). For glass frames, the unit contribution margin is $7 ($15 - $3 - $5). Thus, the composite unit contribution margin is $26 ($5 + $7 + $7 + $7), and the breakeven point is 37,500 packages ($975,000 FC ÷ $26). Because each composite unit contains four frames, the total units sold equal 150,000.

Using regression analysis, Fairfield Co. graphed the following relationship of its cheapest product line's sales with its customers' income levels: ***goes down*** If there is a strong statistical relationship between the sales and customers' income levels, which of the following numbers best represents the correlation coefficient for this relationship?

-0.93

Fact Pattern: Paradise Company budgets on an annual basis for its fiscal year. The following beginning and ending inventory levels (in units) are planned for the fiscal year of July 1 through June 30: July 1 June 30 Direct material* 40,000 50,000 Work-in-process 10,000 20,000 Finished goods 80,000 50,000 * Two units of direct material are needed to produce each unit of finished product. If 500,000 complete units were to be manufactured during the fiscal year by Paradise Company, the number of units of direct materials to be purchased is

1,010,000 units.

Fact Pattern above Assume that Cinnabar's product is redesigned. The result is that unit-based variable cost per unit is reduced to $16. If fixed costs are assumed to remain at $300,000 and operating income of $30,000 is desired, how many units must be sold according to traditional CVP analysis?

13,750

Fact Pattern Above The total number of units needed to break even if sales were budgeted at 150,000 units of plastic frames and 300,000 units of glass frames with all other costs remaining constant is

153,947 units.

Fact Pattern: Cinnabar Corp. manufactures one product. Its total fixed costs calculated according to traditional cost-volume-profit (CVP) analysis and activity-based costing (ABC) equal $300,000 and $100,000, respectively. Unit selling price is $40, and unit-based variable cost per unit is $20. In addition, total cost also varies with one batch-level and one product-sustaining driver. Relevant information about nonunit-based drivers includes the following:Batch-LevelProduct-DriverSustaining DriverCost per driver$2,000$60Quantity of driver402,000 According to traditional CVP analysis, how many units must be sold to generate operating income of $30,000?

16,500

Fact Pattern: Moorehead Manufacturing Company produces two products for which the data presented to the right have been tabulated. Fixed manufacturing cost is applied at a rate of $1.00 per machine hour. The sales manager has had a $160,000 increase in the budget allotment for advertising and wants to apply the money to the most profitable product. The products are not substitutes for one another in the eyes of the company's customers. Per Unit XY-7 BD-4 Selling price $4.00 $3.00 Variable manufacturing cost 2.00 1.50 Fixed manufacturing cost .75 .20 Variable selling cost 1.00 1.00 Suppose the sales manager chooses to devote the entire $160,000 to increased advertising for XY-7. The minimum increase in sales units of XY-7 required to offset the increased advertising is

160,000 units.

Fact Pattern above Assume that an ABC analysis of the effects of the redesign of the product mentioned in the fact pattern unexpectedly revealed an increase in the batch-level cost per driver to $2,400 and in the quantity of the product-sustaining driver to 2,600. According to ABC analysis, how many units must be sold to break even if fixed costs are unchanged?

17,600

Fact Pattern: The data below pertain to two types of products manufactured by Cobb Corp. Fixed costs total $300,000 annually. The expected mix in units is 60% for product Y and 40% for product Z. Per Unit Sales Price Variable Costs Product Y $120 $ 70 Product Z 500 200 How much is Cobb's breakeven point in units?

2,000

Fact Pattern: Bruell Electronics Co. is developing a new product, surge protectors for high-voltage electrical flows. The cost information below relates to the product: Unit Costs Direct materials $3.25 Direct labor 4.00 Distribution .75 The company will also be absorbing $120,000 of additional fixed costs associated with this new product. A corporate fixed charge of $20,000 currently absorbed by other products will be allocated to this new product. If the selling price is $14 per unit, the breakeven point in units (rounded to the nearest hundred) for surge protectors is

20,000 units.

State College is using cost-volume-profit analysis to determine tuition rates for the upcoming school year. Projected costs for the year are as follows: Contribution margin per student $ 1,800 Variable expenses per student 1,000 Total fixed expenses 360,000 Based on these estimates, what is the approximate breakeven point in number of students?

200

A company, which is subject to a 40% income tax rate, had the following operating data for the period just ended: Selling price per unit $ 60 Variable cost per unit 22 Fixed costs 504,000 Management plans to improve the quality of its sole product by (1) replacing a component that costs $3.50 with a higher-grade unit that costs $5.50 and (2) acquiring a $180,000 packing machine. The company will depreciate the machine over a 10-year life with no estimated salvage value by the straight-line method of depreciation. If the company wants to earn after-tax income of $172,800 in the upcoming period, it must sell

22,500 units.

A company plans to introduce a new product. The marketing manager forecasts a unit selling price of $500. The variable cost per unit is estimated to be $100. In addition, there is a total of $110,000 fixed indirect manufacturing costs, and $150,000 in fixed operating costs associated with these units. What quantity will the company have to sell to break even?

650 units.

A ceramics manufacturer sold cups last year for $7.50 each. Variable costs of manufacturing were $2.25 per unit. The company needed to sell 20,000 cups to break even. Net income was $5,040. This year, the company expects the following changes: sales price per cup to be $9.00, variable manufacturing costs to increase 33.3%, fixed costs to increase 10%, and the income tax rate to remain at 40%. Sales in the coming year are expected to exceed last year's sales by 1,000 units. How many units does the company expect to sell this year?

22,600

Green Co. produces only Product Z. As part of the annual budgeting, Green is considering whether to produce a new product. Green's CFO obtained information from various departments within the company. The plant manager expected the following costs would be incurred in producing the new product: Direct materials $1 per unit Direct labor $100 per hour Fixed cost $55,000 The marketing manager decided to spend $2 per unit for the first 5,000 items sold with no additional costs after that. The marketing manager confirmed that the current market price for the new product was $4,000 per 1,000 units. The plant manager told the CFO that the employees would be able to produce 500 units per hour. Approximately how many units would Green have to sell to break even?

23,215

Fact Pattern above How many surge protectors (rounded to the nearest hundred) must Bruell Electronics sell at a selling price of $14 per unit to increase after-tax income by $30,000? Bruell Electronics' effective income tax rate is 40%.

28,300 units.

At annual sales of $900,000, the Ebo product has the following unit sales price and costs: Sales price $20 Prime cost 6 Manufacturing overhead: Variable 1 Fixed 7 Selling & admin. costs: Variable 1 Fixed 3 Total costs (18) Profit $ 2 What is Ebo's breakeven point in units?

37,500

Two companies are expected to have annual sales of 1,000,000 decks of playing cards next year. Estimates for next year are presented below: Company 1Company 2Selling price per deck$3.00$3.00Cost of paper per deck.62.65Printing ink per deck.13.15Labor per deck.751.25Variable overhead per deck.30.35Fixed costs$960,000$252,000Given these data, which of the following responses is true? Volume in Units BreakevenBreakevenat Which Profits Point inPoint inof Company 1 Units forUnits forand Company 2 Company 1Company 2Are Equal

800,000 420,000 1,180,000

Fact Pattern: A company sells two products, X and Y. The sales mix consists of a composite unit of 2 units of X for every 5 units of Y (2:5). Fixed costs are $49,500. The unit contribution margins for X and Y are $2.50 and $1.20, respectively. Considering the company as a whole, the number of composite units to break even is

4,500 composite units.

A manufacturer is considering dropping a product line. It currently produces a multi-purpose woodworking clamp in a simple manufacturing process that uses special equipment. Variable costs amount to $6.00 per unit. Fixed overhead costs, exclusive of depreciation, have been allocated to this product at a rate of $3.50 a unit and will continue whether or not production ceases. Depreciation on the special equipment amounts to $20,000 a year. Fixed costs are $18,000. The clamp has a selling price of $10 a unit. Ignoring tax effects, the minimum number of units that would have to be sold in the current year to break even on a cash flow basis is

4,500 units.

A manufacturer sells its sole product for $10 per unit, with a unit contribution margin of $6. The fixed manufacturing cost rate per unit is $2 based on a denominator capacity of 1 million units, and fixed marketing costs are $1.5 million. If 900,000 units are produced, the absorption-costing breakeven point in units sold is

425,000 units.

A company has $450,000 per year of fixed production costs, of which $150,000 are noncash outlays. The variable cost per unit is $15, and the unit selling price is $25. The breakeven volume in sales units for this company would be

45,000 units.

Fact Pattern above The company has learned that a new direct material is available that will increase the quality of its product. The new material will increase the direct material costs by $3 per unit. The company will increase the selling price of the product to $50 per unit and increase its marketing costs by $1,575,000 to advertise the higher-quality product. The number of units the company has to sell in order to earn a 10% before-tax return on sales would be

478,125 units.

The following information pertains to Sisk Co.: Sales (25,000 units) $500,000 Direct materials and direct labor 150,000 Factory overhead: Variable 20,000 Fixed 35,000 Selling and general expenses: Variable 5,000 Fixed 30,000 Sisk's breakeven point in number of units is

5,000

A company manufactures a single product. Estimated cost data regarding this product and other information for the product and the company are as follows: Sales price per unit $40 Total variable production cost per unit $22 Sales commission (on sales) 5% Fixed costs and expenses: Manufacturing overhead $5,598,720 General and administrative $3,732,480 Effective income tax rate 40% The number of units the company must sell in the coming year in order to reach its breakeven point is

583,200 units.

Snyder Co. manufactures fans with direct material costs of $10 per unit and direct labor of $7 per unit. A local carrier charges Snyder $5 per unit to make deliveries. Sales commissions are paid at 10% of the selling price. Fans are sold for $100 each. Indirect factory costs and administrative costs are $6,800 and $37,200 per month, respectively. How many fans must Snyder produce to break even?

648

At the beginning of the year, Smith, Inc., budgeted the following: Units 10,000 Sales $100,000 Total variable expenses 60,000 Total fixed expenses 20,000 Manufacturing overhead: Variable 30,000 Fixed 10,000 There were no beginning inventories. At the end of the year, no work was in process, total manufacturing overhead incurred was $39,500, and underapplied manufacturing overhead was $1,500. Manufacturing overhead was applied on the basis of budgeted unit production. How many units were produced this year?

9,500

Fact Pattern: Alpha Company produces several different products and is making plans for the introduction of a new product, which it will sell for $6 a unit. The following estimates have been made for manufacturing costs on 100,000 units to be produced the first year:Direct materials$500,000Direct labor$40,000 (the labor rate is $4/hour)Overhead costs have not been established for the new product, but monthly data on total production and overhead cost for the past 24 months have been analyzed using simple linear regression. The results below were derived from the simple regression and provide the basis for overhead cost estimates for the new product.Dependent variable (y) -- Manufacturing overhead costsIndependent variable (x) -- Direct labor hoursComputed values:y-intercept$40,000Coefficient of independent variable$2.10Coefficient of correlation0.953Standard error of estimate$2,840Standard error of regression coefficient0.42Mean value of independent variable$18,000Coefficient of determination0.908 What percentage of the variation in Alpha's overhead costs is explained by the independent variable?

90.8%

A fixed cost that would be considered a direct cost is

A production supervisor's salary when the cost object is the Production Department.

The confidence interval for the value of y in the simple linear regression equation represents

A range of values constructed from the regression equation results for a specified level of probability.

A cost-volume-profit model developed in a dynamic environment determined that the estimated parameters used may vary between limits. Subsequent testing of the model with respect to all possible values of the estimated parameters is termed

A sensitivity analysis.

Constant variance means

A variability about the least squares line that is uniform for all values of the independent variable in the sample.

The dollar amount of revenues needed to attain a desired income is calculated by dividing the contribution margin ratio (CMR) into

Desired income plus fixed costs.

Cost-volume-profit (CVP) analysis allows management to determine the relative profitability of a product by

Determining the contribution margin per unit and the projected profits at various levels of production.

The Herron Company has a gross payroll of $2,000 per day based on a normal 40-hour work- week. Withholdings for income taxes amount to $200 per day. Gross payroll consists of $1,200 direct labor, $400 indirect labor, $280 selling expenses, and $120 administrative expenses each day. Assuming the weekly payroll and employer payroll taxes payable (but not employees' withholdings) have already been accrued, what is the journal entry to record the payment of the weekly payroll?

Accrued payroll $10,000 Cash $8,330 Employees' income taxes payable 1,000 Employees' FICA taxes payable 670

A job-order cost system uses a predetermined factory overhead rate based on expected volume and expected fixed cost. At the end of the year, underapplied overhead might be explained by which of the following situations?

Actual Volume Actual Fixed Costs Less than expected Greater than expected

If an IMA member discovers unethical conduct in his or her organization and fails to act, (s)he will be in violation of which of IMA's ethical standard(s)?

All of the answers are correct. - "Refrain from engaging in any conduct that would prejudice carrying out duties ethically." - "Communicate information fairly and objectively." - "Provide all relevant information that could reasonably be expected to influence an intended user's understanding of the reports, analyses, or recommendations."

In a job cost system, manufacturing overhead is

An Indirect Cost of Jobs; A Necessary Element of Production Yes; Yes

An enterprise sells three chemicals: petrol, septine, and tridol. Petrol is the company's most profitable product; tridol is the least profitable. Which one of the following events will definitely decrease the firm's overall breakeven point for the upcoming accounting period?

An increase in anticipated sales of petrol relative to sales of septine and tridol.

Which of the following will result in raising the breakeven point?

An increase in the semivariable cost per unit.

The work-in-process account is

An inventory account indicating the beginning and ending inventory of goods being processed.

Unit fixed costs

Are determined by dividing total fixed costs by a denominator such as production or sales volume.

Controllable costs

Are primarily subject to the influence of a given manager of a given responsibility center for a given time span. Answer (B) is correct. Controllable costs can be changed by action taken at the appropriate management (responsibility) level. Controllability is determined at different levels of the organization and is not inherent in the nature of a given cost. For example, an outlay for new machinery may be controllable to the division vice president but noncontrollable to a plant manager or lower-level manager.

Inventoriable costs

Are regarded as assets before the products are sold.

Bjax Corporation has a separate production line for each of two products: A and B. Product A has a contribution margin of $4 per unit, Product B has a contribution margin of $5 per unit, and the corporation's nonvariable expenses of $200,000 are unchanged regardless of volume. Under these conditions, which of the following statements will always be applicable?

At a sales volume in excess of 25,000 units of A and 25,000 units of B, operations will be profitable.

Costs that increase as the volume of activity decreases within the relevant range are

Average costs per unit.

Integrity is an ethical requirement for all IMA members. One aspect of integrity requires

Avoidance of apparent conflicts of interest.

The completion of Job #21, with total costs of $4,900, results in which of the following entries?

Finished goods $4,900 Work-in-process $4,900

What is the entry to record completion of a particular product or group of products?

Finished goods XXX Work-in-process XXX

The four components of time series data are secular trend, cyclical variation, seasonality, and random variation. The seasonality in the data can be removed by

Taking the weighted average over four time periods.

Assuming two overhead accounts are used, what is the entry to close them and to charge underapplied overhead to cost of goods sold?

Cost of goods sold XXX Manufacturing OH applied XXX Manufacturing OH control XXX

In a manufacturing environment, job cost accounting systems and process cost accounting systems differ in the way

Costs are assigned to production runs and the number of units for which costs are averaged.

Conversion cost pricing

Could be used when the customer furnishes the material used in manufacturing a product.

Which ethical standard is most clearly violated if an IMA member knows of information that could mislead users but does not report the deficiency?

Credibility.

When the amount of overapplied factory overhead is significant, the entry to close overapplied factory overhead will most likely require

Credits to cost of goods sold, finished goods inventory, and work-in-process inventory.

According to the IMA Statement of Ethical Professional Practice, a member has a responsibility to recognize and help manage risk. Under which standard of ethical conduct would this responsibility be included?

Competence.

In accordance with the IMA Statement of Ethical Professional Practice, a member who fails to perform professional duties in accordance with relevant standards is acting contrary to which one of the following standards?

Competence.

Under a job-order system of cost accounting, the dollar amount of the general ledger entry involved in the transfer of inventory from work-in-process to finished goods is the sum of the costs charged to all jobs

Completed during the period.

IMA Statement of Ethical Professional Practice requires an IMA member to follow the established policies of the organization when faced with an ethical conflict. If these policies do not resolve the conflict, the member should

Contact the next higher managerial level if initial presentation to the immediate superior does not resolve the conflict.

Cost-volume-profit (CVP) analysis is a key factor in many decisions, including choice of product lines, pricing of products, marketing strategy, and use of productive facilities. A calculation used in a CVP analysis is the breakeven point. Once the breakeven point has been reached, operating income will increase by the

Contribution margin per unit for each additional unit sold.

The contribution margin per unit is the difference between the selling price and the variable cost per unit, and the contribution margin ratio is the ratio of the unit contribution margin to the selling price per unit. If the selling price and the variable cost per unit both increase 10% and fixed costs do not change, what is the effect on the contribution margin per unit and the contribution margin ratio?

Contribution margin per unit increases, and the contribution margin ratio remains unchanged.

If a product required a great deal of electricity to produce, and crude oil prices increased, which of the following costs most likely increased?

Conversion costs.

The salary of the line supervisor in the assembly division of an automobile company should be included in

Conversion costs.

A company is an automobile replacement parts dealer in a large metropolitan community. The company is preparing its sales forecast for the coming year. Data regarding both the company's and industry sales of replacement parts as well as both the used and new automobile sales in the community for the last 10 years have been accumulated. If the company wants to determine whether its sales of replacement parts are dependent upon the industry sales of replacement parts or upon the sales of used and new automobiles, the company should employ

Correlation and regression analysis.

If $29,000 of manufacturing overhead costs have been incurred and $25,000 of manufacturing overhead has been applied, which of the following entries closes the overhead accounts and prorates the underapplied overhead among the relevant accounts? (Of the $25,000 applied, $2,500 is still in EWIP, and $5,000 is still in finished goods as part of unsold inventory.)

Cost of goods sold $ 2,800 Finished goods 800 Work-in-process 400 Overhead applied 25,000 Overhead control $29,000

If the year's overhead costs incurred are $29,000, and $25,000 in costs have been applied to the product, what is the appropriate closing entry (assuming separate accounts and no proration)?

Cost of goods sold $ 4,000 Overhead applied 25,000 Overhead control $29,000

Jago Co. has two products that use the same manufacturing facilities and cannot be subcontracted. Each product has sufficient orders to utilize the entire manufacturing capacity. For short-run profit maximization, Jago should manufacture the product with the

Greater contribution margin per hour of manufacturing capacity.

A company has always used the full cost of its product as the starting point in the pricing of that product. The price set by competitors and the demand for the company's only product, the Widget, have never been predictable. Lately, the company's market share has been increasing as it continues to lower its price, but total revenues have not changed significantly relative to the gain in sales volume. The likely reason for the stability of total revenues is the

Fixed cost component of the full cost.

The most likely strategy to reduce the breakeven point would be to

Decrease the fixed costs and increase the contribution margin.

Theoretically, cash discounts permitted on purchased raw materials should be

Deducted from inventory, whether taken or not.

A company will produce 20,000 units of product A at a unit variable cost of $7 and a unit selling price of $13. Fixed costs are $40,000. However, the company will still have 40% idle capacity. The company can use this idle capacity to produce 6,000 units of a different product B, which it can sell for $7 per unit. The incremental variable cost of producing a unit of B is $6. Present fixed costs that will be allocated to B amount to $10,000. To decide whether to produce B, the company should use

Differential cost analysis. Answer (A) is correct. Nonroutine decisions involve such questions as whether to make or buy or accept a special order. These decisions should be made in part on the basis of relevant costs. Analysis of differential costs is therefore essential. The difference between the relevant costs of two decision choices is differential (incremental) cost.

In a labor-intensive industry in which more overhead (service, support, more expensive equipment, etc.) is incurred by the more highly skilled and paid employees, what denominator measure is most likely to be appropriate for applying overhead?

Direct labor cost.

In job-order costing, payroll taxes paid by the employer for manufacturing employees are usually accounted for as

Direct labor.

Conversion costs do not include

Direct materials. Answer (B) is correct. Conversion costs are necessary to convert materials into finished products. They include all manufacturing costs, for example, direct labor and manufacturing overhead, other than direct materials.

The advertising and promotion costs for the product selected by Huron will be

Discretionary costs.

If an IMA member has a problem in identifying unethical behavior or resolving an ethical conflict, the first action (s)he should normally take is to

Discuss the problem with his or her immediate superior.

Quality control programs employ many tools for problem definition and analysis. A scatter diagram is one of these tools. The objective of a scatter diagram is to

Display a population of items for analysis.

Practical capacity as a plant capacity concept

Does not consider idle time caused by inadequate sales demand.

The debits in work-in-process are BWIP, direct labor, direct materials, and manufacturing overhead. The account should be credited for production that is completed and sent to finished goods inventory. The balance is

EWIP (debit).

A nonmanufacturing organization may use

Either job-order or process costing.

In preparing a cost-volume-profit analysis for his candle manufacturing business, Joe Stark is considering raising his prices $1.00 per candle. Stark is worried about the impact the increase will have on his revenues from craft fairs. Stark is concerned about the

Elasticity of demand.

T-accounts The ending balance in work-in-process consists of jobs started this period. Overhead is 125% of direct labor, and the direct labor cost component of EWIP is $10,000. How much are EWIP, the direct materials cost component, and the manufacturing overhead component?

Ending WIP Materials Overhead $45,000 $22,500 $12,500

The IMA Statement of Ethical Professional Practice includes a competence standard. It requires an IMA member to

Enhance his or her skills.

Violation of which assumption underlying regression analysis is prevalent in time series analysis?

Error terms are independent.

A regression equation

Estimates the dependent variables.

The denominator of the overhead application rate can be based on one of several production capacities. Which results in the lowest expected over- or underapplied overhead?

Expected capacity.

As part of a risk analysis, an auditor wishes to forecast the percentage growth in next month's sales for a particular plant using the past 30 months' sales results. Significant changes in the organization affecting sales volumes were made within the last 9 months. The most effective analysis technique to use would be

Exponential smoothing.

Which method of measuring the costs to be assigned to products or services uses budgeted rates for direct costs but applies those rates to the actual quantities of the inputs?

Extended costing.

When production levels are expected to increase within a relevant range, what effect would be anticipated with respect to each of the following?

FC per Unit - Decrease VC per Unit - No change

In a traditional job-order cost system, the issuance of indirect materials to a production department increases

Factory overhead control.

In practice, items such as wood screws and glue used in the production of school desks and chairs would most likely be classified as

Factory overhead.

In calculating the breakeven point for a multiproduct company, which of the following assumptions are commonly made when variable costing is used? I. Sales volume equals production volume. II. Variable costs are constant per unit. III. A given sales mix is maintained for all volume changes.

I, II, and III.

Lake Co. has just increased its direct labor wage rates. All other budgeted costs and revenues were unchanged. How did this increase affect Lake's budgeted breakeven point and budgeted margin of safety? BudgetedBudgeted Breakeven PointMargin of Safety

Increase Decrease

Which one of the following costs would be relevant in short-term decision making?

Incremental fixed costs.

For product costing purposes, the cost of production overtime caused by equipment failure that represents idle time plus the overtime premium should be classified as a(n)

Indirect cost.

Common costs are

Indirect costs.

When an organization is operating above the breakeven point, the degree or amount that sales may decline before losses are incurred is called the

Margin of safety.

The controller is responsible for directing the budgeting process. In this role, the controller has significant influence with executive management as individual department budgets are modified and approved. For the current year, the controller was instrumental in the approval of a particular line manager's budget without modification, even though significant reductions were made to the budgets submitted by other line managers. As a token of appreciation, the line manager in question has given the controller a gift certificate for a popular local restaurant. In considering whether or not to accept the certificate, the controller should refer to which section of IMA Statement of Ethical Professional Practice?

Integrity.

Fact Pattern: The data below pertain to the forecasts of XYZ Company for the upcoming year. Total Cost Unit Cost Sales (40,000 units) $1,000,000 $25 Raw materials 160,000 4 Direct labor 280,000 7 Manufacturing overhead: Variable 80,000 2 Fixed 360,000 Selling and general expenses: Variable 120,000 3 Fixed 225,000 In forecasting purchases of inventory for XYZ Company, all of the following are useful except

Internal allocations of costs to different segments of the firm.

What is the nature of work-in-process?

Inventory.

Controllers ordinarily are not responsible for

Investor relations.

Correlation is a term frequently used in conjunction with regression analysis and is measured by the value of the coefficient of correlation, r. The best explanation of the value r is that it

Is a measure of the relative relationship between two variables.

The cost function derived by the simple least squares method

Is linear.

Life-cycle costing

Is sometimes used as a basis for cost planning and product pricing.

A new advertising agency serves a wide range of clients including manufacturers, restaurants, service businesses, department stores, and other retail establishments. The accounting system the advertising agency has most likely adopted for its record keeping in accumulating costs is

Job costing.

A specialty instrument manufacturer is in the process of establishing a cost system. The company produces machines that are unique and distinctive. These machines are produced when purchase requests are received from customers. Although some common parts and sub-assemblies are to be held in inventory, no finished goods inventory is maintained since each purchase request is for a customized specialty instrument. The type of cost accumulation system that would be best suited for this type of environment would be

Job costing.

In job costing, the basic document to accumulate the cost of each order is the

Job-cost sheet.

Companies characterized by the production of heterogeneous products will most likely use which of the following methods for the purpose of averaging costs and providing management with unit cost data?

Job-order costing.

Omaha Sales Company asked for a CPA's assistance in planning the use of multiple regression analysis to predict district sales. An equation has been estimated based upon historical data, and a standard error has been computed. When regression analysis based upon past periods is used to predict for a future period, the standard error associated with the predicted value, in relation to the standard error for the base equation, will be

Larger.

Effective cost capacity management

Matches the firm's resources with market opportunities.

Autocorrelation or serial correlation

Means that observations are not independent.

The auditor wishes to determine if the change in investment income during the current year was due to (a) changes in investment strategy, (b) changes in portfolio mix, or (c) other factors. Which of the following analytical review procedures should the auditor use?

Multiple regression analysis that includes independent variables related to the nature of the investment portfolio and market conditions.

In determining cost behavior in business, the cost function is often expressed as y = a + bx. Which one of the following cost estimation methods should not be used in estimating fixed and variable costs for the equation?

Multiple regression.

During an accounting period, which production account is debited and credited many times?

Neither.

A company has accumulated data for the last 24 months in order to determine if there is an independent variable that could be used to estimate shipping costs. Three possible independent variables being considered are packages shipped, miles shipped, and pounds shipped. The quantitative technique that should be used to determine whether any of these independent variables might provide a good estimate for shipping costs is

Linear regression.

Two companies produce and sell the same product in a competitive industry. Thus, the selling price of the product for each company is the same. Company 1 has a contribution margin ratio of 40% and fixed costs of $25 million. Company 2 is more automated, making its fixed costs 40% higher than those of Company 1. Company 2 also has a contribution margin ratio that is 30% greater than that of Company 1. By comparison, Company 1 will have the <List A> breakeven point in terms of dollar sales volume and will have the <List B> dollar profit potential once the indifference point in dollar sales volume is exceeded. List A List B

Lower Lesser

A firm regressed overhead on units produced over the past year and found a coefficient of determination equal to 0.85 with a U-shaped residual error pattern. It is reasonable to conclude that the relationship between overhead and units produced is

Nonlinear.

Application rates for manufacturing overhead best reflect anticipated fluctuations in sales over a cycle of years when they are computed under the concept of

Normal capacity.

A company uses regression analysis in which monthly advertising expenses are used to predict monthly product sales, both in millions of dollars. The results show a regression coefficient for the independent variable equal to 0.8. This coefficient value indicates that

On average, every additional dollar of advertising results in $0.8 of additional sales.

The following information is available from the records of a manufacturing company that applies manufacturing overhead based on direct labor hours: Estimated overhead cost $500,000 Estimated labor hours 200,000 Actual overhead cost $515,000 Actual labor hours 210,000 Based on this information, manufacturing overhead is

Overapplied by $10,000.

Cox Company found that the differences in product costs resulting from the application of predetermined overhead rates rather than actual overhead rates were immaterial even though actual production was substantially less than planned production. The most likely explanation is that

Overhead was composed chiefly of variable costs.

Which of the following options describes the phases of business cycle, in order of occurrence?

Peak, recession, trough, recovery.

The coefficient of determination, r squared, in a multiple regression equation is the

Percentage of variation in the dependent variable explained by the variation in the independent variables.

The relevance of a particular cost to a decision is determined by

Potential effect on the decision.

Which one of the following categories of cost is most likely not considered a component of fixed factory overhead?

Power.

In using cost-volume-profit analysis to calculate expected unit sales, which of the following should be added to fixed costs in the numerator?

Predicted operating income.

A financial manager has discovered that her company is violating environmental regulations. If her immediate superior is involved, the appropriate action is to

Present the matter to the next higher managerial level.

Management accounting differs from financial accounting in that financial accounting is

Primarily concerned with external financial reporting

Huron Industries has developed two new products but has only enough plant capacity to introduce one product during the current year. The following data will assist management in deciding which product should be selected. Huron's fixed overhead includes rent and utilities, equipment depreciation, and supervisory salaries. Selling and administrative expenses are not allocated to products. Product A Product B Raw materials $ 44.00 $ 36.00 Machining @ $12/hr. 18.00 15.00 Assembly @ $10/hr. 30.00 10.00 Variable overhead @ $8/hr. 36.00 18.00 Fixed overhead @ $4/hr. 18.00 9.00 Total cost $ 146.00 $ 88.00 Suggested selling price $ 169.95 $ 99.98 Actual R&D costs $240,000 $175,000 Proposed advertising and promotion costs $500,000 $350,000 For Huron's Product A, the unit costs for raw materials, machining, and assembly represent

Prime costs.

Companies characterized by the production of basically homogeneous products will most likely use which of the following methods for the purpose of averaging costs and providing management with unit-cost data?

Process costing.

A company is preparing the sales budget for two potential products. Both products require the use of the same manufacturing equipment, which is only available for 60 hours each month. The contribution margin of Product A is $95 per unit, and the contribution margin of Product B is $55 per unit. Product A requires 4 hours of machine time per unit, and Product B requires 2.5 hours per unit. In order to efficiently allocate the equipment resources, the company should manufacture

Product A because it will make better use of the equipment than Product B.

Fact Pattern above Suppose Moorehead has only 100,000 machine hours that can be made available to produce additional units of XY-7 and BD-4. If the potential increase in sales units for either product resulting from advertising is far in excess of this production capacity, which product should be advertised and what is the estimated increase in contribution margin earned?

Product BD-4 should be produced, yielding a contribution margin of $250,000.

All costs related to the manufacturing function in a company are

Product costs.

A review of accounting records for last year disclosed the following selected information: Variable costs: Direct materials used $ 56,000 Direct labor 179,100 Manufacturing overhead 154,000 Selling costs 108,400 Fixed costs: Manufacturing overhead 267,000 Selling costs 121,000 Administrative costs 235,900 In addition, the company suffered a $27,700 uninsured factory fire loss during the year. What were the product costs and period costs for last year?

Product: $656,100 Period: $493,000

Internal auditors must often distinguish between product costs and period costs. Product costs are properly assigned to inventory when incurred. Period costs are always expensed in the same period in which they are incurred. Which of the following items is a product cost for a manufacturing company?

Property taxes on a factory.

What is the journal entry to record the purchase of materials on account?

Raw materials inventory XXX Accounts payable XXX

The manager of the assembly department of a company would like to estimate the fixed and variable components of the department's cost. To do so, the manager has collected information on total cost and output for the past 24 months. To estimate the fixed and variable components of total cost, the manager should use

Regression analysis.

Thompson Company is in the process of preparing its budget for the next fiscal year. The company has had problems controlling costs in prior years and has decided to adopt a flexible budgeting system this year. Many of its costs contain both fixed and variable cost components. A method that can be used to separate costs into fixed and variable components is

Regression analysis.

A company's breakeven point in sales dollars may be affected by equal percentage increases in both selling price and variable cost per unit (assume all other factors are constant within the relevant range). The equal percentage changes in selling price and variable cost per unit will cause the breakeven point in sales dollars to

Remain unchanged.

All of the following would be considered manufacturing overhead costs by a book publisher except

Rent on the warehouse containing the finished books inventory.

Which one of the following is least likely to be an objective of a cost accounting system?

Sales commission determination

There are several alternative denominator measures for applying overhead. Which is not commonly used?

Sales value of product produced.

One of the purposes of standard costs is to

Simplify costing procedures and expedite cost reports.

Annual overhead application rates are used to

Smooth seasonal variability of overhead costs.

The internal auditor of a bank has developed a multiple regression model which has been used for a number of years to estimate the amount of interest income from commercial loans. During the current year, the auditor applies the model and discovers that the r² value has decreased dramatically, but the model otherwise seems to be working okay. Which of the following conclusions are justified by the change?

Some new factors, not included in the model, are causing interest income to change.

What is the journal entry to record Legal Corporation's payment of state unemployment taxes for $600 if the tax has been accrued?

State unemployment taxes payable $600 Cash $600

What is the journal entry for the purchase of $500 of direct materials and $250 of supplies for cash?

Stores control $750 Cash $750

Which of the following nonvalue-added costs associated with manufactured work-in-process inventory is most significant?

The cost of moving, handling, and storing any individual product.

Incremental cost is

The difference in total costs that results from selecting one choice instead of another.

A company increased the selling price of its product from $1.00 to $1.10 a unit when total fixed costs increased from $400,000 to $480,000 and variable cost per unit remained unchanged. How will these changes affect the breakeven point?

The effect cannot be determined from the information given.

An auditor asks accounting personnel how they determine the value of the organization's real estate holdings. They say that valuations are based on a regression model that uses 17 different characteristics of the properties (square footage, proximity to downtown, age, etc.) to predict value. The coefficients of this model were estimated using a random sample of 20 company properties, for which the model produced an r² value of 0.92. Based on this information, which one of the following should the auditor conclude?

The model's high r² is probably due in large part to random chance.

Two basic costing systems for assigning costs to products or services are job costing and process costing. These two costing systems are usually viewed as being on opposite ends of a spectrum. The fundamental criterion employed to determine whether job costing or process costing should be employed is

The nature and amount of the product or service brought to the marketplace for customer consumption.

A company experienced a machinery breakdown on one of its production lines. As a consequence of the breakdown, manufacturing fell behind schedule, and a decision was made to schedule overtime to return manufacturing to schedule. Which one of the following methods is the proper way to account for the overtime paid to the direct laborers?

The overtime hours times the overtime premium would be charged to manufacturing overhead, and the overtime hours times the straight-time wages would be treated as direct labor.

An assembly plant accumulates its variable and fixed manufacturing overhead costs in a single cost pool, which is then applied to work in process using a single application base. The assembly plant management wants to estimate the magnitude of the total manufacturing overhead costs for different volume levels of the application activity base using a flexible budget formula. If there is an increase in the application activity base that is within the relevant range of activity for the assembly plant, which one of the following relationships regarding variable and fixed costs is true?

The variable cost per unit and the total fixed costs remain constant.

Which one of the following costs is classified as a period cost?

The wages of the workers on the shipping docks who load completed products onto outgoing trucks.

To facilitate planning and budgeting, management of a travel service company wants to develop forecasts of monthly sales for the next 24 months. Based on past data, management has observed an upward trend in the level of sales. There are also seasonal variations with high sales in June, July, and August, and low sales in January, February, and March. An appropriate technique for forecasting the company's sales is

Time series analysis.

Breakeven quantity is defined as the volume of output at which revenues are equal to

Total costs.

Which one of the following is true regarding a relevant range?

Total fixed costs will not change.

What are the four components of a time series?

Trend, cyclical, seasonal, and irregular.

Joint costs are costs of

Two or more products produced from a common process. Answer (D) is correct. Joint costs are the common costs of producing two or more inseparable products up to the point at which they become separable (the split-off point). The products are then sold as identifiably separate products or are processed further.

To determine the best cost driver of warranty costs relating to glass breakage during shipments, Wymer Co. used simple linear regression analysis to study the relationship between warranty costs and each of the following variables: type of packaging, quantity shipped, type of carrier, and distance shipped. The analysis yielded the following statistics:IndependentCoefficient ofStandard ErrorVariableDeterminationof RegressionType of packaging 0.60 1,524 Quantity shipped 0.48 1,875 Type of carrier 0.45 2,149 Distance shipped 0.20 4,876 Based on these analyses, the best driver of warranty costs for glass breakage is

Type of packaging.

If the fixed costs attendant to a product increase while variable costs and sales price remain constant, what will happen to contribution margin (CM) and breakeven point (BEP)? CM BEP

Unchanged Increase

Mason Co. uses a job-order cost system and applies manufacturing overhead to jobs using a predetermined overhead rate based on direct-labor dollars. The rate for the current year is 200% of direct-labor dollars. This rate was calculated last year and will be used throughout the current year. Mason had one job, No. 150, in process at the beginning of the month with raw materials costs of $2,000 and direct-labor costs of $3,000. During the month, raw materials and direct labor added to jobs were as follows: No. 150 No. 151 No. 152 Raw materials $ -- $4,000 $1,000 Direct labor 1,500 5,000 2,500 Actual manufacturing overhead for the month was $20,000. During the month, Mason completed Job Nos. 150 and 151. For the month, manufacturing overhead was

Underapplied by $2,000.

The method of cost accounting that lends itself to breakeven analysis is

Variable costing.

The difference between variable costs and fixed costs is

Variable costs per unit are fixed over the relevant range and fixed costs per unit are variable.

All of the following are assumptions of cost-volume-profit analysis except

Variable costs per unit change proportionately with volume.

Depreciation based on the number of units produced is classified as what type of cost?

Variable.

ABC Company estimates its total vacation costs for the year to be $360,000. Direct labor costs are $180,000 monthly, and indirect labor costs are $45,000. ABC has chosen to accrue vacation costs monthly instead of recognizing them as incurred. Select the journal entry to record payroll and accrue the estimated vacation costs for the month of January.

Work-in-process $180,000 Manufacturing OH control 75,000 Est. liability for vacation pay $ 30,000 Accrued payroll 225,000

What is the journal entry to record the application of $500 of indirect labor when two overhead accounts are used?

Work-in-process $500 Overhead applied $500

Ajax Candy Company has a gross payroll of $75,000 per month consisting of $65,000 of direct labor and $10,000 of indirect manufacturing labor. Assume that the tax rate on employers is .8% for federal unemployment, 1.55% for state unemployment, and 7.65% for Social Security benefits, a total payroll tax rate of 10%. What is the journal entry to accrue the monthly payroll and payroll taxes?

Work-in-process $65,000 Manufacturing OH control 17,500 Accrued payroll $75,000 Employer payroll taxes payable 7,500

A company manufactures pipes and uses a job-order costing system. During May, the following jobs were started (no other jobs were in process) and the following costs were incurred: Job XJob YJob ZTotalDirect materials requisitioned$10,000$20,000$15,000$45,000Direct labor5,0004,0002,50011,500 $15,000$24,000$17,500$56,500In addition, manufacturing overhead of $300,000 and direct labor costs of $150,000 were estimated to be incurred during the year. Actual overhead of $24,000 was incurred in May; overhead is applied on the basis of direct labor dollars. If only Job X and Job Z were completed during the month, the appropriate entry to record the initiation of all jobs would be

Work-in-process $79,500 Direct materials $45,000 Direct labor 11,500 Applied man. overhead 23,000

Fact Pattern: Armer Company is accumulating data to be used in preparing its annual profit plan for the coming year. The cost behavior pattern of the maintenance costs must be determined. The accounting staff has suggested that linear regression be employed to derive an equation in the form of y = a + bx for maintenance costs. Data regarding the maintenance hours and costs for last year and the results of the regression analysis are as follows: Hours of Activity Maintenance Costs January 480 $ 4,200 February 320 3,000 March 400 3,600 April 300 2,820 May 500 4,350 July 320 3,030 August 520 4,470 September 490 4,260 October 470 4,050 November 350 3,300 December 340 3,160 Sum 4,800 $43,200 Average 400 3,600 Average cost per hour (43,200 ÷ 4,800) = $9 a coefficient 684.65 b coefficient 7.2884 Standard error of the a coefficient 49.515 Standard error of the b coefficient .12126 Standard error of the estimate 34.469 r² .99724 t-value a 13.827 t-value b 60.105 Single-Tailed Values of t Degrees of Freedom t.100 t.05 t.025 t.01 8 1.40 1.86 2.31 2.90 9 1.38 1.83 2.26 2.82 10 1.37 1.81 2.23 2.76 11 1.36 1.80 2.20 2.72 12 1.36 1.78 2.18 2.68 13 1.35 1.77 2.16 2.65 14 1.35 1.76 2.15 2.62 Question: 69 Assume the t-value of b is 3.0 and maintenance costs are expected to increase as hours of activity increase. If the null hypothesis is that b is zero, is the estimate of b significantly different from zero?

Yes, with 95% confidence.

Which equation represents the least squares estimates of the relationship between variables? Let ^ denote a least squares estimate of a value.

^y = ^a +^bx

Fact Pattern: The usual formula for the simple regression equation is y = a + bx + e. The error term is

e

The statistic used to determine whether the estimate of the slope is significantly different from zero is the

t-value of b.

If Armer Company uses the high-low method of analysis, the equation for the relationship between hours of activity and maintenance cost is

y = 570 + 7.5x

Monthly production costs can be expressed

y = a + bx

Simple linear regression is a method applied when the underlying relationship between two variables is believed to be linear. The least squares process estimates this hypothesized true relationship by minimizing the sum of squared errors of the observations in a sample about a fitted line. Which equation represents the underlying true relationship between variables?

y = a + bx + e

Fact Pattern: Below is an examination of last year's financial statements of MacKenzie Park Co., which manufactures and sells trivets. Labor hours and production costs for the last 4 months of the year, which are representative for the year, were as follows:MonthLabor HoursTotal Production CostsSeptember2,500$ 20,000October3,50025,000November4,50030,000December3,50025,000Total14,000$100,000Based upon the information given and using the least squares method of computation with the letters listed below, select the best answer for each question.If:a = Fixed production costs per month b = Variable production costs per labor hour n = Number of months x = Labor hours per month y = Total monthly production costs ∑ = Summation Question: 62The equation(s) required for applying the least squares method of computation of fixed and variable production costs can be expressed as

∑xy = a∑x + b∑x² ∑y = na + b∑x

The coefficient of correlation for Armer's regression equation for the maintenance activities is

√ .99724