Moffit Cost Final
8) Heavy Products, Inc. developed standard costs for direct material and direct labor. In 2017, AII estimated the following standard costs for one of their major products, the 10-gallon plastic container. Budgeted quantity Budgeted price Direct materials 0.70 pounds $70 per pound Direct labor 0.10 hours $35 per hour During June, Heavy Products produced and sold 25,000 containers using 23,000 pounds of direct materials at an average cost per pound of $75 and 17,500 direct manufacturing labor-hours at an average wage of $35.75 per hour. The direct material price variance during June is ________. A) $115,000 unfavorable B) $500,000 favorable C) $500,000 unfavorable D) $13,125 favorable
A) $115,000 unfavorable Explanation: Direct material price variance = 23,000 × ($75 − $70) = $115,000 U
22) A study by a consultant shows that a company that had $2,000,000 of inventory was holding excess inventory of $320,000 that could be eliminated with a few process improvements. It also has $620,000 in marketable securities that yield 5% per year. What is the estimated annual opportunity cost of holding the excess inventory? A) $16,000 B) $100,000 C) $31,000 D) $47,000
A) $16,000 Explanation: $320,000 x 5% = $16,000
6) Lincoln Corporation used the following data to evaluate their current operating system. The company sells items for $19 each and used a budgeted selling price of $19 per unit. Actual Budgeted Units sold 48,000 units 39,000 units Variable costs $167,000 $152,000 Fixed costs $41,000 $50,000 What is the static-budget variance of revenues? A) $171,000 favorable B) $171,000 unfavorable C) $6,000 favorable D) $9,000 unfavorable
A) $171,000 favorable Explanation: Static-budget variance of revenues = (48,000 units × $19) - (39,000 units × $19) = $171,000 F
10) Extreme Manufacturing Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Account inquiry $320,000 16,000 hours Account billing $200,000 4,000,000 lines Account verification accounts $173,250 70,000 accounts Correspondence letters $24,000 4,000 letters Total costs $717,250 The above activities are used by Departments A and B as follows: Department A Department B Account inquiry hours 2,700 hours 4,200 hours Account billing lines 900,000 lines 750,000 lines Account verification accounts 8,000 accounts 6,000 accounts Correspondence letters 1,400 letters 1,800 letters How much of the account inquiry cost will be assigned to Department A? A) $54,000 B) $320,000 C) $160,000 D) $84,000
A) $54,000 Explanation: Account inquiry costs - Department A = ($320,000 ÷ 16,000) × 2,700 = $54,000
33) The following information is for High Corp: Selling price $60 per unit Variable costs $40 per unit Total fixed costs $130,000 If targeted operating income is $50,000, then targeted sales revenue is ________. (Round the final answer to the nearest dollar.) A) $540,000 B) $390,000 C) $150,000 D) $180,000
A) $540,000 Explanation: ($130,000 + $50,000) / [($60 − $40) / $60] = $540,000
17) For 2018, Rest-Well Bedding uses machine-hours as the only overhead cost-allocation base. The direct cost rate is $6.00 per unit. The selling price of the product is $21.00. The estimated manufacturing overhead costs are $275,000 and estimated 40,000 machine hours. The actual manufacturing overhead costs are $350,000 and actual machine hours are 50,000. Using job costing, the 2018 actual indirect-cost rate is ________. A) $7.00 per machine-hour B) $5.50 per machine-hour C) $8.75 per machine-hour D) $8.50 per machine-hour
A) $7.00 per machine-hour Explanation: $350,000 / 50,000 mh = $7.00
13) Kinnane's Fine Furniture manufactures two models, Standard and Premium. Weekly demand is estimated to be 106 units of the Standard Model and 74 units of the Premium Model. The following per unit data apply: Standard Premium Contribution margin per unit $21 $24 Number of machine-hours required 3 6 If there are 495 machine-hours available per week, how many rockers of each model should Kinnane produce to maximize profits? A) 106 units of Standard and 29 units of Premium B) 17 units of Standard and 74 units of Premium C) 106 units of Standard and 74 units of Premium D) 83 units of Standard and 41 units of Premium
A) 106 units of Standard and 29 units of Premium Explanation: Standard (106 units × 3 mh) + Premium (29 units × 6 mh) = 495 machine-hours of the constrained resource
1) Stephanie's Bridal Shoppe sells wedding dresses. The average selling price of each dress is $1,200, variable costs are $700, and fixed costs are $100,000. How many dresses must the Bridal Shoppe sell to yield after-tax net income of $20,000, assuming the tax rate is 40%? A) 267 dresses B) 240 dresses C) 200 dresses D) 400 dresses
A) 267 dresses Explanation: 1,200N - $700N - $100,000 = $20,000 / (1 - 0.4); $500N - $100,000 = $33,333; N = 267 units
3) Process costing would most likely be used to assign costs to products produced by which of these companies? A) Jones Flour Mill B) Riley Automobile Dealer C) Big Time Yacht Corporation D) Sullivan and Murphy Law Firm LLC
A) Jones Flour Mill
1) Management accounting ________. A) focuses on estimating future revenues, costs, and other measures to forecast activities and their results B) provides information about the company as a whole C) reports information that has occurred in the past that is verifiable and reliable D) provides information that is generally available only on a quarterly or annual basis
Answer: A
1) The flexible budget contains ________. A) budgeted amounts for actual output B) static budget amounts for planned output C) actual costs for actual output D) actual costs for planned output
Answer: A
17) Activity-based costing is most likely to yield benefits for companies ________. A) with complex product design processes that vary significantly from product to product B) with operations that remain fairly consistent across product lines C) in a monopolistic market D) having nominal percentage of indirect costs
Answer: A
2) Process costing ________. A) allocates all product costs, including materials, and labor B) results in different costs for different units produced C) is commonly used by general contractors who construct custom-built homes D) is used exclusively in manufacturing
Answer: A
2) Which of the following could be a reason for a favorable material price variance? A) the purchasing manager bargaining effectively with suppliers B) the purchasing manager giving orders for small quantity to reduce storage cost C) the purchasing manager accepting a bid from the highest-priced supplier to ensure the quality of material D) the personnel manager hiring underskilled workers
Answer: A
4) Which of the following is true if the production volume decreases? A) fixed cost per unit increases B) average cost per unit decreases C) variable cost per unit increases D) variable cost per unit decreases
Answer: A
5) Cost tracing is ________. A) the assignment of direct costs to the chosen cost object B) a function of cost allocation C) the process of tracking both direct and indirect costs associated with a cost object D) the process of determining the actual cost of the cost object
Answer: A
5) The primary user of management accounting information is a(n) ________. A) the controller B) a shareholder evaluating a stock investment C) bondholder D) external regulator
Answer: A
8) Activity-based costing (ABC) can eliminate cost distortions because ABC systems ________. A) establish a cause-and-effect relationship with the activities performed B) use single cost pool for all overhead costs, thereby enabling simplicity C) use a broad average to allocate all overhead costs D) never consider interactions between different departments in assigning support costs
Answer: A
8) Under GAAP, only ________ can be assigned to inventories in the financial statements. A) manufacturing costs B) period costs C) cost of goods sold D) historical costs
Answer: A
8) Which of the following statements refers to management accounting information? A) There are no regulations governing the reports. B) The reports are generally delayed and historical. C) The audience tends to be stockholders, creditors, and tax authorities. D) It primarily measures manager's compensation on reported financial results.
Answer: A
9) John's 8-year-old Chevrolet Trail Blazer requires repairs estimated at $10,000 to make it road worthy again. His wife, Sherry, suggested that he should buy a 5-year-old used Jeep Grand Cherokee instead for $10,000 cash. Sherry estimated the following costs for the two cars: Trail Blazer Grand Cherokee Acquisition cost $25,000 $10,000 Repairs $10,000 — Annual operating costs (Gas, maintenance, insurance) $2,780 $1,800 The cost NOT relevant for this decision is the ________. A) acquisition cost of the Trail Blazer B) acquisition cost of the Grand Cherokee C) repairs to the Trail Blazer D) annual operating costs of the Grand Cherokee
Answer: A
9) Which of the following groups would be least likely to receive detailed management accounting reports? A) stockholders B) sales managers C) production supervisors D) distribution managers
Answer: A
1) A unit cost is computed by ________. A) multiplying total cost by the number of units produced B) dividing total cost by the number of units produced C) dividing variable cost by the number of units produced D) dividing fixed cost by the number of units produced
Answer: B
1) Relevant data in a make-or-buy decision of a part include which of the following? A) The portion of fixed costs that would be incurred whether the product is made or purchased B) Some portion of fixed costs that would be saved if the product is outsourced C) Annual plant insurance costs D) Management consultant fees to restructure the organization framework of the company and improve overall strategic planning
Answer: B
10) Under absorption costing, fixed manufacturing costs ________. A) are period costs B) are inventoriable costs C) are treated as an expense D) are sunk costs
Answer: B
11) Producing on schedule, quality of supplier products or services, reliability, along with costs are all important considerations when____ A) when deciding to insource B) making outsourcing decisions C) when executing right-shoring D) making decisions based on quantitative factors
Answer: B
11) ________ is a method of inventory costing in which only variable manufacturing costs are included as inventoriable costs. A) Fixed costing B) Variable costing C) Absorption costing D) Mixed costing
Answer: B
15) Which of the following statements is true? A) Product costs and design costs are interchangeable terms. B) Inventoriable costs are assigned to inventories under GAAP. C) Manufacturing costs are a special case of period costs. D) Intangible costs refer to a particular cost of a product.
Answer: B
16) A.C. Tech Manufacturing Appliances manufactures three sizes of kitchen appliances: small, medium, and large. Product information is provided below. Small Medium Large Unit selling price $430 $610 $1,210 Unit costs: Variable manufacturing (270) (280) (530) Fixed manufacturing (40) (170) (270) Fixed selling and administrative (70) (75) (140) Unit profit $50 $85 $270 Demand in units 150 170 150 Machine-hours per unit 60 60 150 The maximum machine-hours available are 6,500 per week. Which of the three product models should be produced first if management incorporates a short-run profit maximizing strategy? A) small appliance B) medium appliance C) large appliance D) both medium and large appliance
Answer: B
2) A $5,000 unfavorable flexible-budget variance indicates that ________. A) the flexible-budget amount exceeded actual variable manufacturing overhead by $5,000 B) the actual variable manufacturing overhead exceeded the flexible-budget amount by $5,000 C) the flexible-budget amount exceeded standard variable manufacturing overhead by $5,000 D) the standard variable manufacturing overhead exceeded the flexible-budget amount by $5,000
Answer: B
2) Effective planning of variable overhead costs means that managers must A) increase the expenditures in the variable overhead budgets B) focus on activities that add value for the customer and eliminate nonvalue-added activities C) increase the linearity between total costs and volume of production D) identify the product advertising requirements and factor those into the variable overhead budget
Answer: B
2) Managers use management accounting information to ________. A) help external users such as investors, banks, regulators, and suppliers B) communicate, develop, and implement strategies C) communicate a firm's financial position to investors, banks, regulators, and other outside parties D) ensure that financial statements are consistent with the SEC rules
Answer: B
3) Financial accounting ________. A) focuses on the future and includes activities such as preparing next year's operating budget B) must comply with GAAP (generally accepted accounting principles) C) is the process of measuring, analyzing, and reporting financial and nonfinancial information related to the costs of acquiring or using resources in an organization D) is prepared for the use of department heads and other employees
Answer: B
3) Job costing is ________. A) used by businesses to price identical products B) used by businesses to price unique products for different jobs C) used to calculate equivalent units D) used to calculate the percentage of work completed
Answer: B
3) Which of the following best describes how fixed cost are treated in a variable cost method? A) They are part of the product cost B) They are excluded from inventory cost and are treated as period costs C) They are allocated to the product cost using a denominator-level capacity choice D) They are classified as nonmanufacturing costs
Answer: B
4) Job costing ________. A) cannot be used by the service industry B) records the flow of costs for each product or service C) allocates an equal amount of cost to each unit made during a time period D) is used when each unit of output is identical
Answer: B
4) Which of the following statements is true of activity-based costing? A) In activity-based costing, direct labor-hours is always the best allocation base to allocate all non-manufacturing indirect costs. B) Activity based costing is more suited to companies with high product diversity than companies with single product line. C) Activity based costing broadly averages or spreads the cost of resources uniformly to cost objects such as products or services. D) The main advantage of activity-based costing over peanut-butter costing is the accurate distribution of all direct costs to the products.
Answer: B
46) Factors used to decide whether to outsource a part include ________. A) the supplier's cost of direct materials B) if the supplier is reliable C) the original cost of equipment currently used for production of that part D) past design costs used to develop the current composition of the part
Answer: B
5) A favorable variance indicates that ________. A) budgeted costs are less than actual costs B) actual revenues exceed budgeted revenues C) actual operating income is less than the budgeted amount D) budgeted contribution margin is more than the actual amount
Answer: B
6) Variable costs ________. A) are always indirect costs B) increase in total when the actual level of activity increases C) include most personnel costs and depreciation on machinery D) are never considered a part of prime cost
Answer: B
9) Which of the following costs will be treated as period costs under absorption costing? A) raw materials used in the production B) sales commission paid on sale of product C) depreciation on factory equipment D) rent for factory building
Answer: B
1) Process costing is ________. A) used to enhance employees' job satisfaction B) used by businesses to price unique products or identical products produced in batches C) used by businesses to price identical products D) used by businesses when manufacturing goods above normal capacity
Answer: C
1) Which of the following is true if the volume of sales increases (within a relevant range)? A) total fixed cost increases B) total variable cost decreases C) total variable cost increases D) total fixed cost decreases
Answer: C
10) Under GAAP, for the purposes of calculating inventory costs, product costs include ________. A) all costs incurred along the value chain B) design costs C) only inventoriable costs D) only research and development costs
Answer: C
12) Variable costing regards fixed manufacturing overhead as a(n) ________. A) administrative cost B) inventoriable cost C) period cost D) product cost
Answer: C
16) Within the relevant range, if there is a change in the level of the cost driver, then ________. A) total fixed costs and total variable costs will change B) total fixed costs and total variable costs will remain the same C) total fixed costs will remain the same and total variable costs will change D) total fixed costs will change and total variable costs will remain the same
Answer: C
17) Outside the relevant range, variable costs, such as direct material costs ________. A) will decrease proportionately with changes in sales volumes B) will remain the same with changes in production volumes C) will not change proportionately with changes in production volumes D) will increase proportionately with changes
Answer: C
18) Lazy Guy Corporation manufactured 4,000 chairs during June. The following variable overhead data relates to June: Budgeted variable overhead cost per unit $10.00 Actual variable manufacturing overhead cost $49,000 Flexible-budget amount for variable manufacturing overhead $46,800 Variable manufacturing overhead efficiency variance $720 unfavorable What is the variable overhead flexible-budget variance? A) $2,200 favorable B) $1,480 favorable C) $2,200 unfavorable D) $1,480 unfavorable
Answer: C
2) Many companies have switched from absorption costing to variable costing for internal reporting ________. A) to comply with external reporting requirements as required by GAAP B) to increase bonuses for managers C) to reduce the undesirable incentive to build up inventories that would show higher operating income D) so the denominator level is more accurate
Answer: C
2) Which of the following companies is most likely to use process costing? A) Crimpson Color, a company selling customized garments for niche customers B) Effel & Associates, a consulting firm providing various audit and related services C) Dental Bright Inc., a company manufacturing and selling toothpaste on a large scale D) Grimpy Corp., a company manufacturing furniture for customers as per their requirements
Answer: C
3) A ________ is a grouping of individual indirect cost items. A) cost-allocation base B) cost assignment C) cost pool D) job-costing system
Answer: C
3) A variance is ________. A) the difference between actual fixed cost per unit and standard variable cost per unit B) the standard units of inputs for one output C) the difference between an actual result and a budgeted performance D) the difference between actual variable cost per unit and standard fixed cost per unit
Answer: C
3) When a Bakery transfers goods from the Mixing Department to the Baking Department, the accounting entry would be ________. A) Debit: Work in Process — Mixing Department Credit: Work in Process — Baking Department B) Debit: Work in Process — Baking Department Credit: Accounts Payable C) Debt: Work in Process — Baking Department Credit: Work in Process — Mixing Department D) Debt: Work in Process — Mixing Department Credit: Accounts Payable
Answer: C
4) An unfavorable variance indicates that ________. A) the actual costs are less than the budgeted costs B) the actual revenues exceed the budgeted revenues C) the actual units sold are less than the budgeted units D) the budgeted contribution margin is more than the actual amount
Answer: C
4) Which of the following would most likely be the user of financial accounting information? A) factory shift supervisor B) distribution manager C) current shareholder D) department manager
Answer: C
5) Product-cost cross-subsidization means that: A) when one product is overcosted, it results in more than one other product being overcosted B) when a company undercosts more than one of its products, it will overcost more than one of its other products C) when a company undercosts one of its products, it will overcost at least one of its other products D) when one product is overcosted it results in all other products being overcosted
Answer: C
6) Cost allocation is ________. A) the process of tracking both direct and indirect costs associated with a cost object B) the process of determining the opportunity cost of a cost object chosen C) the assignment of indirect costs to the chosen cost object D) made based on material acquisition document
Answer: C
6) Financial accounting provides the primary source of information for ________. A) decision making in the assembly and finishing department B) improving distribution and customer service C) preparing the income statement for shareholders and other external parties D) planning next year's plans and specifically; the operating budget
Answer: C
6) In a flexible budget ________. A) variable costs are calculated proportionately for the budgeted level of sales B) fixed costs are calculated proportionately for the actual level of sales C) fixed costs are kept at the same level of static budget D) variable costs are kept at the same level of static budget
Answer: C
6) Which of the following differentiates job costing from process costing? A) Job costing is used when each unit of output is identical, and process costing deals with unique products. B) Job costing is used when each unit of output is identical and not produced in batches, and process costing deals with unique products produced on large scale. C) Process costing is used when each unit of output is identical, and job costing deals with unique products not produced in batches. D) Job costing is used by manufacturing industries, and process costing is used by service industries.
Answer: C
15) A band of normal activity or volume in which specific cost-volume relationships are maintained is referred to as the ________. A) average range B) cost-allocation range C) cost driver range D) relevant range
Answer: D
2) Activity based costing system differs from traditional costing systems in the treatment of ________. A) direct labor costs B) direct material costs C) prime costs D) indirect costs
Answer: D
2) In a make-or-buy decision, which of the following would not be relevant? A) the quality of the product B) the portion of fixed costs that could be eliminated by outsourcing C) a lease that could be discontinued upon accepting the "buy proposal" D) property taxes on the plant that will still be necessary even if the product is outsourced
Answer: D
4) The selling price per unit less the variable cost per unit is the ________. A) fixed cost per unit B) gross margin C) margin of safety D) contribution margin per unit
Answer: D
7) Which of the following is true of management accounting information? A) It focuses on documenting past business actions of a firm. B) It is prepared based on SEC rules and FASB accounting principles. C) It is prepared for shareholders. D) It helps with the coordination of elements of the value chain.
Answer: D
19) Better Products Company manufactures insulation and applies manufacturing overhead costs to production at a budgeted indirect-cost rate of $18 per direct labor-hour. The following data are obtained from the accounting records for October 2018: Direct materials $370,000 Direct labor (3,300 hours @ $17/hour) 56,100 Indirect labor 22,000 Plant facility rent 53,000 Depreciation on plant machinery and equipment 41,000 Sales commissions 17,000 Administrative expenses 29,000 The actual amount of manufacturing overhead costs incurred in October 2018 totals ________. A) $277,500 B) $116,000 C) $162,000 D) $123,000
B) $116,000 Explanation: $22,000 + $53,000 + $41,000 = $116,000
8) Sky High Company has two departments, X and Y. The following estimates are for the coming year: X Y Direct manufacturing labor-hours 20,000 30,000 Machine-hours 30,000 20,000 Manufacturing overhead $300,000 $330,000 A single indirect-cost rate based on direct manufacturing labor-hours for the entire plant is ________. A) $25.00 per direct labor-hour B) $12.60 per direct labor-hour C) $27.50 per direct labor-hour D) $16.50 per direct labor-hour
B) $12.60 per direct labor-hour Answer: B Explanation: $630,000 / 50,000 dlh = $12.60
12) Variances Spending Efficiency Volume Variable manufacturing overhead $7,500 F $38,000 U (B) Fixed manufacturing overhead $27,500 U (A) $81,000 U The total overhead variance should be ________. A) $154,000 F B) $139,000 U C) $154,000 U D) $139,000 F
B) $139,000 U Explanation: Total overhead variance = $7,500 F + $27,500 U + $38,000 U + $81,000 U = $139,000 U
20) Orion Company sells several products. Information of average revenue and costs is as follows: Selling price per unit $23 Variable costs per unit: Direct material $4 Direct manufacturing labor $1.60 Manufacturing overhead $0.40 Selling costs $2.10 Annual fixed costs $100,000 The company sells 12,000 units at the end of the year. The contribution margin per unit is ________. A) $16.50 B) $14.90 C) $18.60 D) $19.00
B) $14.90 Explanation: Contribution margin per unit = ($23 − $4 − $1.60 − $0.40 − $2.10) = $14.90
7) Castleton Corporation manufactured 36,000 units during March. The following fixed overhead data relates to March: Actual Static Budget Production 36,000 units 34,000 units Machine-hours 6,960 hours 6,800 hours Fixed overhead costs for March $164,700 $156,400 What is the flexible-budget amount? A) $170,379.31 B) $156,400.00 C) $165,600.00 D) $164,700.00
B) $156,400.00 Explanation: $156,400, the same lump sum as the static budget
9) If the contribution margin ratio is 0.60, targeted operating income is $50,000, and fixed costs are $75,000, then sales volume in dollars is ________. (Round the final answer to the nearest dollar.) A) $312,500 B) $208,333 C) $125,000 D) $83,333
B) $208,333 Explanation: X = (50,000 + 75,000)/ 0.60; X = $208,333
11) Stefan Ceramics is in the business of selling ceramic vases. It has two departments - molding and finishing. Molding department purchases tungsten carbide and produces ceramic vases out of it. Ceramic Vases are then transferred to finishing department, which designs it as per the requirement of the customers. During the month of July, molding department purchased 720 kgs of tungsten carbide at $280 per kg. It started manufacture of 4200 vases and completed and transferred 3800 vases during the month. It has 400 vases in the process at the end of the month. It incurred direct labor charges of $1700 and other manufacturing costs of $600, which included electricity costs of $700. Stefan had no inventory of tungsten carbide at the end of the month. It also had no beginning inventory of vases. The ending inventory was 40% complete in respect of conversion costs. What is the total conversion costs for the month of July? A) $3000 B) $2300 C) $1600 D) $1700
B) $2300 Explanation: Total conversion cost = $1700 + $600 = $2300
19) Columbus Company provides the following ABC costing information: Activities Total Costs Activity-cost drivers Labor $392,000 8,000 hours Gas $30,000 5,000 gallons Invoices $180,000 7,500 invoices Total costs $602,000 The above activities used by their three departments are: Lawn Department Bush Department Plowing Department Labor 2,600 hours 1,300 hours 4,100 hours Gas 1,800 gallons 1,000 gallons 2,200 gallons Invoices 1,600 invoices 100 invoices 5,800 invoices How much of the labor cost will be assigned to the Bush Department? A) $127,400 B) $63,700 C) $200,900 D) $97,825
B) $63,700 Explanation: Labor cost assigned = ($392,000 ÷ 8,000) × 1,300 = $63,700
5) The accounting firm firm of Smith & Jones LLC has a staff of 34 staff accountants and auditors and administrative staff. Budgeted total costs of the firm total $5,000,000 of which $2,900,000 is direct-labor costs. Assuming that the remaining costs are indirect and direct-labor cost is the allocation base, calculate the budgeted indirect cost rate. A) 42% of direct-labor cost B) 72% of direct-labor cost C) 58% of direct-labor cost D) 172% of direct-labor cost
B) 72% of direct-labor cost Answer: B Explanation: 2,100,000 / 2,900,000
32) The following information is for High Corp: Selling price $60 per unit Variable costs $40 per unit Total fixed costs $135,000 The number of units that High Corp must sell to reach targeted operating income of $25,000 is ________. (Round up to the nearest unit.) A) 6,750 units B) 8,000 units C) 1,250 units D) 2,667 units
B) 8,000 units Explanation: ($135,000 + $25,000)/($60 − $40) = 8,000 units
9) Stefan Ceramics is in the business of selling ceramic vases. It has two departments - molding and finishing. Molding department purchases tungsten carbide and produces ceramic vases out of it. Ceramic Vases are then transferred to finishing department, which designs it as per the requirement of the customers. During the month of July, molding department purchased 720 kgs of tungsten carbide at $280 per kg. It started manufacture of 4200 vases and and transferred 3800 vases during the month. It has 400 vases in the process at the end of the month. It incurred direct labor charges of $1500 and other manufacturing costs of $1300, which included electricity costs of $300. Stefan had no inventory of tungsten carbide at the end of the month. It also had no beginning inventory of vases. The ending inventory was 50% complete in respect of conversion costs. Which of the following journal entry would record the tungsten carbide purchased and used in production during July? A) Work in Process—Molding $3400 Accounts Payable Control $3400 B) Work in Process—Molding $201,600 Accounts Payable Control $201,600 C) Accounts Payable Control $3400 Work in Process—Molding $3400 D) Accounts Payable Control $201,600 Work in Process—Molding $201,600
B) Work in Process—Molding $201,600 Accounts Payable Control $201,600 Explanation: 720 kg × $280 = $201,600
14) Genent Industries, Inc. (GII), developed standard costs for direct material and direct labor. In 2017, GII estimated the following standard costs for one of their major products, the 30-gallon heavy-duty plastic container. Budgeted quantity Budgeted price Direct materials 0.60 pounds $20 per pound Direct labor 0.30 hours $14 per hour During July, GII produced and sold 4,000 containers using 2,700 pounds of direct materials at an average cost per pound of $19 and 1,290 direct manufacturing labor hours at an average wage of $14.30 per hour. The direct manufacturing labor flexible-budget variance during July is ________. A) $1,260.00 unfavorable B) $900.00 favorable C) $1,647.00 unfavorable D) $3,300.00 favorable
C) $1,647.00 unfavorable Explanation: Direct manufacturing labor flexible-budget variance = (1,290 × $14.30) − (4,000 × 0.30 × $14) = $1,647.00 U
9) X-Industries manufactures 3-D printers. For each unit, $3,400 of direct material is used and there is $2,600 of direct manufacturing labor at $16 per hour. Manufacturing overhead is applied at $20 per direct manufacturing labor hour. Calculate the profit earned on 46 units if each unit sells for $9,500. A) $65,320 B) $35,880 C) $11,500 D) $3,250
C) $11,500 Explanation: $3,400 + $2,600 + (($2,600 / $16) × $20) = $9,250 Profit earned on 46 units = ($9,500 − $9,250) × 46 units = $11,500
7) Home Plate Corporation manufactures baseball uniforms and uses budgeted machine-hours to allocate variable manufacturing overhead. The following information pertains to the company's manufacturing overhead data: Budgeted output units 7,000 units Budgeted machine-hours 19,000 hours Budgeted variable manufacturing overhead costs for 7,000 units $119,000 Actual output units produced 6,000 units Actual machine-hours used 18,000 hours Actual variable manufacturing overhead costs $108,000 What is the budgeted variable overhead cost rate per output unit? A) $6.26 B) $6.00 C) $17.00 D) $18.00
C) $17.00 Explanation: $119,000/7,000 = $17.00
7) Assume the following cost information for Fernandez Company: Selling price $180 per unit Variable costs $60 per unit Total fixed costs $90,000 Tax rate 40% What minimum volume of sales dollars is required to earn an after-tax net income of $40,000? (Do not round interim calculations and round the final answer to the nearest dollar.) A) $135,000 B) $100,000 C) $235,000 D) $225,000
C) $235,000 Explanation: Minimum volume of sales dollars is required = [$90,000 + ($40,000 / 0.6)] / [($180 - $60) / $180] = $235,000
7) Standard material cost per kg of raw material is $6.50. Standard material allowed per unit is 5 Kg. Actual material used per unit is 6.00 Kg. Actual cost per kg is $6.00. What is the standard cost per output unit? A) $30.00 B) $36.00 C) $32.50 D) $39.00
C) $32.50 Explanation: Standard cost per output unit = Standard material cost per kg × standard material allowed per unit = $6.50 × 5 kg = $32.50
13) Sparkle Jewelry sells 800 units resulting in $9,000 of sales revenue, $3,000 of variable costs, and $1,500 of fixed costs. Contribution margin per unit is ________. (Round the final answer to the nearest cent.) A) $13.75 B) $11.25 C) $7.50 D) $5.00
C) $7.50 Explanation: ($9,000 − $3,000) / 800 units = $7.50 per unit
13) Jean Peck's Furniture manufactures tables for hospitality sector. It takes only bulk orders and each table is sold for $500 after negotiations. In the month of January, it manufactures 3,000 tables and sells 2,600 tables. Actual fixed costs are the same as the amount of fixed costs budgeted for the month. The following information is provided for the month of January: Variable manufacturing costs $140 per unit Fixed manufacturing costs $90,000 per month Fixed Administrative expenses $30,000 per month At the end of the month Jean Peck's Furniture has an ending inventory of finished goods of 400 units. The company also incurs a sales commission of $13 per unit. What is the operating income when using absorption costing? (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.) A) $828,000 B) $858,000 C) $794,200 D) $824,200
C) $794,200 Explanation: Sales ($500 x 2,600) $1,300,000 Cost of goods sold (($140+ ($90,000/ 3,000) ) x 2,600 units) $(442,000) Gross margin $858,000 Administrative expenses $(30,000) Variable selling expenses ($13 x 2,600) $(33,800) Operating income $794,200
9) Castleton Corporation manufactured 36,500 units during March. The following fixed overhead data relates to March: Actual Static Budget Production 36,500 units 35,000 units Machine-hours 5,400 hours 5,250 hours Fixed overhead costs for March $139,510 $131,250 What is the fixed overhead spending variance? A) $2,635.00 unfavorable B) $8,260.00 favorable C) $8,260.00 unfavorable D) $2,635.00 favorable
C) $8,260.00 unfavorable Explanation: Fixed overhead spending variance = $139,510 actual costs − $131,250 budgeted cost = $8,260.00 unfavorable
25) Freetown Corporation incurred fixed manufacturing costs of $34,000 during 2017. Other information for 2017 includes: The budgeted denominator level is 2,000 units. Units produced total 1,800 units. Units sold total 1,300 units. Beginning inventory was zero. The company uses absorption costing and the fixed manufacturing cost rate is based on the budgeted denominator level. Manufacturing variances are closed to cost of goods sold. Operating income using absorption costing will be ________ than operating income if using variable costing. (Round any intermediary calculations to the nearest cent and your final answer to the nearest dollar.) A) $11,900 higher B) $9,444 lower C) $8,500 higher D) $22,100 lower
C) $8,500 higher Answer: C Explanation: The fixed manufacturing expense attributable to each unit produced is $17.00 ($34,000/2,000 units). Different operating incomes are reported because the unit level of inventory increased during the accounting period by 500 units × $17.00 denominator rate = $8,500. Therefore, operating income is $8,500 higher under absorption costing because $8,500 of fixed manufacturing costs remains in inventory.
7) Heavy Products, Inc. developed standard costs for direct material and direct labor. In 2017, AII estimated the following standard costs for one of their major products, the 10-gallon plastic container. Budgeted quantity Budgeted price Direct materials 0.80 pounds $60 per pound Direct labor 0.10 hours $20 per hour During June, Heavy Products produced and sold 15,000 containers using 25,000 pounds of direct materials at an average cost per pound of $64 and 12,000 direct manufacturing labor-hours at an average wage of $21.56 per hour. June's direct material flexible-budget variance is ________. A) $60,000 unfavorable B) $100,000 favorable C) $880,000 unfavorable D) $18,720 favorable
C) $880,000 unfavorable Explanation: Flexible-budget variance = (25,000 × $64) − (15,000 × 0.80 × $60) = $880,000 U
8) If the contribution margin ratio is 0.60, targeted operating income is $95,000, and targeted sales volume in dollars is $530,000, then the degree of operating leverage is ________. A) 0.30 times B) 0.67 times C) 3.35 times D) 2.23 times
C) 3.35 times Explanation: 0.60 x $530,000 = $318,000 contribution. Operating leverage = $318,000 / $95,000 = 3.35
10) John's 8-year-old Chevrolet Trail Blazer requires repairs estimated at $7,000 to make it road worthy again. His wife, Sherry, suggested that he should buy a 5-year-old used Jeep Grand Cherokee instead for $7,000 cash. Sherry estimated the following costs for the two cars: Trail Blazer Grand Cherokee Acquisition cost $30,000 $7,000 Repairs $7,000 — Annual operating costs (Gas, maintenance, insurance) $2,580 $1,700 What should John do? What are his savings in the first year? A) Buy the Grand Cherokee; $8,700 B) Fix the Trail Blazer; $4,380 C) Buy the Grand Cherokee; $880 D) Fix the Trail Blazer; $7,247
C) Buy the Grand Cherokee; $880 Explanation: Trail Blazer ($7,000 + $2,580) - Grand Cherokee ($7,000 + $1,700) = $880 cost savings when choosing the Grand Cherokee option
6) Extracts from cost information of Hebar Corp.: Simple L3 Pack Complex L7 Pack Total Setup cost allocated using direct labor-hours $19,250 $5,750 $25,000 Setup cost allocated using setup-hours $13,400 $11,600 $25,000 Assuming that setup-hours is considered a more effective cost drive for allocating setup costs than direct labor-hours. Which of the following statements is true of Hebar's setup costs under traditional costing? A) L3 pack is undercosted by $5,850 B) L7 pack is undercosted by $5,750 C) L3 pack is overcosted by $5,850 D) L7 pack is overcosted by $5,850
C) L3 pack is overcosted by $5,850 Explanation: Setup cost allocated using direct labor-hours - Setup cost allocated using setup-hours = $19,250 − $13,400 = $5,850
3) For a company with diverse products, undercosting overhead of a product will lead to product-cross -subsidization which means that: A) direct labor costs of the product are misallocated B) direct material costs of the product are misallocated C) indirect costs of another product are misallocated D) direct costs of another product are misallocated
C) indirect costs of another product are misallocated
14) The Marietta Company has fixed costs of $75,000 and variable costs are 75% of the selling price. To realize operating income of $10,000 from sales of 80,000 units, the selling price per unit ________. (Round the answer to the nearest cent.) A) must be $1.06 B) must be $1.42 C) must be $4.25 D) must be $3.75
C) must be $4.25 Explanation: Breakeven sales = ($75,000 + $10,000) / 0.25 = $340,000 Selling price = $340,000 / 80,000 units = $4.25 per unit
10) Heavy Products, Inc. developed standard costs for direct material and direct labor. In 2017, AII estimated the following standard costs for one of their major products, the 10-gallon plastic container. Budgeted quantity Budgeted price Direct materials 0.30 pounds $90 per pound Direct labor 0.25 hours $30 per hour During June, Heavy Products produced and sold 15,000 containers using 2,400 pounds of direct materials at an average cost per pound of $92 and 3,750 direct manufacturing labor-hours at an average wage of $91.25 per hour. The direct manufacturing labor efficiency variance during June is ________. A) $85,547 unfavorable B) $229,687.5 favorable C) $918,750 unfavorable D) $0
D) $0 Explanation: Direct manufacturing labor efficiency variance = [3,750 dlh − (15,000 × 0.25)] × $30 = $0
10) If the contribution margin ratio is 0.25, targeted operating income is $50,000, and targeted sales volume in dollars is $260,000, then total fixed costs are ________. A) $35,000 B) $210,000 C) $157,500 D) $15,000
D) $15,000 Explanation: (X + $50,000)/0.25 = $260,000; X = 15,000
12) Stefan Ceramics is in the business of selling ceramic vases. It has two departments - molding and finishing. Molding department purchases tungsten carbide and produces ceramic vases out of it. Ceramic Vases are then transferred to finishing department, which designs it as per the requirement of the customers. During the month of July, molding department purchased 720 kgs of tungsten carbide at $280 per kg. It started manufacture of 4200 vases and completed and transferred 3200 vases during the month. It has 1000 vases in the process at the end of the month. It incurred direct labor charges of $1900 and other manufacturing costs of $500, which included electricity costs of $900. Stefan had no inventory of tungsten carbide at the end of the month. It also had no beginning inventory of vases. The ending inventory was 45% complete in respect of conversion costs. What is the cost of tungsten carbide that will be assigned to vases finished and transferred to the finishing department for the month of July? A) $201,600 B) $156,900 C) $189,280 D) $153,600
D) $153,600 Explanation: Tungsten carbide cost per unit = [(720 × 280) / 4200] = $48 per unit Cost of Tungsten carbide that will be assigned to vases finished and transferred to the finishing department = $48 × 3200 units = $153,600
8) Smith Office Equipment Company's budgeted manufacturing overhead is $5,400,000. Overhead is allocated on the basis of direct labor hours. The budgeted direct labor hours for the period are 30,000. What is the manufacturing overhead rate? A) $15.00 B) $54.00 C) $195.00 D) $180.00
D) $180.00 Explanation: $5,400,000 / 30,000 hours = $180.00
4) Charlie Chairs Inc., manufactures plastic moldings for car seats. Its costing system utilizes two cost categories, direct materials and conversion costs. Each product must pass through Department A and Department B. Direct materials are added at the beginning of production. Conversion costs are allocated evenly throughout production. Data for Department A for February 2017 are: Work in process, beginning inventory, 30% converted 200 units Units started during February 1000 units Work in process, ending inventory 240 units Costs for Department A for February 2017 are: Work in process, beginning inventory: Direct materials $150,000 Conversion costs $208,000 Direct materials costs added during February $606,000 Conversion costs added during February $431,000 What is the unit cost per equivalent unit of beginning inventory in Department A? (Round the final answer to the nearest whole dollar.) A) $750 B) $2717 C) $3735 D) $4217
D) $4217 Explanation: Direct materials per unit ($150,000 / 200 units) $750 Conversion costs per unit ($208,000 / (200 × 0.3) units) 3467 Total costs per unit $4217
19) Lazy Guy Corporation manufactured 6,000 chairs during June. The following variable overhead data relates to June: Budgeted variable overhead cost per unit $10.00 Actual variable manufacturing overhead cost $52,800 Flexible-budget amount for variable manufacturing overhead $46,900 Variable manufacturing overhead efficiency variance $790 unfavorable What is the variable overhead spending variance? A) $5,110 favorable B) $5,900 favorable C) $5,900 unfavorable D) $5,110 unfavorable
D) $5,110 unfavorable Explanation: Variable overhead flexible-budget variance = $52,800 - $46,900 = $5,900 (U) Variable overhead spending variance = $5,900 (U) − $790 (U) = $5,110 (U)
10) Swan Textiles Inc. produces and sells a decorative pillow for $98.00 per unit. In the first month of operation, 2,200 units were produced and 1,800 units were sold. Actual fixed costs are the same as the amount budgeted for the month. Other information for the month includes: Variable manufacturing costs $22.00 per unit Variable marketing costs $3.90 per unit Fixed manufacturing costs $14 per unit Administrative expenses, all fixed $19.50 per unit Ending inventories: Direct materials -0- WIP -0- Finished goods 400 units What is the operating income using variable costing? A) $129,780 B) $69,480 C) $104,580 D) $56,080
D) $56,080 Explanation: Total sales = $98.00 x $1,800 = $176,400 Total variable costs = ($22.00 x $1,800) + ($3.90 x $1,800) = $46,620 Contribution margin = $176,400 - $46,620 = $129,780 The fixed costs component = (2,200 units × ($14 + $19.50) = $73,700 Therefore, the operating income under variable costing = $129,780 - $73,700 = $56,080
6) For 2018, Franklin Manufacturing uses machine-hours as the only overhead cost-allocation base. The estimated manufacturing overhead costs are $300,000 and estimated machine hours are 50,000. The actual manufacturing 6overhead costs are $420,000 and actual machine hours are 60,000. Using job costing, the 2018 budgeted manufacturing overhead rate is ________. (Round the final answer to the nearest cent.) A) $8.40 per machine-hour B) $5.00 per machine-hour C) $7.00 per machine-hour D) $6.00 per machine-hour
D) $6.00 per machine-hour Explanation: $300,000 / 50,000 mh = $6.00 per machine-hour
16) Dalrymple Company produces a special spray nozzle. The budgeted indirect total cost of inserting the spray nozzle is $68,750. The budgeted number of nozzles to be inserted is 11,000. What is the budgeted indirect cost allocation rate for this activity? A) $0.16 B) $0.32 C) $1.16 D) $6.25
D) $6.25 Explanation: $68,750 / 11,000 = $6.25