Exam 1

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Condensed monthly operating income data for Korbin, Inc., for May follows:UrbanSuburbanStoreStoreTotalSales$80,000$120,000$200,000Variable costs32,00084,000116,000Contribution margin$48,000$ 36,000$ 84,000Direct fixed costs20,00040,00060,000Store segment margin$28,000$ (4,000)$ 24,000Common fixed cost4,0006,00010,000Operating income$24,000$ (10,000)$ 14,000Additional information regarding Korbin's operations follows:•One-fourth of each store's direct fixed costs would continue if either store is closed.•Korbin allocates common fixed costs to each store on the basis of sales dollars.•Management estimates that closing the Suburban Store would result in a 10% decrease in the Urban Store's sales, while closing the Urban Store would not affect the Suburban Store's sales.•The operating results for May are representative of all months. One-half of the Suburban Store's dollar sales are from items sold at variable cost to attract customers to the store. Korbin is considering the deletion of these items, a move that would reduce the Suburban Store's direct fixed expenses by 15% and result in a 20% loss of Suburban Store's remaining sales volume. This change would not affect the Urban Store. A decision by Korbin to eliminate the items sold at cost would result in a monthly increase (decrease) in Korbin's operating income of

$(1,200)

Condensed monthly operating income data for Korbin, Inc., for May follows:UrbanSuburbanStoreStoreTotalSales$80,000$120,000$200,000Variable costs32,00084,000116,000Contribution margin$48,000$ 36,000$ 84,000Direct fixed costs20,00040,00060,000Store segment margin$28,000$ (4,000)$ 24,000Common fixed cost4,0006,00010,000Operating income$24,000$ (10,000)$ 14,000Additional information regarding Korbin's operations follows:•One-fourth of each store's direct fixed costs would continue if either store is closed.•Korbin allocates common fixed costs to each store on the basis of sales dollars.•Management estimates that closing the Suburban Store would result in a 10% decrease in the Urban Store's sales, while closing the Urban Store would not affect the Suburban Store's sales.•The operating results for May are representative of all months. Korbin is considering a promotional campaign at the Suburban Store that would not affect the Urban Store. Increasing annual promotional expense at the Suburban Store by $60,000 in order to increase this store's sales by 10% would result in a monthly increase (decrease) in Korbin's operating income during the year (rounded) of

$(1,400)

Condensed monthly operating income data for Korbin, Inc., for May follows:UrbanSuburbanStoreStoreTotalSales$80,000$120,000$200,000Variable costs32,00084,000116,000Contribution margin$48,000$ 36,000$ 84,000Direct fixed costs20,00040,00060,000Store segment margin$28,000$ (4,000)$ 24,000Common fixed cost4,0006,00010,000Operating income$24,000$ (10,000)$ 14,000Additional information regarding Korbin's operations follows:•One-fourth of each store's direct fixed costs would continue if either store is closed.•Korbin allocates common fixed costs to each store on the basis of sales dollars.•Management estimates that closing the Suburban Store would result in a 10% decrease in the Urban Store's sales, while closing the Urban Store would not affect the Suburban Store's sales.•The operating results for May are representative of all months. A decision by Korbin to close the Suburban Store would result in a monthly increase (decrease) in Korbin's operating income of

$(10,800)

The Ashley Co. manufactures and sells a household product marketed through direct mail and advertisements in home improvement and gardening magazines. Although similar products are available in hardware and department stores, none are as effective as Ashley's model. The company uses a standard cost system in its manufacturing accounting. The standards have not undergone a thorough review in the past 18 months. The general manager has seen no need for such a review because The materials quality and unit costs were fixed by a 3-year purchase commitment signed in July, Year 1.A 3-year labor contract had been signed in July, Year 1.There have been no significant variations from standard costs for the past three quarters. Assume that the first quarter factory costs incurred reflect the anticipated costs for the ACTION special purchase. What is the expected variable overhead cost per unit?

$.66

The Ashley Co. manufactures and sells a household product marketed through direct mail and advertisements in home improvement and gardening magazines. Although similar products are available in hardware and department stores, none are as effective as Ashley's model. The company uses a standard cost system in its manufacturing accounting. The standards have not undergone a thorough review in the past 18 months. The general manager has seen no need for such a review because The materials quality and unit costs were fixed by a 3-year purchase commitment signed in July, Year 1. A 3-year labor contract had been signed in July, Year 1. There have been no significant variations from standard costs for the past three quarters. Assume that the manufacturing costs incurred in the first quarter reflect the anticipated costs for the ACTION special purchase. What is the expected materials cost per unit?

$.83

A company has two support departments, Power and Maintenance, and two production departments, Machining and Assembly. All costs are regarded as strictly variable. For September, the following information is available: If the company uses the direct method for allocating support department costs to production departments, what dollar amount of Power Department cost will be allocated to the Maintenance Department for September?

$0

Barnes Company has two support departments and three production departments, each producing a separate product. For a number of years, Barnes has allocated the costs of the support departments to the production departments on the basis of the annual sales revenue dollars. In a recent audit report, the internal auditor stated that the distribution of support department costs on the basis of annual sales dollars would lead to support inequities. The auditor recommended that maintenance and engineering hours be used as a better support cost allocation basis. For illustrative purposes, the following information was appended to the audit report: Assume that maintenance costs are allocated first because the Maintenance Department provides a greater percentage of its total support to the other support department. Using the step-down method of cost allocation, what amount of engineering costs is allocated to the Maintenance Department?

$0

Earl Corporation manufactures a product that gives rise to a by-product called Zafa. The only costs associated with Zafa are selling costs of $1 for each unit sold. Earl accounts for Zafa sales first by deducting its separable costs from such sales and then by deducting this net amount from cost of sales of the major product. This year, 1,000 units of Zafa were sold at $4 each. If Earl records Zafa inventory at net realizable value as it is produced this year, what is the profit recognized next year on a sale of 500 units?

$0

The following information pertains to a by-product called Moy: Sales for the month 5,000 units Selling price per unit $6 Selling costs per unit $2 Processing costs $0 Inventory of Moy was recorded at net realizable value when produced in the previous month. No units of Moy were produced in the month just ended. What amount should be recognized as profit on Moy's sales?

$0

Zeta Company is preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of overhead that should be allocated to the individual product lines from the information given in the next column: Wall Specialty Mirrors Windows Units produced 25 25 Material moves per product line 5 15 Direct labor hours per unit 200 200 Budgeted materials handling costs $50,000 Under a costing system that allocates overhead on the basis of direct labor hours, Zeta Company's materials handling costs allocated to one unit of wall mirrors would be

$1,000

Kator Co. is a manufacturer of industrial components. One of their products that is used as a subcomponent in auto manufacturing is KB-96. This product has the following financial structure per unit:Selling price $150Direct materials$ 20Direct labor15Variable manufacturing overhead 12Fixed manufacturing overhead30Shipping and handling3Fixed selling and administrative10Total costs$ 90 During the next year, KB-96 sales are expected to be 10,000 units. All of the costs will remain the same except that fixed manufacturing overhead will increase by 20% and direct materials will increase by 10%. The selling price per unit for next year will be $160. Based on this data, the contribution margin from KB-96 for next year will be

$1,080,000

A company has identified the following overhead costs and cost drivers for the coming year:Overhead ItemCost DriverBudgeted CostBudgeted Activity LevelMachine setupNumber of setups$ 20,000200InspectionNumber of inspections130,0006,500Material handlingNumber of material moves80,0008,000EngineeringEngineering hours50,0001,000Total$280,000The following information was collected on three jobs that were completed during the year: Job 101Job 102Job 103Direct materials$5,000$12,000$8,000Direct labor$2,000$ 2,000$4,000Units completed10050200Number of setups124Number of inspections201030Number of material moves301050Engineering hours105010Budgeted direct labor cost was $100,000, and budgeted direct material cost was $280,000. If the company uses activity-based costing, how much overhead cost should be assigned to Job 101?

$1,300

A tailor estimates that 60,000 special zippers will be used in the manufacture of men's jackets during the next year. A zipper supplier has quoted a price of $.60 per zipper. The tailor would prefer to purchase 5,000 units per month, but the supplier is unable to guarantee this delivery schedule. To ensure availability of these zippers, the tailor is considering the purchase of all 60,000 units at the beginning of the year. Assuming the tailor can invest cash at 8%, the tailor's opportunity cost of purchasing the 60,000 units at the beginning of the year is

$1,320

Barnes Company has two support departments and three production departments, each producing a separate product. For a number of years, Barnes has allocated the costs of the support departments to the production departments on the basis of the annual sales revenue dollars. In a recent audit report, the internal auditor stated that the distribution of support department costs on the basis of annual sales dollars would lead to support inequities. The auditor recommended that maintenance and engineering hours be used as a better support cost allocation basis. For illustrative purposes, the following information was appended to the audit report: Assume that maintenance costs are allocated first because the Maintenance Department provides a greater percentage of its total support to the other support department. Using the step-down method of cost allocation, what amount of maintenance cost is allocated to Department B?

$1,500

The T-accounts below provide selected data about a company's financial results for the year. The amount of over- (under-) applied overhead is

$1,500

A company produces two main products and a by-product out of a joint process. The ratio of output quantities to input quantities of direct material used in the joint process remains consistent from month to month. The company has employed the physical-volume method to allocate joint production costs to the two main products. The net realizable value of the by-product is used to reduce the joint production costs before the joint costs are allocated to the main products. Data regarding the company's operations for the current month are presented in the chart below. During the month, the company incurred joint production costs of $2,520,000. The main products are not marketable at the split-off point and, thus, have to be processed further. First Second Main Main Product Product By-Product Monthly output in pounds 90,000 150,000 60,000 Selling price per pound $30 $14 $2 Separable process costs $540,000 $660,000 The amount of joint production cost that the company would allocate to the Second Main Product by using the physical-volume method to allocate joint production costs would be

$1,500,000

Alaire Corporation manufactures several different types of printed circuit boards; however, two of the boards account for the majority of the company's sales. The first of these boards, a television (TV) circuit board, has been a standard in the industry for several years. The market for this type of board is competitive and therefore price-sensitive. Alaire plans to sell 65,000 of the TV boards next year at a price of $150 per unit. The second high-volume product, a personal computer (PC) circuit board, is a recent addition to Alaire's product line. Because the PC board incorporates the latest technology, it can be sold at a premium price; plans include the sale of 40,000 PC boards at $300 per unit. On the basis of activity-based costs, the total contribution budgeted for the PC board is

$1,594,000

A company manufactures a product that is sold for $37.95. It uses an absorption cost system. Plant capacity is 750,000 units annually, but normal volume is 500,000 units. Costs at normal volume are given below. Unit Cost Total Cost Direct materials $ 9.80 $ 4,900,000 Direct labor 4.50 2,250,000 Manufacturing overhead 12.00 6,000,000 Selling and administrative: Variable 2.50 1,250,000 Fixed 4.20 2,100,000 Total cost $33.00 $16,500,000 Fixed manufacturing overhead is budgeted at $4,500,000. A customer has offered to purchase 100,000 units at $25.00 each to be packaged in large cartons, not the normal individual containers. It will pick up the units in its own trucks. Thus, variable selling and administrative expenses will decrease by 60%. The company should compare the total revenue to be derived from this order with the total relevant costs of

$1,830,000

Alaire Corporation manufactures several different types of printed circuit boards; however, two of the boards account for the majority of the company's sales. The first of these boards, a television (TV) circuit board, has been a standard in the industry for several years. The market for this type of board is competitive and therefore price-sensitive. Alaire plans to sell 65,000 of the TV boards next year at a price of $150 per unit. The second high-volume product, a personal computer (PC) circuit board, is a recent addition to Alaire's product line. Because the PC board incorporates the latest technology, it can be sold at a premium price; plans include the sale of 40,000 PC boards at $300 per unit. On the basis of standard costs, the total contribution budgeted for the TV board is

$1,950,000

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

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 managers of Rochester Manufacturing are discussing ways to allocate the cost of service departments, such as Quality Control and Maintenance, to the production departments. To aid them in this discussion, the controller has provided the following information: If Rochester uses the step-down method of allocating service costs beginning with quality control, the maintenance costs allocated to the assembly department would be

$108,000

Framar, Inc., manufactures machinery to customer specifications. It operated at about 75% of practical capacity during the year. The operating results for the most recent fiscal year are presented below. What is the lowest price Framar can charge for this machinery without reducing its net income after taxes?

$113,333

A company has two support departments, Power and Maintenance, and two production departments, Machining and Assembly. All costs are regarded as strictly variable. For September, the following information is available: Support Departments Production Departments PowerMaintenance Machining Assembly Direct costs $62,500 $40,000 $25,000 $15,000 Actual activity: Kilowatt hrs. 50,000 150,000 50,000 Maintenance hours 250 1,125 1,125 Assume the company uses the sequential or step method for allocating support department costs to production departments. The company begins with the support department that receives the least support from other support departments. What dollar amount of Power Department costs will be allocated to the Maintenance Department for September?

$12,500

Jenco, Inc., manufactures a combination fertilizer and weedkiller under the name Fertikil. This is the only product Jenco produces. Fertikil is sold nationwide through normal marketing channels to retail nurseries and garden stores. Taylor Nursery plans to sell a similar fertilizer and weedkiller compound through its regional nursery chain under its own private label. Taylor has asked Jenco to submit a bid for a 25,000-pound order of the private brand compound. Although the chemical composition of the Taylor compound differs from Fertikil, the manufacturing process is very similar. What is the total direct labor cost for recurring 25-lot orders, assuming that 60% of each order can be completed during regular hours?

$12,600

Jenco, Inc., manufactures a combination fertilizer and weedkiller under the name Fertikil. This is the only product Jenco produces. Fertikil is sold nationwide through normal marketing channels to retail nurseries and garden stores. Taylor Nursery plans to sell a similar fertilizer and weedkiller compound through its regional nursery chain under its own private label. Taylor has asked Jenco to submit a bid for a 25,000-pound order of the private brand compound. Although the chemical composition of the Taylor compound differs from Fertikil, the manufacturing process is very similar. If Jenco bids this month for the special one-time order of 25,000 pounds, the total direct labor cost is

$12,950

The managers of Rochester Manufacturing are discussing ways to allocate the cost of service departments, such as Quality Control and Maintenance, to the production departments. To aid them in this discussion, the controller has provided the following information: If Rochester decides not to allocate service costs to the production departments, the overhead allocated to each direct labor hour in the Assembly Department would be

$12.00

The Power and Maintenance Departments of a manufacturing company are support departments that provide support to each other as well as to the organization's two production departments, Plating and Assembly. The manufacturing company employs separate departmental manufacturing overhead rates for the two production departments requiring the allocation of the support department costs to the two manufacturing departments. Square footage of area served is used to allocate the Maintenance Department costs, and percentage of power usage is used to allocate the Power Department costs. Department costs and operating data are as follows: Assume that the manufacturing company employs the step-down allocation method to allocate support department costs. If it allocates the cost of the Maintenance Department first, then the amount of the Maintenance Department's costs that are directly allocated to the Plating Department would be

$120,000

National Industries is a diversified corporation with separate and distinct operating divisions. Each division's performance is evaluated on the basis of total dollar profits and return on divisional investment. The WindAir Division manufactures and sells air-conditioning units. The coming year's budgeted income statement, based upon a sales volume of 15,000 units, appears below. What is the effect on WindAir's net income if it acquires the compressors from an outside source and reduces the price by 5%?

$132,000

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

$135,750

Longstreet Company's Photocopying Department provides photocopy services for both Departments A and B and has prepared its total budget using the following information for next year: Fixed costs $100,000 Available capacity 4,000,000 pages Budgeted usage Department A 1,200,000 pages Department B 2,400,000 pages Variable cost $0.03 per page Assume that Longstreet uses the single-rate method of cost allocation and the allocation base is budgeted usage. How much photocopying cost will be allocated to Department B in the budget year?

$138,667

Barnes Company has two support departments and three production departments, each producing a separate product. For a number of years, Barnes has allocated the costs of the support departments to the production departments on the basis of the annual sales revenue dollars. In a recent audit report, the internal auditor stated that the distribution of support department costs on the basis of annual sales dollars would lead to support inequities. The auditor recommended that maintenance and engineering hours be used as a better support cost allocation basis. For illustrative purposes, the following information was appended to the audit report: Assume that maintenance costs are allocated first because the Maintenance Department provides a greater percentage of its total support to the other support department. Using the step-down method of cost allocation, what amount of engineering cost is allocated to Department C?

$14,250

The managers of Rochester Manufacturing are discussing ways to allocate the cost of service departments, such as Quality Control and Maintenance, to the production departments. To aid them in this discussion, the controller has provided the following information: Using the direct method, the total amount of overhead allocated to each machine hour at Rochester would be

$15.65

The managers of Rochester Manufacturing are discussing ways to allocate the cost of service departments, such as Quality Control and Maintenance, to the production departments. To aid them in this discussion, the controller has provided the following information: If Rochester uses the direct method of allocating service department costs, the total service costs allocated to the assembly department would be

$167,500

Doe Corporation grows, processes, cans, and sells three main pineapple products - sliced pineapple, crushed pineapple, and pineapple juice. The outside skin is cut off in the Cutting Department and processed as animal feed. The skin is treated as a by-product. Doe's production process is as follows: Pineapples first are processed in the Cutting Department. The pineapples are washed, and the outside skin is cut away. Then the pineapples are cored and trimmed for slicing. The three main products (sliced, crushed, juice) and the by-product (animal feed) are recognizable after processing in the Cutting Department. Each product is then transferred to a separate department for final processing. The trimmed pineapples are forwarded to the Slicing Department where they are sliced and canned. Any juice generated during the slicing operation is packed in the cans with the slices. The pieces of pineapple trimmed from the fruit are diced and canned in the Crushing Department. Again, the juice generated during this operation is packed in the can with the crushed pineapple. The core and surplus pineapple generated from the Cutting Department are pulverized into a liquid in the Juicing Department. An evaporation loss equal to 8% of the weight of the good output produced in this department occurs as the juices are heated. The outside skin is chopped into animal feed in the Feed Department. The Doe Corporation uses the net-realizable-value (relative sales-value) method to assign costs of the joint process to its main products. The by-product is inventoried at its net realizable value. The NRV of the by-product reduces the joint costs of the main products. A total of 270,000 pounds entered the Cutting Department during May. The schedule below shows the costs incurred in each department, the proportion by weight transferred to the four final processing departments, and the selling price of each product. Doe uses the net-realizable-value method of determining inventory values for all products and by-products. How much of the joint costs is allocated to crushed pineapple?

$17,980

Jenco, Inc., manufactures a combination fertilizer and weedkiller under the name Fertikil. This is the only product Jenco produces. Fertikil is sold nationwide through normal marketing channels to retail nurseries and garden stores. Taylor Nursery plans to sell a similar fertilizer and weedkiller compound through its regional nursery chain under its own private label. Taylor has asked Jenco to submit a bid for a 25,000-pound order of the private brand compound. Although the chemical composition of the Taylor compound differs from Fertikil, the manufacturing process is very similar. If Jenco bids this month for the special one-time order of 25,000 pounds of the private brand, the special order's total direct materials cost is

$18,425

Doe Corporation grows, processes, cans, and sells three main pineapple products - sliced pineapple, crushed pineapple, and pineapple juice. The outside skin is cut off in the Cutting Department and processed as animal feed. The skin is treated as a by-product. Doe's production process is as follows: Pineapples first are processed in the Cutting Department. The pineapples are washed, and the outside skin is cut away. Then the pineapples are cored and trimmed for slicing. The three main products (sliced, crushed, juice) and the by-product (animal feed) are recognizable after processing in the Cutting Department. Each product is then transferred to a separate department for final processing. The trimmed pineapples are forwarded to the Slicing Department where they are sliced and canned. Any juice generated during the slicing operation is packed in the cans with the slices. The pieces of pineapple trimmed from the fruit are diced and canned in the Crushing Department. Again, the juice generated during this operation is packed in the can with the crushed pineapple. The core and surplus pineapple generated from the Cutting Department are pulverized into a liquid in the Juicing Department. An evaporation loss equal to 8% of the weight of the good output produced in this department occurs as the juices are heated. The outside skin is chopped into animal feed in the Feed Department. The Doe Corporation uses the net-realizable-value (relative sales-value) method to assign costs of the joint process to its main products. The by-product is inventoried at its net realizable value. The NRV of the by-product reduces the joint costs of the main products. A total of 270,000 pounds entered the Cutting Department during May. The schedule below shows the costs incurred in each department, the proportion by weight transferred to the four final processing departments, and the selling price of each product. Doe uses the net-realizable-value method of determining inventory values for all products and by-products. May Processing Data and Costs Proportion of Product by Selling Price per Pound Department Costs Incurred Weight Transferred to Departments of Final Product Cutting $60,000 -- None Slicing 4,700 35% $.60 Crushing 10,580 28 .55 Juicing 3,250 27 .30 Animal Feed 700 10 .10 Total $79,230 100% What is the total amount of separable costs for the three main products?

$18,530

Sonimad Sawmill manufactures two lumber products from a joint milling process. The two products developed are mine support braces (MSB) and unseasoned commercial building lumber (CBL). A standard production run incurs joint costs of $300,000 and results in 60,000 units of MSB and 90,000 units of CBL. Each MSB sells for $2 per unit, and each CBL sells for $4 per unit. Assuming no further processing work is done after the split-off point, the amount of joint cost allocated to commercial building lumber (CBL) on a physical quantity allocation basis would be

$180,000

An assisted-living facility provides services in the form of residential space, meals, and other occupant assistance (OOA) to its occupants. The facility currently uses a traditional cost accounting system that charges each occupant a daily rate equal to the facility's annual cost of providing residential space, meals, and OOA divided by total occupant days. However, an activity-based costing (ABC) analysis has revealed that occupants' use of OOA varies substantially. This analysis determined that occupants could be grouped into three categories (low, moderate, and high usage of OOA) and that the activity driver of OOA should be nursing hours. The driver of the residential space and meals is occupant days. The following quantitative information was also provided: OccupantCategory AnnualOccupantDays AnnualNursingHours Low usage 36,000 90,000 Medium usage 18,000 90,000 High usage 6,000 120,000 60,000 300,000 The total annual cost of OOA was $7.5 million, and the total annual cost of providing residential space and meals was $7.2 million. Accordingly, the ABC analysis indicates that the daily costing rate for providing residential space, meals, and OOA should be

$182.50 for occupants in the low-usage category.

Regis Company manufactures plugs used in its manufacturing cycle at a cost of $36 per unit that includes $8 of fixed overhead. Regis needs 30,000 of these plugs annually, and Orlan Company has offered to sell these units to Regis at $33 per unit. If Regis decides to purchase the plugs, $60,000 of the annual fixed overhead applied will be eliminated, and the company may be able to rent the facility previously used for manufacturing the plugs. If the plugs are purchased and the facility rented, Regis Company wishes to realize $100,000 in savings annually. To achieve this goal, the minimum annual rent on the facility must be

$190,000

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. 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.

Briar Co. signed a government construction contract providing for a formula price of actual cost plus 10%. In addition, Briar was to receive one-half of any savings resulting from the formula price's being less than the target price of $2.2 million. Briar's actual costs incurred were $1,920,000. How much should Briar receive from the contract?

$2,156,000

Alaire Corporation manufactures several different types of printed circuit boards; however, two of the boards account for the majority of the company's sales. The first of these boards, a television (TV) circuit board, has been a standard in the industry for several years. The market for this type of board is competitive and therefore price-sensitive. Alaire plans to sell 65,000 of the TV boards next year at a price of $150 per unit. The second high-volume product, a personal computer (PC) circuit board, is a recent addition to Alaire's product line. Because the PC board incorporates the latest technology, it can be sold at a premium price; plans include the sale of 40,000 PC boards at $300 per unit. On the basis of standard costs, the total contribution budgeted for the PC board is

$2,360,000

Alaire Corporation manufactures several different types of printed circuit boards; however, two of the boards account for the majority of the company's sales. The first of these boards, a television (TV) circuit board, has been a standard in the industry for several years. The market for this type of board is competitive and therefore price-sensitive. Alaire plans to sell 65,000 of the TV boards next year at a price of $150 per unit. The second high-volume product, a personal computer (PC) circuit board, is a recent addition to Alaire's product line. Because the PC board incorporates the latest technology, it can be sold at a premium price; plans include the sale of 40,000 PC boards at $300 per unit. On the basis of activity-based costing (ABC), the total contribution budgeted for the TV board is

$2,557,100

Ignore taxes when answering this question. ABC Company produces and sells a single product called Kleen. Annual production capacity is 100,000 machine hours. It takes 1 machine hour to produce a unit of Kleen. Annual demand for Kleen is expected to remain at 80,000 units. The selling price is expected to remain at $10 per unit. Cost data for producing and selling Kleen are presented to the right: ABC Company has 2,000 units of Kleen that were partially damaged in storage. It can sell these units through regular channels at reduced prices. These 2,000 units will be valueless unless sold this way. Sale of these units will not affect regular sales of Kleen. The relevant unit cost for determining the minimum selling price for these units is

$2.00

Factory Company makes two products, X and Z. X is being introduced this period, and Z has been in production for 2 years. For the period about to begin, 1,000 units of each product are to be manufactured. Assume that the only relevant overhead item is the cost of engineering change orders; that X and Z are expected to require eight and two change orders, respectively; that X and Z are expected to require 2 and 3 machine hours, respectively; and that the cost of a change order is $600. If Factory applies engineering change order costs on the basis of machine hours, the cross-subsidy per unit arising from this peanut-butter costing approach is

$2.40

A company manufactures components for use in producing one of its finished products. When 12,000 units are produced, the full cost per unit is $35, separated as follows: Direct materials $ 5 Direct labor 15 Variable overhead 10 Fixed overhead 5 A supplier has offered to sell 12,000 components to the company for $37 each. If the company accepts the offer, some of the facilities currently being used to manufacture the components can be rented as warehouse space for $40,000. However, $3 of the fixed overhead currently applied to each component would have to be covered by the company's other products. What is the differential cost to the company of purchasing the components from the supplier?

$20,000

In a lean accounting environment, a company accepts a special order to make 200 units of a product each month for the next 2 months for $130 per unit. The company normally sells the unit for $170 per unit with variable costs per unit at $80. The company plans to use excess capacity. By what amount would this special order increase profit?

$20,000

National Industries is a diversified corporation with separate and distinct operating divisions. Each division's performance is evaluated on the basis of total dollar profits and return on divisional investment. The WindAir Division manufactures and sells air-conditioning units. The coming year's budgeted income statement, based upon a sales volume of 15,000 units, appears below. What is WindAir's current unit contribution margin on air conditioners?

$200

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 30,000Factory supervisors 90,000 Materials Used Metal wire$500,000Lubricant for oiling machinery 10,000 Plastic coating 380,000 Blum's year-end direct labor amounted to

$200,000

Lowe Co. manufactures products A and B from a joint process. Sales value at split-off was $700,000 for 10,000 units of A and $300,000 for 15,000 units of B. Using the sales value at split-off approach, joint costs properly allocated to A were $140,000. Total joint costs were

$200,000

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. The cost of completed Job 101 is

$215,200

Fabricating and Finishing are the two production departments of Ewell Company. Building Operations and Information Services are service departments that provide support to the two production departments as well as to each other. Ewell uses departmental overhead rates in the two production departments to allocate the service department costs to the production departments. Square footage is used to allocate Building Operations, and computer time is used to allocate Information Services. The costs of the service departments and relevant operating data for the departments are as follows:Building Information OperationsServices Fabricating FinishingCosts:Labor and benefit costs$200,000$ 300,000Other traceable costs350,000900,000Total$550,000$1,200,000Operating Data:Square feet occupied5,00010,00016,00024,000Computer time (in hours)2001,200600 If Ewell employs the direct method to allocate the costs of the service departments, then the amount of Building Operations costs allocated to Fabricating would be

$220,000

Pickett Manufacturing uses a joint production process that produces three products at the split-off point. Joint production costs during April were $720,000. Product information for April was as follows:ProductRSTUnits produced2,5005,0007,500Units sold2,0006,0007,000Sales prices:At split-off$100$80$20After further processing$150$115$30Costs to process after split-off$150,000$150,000$100,000 Assume that Product T is treated as a by-product and that the company accounts for the by-product at net realizable value as a reduction of joint cost. Assume also that Products S and T must be processed further before they can be sold. What is Pickett's total cost of Product R in April if joint cost allocation is based on net realizable values?

$220,370

Jenco, Inc., manufactures a combination fertilizer and weedkiller under the name Fertikil. This is the only product Jenco produces. Fertikil is sold nationwide through normal marketing channels to retail nurseries and garden stores. Taylor Nursery plans to sell a similar fertilizer and weedkiller compound through its regional nursery chain under its own private label. Taylor has asked Jenco to submit a bid for a 25,000-pound order of the private brand compound. Although the chemical composition of the Taylor compound differs from Fertikil, the manufacturing process is very similar. What is the total direct materials cost for recurring 25-lot orders?

$23,125

Barnes Company has two support departments and three production departments, each producing a separate product. For a number of years, Barnes has allocated the costs of the support departments to the production departments on the basis of the annual sales revenue dollars. In a recent audit report, the internal auditor stated that the distribution of support department costs on the basis of annual sales dollars would lead to support inequities. The auditor recommended that maintenance and engineering hours be used as a better support cost allocation basis. For illustrative purposes, the following information was appended to the audit report: Assume that the Engineering Department's total cost to be allocated is $60,000 after applying the simultaneous equations (reciprocal) method. What is the total Maintenance Department cost to be allocated?

$24,000

The Ashley Co. manufactures and sells a household product marketed through direct mail and advertisements in home improvement and gardening magazines. Although similar products are available in hardware and department stores, none are as effective as Ashley's model. The company uses a standard cost system in its manufacturing accounting. The standards have not undergone a thorough review in the past 18 months. The general manager has seen no need for such a review becauseThe materials quality and unit costs were fixed by a 3-year purchase commitment signed in July, Year 1.A 3-year labor contract had been signed in July, Year 1.There have been no significant variations from standard costs for the past three quarters. Assume that the actual cost relationships in the quarter ended March 31, Year 3, relevant to this decision about the sales proposal of ACTION Hardware are valid. What is the manufacturing contribution margin?

$240,000

Laurel Corporation has its own cafeteria with the following annual costs: Food $100,000 Labor 75,000 Overhead 110,000 Total $285,000 The overhead is 40% fixed. Of the fixed overhead, $25,000 is the salary of the cafeteria supervisor. The remainder of the fixed overhead has been allocated from total company overhead. Assuming the cafeteria supervisor will remain and the corporation will continue to pay his or her salary, the maximum cost the corporation will be willing to pay an outside firm to service the cafeteria is

$241,000

A company produces and sells three products: C J P Sales $200,000 $150,000 $125,000 Separable (product) fixed costs 60,000 35,000 40,000 Allocated fixed costs 35,000 40,000 25,000 Variable costs 95,000 75,000 50,000 The company lost its lease and must move to a smaller facility. As a result, total allocated fixed costs will be reduced by 40%. However, one product must be discontinued. The expected net income after the appropriate product has been discontinued is

$25,000

Framar, Inc., manufactures machinery to customer specifications. It operated at about 75% of practical capacity during the year. The operating results for the most recent fiscal year are presented below. If the bid is accepted, what is the increase in net income?

$27,900

The Ashley Co. manufactures and sells a household product marketed through direct mail and advertisements in home improvement and gardening magazines. Although similar products are available in hardware and department stores, none are as effective as Ashley's model. The company uses a standard cost system in its manufacturing accounting. The standards have not undergone a thorough review in the past 18 months. The general manager has seen no need for such a review because The materials quality and unit costs were fixed by a 3-year purchase commitment signed in July, Year 1.A 3-year labor contract had been signed in July, Year 1. There have been no significant variations from standard costs for the past three quarters. Assume that the manufacturing costs incurred in the first quarter reflect the anticipated costs for the ACTION special purchase. What is the total expected direct labor cost of this purchase?

$282,000

Fact Pattern: Ignore taxes when answering this question. ABC Company produces and sells a single product called Kleen. Annual production capacity is 100,000 machine hours. It takes 1 machine hour to produce a unit of Kleen. Annual demand for Kleen is expected to remain at 80,000 units. The selling price is expected to remain at $10 per unit. Cost data for producing and selling Kleen are presented to the right: Variable costs (per unit): Direct materials $1.50 Direct labor 2.50 Variable overhead 0.80 Variable selling 2.00 Fixed costs (per year): Fixed overhead $100,000.00 Fixed selling and administrative 50,000.00 ABC Company receives a one-time special order for 5,000 units of Kleen. Acceptance of this order will not affect the regular sales of 80,000 units. Variable selling costs for each of these 5,000 units will be $1.00. What is the differential cost to ABC Company of accepting this special order?

$29,000

Earl Corporation manufactures a product that gives rise to a by-product called Zafa. The only costs associated with Zafa are selling costs of $1 for each unit sold. Earl accounts for Zafa sales first by deducting its separable costs from such sales and then by deducting this net amount from cost of sales of the major product. This year, 1,000 units of Zafa were sold at $4 each. If Earl records the net realizable value of Zafa as inventory as it is produced, what will the per-unit value be?

$3

Barnes Company has two support departments and three production departments, each producing a separate product. For a number of years, Barnes has allocated the costs of the support departments to the production departments on the basis of the annual sales revenue dollars. In a recent audit report, the internal auditor stated that the distribution of support department costs on the basis of annual sales dollars would lead to support inequities. The auditor recommended that maintenance and engineering hours be used as a better support cost allocation basis. For illustrative purposes, the following information was appended to the audit report: Assume that maintenance costs are allocated first because the Maintenance Department provides a greater percentage of its total support to the other support department. Using the step-down method of cost allocation, how much maintenance cost is allocated to the Engineering Department?

$3,000

N-Air Corporation uses a joint process to produce three products: A, B, and C, all derived from one input. The company can sell these products at the point of split-off (end of the joint process) or process them further. The joint production costs during October were $10,000. N-Air allocates joint costs to the products in proportion to the relative physical volume of output. Additional information is presented in the opposite column. If Processed Further Unit Sales Unit Unit Units Price at Sales Additional Product Produced Split-off Price Cost A 1,000 $4.00 $5.00 $ .75 B 2,000 2.25 4.00 1.20 C 1,500 3.00 3.75 .90 Assuming that all products were sold at the split-off point during October, the gross profit from the production process would be

$3,000

Jenco, Inc., manufactures a combination fertilizer and weedkiller under the name Fertikil. This is the only product Jenco produces. Fertikil is sold nationwide through normal marketing channels to retail nurseries and garden stores. Taylor Nursery plans to sell a similar fertilizer and weedkiller compound through its regional nursery chain under its own private label. Taylor has asked Jenco to submit a bid for a 25,000-pound order of the private brand compound. Although the chemical composition of the Taylor compound differs from Fertikil, the manufacturing process is very similar. The Taylor compound will be produced in 1,000-pound lots. Each lot will require 60 direct labor hours and the following chemicals: If Jenco bids this month for the special one-time order of 25,000 pounds, the total overhead cost used for this decision is

$3,375

A business needs a computer application that can be either developed internally or purchased. Suitable software from a vendor costs $29,000. Minor modifications and testing can be conducted by the systems staff as part of their regular workload. If the software is developed internally, a systems analyst would be assigned full time, and a contractor would assume the analyst's responsibilities. The hourly rate for the regular analyst is $25. The hourly rate for the contractor is $22. The contractor would occupy an empty office. The office has 100 square feet, and occupancy cost is $45 per square foot. Based solely on the cost figures presented, the cost of developing the computer application will be

$3,500 less than acquiring the purchased software package.

Petro-Chem, Inc., is a small company that acquires high-grade crude oil from low-volume production wells owned by individuals and small partnerships. The crude oil is processed in a single refinery into Two Oil, Six Oil, and impure distillates. Petro-Chem does not have the technology or capacity to process these products further and sells most of its output each month to major refineries. There were no beginning inventories of finished goods or work-in-process on November 1. The production costs and output of Petro-Chem for November are shown in the next column. The portion of the joint production costs assigned to Six Oil based upon physical output is

$3,636,000

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

Ashwood Company manufactures three main products, F, G, and W, from a joint process. Joint costs are allocated on the basis of relative sales value at split-off. Additional information for June production activity follows: F G W Total Units produced 50,000 40,000 10,000 100,000 Joint costs ? ? ? $450,000 Sales value at split-off $420,000 $270,000 $60,000 $750,000 Additional costs if processed further $ 88,000 $ 30,000 $12,000 $130,000 Sales value if processed further $538,000 $320,000 $78,000 $936,000 Assuming that the 10,000 units of W were processed further and sold for $78,000, what was Ashwood's gross profit on this sale?

$30,000

Atlas Foods produces the following three supplemental food products simultaneously through a refining process costing $93,000. The joint products, Alfa and Betters, have a final selling price of $4 per pound and $10 per pound, respectively, after additional processing costs of $2 per pound of each product are incurred after the split-off point. Morefeed, a by-product, is sold at the split-off point for $3 per pound. Assuming Atlas Foods inventories Morefeed, the by-product, the joint cost to be allocated to Alfa using the net realizable value method is

$30,000

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

Warfield Corporation manufactures products C, D, and E from a joint process. Joint costs are allocated on the basis of relative sales value at split-off. Additional information is presented below. C D E Total Units produced 6,000 4,000 2,000 12,000 Joint costs $ 72,000 ? ? $120,000 Sales value at split-off ? ? $30,000 $200,000 Additional costs if processed further $ 14,000 $10,000 $ 6,000 $ 30,000 Sales value if processed further $140,000 $60,000 $40,000 $240,000 How much of the joint costs should Warfield allocate to product D?

$30,000

The T-accounts below provide selected data about a company's financial results for the year. The cost of goods sold is

$300,000

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 $ 90,000 Indirect materials issued to production 8,000 Manufacturing overhead incurred 125,000 Manufacturing overhead applied 113,000 Direct labor costs 107,000 Pick had neither beginning nor ending work-in- process inventory. What was the cost of jobs completed in January?

$310,000

National Industries is a diversified corporation with separate and distinct operating divisions. Each division's performance is evaluated on the basis of total dollar profits and return on divisional investment. The WindAir Division manufactures and sells air-conditioning units. The coming year's budgeted income statement, based upon a sales volume of 15,000 units, appears below. If National Industries requires the Compressor Division to sell 17,400 compressors to WindAir, how much is the effect on the corporation's pretax earnings?

$312,500

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

Fact Pattern: Jenco, Inc., manufactures a combination fertilizer and weedkiller under the name Fertikil. This is the only product Jenco produces. Fertikil is sold nationwide through normal marketing channels to retail nurseries and garden stores.Taylor Nursery plans to sell a similar fertilizer and weedkiller compound through its regional nursery chain under its own private label. Taylor has asked Jenco to submit a bid for a 25,000-pound order of the private brand compound. Although the chemical composition of the Taylor compound differs from Fertikil, the manufacturing process is very similar. The total variable cost of the special order for this month is

$34,750

A company has identified the following overhead costs and cost drivers for the coming year:Overhead ItemCost DriverBudgeted CostBudgeted Activity LevelMachine setupNumber of setups$ 20,000200InspectionNumber of inspections130,0006,500Material handlingNumber of material moves80,0008,000EngineeringEngineering hours50,0001,000Total$280,000The following information was collected on three jobs that were completed during the year: Job 101Job 102Job 103Direct materials$5,000$12,000$8,000Direct labor$2,000$ 2,000$4,000Units completed10050200Number of setups124Number of inspections201030Number of material moves301050Engineering hours105010Budgeted direct labor cost was $100,000, and budgeted direct material cost was $280,000. If the company uses activity-based costing, compute the cost of each unit of Job 102.

$340

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. 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

A company manufactures jet engines on a cost-plus basis. The cost of a particular jet engine the company manufactures is shown as follows:Direct materials$200,000Direct labor150,000Overhead:Supervisor's salary20,000Fringe benefits on direct labor15,000Depreciation12,000Rent11,000Total cost$408,000 If production of this engine were discontinued, the production capacity would be idle, and the supervisor would be laid off. When asked to bid on the next contract for this engine, the minimum unit price that the company should bid is

$385,000

Petro-Chem, Inc., is a small company that acquires high-grade crude oil from low-volume production wells owned by individuals and small partnerships. The crude oil is processed in a single refinery into Two Oil, Six Oil, and impure distillates. Petro-Chem does not have the technology or capacity to process these products further and sells most of its output each month to major refineries. There were no beginning inventories of finished goods or work-in-process on November 1. The production costs and output of Petro-Chem for November are shown in the next column. The portion of the joint production costs assigned to Two Oil based upon the relative sales value of output is

$4,000,000

Earl Corporation manufactures a product that gives rise to a by-product called Zafa. The only costs associated with Zafa are selling costs of $1 for each unit sold. Earl accounts for Zafa sales first by deducting its separable costs from such sales and then by deducting this net amount from cost of sales of the major product. This year, 1,000 units of Zafa were sold at $4 each. Earl sold 1,000 units of Zafa. Assuming that 1,500 units were produced for the year and that net realizable value is recorded as inventory, Earl's net income will increase by

$4,500

Atlas Foods produces the following three supplemental food products simultaneously through a refining process costing $93,000. The joint products, Alfa and Betters, have a final selling price of $4 per pound and $10 per pound, respectively, after additional processing costs of $2 per pound of each product are incurred after the split-off point. Morefeed, a by-product, is sold at the split-off point for $3 per pound. Alfa 10,000 pounds of Alfa, a popular but relatively rare grain supplement having a caloric value of 4,400 calories per pound Betters 5,000 pounds of Betters, a flavoring material high in carbohydrates with a caloric value of 11,200 calories per pound Morefeed 1,000 pounds of Morefeed, used as a cattle feed supplement with a caloric value of 1,000 calories per pound Assuming Atlas Foods inventories Morefeed, the by-product, and that it incurs no additional processing costs for Alfa and Betters, the joint cost to be allocated to Alfa using the gross market value method is

$40,000

Jenco, Inc., manufactures a combination fertilizer and weedkiller under the name Fertikil. This is the only product Jenco produces. Fertikil is sold nationwide through normal marketing channels to retail nurseries and garden stores. Taylor Nursery plans to sell a similar fertilizer and weedkiller compound through its regional nursery chain under its own private label. Taylor has asked Jenco to submit a bid for a 25,000-pound order of the private brand compound. Although the chemical composition of the Taylor compound differs from Fertikil, the manufacturing process is very similar. What is the full cost of the one-time special order of 25,000 pounds?

$40,375

Clay Co. has considerable excess manufacturing capacity. A special job order's cost sheet includes the following applied manufacturing overhead costs: Fixed costs $21,000 Variable costs 33,000 The fixed costs include a normal $3,700 allocation for in-house design costs, although no in-house design will be done. Instead, the job will require the use of external designers costing $7,750. What is the total amount to be included in the calculation to determine the minimum acceptable price for the job?

$40,750

The managers of Rochester Manufacturing are discussing ways to allocate the cost of service departments, such as Quality Control and Maintenance, to the production departments. To aid them in this discussion, the controller has provided the following information: Quality Control Maintenance Machining Assembly Total Budgeted overhead costs before allocation $350,000 $200,000 $400,000 $300,000 $1,250,000 Budgeted machine hours----50,000--50,000 Budgeted direct labor hours------25,000 25,000 Budgeted hours of service: Quality Control--7,000 21,000 7,000 35,000 Maintenance 10,000--18,000 12,000 40,000 If Rochester uses the reciprocal method of allocating service costs, the total amount of quality control costs (rounded to the nearest dollar) to be allocated to the other departments would be

$421,053

Parat College allocates support department costs to its individual schools using the step method. Information for May is as follows: Support Departments Maintenance Power Costs incurred $99,000 $54,000 Service percentages provided to: Maintenance -- 10% Power 20% -- School of Education 30% 20% School of Technology 50% 70% 100% 100% What is the amount of May support department costs allocated to the School of Education?

$46,100

Framar, Inc., manufactures machinery to customer specifications. It operated at about 75% of practical capacity during the year. The operating results for the most recent fiscal year are presented below. What is the contribution margin if the bid is accepted?

$46,500

A company has two support departments, Power and Maintenance, and two production departments, Machining and Assembly. All costs are regarded as strictly variable. For September, the following information is available: Support Departments Production Departments Power Maintenance Machining Assembly Direct costs $62,500 $40,000 $25,000 $15,000 Actual activity: Kilowatt hrs. 50,000 150,000 50,000 Maintenance hours 250 1,125 1,125 If the company uses the direct method for allocating support department costs to production departments, what dollar amount of Power Department cost will be allocated to the Machining Department for September?

$46,875

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. Assume Baehr's predetermined overhead rate is $4.50 per direct labor hour. Actual manufacturing overhead incurred during November was

$47,500

A processing department produces joint products Ajac and Bjac, each of which incurs separable production costs after split-off. Information concerning a batch produced at a $60,000 joint cost before split-off follows: Separable Product Costs Sales Value Ajac $ 8,000 $ 80,000 Bjac 22,000 40,000 $30,000 $120,000 What is the joint cost assigned to Ajac if costs are assigned using the relative net realizable value?

$48,000

Barnes Company has two support departments and three production departments, each producing a separate product. For a number of years, Barnes has allocated the costs of the support departments to the production departments on the basis of the annual sales revenue dollars. In a recent audit report, the internal auditor stated that the distribution of support department costs on the basis of annual sales dollars would lead to support inequities. The auditor recommended that maintenance and engineering hours be used as a better support cost allocation basis. For illustrative purposes, the following information was appended to the audit report: After applying the simultaneous equations (reciprocal) method, assume that the Engineering Department's total cost to be allocated is $60,000. How much of this cost is allocated to Departments A, B, and C?

$48,000

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:AprilDescriptionAmount 1Balance$ 4,000 30Direct materials24,000 30Direct labor16,000 30Factory overhead12,800 30To 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

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) How much is the transfer price for Product Zee?

$5.00

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

$5.05 per DLH.

Sonimad Sawmill manufactures two lumber products from a joint milling process. The two products developed are mine support braces (MSB) and unseasoned commercial building lumber (CBL). A standard production run incurs joint costs of $300,000 and results in 60,000 units of MSB and 90,000 units of CBL. Each MSB sells for $2 per unit, and each CBL sells for $4 per unit. Continuing with the data provided above, assume the commercial building lumber is not marketable at split-off but must be further planed and sized at a cost of $200,000 per production run. During this process, 10,000 units are unavoidably lost; these spoiled units have no discernible value. The remaining units of commercial building lumber are salable at $10.00 per unit. The mine support braces, although salable immediately at the split-off point, are coated with a tar-like preservative that costs $100,000 per production run. The braces are then sold for $5 each. Using the net-realizable-value (NRV) basis, the completed cost assigned to each unit of commercial building lumber would be

$5.3125

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

Kator Co. is a manufacturer of industrial components. One of their products that is used as a subcomponent in auto manufacturing is KB-96. This product has the following financial structure per unit:Selling price $150Direct materials$ 20Direct labor15Variable manufacturing overhead 12Fixed manufacturing overhead30Shipping and handling3Fixed selling and administrative10Total costs$ 90 Kator Co. has received a special, one-time order for 1,000 KB-96 parts. Assuming Kator has excess capacity, the minimum price that is acceptable for this one-time special order is in excess of

$50

Atlas Foods produces the following three supplemental food products simultaneously through a refining process costing $93,000. The joint products, Alfa and Betters, have a final selling price of $4 per pound and $10 per pound, respectively, after additional processing costs of $2 per pound of each product are incurred after the split-off point. Morefeed, a by-product, is sold at the split-off point for $3 per pound. Assuming Atlas Foods inventories Morefeed, the by-product, the joint cost to be allocated to Betters using the weighted-quantity method based on caloric value per pound is

$50,400

Zeta Company is preparing its annual profit plan. As part of its analysis of the profitability of individual products, the controller estimates the amount of overhead that should be allocated to the individual product lines from the information given in the next column: Wall Specialty Mirrors Windows Units produced 25 25 Material moves per product line 5 15 Direct labor hours per unit 200 200 Budgeted materials handling costs $50,000 Under activity-based costing (ABC), Zeta's materials handling costs allocated to one unit of wall mirrors would be

$500

Pickett Manufacturing uses a joint production process that produces three products at the split-off point. Joint production costs during April were $720,000. Product information for April was as follows: Product RSTUnits produced 2,500 5,000 7,500 Units sold 2,000 6,000 7,000 Sales prices: At split-off $100 $80 $20 After further processing $150 $115 $30 Costs to process after split-off $150,000 $150,000 $100,000 Assume that all three products are main products and that they can be sold at the split-off point or processed further, whichever is economically beneficial to the company. What is Pickett's total cost of Product S in April if joint cost allocation is based on sales value at split-off?

$510,000

Doe Corporation grows, processes, cans, and sells three main pineapple products - sliced pineapple, crushed pineapple, and pineapple juice. The outside skin is cut off in the Cutting Department and processed as animal feed. The skin is treated as a by-product. Doe's production process is as follows: Pineapples first are processed in the Cutting Department. The pineapples are washed, and the outside skin is cut away. Then the pineapples are cored and trimmed for slicing. The three main products (sliced, crushed, juice) and the by-product (animal feed) are recognizable after processing in the Cutting Department. Each product is then transferred to a separate department for final processing. The trimmed pineapples are forwarded to the Slicing Department where they are sliced and canned. Any juice generated during the slicing operation is packed in the cans with the slices. The pieces of pineapple trimmed from the fruit are diced and canned in the Crushing Department. Again, the juice generated during this operation is packed in the can with the crushed pineapple. The core and surplus pineapple generated from the Cutting Department are pulverized into a liquid in the Juicing Department. An evaporation loss equal to 8% of the weight of the good output produced in this department occurs as the juices are heated. The outside skin is chopped into animal feed in the Feed Department. The Doe Corporation uses the net-realizable-value (relative sales-value) method to assign costs of the joint process to its main products. The by-product is inventoried at its net realizable value. The NRV of the by-product reduces the joint costs of the main products. A total of 270,000 pounds entered the Cutting Department during May. The schedule below shows the costs incurred in each department, the proportion by weight transferred to the four final processing departments, and the selling price of each product. Doe uses the net-realizable-value method of determining inventory values for all products and by-products. What is the net realizable value at the split-off point of pineapple slices?

$52,000

A cosmetics manufacturer has used a traditional cost accounting system to apply quality control costs uniformly to all products at a rate of 14.5% of direct labor cost. Monthly direct labor cost for makeup is $27,500. In an attempt to distribute quality control costs more equitably, the manufacturer is considering activity-based costing. The monthly data shown in the chart below have been gathered for makeup. Quantity of Activity Cost Driver Cost Rates Makeup Incoming material inspection Type of material $11.50 per type 12 types In-process inspection Number of units $0.14 per unit 17,500 units Product certification Per order $77 per order 25 orders The monthly quality control cost assigned to makeup using activity-based costing (ABC) is

$525.50 higher than the cost using the traditional system.

Doe Corporation grows, processes, cans, and sells three main pineapple products - sliced pineapple, crushed pineapple, and pineapple juice. The outside skin is cut off in the Cutting Department and processed as animal feed. The skin is treated as a by-product. Doe's production process is as follows: Pineapples first are processed in the Cutting Department. The pineapples are washed, and the outside skin is cut away. Then the pineapples are cored and trimmed for slicing. The three main products (sliced, crushed, juice) and the by-product (animal feed) are recognizable after processing in the Cutting Department. Each product is then transferred to a separate department for final processing. The trimmed pineapples are forwarded to the Slicing Department where they are sliced and canned. Any juice generated during the slicing operation is packed in the cans with the slices. The pieces of pineapple trimmed from the fruit are diced and canned in the Crushing Department. Again, the juice generated during this operation is packed in the can with the crushed pineapple. The core and surplus pineapple generated from the Cutting Department are pulverized into a liquid in the Juicing Department. An evaporation loss equal to 8% of the weight of the good output produced in this department occurs as the juices are heated. The outside skin is chopped into animal feed in the Feed Department. The Doe Corporation uses the net-realizable-value (relative sales-value) method to assign costs of the joint process to its main products. The by-product is inventoried at its net realizable value. The NRV of the by-product reduces the joint costs of the main products. A total of 270,000 pounds entered the Cutting Department during May. The schedule below shows the costs incurred in each department, the proportion by weight transferred to the four final processing departments, and the selling price of each product. Doe uses the net-realizable-value method of determining inventory values for all products and by-products. What is the total amount of joint costs for the Cutting Department to be assigned to each of the three main products in accordance with Doe's policy?

$58,000

Believing that its traditional cost system may be providing misleading information, Farragut Manufacturing is considering an activity-based costing (ABC) approach. It now employs a traditional cost system and has been applying its manufacturing overhead on the basis of machine hours. Farragut plans on using 50,000 direct labor hours and 30,000 machine hours in the coming year. The following data show the manufacturing overhead that is budgeted. If Farragut uses the traditional cost system, the cost per unit for this product for the coming year would be

$6.11

Believing that its traditional cost system may be providing misleading information, Farragut Manufacturing is considering an activity-based costing (ABC) approach. It now employs a traditional cost system and has been applying its manufacturing overhead on the basis of machine hours. Farragut plans on using 50,000 direct labor hours and 30,000 machine hours in the coming year. The following data show the manufacturing overhead that is budgeted. If Farragut employs an activity-based costing system, the cost per unit for the product described for the coming year would be

$6.30

MNO Company offers to make and ship 25,000 units of Kleen directly to ABC Company's customers. If ABC Company accepts this offer, it will continue to produce and ship the remaining 55,000 units. ABC's fixed manufacturing overhead will drop to $90,000. Its fixed selling and administrative expenses will remain unchanged. Variable selling expenses will drop to $0.80 per unit for the 25,000 units produced and shipped by MNO company. What is the maximum amount per unit that ABC Company should pay MNO Company for producing and shipping the 25,000 units?

$6.40

Listed below are a company's monthly unit costs to manufacture and market a particular product. Manufacturing costs: Direct materials $2.00 Direct labor 2.40 Variable indirect 1.60 Fixed indirect 1.00 Marketing costs: Variable 2.50 Fixed 1.50 The company must decide to continue making the product or buy it from an outside supplier. The supplier has offered to make the product at the same level of quality that the company can make it. Fixed marketing costs would be unaffected, but variable marketing costs would be reduced by 30% if the company were to accept the proposal. What is the maximum amount per unit that the company can pay the supplier without decreasing operating income?

$6.75

Kator Co. is a manufacturer of industrial components. One of their products that is used as a subcomponent in auto manufacturing is KB-96. This product has the following financial structure per unit:Selling price $150Direct materials$ 20Direct labor15Variable manufacturing overhead 12Fixed manufacturing overhead30Shipping and handling3Fixed selling and administrative10Total costs$ 90 Kator Co. has received a special, one-time order for 1,000 KB-96 parts. Assume that Kator is operating at full capacity and that the contribution margin of the output that would be displaced by the special order is $10,000. Using the original data, the minimum price that is acceptable for this one-time special order is in excess of

$60

Atlas Foods produces the following three supplemental food products simultaneously through a refining process costing $93,000. The joint products, Alfa and Betters, have a final selling price of $4 per pound and $10 per pound, respectively, after additional processing costs of $2 per pound of each product are incurred after the split-off point. Morefeed, a by-product, is sold at the split-off point for $3 per pound Assuming Atlas Foods inventories Morefeed, the by-product, the joint cost to be allocated to Alfa, using the physical quantity method is

$60,000

Barnes Company has two support departments and three production departments, each producing a separate product. For a number of years, Barnes has allocated the costs of the support departments to the production departments on the basis of the annual sales revenue dollars. In a recent audit report, the internal auditor stated that the distribution of support department costs on the basis of annual sales dollars would lead to support inequities. The auditor recommended that maintenance and engineering hours be used as a better support cost allocation basis. For illustrative purposes, the following information was appended to the audit report: After applying the simultaneous equations (reciprocal) method, what is the total Engineering Department cost to be allocated?

$60,000

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

Atlas Foods produces the following three supplemental food products simultaneously through a refining process costing $93,000. The joint products, Alfa and Betters, have a final selling price of $4 per pound and $10 per pound, respectively, after additional processing costs of $2 per pound of each product are incurred after the split-off point. Morefeed, a by-product, is sold at the split-off point for $3 per pound. Assuming Atlas Foods does not inventory Morefeed, the by-product, the joint cost to be allocated to Betters using the net realizable value method is

$62,000

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

Doe Corporation grows, processes, cans, and sells three main pineapple products - sliced pineapple, crushed pineapple, and pineapple juice. The outside skin is cut off in the Cutting Department and processed as animal feed. The skin is treated as a by-product. Doe's production process is as follows: Pineapples first are processed in the Cutting Department. The pineapples are washed, and the outside skin is cut away. Then the pineapples are cored and trimmed for slicing. The three main products (sliced, crushed, juice) and the by-product (animal feed) are recognizable after processing in the Cutting Department. Each product is then transferred to a separate department for final processing. The trimmed pineapples are forwarded to the Slicing Department where they are sliced and canned. Any juice generated during the slicing operation is packed in the cans with the slices. The pieces of pineapple trimmed from the fruit are diced and canned in the Crushing Department. Again, the juice generated during this operation is packed in the can with the crushed pineapple. The core and surplus pineapple generated from the Cutting Department are pulverized into a liquid in the Juicing Department. An evaporation loss equal to 8% of the weight of the good output produced in this department occurs as the juices are heated. The outside skin is chopped into animal feed in the Feed Department. The Doe Corporation uses the net-realizable-value (relative sales-value) method to assign costs of the joint process to its main products. The by-product is inventoried at its net realizable value. The NRV of the by-product reduces the joint costs of the main products. A total of 270,000 pounds entered the Cutting Department during May. The schedule below shows the costs incurred in each department, the proportion by weight transferred to the four final processing departments, and the selling price of each product. Doe uses the net-realizable-value method of determining inventory values for all products and by-products. What is the gross margin for the pineapple juice?

$7,140

The T-accounts below provide selected data about a company's financial results for the year. The amount of indirect materials in the manufacturing overhead account is

$7,500

Sonimad Sawmill manufactures two lumber products from a joint milling process. The two products developed are mine support braces (MSB) and unseasoned commercial building lumber (CBL). A standard production run incurs joint costs of $300,000 and results in 60,000 units of MSB and 90,000 units of CBL. Each MSB sells for $2 per unit, and each CBL sells for $4 per unit. If there are no further processing costs incurred after the split-off point, the amount of joint cost allocated to the mine support braces (MSB) on a relative sales-value basis would be

$75,000

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

Longstreet Company's Photocopying Department provides photocopy services for both Departments A and B and has prepared its total budget using the following information for next year:Fixed costs$100,000Available capacity4,000,000 pagesBudgeted usageDepartment A1,200,000 pagesDepartment B2,400,000 pagesVariable cost$0.03 per page Assume that Longstreet uses the dual-rate cost allocation method, and the allocation basis is budgeted usage for fixed costs and actual usage for variable costs. How much cost would be allocated to Department A during the year if actual usage for Department A is 1,400,000 pages and actual usage for Department B is 2,100,000 pages?

$75,333

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

Fabricating and Finishing are the two production departments of Ewell Company. Building Operations and Information Services are service departments that provide support to the two production departments as well as to each other. Ewell uses departmental overhead rates in the two production departments to allocate the service department costs to the production departments. Square footage is used to allocate Building Operations, and computer time is used to allocate Information Services. The costs of the service departments and relevant operating data for the departments are as follows: If Ewell employs the step method to allocate the costs of the service departments and if Information Services costs are allocated first, then the total amount of service department costs (Information Services and Building Operations) allocated to Finishing would be

$762,000

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

Richardson Motors uses 10 units of Part No. T305 each month in the production of large diesel engines. The cost to manufacture one unit of T305 is presented as follows:Direct materials$ 2,000Materials handling (20% of direct materials cost)400Direct labor16,000Manufacturing overhead (150% of direct labor)24,000Total manufacturing cost$42,400Materials handling, which is not included in manufacturing overhead, represents the direct variable costs of the receiving department that are applied to direct materials and purchased components on the basis of their cost. Richardson's annual manufacturing overhead budget is one-third variable and two-thirds fixed. Simpson Castings, one of Richardson's reliable vendors, has offered to supply T305 at a unit price of $30,000. Assume the rental opportunity does not exist and Richardson Motors could use the idle capacity to manufacture another product that would contribute $104,000 per month. If Richardson chooses to manufacture the ten T305 units in order to maintain quality control, Richardson's opportunity cost is

$8,000

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

Sonimad Sawmill manufactures two lumber products from a joint milling process. The two products developed are mine support braces (MSB) and unseasoned commercial building lumber (CBL). A standard production run incurs joint costs of $300,000 and results in 60,000 units of MSB and 90,000 units of CBL. Each MSB sells for $2 per unit, and each CBL sells for $4 per unit. Continuing with the data provided above, assume the commercial building lumber is not marketable at split-off but must be further planed and sized at a cost of $200,000 per production run. During this process, 10,000 units are unavoidably lost; these spoiled units have no discernible value. The remaining units of commercial building lumber are salable at $10.00 per unit. The mine support braces, although salable immediately at the split-off point, are coated with a tar-like preservative that costs $100,000 per production run. The braces are then sold for $5 each. If Sonimad Sawmill chose not to process the mine support braces beyond the split-off point, the contribution from the joint milling process would be

$80,000 lower.

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

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 materials amounted to

$880,000

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. 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

Jenco, Inc., manufactures a combination fertilizer and weedkiller under the name Fertikil. This is the only product Jenco produces. Fertikil is sold nationwide through normal marketing channels to retail nurseries and garden stores. Taylor Nursery plans to sell a similar fertilizer and weedkiller compound through its regional nursery chain under its own private label. Taylor has asked Jenco to submit a bid for a 25,000-pound order of the private brand compound. Although the chemical composition of the Taylor compound differs from Fertikil, the manufacturing process is very similar. What is the total overhead costs for recurring 25-lot orders?

$9,000

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

A company has identified the following overhead costs and cost drivers for the coming year:Overhead ItemCost DriverBudgeted CostBudgeted Activity LevelMachine setupNumber of setups$ 20,000200InspectionNumber of inspections130,0006,500Material handlingNumber of material moves80,0008,000EngineeringEngineering hours50,0001,000Total$280,000The following information was collected on three jobs that were completed during the year: Job 101Job 102Job 103Direct materials$5,000$12,000$8,000Direct labor$2,000$ 2,000$4,000Units completed10050200Number of setups124Number of inspections201030Number of material moves301050Engineering hours105010Budgeted direct labor cost was $100,000, and budgeted direct material cost was $280,000. The company prices its products at 140% of cost. If the company uses activity-based costing, the price of each unit of Job 103 would be

$98

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.

A company processes a raw material into products F1, F2, and F3. Each ton of raw material produces five units of F1, two units of F2, and three units of F3. Joint processing costs to the split-off point are $15 per ton. Further processing results in the following per-unit figures: F1 F2 F3 Additional processing costs per unit $28 $30 $25 Selling price per unit 30 35 35 If joint costs are allocated based on the net realizable value of finished product, what proportion of joint costs should be allocated to F1?

20%

Fact Pattern: Doe Corporation grows, processes, cans, and sells three main pineapple products - sliced pineapple, crushed pineapple, and pineapple juice. The outside skin is cut off in the Cutting Department and processed as animal feed. The skin is treated as a by-product. Doe's production process is as follows: Pineapples first are processed in the Cutting Department. The pineapples are washed, and the outside skin is cut away. Then the pineapples are cored and trimmed for slicing. The three main products (sliced, crushed, juice) and the by-product (animal feed) are recognizable after processing in the Cutting Department. Each product is then transferred to a separate department for final processing. The trimmed pineapples are forwarded to the Slicing Department where they are sliced and canned. Any juice generated during the slicing operation is packed in the cans with the slices. The pieces of pineapple trimmed from the fruit are diced and canned in the Crushing Department. Again, the juice generated during this operation is packed in the can with the crushed pineapple. The core and surplus pineapple generated from the Cutting Department are pulverized into a liquid in the Juicing Department. An evaporation loss equal to 8% of the weight of the good output produced in this department occurs as the juices are heated. The outside skin is chopped into animal feed in the Feed Department. The Doe Corporation uses the net-realizable-value (relative sales-value) method to assign costs of the joint process to its main products. The by-product is inventoried at its net realizable value. The NRV of the by-product reduces the joint costs of the main products. A total of 270,000 pounds entered the Cutting Department during May. The schedule below shows the costs incurred in each department, the proportion by weight transferred to the four final processing departments, and the selling price of each product. Doe uses the net-realizable-value method of determining inventory values for all products and by-products. How many net pounds of pineapple juice were produced in May?

67,500

Barnes Company has two support departments and three production departments, each producing a separate product. For a number of years, Barnes has allocated the costs of the support departments to the production departments on the basis of the annual sales revenue dollars. In a recent audit report, the internal auditor stated that the distribution of support department costs on the basis of annual sales dollars would lead to support inequities. The auditor recommended that maintenance and engineering hours be used as a better support cost allocation basis. For illustrative purposes, the following information was appended to the audit report: Assume that the Maintenance Department's total cost to be allocated is $24,000. Under the reciprocal method, what portion of Maintenance Department cost is allocated to Department A?

800 ÷ 1,600

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

Which of the following statements best describes cost allocation?

A company's total income will remain unchanged no matter how indirect costs are allocated.

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.

When only differential manufacturing costs are taken into account for special-order pricing, an essential assumption is that

Acceptance of the order will not affect regular sales.

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

Actual Volume Less than expected Actual Fixed Costs Greater than expected

The variable costs of support departments most likely should be allocated to production departments by using

Actual short-run output based on predetermined rates.

There is a market for both product X and product Y. Which of the following costs and revenues would be most relevant in deciding whether to sell product X or process it further to make product Y?

Additional cost of making Y, given the cost of making X, and additional revenue from Y.

In an activity-based costing (ABC) system, cost reduction is accomplished by identifying and eliminating All Cost Drivers Nonvalue-Adding Activities

All Cost Drivers: No Nonvalue-Adding Activities: Yes

Cost objects

All of the answers are correct.

In an insourcing vs. outsourcing decision, the decision process favors the use of total costs rather than unit costs. The reason is that

All of the answers are correct.

In an insourcing vs. outsourcing situation, which of the following qualitative factors is usually considered?

All of the answers are correct.

In a job cost system, manufacturing overhead is

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

The work-in-process account is

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

The Ashley Co. manufactures and sells a household product marketed through direct mail and advertisements in home improvement and gardening magazines. Although similar products are available in hardware and department stores, none are as effective as Ashley's model. The company uses a standard cost system in its manufacturing accounting. The standards have not undergone a thorough review in the past 18 months. The general manager has seen no need for such a review becauseThe materials quality and unit costs were fixed by a 3-year purchase commitment signed in July, Year 1.A 3-year labor contract had been signed in July, Year 1.There have been no significant variations from standard costs for the past three quarters. A determination should be made regarding fixed manufacturing costs. This determination involves

Anticipation of an increase because of the increased volume incurred as a result of the special order.

ABD Realty manages five apartment complexes in a three-state area. Shown below are summary income statements for each apartment complex. ABD Realty Summary Income Statements (in thousands) One Two Three Four Five Rental income $1,000 $1,210 $2,347 $1,878 $1,065 Expenses 800 1,300 2,600 2,400 1,300 Profit $ 200 $ (90) $ (253) $ (522) $ (235) Included in the expenses is $1,200,000 of corporate overhead allocated to the apartment complexes based on rental income. The apartment complex(es) that ABD should consider selling is(are)

Apartment complexes Four and Five.

Costs relevant to an insourcing vs. outsourcing decision include variable manufacturing costs as well as

Avoidable fixed costs.

Earl Corporation manufactures a product that gives rise to a by-product called Zafa. The only costs associated with Zafa are selling costs of $1 for each unit sold. Earl accounts for Zafa sales first by deducting its separable costs from such sales and then by deducting this net amount from cost of sales of the major product. This year, 1,000 units of Zafa were sold at $4 each. If Earl changes its method of accounting for Zafa sales by recording the net amount as additional sales revenue, Earl's gross margin will

Be unaffected.

Lares Confectioners, Inc., makes a candy bar called Rey that sells for $.50 per pound. The manufacturing process also yields a product known as Nagu. Without further processing, Nagu sells for $.10 per pound. With further processing, Nagu sells for $.30 per pound. During the month of April, total joint manufacturing costs up to the point of separation consisted of the charges to work-in-process presented in the opposite column. Direct materials $150,000 Direct labor 120,000 Manufacturing overhead 30,000 Production for the month was 394,000 pounds of Rey and 30,000 pounds of Nagu. To complete Nagu during the month of April and obtain a selling price of $.30 per pound, further processing of Nagu during April required the following additional costs: Direct materials $2,000 Direct labor 1,500 Manufacturing overhead 500 Select the proper journal entry for Nagu if it is recorded as inventory at sales value without further processing, with a corresponding reduction of Rey's manufacturing costs.

By-product inventory $3,000 Work-in-process $3,000

Lares Confectioners, Inc., makes a candy bar called Rey that sells for $.50 per pound. The manufacturing process also yields a product known as Nagu. Without further processing, Nagu sells for $.10 per pound. With further processing, Nagu sells for $.30 per pound. During the month of April, total joint manufacturing costs up to the point of separation consisted of the charges to work-in-process presented in the opposite column. Direct materials $150,000 Direct labor 120,000 Manufacturing overhead 30,000 Production for the month was 394,000 pounds of Rey and 30,000 pounds of Nagu. To complete Nagu during the month of April and obtain a selling price of $.30 per pound, further processing of Nagu during April required the following additional costs: Direct materials $2,000 Direct labor 1,500 Manufacturing overhead 500 What is the journal entry for Nagu if it is further processed as a by-product and recorded as inventory at net realizable value, which reduces Rey's manufacturing costs?

By-product inventory (Nagu) $9,000 Direct materials $2,000 Direct labor 1,500 Manufacturing overhead 500 Work-in-process (Rey) 5,000

A cheese company produces natural cheese from cow's milk. As a result of the process, a secondary product, whey, is produced in the proportion of one pound for each pound of cheese. The following are the standards for 1,000 pounds of milk:Input:1,000 pounds of milk at $.20/pound40 hours of labor at $10/hourOverhead applied equaling 100% ofdirect labor costOutput:450 pounds of cheese450 pounds of wheyThe following prices and demand are expected:Price per PoundDemand in PoundsCheese$2.00450Whey.80375 Given that the company allocates common costs on the basis of NRVs, the allocated common costs per 1,000 pounds of milk (rounded) are

Cheese $750 Whey $250

An oil well has been drilled. The cost of site preparation was $10,000. Drilling costs were $90,000. Once drilled, the well may or may not be completed. If completed, the costs are $40,000 to fracture the underground formation (enabling the oil to flow freely) and $30,000 for production casing pipe and other costs to put the well into production. If the well is completed, the present value of recoverable oil is $130,000. The well should be

Completed because the net benefit is $60,000.

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.

Relevant or differential cost analysis

Considers all variable and fixed costs as they change with each decision alternative.

Process value analysis is a key component of activity-based management that links product costing and

Continuous improvement.

National Industries is a diversified corporation with separate and distinct operating divisions. Each division's performance is evaluated on the basis of total dollar profits and return on divisional investment. The WindAir Division manufactures and sells air-conditioning units. The coming year's budgeted income statement, based upon a sales volume of 15,000 units, appears below. What is the effect of decreasing the sales price 10% to increase sales by 4,500 units?

Contribution Margin $120,000 Net Income Before Taxes $120,000

When a multiproduct plant operates at full capacity, quite often decisions must be made as to which products to emphasize. These decisions are frequently made with a short-run focus. In making such decisions, managers should select products with the highest

Contribution margin per unit of the constraining resource.

What is the normal effect on the numbers of cost pools and cost assignment bases when an activity-based cost (ABC) system replaces a traditional cost system?

Cost Pools: Increase Cost Assignment Bases: Increase

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

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.

The principal disadvantage of using the physical quantity method of allocating joint costs is that

Costs assigned to inventories may have no relationship to value.

The allocation of general overhead costs to operating departments can be least justified in determining

Costs for short-term decisions.

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

Costs of marketing departments.

Unlike the traditional full-absorption cost system, activity-based costing (ABC) assigns

Costs to individual projects based on various activities involved.

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.

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.

Earl Corporation manufactures a product that gives rise to a by-product called Zafa. The only costs associated with Zafa are selling costs of $1 for each unit sold. Earl accounts for Zafa sales first by deducting its separable costs from such sales and then by deducting this net amount from cost of sales of the major product. This year, 1,000 units of Zafa were sold at $4 each. If Earl changes its method of accounting for Zafa sales by recording the net amount as other income, Earl's gross margin will

Decrease by $3,000.

The following information is available on Tackler Co.'s two product lines: Chairs Tables Sales $180,000 $48,000 Variable costs (96,000) (30,000) Contribution margin 84,000 18,000 Fixed costs: Avoidable (36,000) (12,000) Unavoidable (18,000) (10,800) Operating income (loss) $30,000 $(4,800) Assuming Tackler discontinues the tables line and does not replace it, the company's operating income will

Decrease by $6,000.

National Industries is a diversified corporation with separate and distinct operating divisions. Each division's performance is evaluated on the basis of total dollar profits and return on divisional investment. The WindAir Division manufactures and sells air-conditioning units. The coming year's budgeted income statement, based upon a sales volume of 15,000 units, appears below. What is the effect on the Compressor Division's net income of the sale to WindAir of 17,400 compressors if some external sales must be lost?

Decrease net income $35,500.

The Ashley Co. manufactures and sells a household product marketed through direct mail and advertisements in home improvement and gardening magazines. Although similar products are available in hardware and department stores, none are as effective as Ashley's model. The company uses a standard cost system in its manufacturing accounting. The standards have not undergone a thorough review in the past 18 months. The general manager has seen no need for such a review because The materials quality and unit costs were fixed by a 3-year purchase commitment signed in July, Year 1.A 3-year labor contract had been signed in July, Year 1.There have been no significant variations from standard costs for the past three quarters. The financial analysis prepared by the general manager's assistant is

Deficient in that the contribution margin is not calculated.

In a decision analysis situation, which one of the following costs is not likely to contain a variable cost component?

Depreciation

When considering a special order that will enable a company to make use of currently idle capacity, which of the following costs is irrelevant?

Depreciation.

The term relevant cost applies to all the following decision situations except the

Determination of a product price.

Allocation of support department costs to the production departments is necessary to

Determine overhead rates

Joint costs are useful for

Determining inventory cost for accounting purposes.

Gram Co. develops computer programs to meet customers' special requirements. How should Gram categorize payments to employees who develop these programs?

Direct Costs: Yes Value-Adding Costs: Yes

Which overhead allocation methods do not charge support department costs to a support department after its costs have been allocated?

Direct and step-down methods.

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.

Which of the following components of production are allocable as joint costs when a single manufacturing process produces several salable products?

Direct materials, direct labor, and overhead.

Which one of the following is most relevant to a manufacturing equipment replacement decision?

Disposal price of the old equipment.

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.

The T-accounts below provide selected data about a company's financial results for the year. 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 $45,000 Materials $22,500 Overhead $12,500

A computer company charges indirect manufacturing costs to a project at a fixed percentage of a cost pool. This project is covered by a cost-plus government contract. Which of the following is an appropriate guideline for determining how costs are assigned to the pool?

Establish separate pools for variable and fixed costs.

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.

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.

Activities, their drivers, and their costs may be classified as unit-level, batch-level, product-level, and facility-level. If activity-based costing (ABC) information is prepared for internal purposes, which costs are most likely to be treated as period costs?

Facility-level.

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

Factory overhead control.

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

ares Confectioners, Inc., makes a candy bar called Rey that sells for $.50 per pound. The manufacturing process also yields a product known as Nagu. Without further processing, Nagu sells for $.10 per pound. With further processing, Nagu sells for $.30 per pound. During the month of April, total joint manufacturing costs up to the point of separation consisted of the charges to work-in-process presented in the opposite column. Direct materials $150,000 Direct labor 120,000 Manufacturing overhead 30,000 Production for the month was 394,000 pounds of Rey and 30,000 pounds of Nagu. To complete Nagu during the month of April and obtain a selling price of $.30 per pound, further processing of Nagu during April required the following additional costs: Direct materials $2,000 Direct labor 1,500 Manufacturing overhead 500 If the joint costs of $300,000 are allocated based on relative net realizable values, and Nagu is considered a joint product rather than a by-product, what are the journal entries for Nagu and Rey to record the cost allocation and subsequent processing to the point at which both are in finished goods inventory?

Finished goods (Rey) $292,574 Work-in-process (Nagu) 7,426 Work-in-process (joint) $300,000 Work-in-process (Nagu) $ 4,000 Direct materials $ 2,000 Direct labor 1,500 Manufacturing overhead 500 Finished goods (Nagu) $ 11,426 Work-in-process (Nagu) $ 11,426

When applying the cost-benefit approach to a decision, the primary criterion is how well management goals will be achieved in relation to costs. Costs include all expected

Future costs that differ among the alternative courses of action plus all qualitative factors that cannot be measured in numerical terms.

Mig Co., which began operations in the month just ended, produces gasoline and a gasoline by-product. The following information is available pertaining to sales and production for the month: Total production costs to split-off point $120,000 Gasoline sales 270,000 By-product sales 30,000 Gasoline ending inventory 15,000 Additional by-product costs: Marketing 10,000 Production 15,000 Mig accounts for the by-product at the time of production. What was Mig's cost of sales for gasoline and the by-product?

Gasoline $100,000 By-Product $0

A manufacturing company properly classifies and accounts for one product as a by-product rather than as a main product because it

Has low sales value when compared with the main products.

Copeland, Inc., produces X-547 in a joint manufacturing process. The company is studying whether to sell X-547 at the split-off point or upgrade the product to become Xylene. The following information has been gathered: Selling price per pound of X-547 Variable manufacturing costs of upgrade process Avoidable fixed costs of upgrade process Selling price per pound of Xylene Joint manufacturing costs to produce X-547 Which items should be reviewed when making the upgrade decision?

I, II, III, and IV.

An entity has developed and patented a new laser disc reading device that will be marketed internationally. Which of the following factors should the entity consider in pricing the device? Quality of the new device Life of the new device Customers' relative preference for quality compared with price

I, II, and III.

Richardson Motors uses 10 units of Part No. T305 each month in the production of large diesel engines. The cost to manufacture one unit of T305 is presented as follows:Direct materials$ 2,000Materials handling (20% of direct materials cost)400Direct labor16,000Manufacturing overhead (150% of direct labor)24,000Total manufacturing cost$42,400Materials handling, which is not included in manufacturing overhead, represents the direct variable costs of the receiving department that are applied to direct materials and purchased components on the basis of their cost. Richardson's annual manufacturing overhead budget is one-third variable and two-thirds fixed. Simpson Castings, one of Richardson's reliable vendors, has offered to supply T305 at a unit price of $30,000. Assume Richardson Motors is able to rent all idle capacity for $50,000 per month. If Richardson decides to purchase the 10 units from Simpson Castings, Richardson's monthly cost for T305 would

Increase $46,000.

Richardson Motors uses 10 units of Part No. T305 each month in the production of large diesel engines. The cost to manufacture one unit of T305 is presented as follows:Direct materials$ 2,000Materials handling (20% of direct materials cost)400Direct labor16,000Manufacturing overhead (150% of direct labor)24,000Total manufacturing cost$42,400Materials handling, which is not included in manufacturing overhead, represents the direct variable costs of the receiving department that are applied to direct materials and purchased components on the basis of their cost. Richardson's annual manufacturing overhead budget is one-third variable and two-thirds fixed. Simpson Castings, one of Richardson's reliable vendors, has offered to supply T305 at a unit price of $30,000. If Richardson Motors purchases the ten T305 units from Simpson Castings, the capacity Richardson used to manufacture these parts would be idle. Should Richardson decide to purchase the parts from Simpson, the out-of-pocket cost per unit of T305 would

Increase $9,600.

Actual sales values at the split-off point for joint products Y and Z are not known. For purposes of allocating joint costs to products Y and Z, the relative sales value at split-off method is used. An increase in the costs beyond split-off occurs for Product Z, while those of Product Y remain constant. If the selling prices of finished products Y and Z remain constant, the percentage of the total joint costs allocated to Product Y and Product Z will

Increase for Product Y and decrease for Product Z.

A company's approach to an insourcing vs. outsourcing decision

Involves an analysis of avoidable costs.

Total unit costs are

Irrelevant in marginal analysis.

A joint process is a manufacturing operation yielding two or more identifiable products from the resources employed in the process. The two characteristics that identify a product generated from this type of process as a joint product are that it

Is identifiable as an individual product only upon reaching the split-off point, and it has relatively significant sales value when compared with the other products.

Which of the following is true about activity-based costing?

It can be used with either process or job costing.

A company produces three products (B-40, J-60, and H-102) from a single process. The company uses the physical volume method to allocate joint costs of $22,500 per batch to the products. Based on the following information, which product(s) should the company continue to process after the split-off point in order to maximize profit? B-40 J-60 H-102 Physical units produced per batch 1,500 2,000 3,200 Sales value per unit at split-off $10.00 $4.00 $7.25 Cost per unit of further processing after split-off 3.05 1.00 2.50 Sales value per unit after further processing 12.25 5.70 9.75

J-60 only.

Accounting for manufacturing overhead costs involves averaging in

Job Costing: Yes Process Costing: Yes

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.

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

Job-cost sheet.

If a company obtains two salable products from the refining of one ore, the refining process should be accounted for as a(n)

Joint process.

Regis Company manufactures plugs used in its manufacturing cycle at a cost of $36 per unit that includes $8 of fixed overhead. Regis needs 30,000 of these plugs annually, and Orlan Company has offered to sell these units to Regis at $33 per unit. If Regis decides to purchase the plugs, $60,000 of the annual fixed overhead applied will be eliminated, and the company may be able to rent the facility previously used for manufacturing the plugs. If Regis Company purchases the plugs but does not rent the unused facility, the company would

Lose $3.00 per unit.

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

Machine hours.

Which of the following qualitative factors favors the buy choice in an insourcing vs. outsourcing decision?

Maintaining a long-run relationship with suppliers is desirable.

Effective cost capacity management

Matches the firm's resources with market opportunities.

In a manufacturing environment, the best short-term profit-maximizing approach is to

Maximize contribution per unit times the number of units sold.

Costs are allocated to cost objects in many ways and for many reasons. Which one of the following is a purpose of cost allocation?

Measuring income and assets for external reporting.

In an activity-based costing system, what should be used to assign a department's manufacturing overhead costs to products produced in varying lot sizes?

Multiple cause-and-effect relationships.

National Industries is a diversified corporation with separate and distinct operating divisions. Each division's performance is evaluated on the basis of total dollar profits and return on divisional investment. The WindAir Division manufactures and sells air-conditioning units. The coming year's budgeted income statement, based upon a sales volume of 15,000 units, appears below. As a result of decreasing selling price from $400 to $380, sales increase by 2,400 units at a unit contribution margin of $180. This increase in contribution margin attributable to greater sales

Must be adjusted for the loss of the $20 unit contribution margin for 15,000 units previously budgeted.

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

Neither.

For purposes of allocating joint costs to joint products, the sales price at point of sale, reduced by cost to complete after split-off, is assumed to be equal to the

Net sales value at split-off.

For the purposes of cost accumulation, which of the following are identifiable as different individual products before the split-off point? By-Products Joint Products

No No

One hundred pounds of raw material W is processed into 60 pounds of X and 40 pounds of Y. Joint costs are $135. X is sold for $2.50 per pound, and Y can be sold for $3.00 per pound or processed further into 30 pounds of Z (10 pounds are lost in the second process) at an additional cost of $60. Each pound of Z can then be sold for $6.00. What is the effect on profits of further processing product Y into product Z?

No change.

One of the items served at a restaurant is pizza that is prepared and baked in the restaurant's kitchen. Each pizza requires $3 of ingredients, $2 of labor to prepare the ingredients, $1 of labor to bake the pizza, and $4 of allocated occupancy costs. The restaurant's supplier has offered to sell the restaurant pre-made pizzas, ready for baking, for $8 each. If the restaurant accepts the supplier's offer, the existing pizza preparation space will be converted into two additional dining tables that will increase profits by $42,000 per year by selling drinks, side dishes, and desserts. The restaurant expects to sell 15,000 pizzas annually with or without the additional dining tables. Should the restaurant accept the supplier's offer?

No, because the restaurant's profits will decrease by $3,000.

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.

Which of the following would be a reasonable basis for allocating the materials handling costs to the units produced in an activity-based costing system?

Number of components per completed unit.

A firm produces two joint products (A and B) from one unit of raw material, which costs $1,000. Product A can be sold for $700 and product B can be sold for $500 at the split-off point. Alternatively, both A and/or B can be processed further and sold for $900 and $1,200, respectively. The additional processing costs are $100 for A and $750 for B. Should the firm process products A and B beyond the split-off point?

Only A should be processed further.

Units of production is an appropriate method of assigning overhead when

Only one product is manufactured.

A decision-making concept, described as "the contribution to income that is forgone by not using a limited resource for its best alternative use," is called

Opportunity cost.

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.

The diagram represents the production and sales relationships of joint products P and Q. Joint costs are incurred until split-off; then separable costs are incurred in refining each product. Market values of P and Q at split-off are used to allocate joint costs. If the market value of P at split-off increases and all other costs and selling prices remain unchanged, then the gross margin of

P Decreases Q Increases

Under an acceptable method of costing by-products, inventory costs of the by-product are based on the portion of the joint production cost allocated to the by-product

Plus any subsequent processing cost.

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

Potential effect on the decision

If a U.S. manufacturer's price in the U.S. market is below an appropriate measure of costs and the seller has a reasonable prospect of recovering the resulting loss in the future through higher prices or a greater market share, the seller has engaged in

Predatory pricing.

Because of changes that are occurring in the basic operations of many firms, all of the following represent trends in the way indirect costs are allocated except

Preferring plant-wide application rates that are applied to machine hours rather than incurring the cost of detailed allocations.

Geary Manufacturing has assembled the data appearing in the next column pertaining to two products. Past experience has shown that the unavoidable fixed manufacturing overhead included in the cost per machine hour averages $10. Geary has a policy of filling all sales orders, even if it means purchasing units from outside suppliers. Total machine capacity is 50,000 hours .Electric Blender Mixe rDirect materials $ 6 $11 Direct labor 49 Manufacturing overhead at $16 per hour1632Cost if purchased from an outside supplier 2038 Annual demand (units) 20,000 28,000 If 50,000 machine hours are available and Geary Manufacturing desires to follow an optimal strategy, it should

Produce 20,000 blenders and 15,000 electric mixers, and purchase all other units as needed

Geary Manufacturing has assembled the data appearing in the next column pertaining to two products. Past experience has shown that the unavoidable fixed manufacturing overhead included in the cost per machine hour averages $10. Geary has a policy of filling all sales orders, even if it means purchasing units from outside suppliers. Total machine capacity is 50,000 hours. With all other things constant, if Geary Manufacturing is able to reduce the direct materials for an electric mixer to $6 per unit, the company should

Produce 25,000 electric mixers and purchase all other units as needed.

Data regarding four different products manufactured by an organization are presented as follows. Direct material and direct labor are readily available from the respective resource markets. However, the manufacturer is limited to a maximum of 3,000 machine hours per month. Products A B C D Unit price $15 $18 $20 $25 Variable cost 7 11 10 16 Units Produced per Machine Hour: A: 3 B: 4 C: 2 D: 3 The product that is the most profitable for the manufacturer in this situation is

Product B.

Andy Company manufactures products N, P, and R from a joint process. The following information is available: NPR Total Units produced 12,000 ? ? 24,000 Joint costs $48,000 ? ? $120,000 Sales value at split-off ? ? $50,000 $200,000 Additional costs if processed further $18,000 $14,000 $10,000 $42,000 Sales value if processed further $110,000 $90,000 $60,000 $260,000 Assuming that joint product costs are allocated using the relative sales value at split-off approach, what was the sales value at split-off for products N and P?

Product N: $80,000 Product P: $70,000

A basic assumption of activity-based costing (ABC) is that

Products or services require the performance of activities, and activities consume resources.

The step-down method of support department cost allocation often begins with allocation of the costs of the support department that

Provides the greatest percentage of its support to other support departments

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

Raw materials inventory XXX Accounts payable XXX

Which of the following is not a method to allocate joint costs?

Relative profitability.

The method of accounting for joint product costs that will produce the same gross profit rate for all products is the

Relative sales-value method.

Management accountants are frequently asked to analyze various decision situations including the following: I. The cost of a special device that is necessary if a special order is accepted II. The cost proposed annually for the plant service for the grounds at corporate headquarters III. Joint production costs incurred, to be considered in a sell-at-split versus a process-further decision IV. The costs of alternative uses of plant space, to be considered in a make-or-buy decision V. The cost of obsolete inventory acquired several years ago, to be considered in a keep-versus-disposal decision The costs described in situations I and IV are

Relevant costs.

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

Sales value of product produced.

A company has 7,000 obsolete toys carried in inventory at a manufacturing cost of $6 per unit. If the toys are reworked for $2 per unit, they could be sold for $3 per unit. If the toys are scrapped, they could be sold for $1.85 per unit. Which alternative is more desirable (rework or scrap), and what is the total dollar amount of the advantage of that alternative?

Scrap, $5,950.

The main issues for accounting recognition of by-products are similar to those for

Scrap.

N-Air Corporation uses a joint process to produce three products: A, B, and C, all derived from one input. The company can sell these products at the point of split-off (end of the joint process) or process them further. The joint production costs during October were $10,000. N-Air allocates joint costs to the products in proportion to the relative physical volume of output. Additional information is presented in the opposite column. Assuming sufficient demand exists, N-Air could sell all the products at the prices previously mentioned at either the split-off point or after further processing. To maximize its profits, N-Air Corporation should

Sell product C at split-off and perform additional processing on products A and B.

In joint-product costing and analysis, which one of the following costs is relevant when deciding the point at which a product should be sold to maximize profits?

Separable costs after the split-off point.

The method for allocating service department costs that best recognizes the mutual services rendered to other service departments is the

Simultaneous-equations method.

Annual overhead application rates are used to

Smooth seasonal variability of overhead costs.

A company has two production and two support departments that are housed in the same building. The most reasonable basis for allocating building costs (rent, insurance, maintenance, security) to the production and support departments is

Square feet of floor space occupied.

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

Several methods are used to allocate support department costs to the production departments. The method that recognizes support provided by one department to another but does not allow for two-way allocation of costs among support departments is the

Step-down method.

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

Stores control $750 Cash $750

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.

The term that refers to costs incurred in the past that are not relevant to a future decision is

Sunk cost.

Management accountants are frequently asked to analyze various decision situations including the following: I.The cost of a special device that is necessary if a special order is accepted II.The cost proposed annually for the plant service for the grounds at corporate headquarters III.Joint production costs incurred, to be considered in a sell-at-split versus a process-further decision IV.The costs of alternative uses of plant space, to be considered in a make-or-buy decision V.The cost of obsolete inventory acquired several years ago, to be considered in a keep-versus-disposal decision The costs described in situations III and V 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

A company needs special gears. The machinery to make the gears can be rented for $100,000 for 1 year, but the company can buy the gears and avoid the rental cost. Because the demand for the gears may be high (0.6 probability) or low (0.4 probability) and contribution margins vary, the company prepared the following decision tree: Which of the following statements is true?

The expected value of buying is $70,000.

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.

Production of a special order will increase gross profit when the additional revenue from the special order is greater than

The marginal cost of producing the order.

Activity-based costing (ABC) has become increasingly more feasible because of technological advances that allow managers to obtain better and more timely information at a relatively low cost. For this reason, a manufacturer is considering using bar-code identification for recording information on parts used by the manufacturer. A reason to use bar codes rather than other means of identification is to ensure that

The movement of parts is easily and quickly recorded.

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.

Whitehall Corporation produces chemicals used in the cleaning industry. During the previous month, Whitehall incurred $300,000 of joint costs in producing 60,000 units of AM-12 and 40,000 units of BM-36. Whitehall uses the units-of-production method to allocate joint costs. Currently, AM-12 is sold at split-off for $3.50 per unit. Flank Corporation has approached Whitehall to purchase all of the production of AM-12 after further processing. The further processing will cost Whitehall $90,000. Assume that Whitehall Corporation agreed to sell AM-12 to Flank Corporation for $5.50 per unit after further processing. During the first month of production, Whitehall sold 50,000 units with 10,000 units remaining in inventory at the end of the month. With respect to AM-12, which one of the following statements is true?

The operating profit last month was $50,000, and the inventory value is $45,000.

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.

The Power and Maintenance Departments of a manufacturing company are support departments that provide support to each other as well as to the organization's two production departments, Plating and Assembly. The manufacturing company employs separate departmental manufacturing overhead rates for the two production departments requiring the allocation of the support department costs to the two manufacturing departments. Square footage of area served is used to allocate the Maintenance Department costs, and percentage of power usage is used to allocate the Power Department costs. Department costs and operating data are as follows: The allocation method that would provide this manufacturer with the theoretically best allocation of support department costs would be

The reciprocal (or linear algebra) allocation method.

The fixed costs of support departments should be allocated to production departments based on

The support department's expected costs of long-run capacity.

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

Theoretical capacity.

Under an acceptable method of costing by-products, inventory costs of a by-product are based on the portion of the joint production cost allocated to a by-product plus any subsequent processing cost. Why was joint cost allocated to by-products?

They were treated as joint products even though they presumably met the definition of by-products because of their small relative sales values.

If the values of by-products are recorded as produced, why should they be recorded at net realizable value minus normal profit?

To permit a sales profit to be recognized upon sale.

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.

In allocating factory service department costs to producing departments, which one of the following items would most likely be used as an activity base?

Units of electric power consumed.

The Ashley Co. manufactures and sells a household product marketed through direct mail and advertisements in home improvement and gardening magazines. Although similar products are available in hardware and department stores, none are as effective as Ashley's model. The company uses a standard cost system in its manufacturing accounting. The standards have not undergone a thorough review in the past 18 months. The general manager has seen no need for such a review because Revisions of standards should be made for

Variable overhead, labor, and materials.

Which of the following cost allocation methods is used to determine the lowest price that can be quoted for a special order that will use idle capacity within a production area?

Variable.

Multiple or departmental overhead rates are considered preferable to a single or plantwide overhead rate when

Various products are manufactured that do not pass through the same departments or use the same manufacturing techniques.

Whitehall Corporation produces chemicals used in the cleaning industry. During the previous month, Whitehall incurred $300,000 of joint costs in producing 60,000 units of AM-12 and 40,000 units of BM-36. Whitehall uses the units-of-production method to allocate joint costs. Currently, AM-12 is sold at split-off for $3.50 per unit. Flank Corporation has approached Whitehall to purchase all of the production of AM-12 after further processing. The further processing will cost Whitehall $90,000. Concerning AM-12, which one of the following alternatives is most advantageous?

Whitehall should process further and sell to Flank if the total selling price per unit after further processing is greater than $5.00.

The allocation of costs to particular cost objects allows a firm to analyze all of the following except

Why the sales of a particular product have increased.

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

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

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

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 X Job Y Job Z Total Direct materials requisitioned $10,000 $20,000 $15,000 $45,000 Direct labor 5,000 4,000 2,500 11,500 $15,000 $24,000 $17,500 $56,500 In 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

Lares Confectioners, Inc., makes a candy bar called Rey that sells for $.50 per pound. The manufacturing process also yields a product known as Nagu. Without further processing, Nagu sells for $.10 per pound. With further processing, Nagu sells for $.30 per pound. During the month of April, total joint manufacturing costs up to the point of separation consisted of the charges to work-in-process presented in the opposite column. Direct materials $150,000 Direct labor 120,000 Manufacturing overhead 30,000 Production for the month was 394,000 pounds of Rey and 30,000 pounds of Nagu. To complete Nagu during the month of April and obtain a selling price of $.30 per pound, further processing of Nagu during April required the following additional costs: Direct materials $2,000 Direct labor 1,500 Manufacturing overhead 500 What are the journal entries for Nagu if it is processed further and transferred to finished goods, with joint costs being allocated between Rey and Nagu based on relative sales value at the split-off point?

Work-in-process (Nagu) $4,500 Work-in-process (Rey) $4,500 Work-in-process (Nagu) $4,000 Direct materials $2,000 Direct labor 1,500 Manufacturing overhead 500 Finished goods (Nagu) $8,500 Work-in-process (Nagu) $8,500

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.

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

Work-in-process control.

Which of the following is(are) often subject to further processing in order to be salable? By-Products Scrap

Yes No

By-products may have which of the following characteristics? Zero Costs Beyond Split-off Additional Costs Beyond Split-off

Yes Yes

For purposes of allocating joint costs to joint products, the relative sales-value method could be used in which of the following situations? No Costs Beyond Split-off Costs Beyond Split-off

Yes Yes

In accounting for by-products, the value of the by-product may be recognized at the time of: Production Sale

Yes Yes

Framar, Inc., manufactures machinery to customer specifications. It operated at about 75% of practical capacity during the year. The operating results for the most recent fiscal year are presented below. Should Framar manufacture the machinery for a counteroffer of $127,000?

Yes, net income will increase by $7,380.

What is the opportunity cost of making a component part in a factory given no alternative use of the capacity?

Zero


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