Accounting Midterm

If the beginning merchandise inventory is $10,000. the merchandise purchases are $110,000, and the ending merchandise inventory is $20,000, then the cost of goods sold must be

$100,000

If the beginning merchandise inventory is $10,000. the merchandise purchases are $120,000, and the ending merchandise inventory is $20,000, then the cost of goods sold must be

$110,000

Which of the following statements is true with respect to a contribution format income statement?

It subtracts variable expenses from sales to derive a contribution margin

A document that records the materials, labor, and manufacturing overhead charged to a specific job is called a

Job cost sheet

CVP analysis is a tool to easily calculate profit, given per unit selling price and variable costs, sales volume, and total fixed costs.

True

Which of the following statements is true?

A common cost is a type of indirect cost

Fawn Company's margin of safety is $90,000. If the company's sales drop by $80,000, it will still have positive net operating income

True

Most countries require some form of absorption costing for external reports

True

The break-even point in units can be obtained by dividing total fixed expenses by the unit contribution margin

True

The margin of safety is the amount by which sales can decrease before losses are incurred by the company

True

In normal costing, overhead is applied to production using

A predetermined overhead rate

Spending Variance =

Actual expense - Expense in the flexible budget

Supplies expense in the flexible budget =

Actual level of activity x Cost formula

Which of the following is not part of work-in-process inventory?

Actual manufacturing overhead

Assume that a company's planned level of activity is 1,000 hours and its actual level of activity is 1,100 hours. Based on this information, the company's activity variances for its variable expenses will

All be unfavorable

Overapplied or underapplied overhead is computed

At the end of the period

When preparing financial statements in a job order costing system, finished goods inventory flow first to the

Balance sheet and then to the income statement

The unadjusted cost of goods sold is calculated using which of the following equations

Beginning finished goods inventory + Cost of goods manufactured − Ending finished goods inventory

"Cost flows" refers to how costs flow to the

Both the balance sheet and the income statement

Finished goods inventory consists of product that are

Completed

Which of the following statements is true?

Contribution margin ‒ fixed expenses = net operating income

The manufacturing cost category that refers to the sum of direct labor costs and manufacturing overhead cost is called

Conversion cost

True or False? Management by exception compares actual results to a budget so that significant deviations can be flagged and investigated further

True

True or false? Overapplied or Underapplied overhead is the difference between actual total overhead and total overhead applied

True

Underapplied or overapplied overhead occurs because overhead is applied to jobs based on estimates of costs and activity levels.

True

Assume that a company's planned level of activity is 1,100 hours and its actual level of activity is 1,000 hours. Based on this information, the company's activity variance for revenue will be

Unfavorable

Cost classifications used for predicting cost behavior include

Variable cost and fixed cost

Which of the following is not one of the three inventory accounts reported on the balance sheet

Cost of goods sold

Which of the following statements is true with respect to the cost of goods sold equation?

Cost of goods sold = beginning merchandise inventory + purchases − ending merchandise inventory

Cost Classifications used for assigning costs to cost objectives include

Direct and indirect costs

Which of the following is a product cost

Direct materials

In manufacturing companies what categories of costs are included in product costs

Direct materials, Direct labor, and manufacturing overhead

A cost driver is a factor that causes direct costs

False

A paycheck is an hour-by-hour summary of the employee's activities throughout the day

False

An employee W2 is an hour-by-hour summary of the employee's activities throughout the day

False

CVP analysis investigates company personnel policies, business values, and performance measures for a specific company.

False

If the allocation base in the predetermined overhead rate does not drive overhead costs, it will nevertheless provide reasonably accurate unit product costs because of the averaging process

False

In absorption costing, nonmanufacturing costs are assigned to units of product

False

The margin of safety percentage is equal to the margin of safety in dollars divided by total contribution margin

False

The total volume in sales dollars that would be required to attain a given target profit is determined by dividing the target profit by the contribution margin ratio

False

True or False? Direct labor costs flow through the Raw materials inventory account.

False

True or False? Period costs flow from finished goods to cost of goods sold.

False

True or False? Planning budgets are sometimes called flexible budgets

False

Assume that a company's planned level of activity is 1,000 hours and its actual level of activity is 1,100 hours. Based on this information, the company's activity variance for revenue will be

Favorable

When jobs are sold their costs are transferred out of

Finished goods inventory

An estimate of what revenue and costs should have been based on the actual level of activity is shown on a

Flexible Budget

A revenue variance is calculated by comparing the

Flexible budget to the actual results

A spending variance is calculated by comparing the

Flexible budget to the actual results

An activity variance is calculated by comparing the

Planning budget to the flexible budget

If sales are $100,000, fixed expenses are $30,000, and variable expenses are $57,000, then the contribution margin must be

$43,000

If sales are $100,000, fixed expenses are $30,000, and variable expenses are $50,000, then the contribution margin must be

$50,000

Assume the company uses a plantwide rate based on direct labor hours to apply manufacturing overhead. The (1) estimated fixed manufacturing overhead for the coming period of $220,000, (2) estimated variable manufacturing overhead of $2.00 per direct labor hour, and (3) estimated direct labor-hours to be worked in the coming period of 55,000 hours. The predetermined plantwide overhead rate for the period is closest to

$6.00

At the beginning of the year, a company estimated a predetermined plantwide overhead rate of $8.50 per machine-hour. Job X used 20 machine-hours and it was charged $200 and $288 for direct materials and direct labor, respectively. What is the total job cost for Job X

$658

If sales are $100,000, fixed expenses are $32,500, and the contribution margin is $40,000, then the net operating income must be

$7,500

Shawn McIntyre company sells one product. Management has provided you with the (1) selling price per unit = $30, (2) variable expense per unit = $18, and (3) total fixed expenses = $32,700. Given these three assumptions, the unit sales needed to break-even is

2,725 units

Work in process inventory consists of product that are

Partially complete

In a job-order costing system that is based on machine-hours, which of the following formulas is correct

Predetermined overhead rate = Estimated manufacturing overhead ÷ Estimated machine-hours

Cost classifications used for preparing GAAP financial statements include

Product cost and period cost

Which of the following is an example of a cost objective

Products, customers, and jobs

Which of the following costs are found on the balance sheet?

Raw materials, Direct labor, and Manufacturing overhead

Revenue variance =

Revenue in the flexible budget - Actual revenue

Which of the following statements is true?

Sales ‒ variable expenses = contribution margin

Assume that a company purchased a piece of equipment five years ago for $250,000. Now the company is deciding whether to replace this piece of equipment with a newer model. In this "keep or replace" decision, the purchase price of the old piece of equipment is an example of a

Sunk Cost

In the equation, y = a + bX, the X represents

The level of activity

Which of the following statements is true

The numerator in a predetermined overhead rate is estimated using the formula Y = a

In the equation, y = a + bX, the A represents

The total fixed cost

In the equation, y = a + bX, the Y represents

The total mixed cost

In the equation, y = a + bX, the B represents

The variable cost per unit of activity

Margin of safety =

Total Sales - Break Even Sales

Break- even point =

Total fixed expenses / contribution margin

A cost driver is a factor that causes indirect costs

True

A cost that differs from one alternative to another is known as differential cost

True

The cost of goods manufactured is

the amount transferred from Work in Process to Finished Goods

A predetermined overhead rate includes

the estimated total amount of the allocation base in the denominator