ACCT 330 - Exam 1

Pederson Company reported the following: Manufacturing costs $2,000,000 Units manufactured 50,000 Units sold 47,000 units sold for $75 per unit Beginning inventory 0 units What is the amount of gross profit margin?

$1,645,000 47,000 × ($75 - ($2,000,000 / $50,000)) = $1,645,000

Pederson Company reported the following: Manufacturing costs $150,000 Units manufactured 5,000 Units sold 4,700 units sold for $75 per unit Beginning inventory 100 units What is the manufacturing cost for the ending finished goods inventory?

$12,000 (100 + 5,000 - 4,700 ) × 30 = $12,000

Genosis Metals provided the following information for last month: Sales $20,000 Variable costs 8,000 Fixed costs 4,000 Operating income $8,000 If sales reduce to half the amount in the next month, what is the projected operating income?

$2,000 Projected operating income = ($20,000 × 0.5) − ($8,000 × 0.5) − $4,000 = $2,000

Buildz Manufacturing currently produces 1,000 tables per month. The following per unit data for 1,000 tables apply for sales to regular customers: Direct materials $50 Direct manufacturing labor 10 Variable manufacturing overhead 15 Fixed manufacturing overhead 30 Total manufacturing costs $105 The plant has capacity for 3,000 tables and is considering expanding production to 3,000 tables. What is the total cost of producing 3,000 tables?

$255,000 [($50 + $10 + $15) × 3,000 units] + ($30 × 1,000 units) = $255,000

Pederson Company reported the following: Manufacturing costs $150,000 Units manufactured 5,000 Units sold 4,700 units sold for $75 per unit Beginning inventory 100 units What is the average manufacturing cost per unit?

$30.00 $150,000 / 5,000 = $30.00

Grip Manufacturing currently produces 1,000 tires per month. The following per unit data for 1,000 tires apply for sales to regular customers: Direct materials $30 Direct manufacturing labor 5 Variable manufacturing overhead 8 Fixed manufacturing overhead 12 Total manufacturing costs $55 The plant has capacity for 3,000 tires and is considering expanding production to 2,000 tires. What is the total cost of producing 2,000 tires?

$98,000 Total cost of producing 2,000 tires = [($30 + $5 + $8) × 2,000 units] + ($12 × 1,000 units) = $98,000

________ sector companies purchase materials and components and convert them into finished goods.

Manufacturing

Which one of the following items is a direct cost?

Printing costs incurred for payroll check processing; payroll check processing is the cost object.

A cost system determines the cost of a object by

accumulating and then assigning costs

The following information pertains to Alleigh's Mannequins: Manufacturing costs $1,500,000 Units manufactured 30,000 Units sold 29,500 units sold for $85 per unit Beginning inventory 0 units What is the amount of gross margin?

$1,032,500 29,500 × ($85 - ($1,500,000 / $30,000)) = $1,032,500

The following information pertains to Razor's Corp: Manufacturing costs $135,000 Units manufactured 15,000 Units sold 12,000 units sold for $15 per unit Beginning inventory $3,500 What is the average manufacturing cost per unit?

$9.00 $135,000 / 15,000 = $9.00

Which of the following statements about the direct/indirect cost classification is true?

Indirect costs are always allocated

Which of the following is a fixed cost?

monthly rent payment

a cost object is anything for which a cost measurement is desired

true

accountants define a cost as a resource to be sacrificed to achieve a specific objective

true

an actual cost is the cost incurred- a historical or past cost

true

When 20,000 units are produced, variable costs are $8 per unit. Therefore, when 10,000 units are produced ________.

variable costs will remain at $8 per unit

Outside the relevant range, variable costs, such as direct material costs ________.

will not change proportionately with changes in production volumes

Eigen Manufacturing Corp. provided the following information for last month: Sales $40,000 Variable costs 14,000 Fixed costs 10,000 Operating income $16,000 If sales reduce to half of the amount in the next month, what is the projected operating income?

$3,000 Projected operating income = ($40,000 / 2) − ($14,000 / 2) − $10,000 = $3,000

The following information pertains to Razor's Corp: Manufacturing costs $135,000 Units manufactured 15,000 Units sold 12,000 units sold for $15 per unit Beginning inventory $3,500 What is the manufacturing cost for the ending finished goods inventory?

$30,500 Ending finished inventory = $3,500 + (15,000 - 12,000) × $9 = $30,500

Zephyr Apparels is a clothing retailer. Unit costs associated with one of its products, Product DCT121, are as follows: Direct materials $ 70 Direct manufacturing labor 20 Variable manufacturing overhead 15 Fixed manufacturing overhead 32 Sales commissions (2% of sales) 5 Administrative salaries 16 Total $158 What are the indirect nonmanufacturing variable costs per unit associated with Product DCT121?

$5 Indirect variable costs = Sales commissions = $5

Ridez Manufacturing currently produces 1,000 bicycles per month. The following per unit data apply for sales to regular customers: Direct materials $50 Direct manufacturing labor 8 Variable manufacturing overhead 12 Fixed manufacturing overhead 15 Total manufacturing costs $85 The plant has capacity for 3,000 bicycles and is considering expanding production to 2,000 bicycles. What is the per unit cost of producing 2,000 bicycles?

$77.50 per unit Cost of producing 2,000 bicycles = [($50 + $8 + $12) × 2,000 units] + ($15 × 1,000 units) = $155,000 / 2,000 units = $77.50

Buildz Manufacturing currently produces 1,000 tables per month. The following per unit data for 1,000 tables apply for sales to regular customers: Direct materials $50 Direct manufacturing labor 10 Variable manufacturing overhead 15 Fixed manufacturing overhead 30 Total manufacturing costs $105 What is the per unit cost when producing 3,000 tables? A) $58.33 B) $175.00 C) $85.00 D) $125.45

$85.00 $255,000 / 3,000 = $85

Zephyr Apparels is a clothing retailer. Unit costs associated with one of its products, Product DCT121, are as follows: Direct materials $ 70 Direct manufacturing labor 20 Variable manufacturing overhead 15 Fixed manufacturing overhead 32 Sales commissions (2% of sales) 5 Administrative salaries 16 Total $158 What are the direct variable manufacturing costs per unit associated with Product DCT121?

105 Direct variable manufacturing costs = $70 + $20 + $15 = $105

The East Company manufactures several different products. Unit costs associated with Product ORD210 are as follows: Direct materials $54 Direct manufacturing labor 8 Variable manufacturing overhead 11 Fixed manufacturing overhead 25 Sales commissions (2% of sales) 5 Administrative salaries 12 Total $115 What is the percentage of the total fixed costs per unit associated with Product ORD105 with respect to total cost?

28% $25 + 10 = $35/125 = 28%

The East Company manufactures several different products. Unit costs associated with Product ORD210 are as follows: Direct materials $54 Direct manufacturing labor 8 Variable manufacturing overhead 11 Fixed manufacturing overhead 25 Sales commissions (2% of sales) 5 Administrative salaries 12 Total $115 What is the percentage of the total variable costs per unit associated with Product ORD105 with respect to total cost?

72% $60 + $10 + $15 + $5 = $90/125 = 72%

Archambeau Products Company manufactures office furniture. Recently, the company decided to develop a formal cost accounting system and classify all costs into three categories. Categorize each of the following items as being appropriate for (1) cost tracing to the finished furniture, (2) cost allocation of an indirect manufacturing cost to the finished furniture, or (3) as a nonmanufacturing item. Cost Cost Nonmanu- Item Tracing Allocation facturing Carpenter wages ________ ________ ________ Depreciation - office building ________ ________ ________ Glue for assembly ________ ________ ________ Lathe department supervisor ________ ________ ________ Lathe depreciation ________ ________ ________ Lathe maintenance ________ ________ ________ Lathe operator wages ________ ________ ________ Lumber ________ ________ ________ Samples for trade shows ________ ________ ________ Metal brackets for drawers ________ ________ ________ Factory washroom supplies ________ ________ ________

Answer: Cost Cost Nonmanu- Item Tracing Allocation facturing Carpenter wages X Depreciation - office building X Glue for assembly X Lathe department supervisor X Lathe depreciation X Lathe maintenance X Lathe operator wages X Lumber X Samples for trade shows X Metal brackets for drawers X Factory washroom supplies X

Butler Hospital wants to estimate the cost for each patient stay. It is a general health care facility offering only basic services and not specialized services such as organ transplants. Required: a. Classify each of the following costs as either direct or indirect with respect to each patient. b. Classify each of the following costs as either fixed or variable with respect to hospital costs per day. Direct Indirect Fixed Variable Electronic monitoring ________ ________ ________ ________ Meals for patients ________ ________ ________ ________ Nurses' salaries ________ ________ ________ ________ Parking maintenance ________ ________ ________ ________ Security ________ ________ ________ ________

Answer: Direct Indirect Fixed Variable Electronic monitoring X X Meals for patients X X Nurses' salaries X X Parking maintenance X X Security X X

Which of the following companies is part of the merchandising sector of our economy? A) Jaguar B) Hewlett Packard C) Arrow Electronics D) Michael Toback Accounting Firm

Arrow Electronics

Lucas Manufacturing has three cost objects that it uses to accumulate costs for its manufacturing plants. They are: Cost object #1: The physical buildings and equipment Cost object #2: The use of buildings and equipment Cost object #3: The availability and use of manufacturing labor The following manufacturing overhead cost categories are found in the accounting records: a. Depreciation on buildings and equipment b. Lubricants for machines c. Property insurance d. Supervisors salaries e. Fringe benefits f. Property taxes g. Utilities Required: Assign each of the above costs to the most appropriate cost object

Cost object # 1 includes categories a, c, and f. Cost object # 2 includes categories b and g. Cost object # 3 includes categories d and e.

What are the differences between direct costs and indirect costs? Give an example of each.

Direct costs are costs that can be traced easily to the product manufactured or the service rendered. Examples of direct costs include direct materials and direct manufacturing labor used in a product. Indirect costs cannot be easily identified with individual products or services rendered, and are usually assigned using allocation formulas. In a plant that manufactures multiple products, examples of indirect costs include the plant supervisor's salary and the cost of machines used to produce more than one type of product.

Which of the following companies is part of the merchandising sector of our economy? A) Jaguar B) Hewlett Packard C) Arrow Electronics D) Michael Toback Accounting Firm

Ernst & Young

The list of representative cost drivers in the right column below are randomized with respect to the list of functions in the left column. That is, they do not match. Function Representative Cost Driver 1. Purchasing A. Number of employees 2. Billing B. Number of shipments 3. Shipping C. Number of customers 4. Computer Support D. Number of invoices 5. Personnel E. Number of desktop computers 6. Customer Service F. Number of purchase orders Required: Match each business function with its representative cost driver. Function Insert letter of appropriate driver (A through F) 1. Purchasing 2. Billing 3. Shipping 4. Computer Support 5. Personnel 6. Customer Service

Function Insert letter of appropriate driver (A through F) 1. Purchasing F 2. Billing D 3. Shipping B 4. Computer Support E 5. Personnel A 6. Customer Service C

Which of the following is true of indirect costs?

Indirect costs cannot be traced to a particular cost object in an economically feasible way.

What are the factors that affect the classification of a cost as direct or indirect?

Several factors affect whether a cost is classified as direct or indirect: The materiality of the cost in question. The smaller the amount of a cost-that is, the more immaterial the cost is-the less likely it is economically feasible to trace it to a particular cost object. Available information-gathering technology. Improvements in information-gathering technology make it possible to consider more and more costs as direct costs. Design of operations. Classifying a cost as direct is easier if a company's facility (or some part of it) is used exclusively for a specific cost object, such as a specific product or a particular customer.

Samiera, Inc., reports the following information for September sales: Sales $60,000 Variable costs 12,000 Fixed costs 16,000 Operating income $ 32,000 Promotional expenses for September were $1,000. Required: If sales double in October, what is the impact on the variable costs?

The variable costs also double up to $12,000 × 2 = $24,000. Promotional expenses are variable costs and are already included in $12,000.

XIAN Manufacturing produces a unique valve, and has the capacity to produce 50,000 valves annually. Currently XIAN produces 40,000 valves and is thinking about increasing production to 45,000 valves next year. What is the most likely behavior of total manufacturing costs and unit manufacturing costs given this change?

Total manufacturing costs will increase and unit manufacturing costs will decrease.

Describe a variable cost. Describe a fixed cost. Explain why the distinction between variable and fixed costs is important in cost accounting.

Total variable costs increase with increased production or sales volumes. Fixed costs are not influenced by fluctuations in production or sales volumes. However, variable cost per unit remains the same at all levels of production and fixed cost per unit reduces with increase in production. Without the knowledge of cost behaviors, budgets and other forecasting tools will be inaccurate and unreliable. Understanding whether a cost behaves as a variable or a fixed cost is essential to estimating and planning for business success.

During 2015, Fly High Corporation incurred manufacturing expenses of $200,000 to produce 40,000 finished units. It was determined that 35,000 units were sold by November end while 5,000 units remained in ending inventory. The storage cost for December is $0.5 per unit. Required: a. What is the cost of producing one unit? b. What is the amount that will be reported on the income statement for cost of goods sold? c. What is the cost incurred for storing the inventory?

a. $2000,000 / 40,000 = $5 b. 35,000 units × $5 = $175,000 c. 5,000 units × $0.5 = $2,500

Glass House Manufacturing currently produces 1,000 glasses per month. The following per unit data for thousand apply for sales to regular customers: Direct materials $250 Direct manufacturing labor 40 Variable manufacturing overhead 70 Fixed manufacturing overhead 50 Total manufacturing costs $410 The plant has capacity for 2,000 glasses. Plant supervisor's salary is $15,000. Required: a. What is the total cost of producing 1,000 glasses? b. What is the total cost of producing 1,500 glasses? c. What is the per unit cost when producing 1,500 glasses?

a. [($250 + $40 + $70) × 1,000 units] + ($50 × 1,000 units) = $410,000 Plant supervisor's salary is already included in fixed manufacturing overhead hence not added. b. [($250 + $40 + $70) × 1,500 units] + $50,000 = $590,000 c. $590,000 / 1,500 = $393.33 per unit

Which of the following is a fixed cost for an automobile manufacturing plant?

administrative salaries

Fixed costs depend on the ________.

amount of resources acquired

At a plant where a union agreement sets annual salaries and conditions, annual labor costs usually ________.

are considered a fixed cost

If each motorcycle requires a belt that costs $20 and 2,000 motorcycles are produced for the month, the total cost for belts is ________.

considered to be a direct variable cost

Comparing budgeted costs to actual costs helps managers to improve

control

The general term used to identify both the tracing and the allocation of accumulated costs to a cost object is ________.

cost assignment

The determination of a cost as either direct or indirect depends upon the ________.

cost object chosen

Wages paid to machine operators on an assembly line are classified as a ________.

direct manufacturing labor cost

A unit cost is computed by ________.

dividing total cost by the number of units produced

Which one of the following is a variable cost for an insurance company?

electricity expenses

Cost assignment

encompasses allocating indirect costs to a cost object

Variable costs depend on the resources used.

false

The distinction between direct and indirect costs is clearly set forth in Generally Accepted Accounting Principles (GAAP).

false: The distinction between direct and indirect costs is not set forth in GAAP. Direct costs of a cost object are related to the particular cost object and can be traced to it in an economically feasible (cost-effective) way. Indirect costs of a cost object are related to the particular cost object but cannot be traced to it in an economically feasible (cost-effective) way.

The smaller the amount of a cost the more likely it is economically feasible to trace it to a particular cost object

false: The smaller the amount of a cost the less likely it is economically feasible to trace it to a particular cost object

Assigning indirect costs is easier than assigning direct costs

false: Tracing direct costs is quite straightforward, whereas assigning indirect costs to a number of different cost objects can be very challenging

Variable costs per unit vary with the level of production or sales volume

false: Variable costs per unit are constant with the level of production or sales volume.

costs are accounted for in two basic stages: assignment followed by accumulation

false: accumulation followed by assignment

Which of the following is true if the production volume decreases?

fixed cost per unit increases

Cost behavior refers to ________.

how costs react to a change in the level of activity

Variable costs ________.

increase in total when the actual level of activity increases

When 20,000 units are produced, fixed costs are $16 per unit. Therefore, when 16,000 units are produced, fixed costs will ________.

increase to $20 per unit Fixed costs are $320,000 ($16 × 20,000 units). Dividing $320,000 by 16,000 units = $20.

An actual cost is

is the cost incurred

Indirect manufacturing costs ________.

may include both variable and fixed costs

A manufacturing plant produces two product lines: golf equipment and soccer equipment. An example of direct costs for the golf equipment line is ________.

monthly lease payments for a specialized piece of equipment needed to manufacture the golf driver

The most likely cost driver of distribution costs is the ________. A) number of parts within the product B) number of miles driven C) number of products manufactured D) number of production hours

number of miles driven

The most likely cost driver of direct labor costs is the ________. A) number of machine setups for the product B) number of miles driven C) number of production hours D) number of machine hours

number of production hours

Budgeting costs are

planned or forecasted costs

Maize Plastics manufactures and sells 50 bottles per day. Fixed costs are $30,000 and the variable costs for manufacturing 50 bottles are $10,000. Each bottle is sold for $1,000. How would the daily profit be affected if the daily volume of sales drop by 10%?

profits are reduced by $4,000 Variable cost per unit = $10,000 / 50 = $200 Profit for 50 bottles = ($1,000 × 50) - ($30,000 + $10,000) = $10,000 Sales after 10% drop = 50 × (1 - 0.10) = 45 Profit for 45 bottles = ($1,000 × 45) - ($30,000 + (45 × 200))= $6,000 Change in profit = $10,000 - $6,000 = $4,000. Hence, the profit has decreased by $4,000.

Service-sector companies ________.

provide intangible products

Merchandising-sectors ________.

purchase and then sell tangible products without changing their basic form

There is a cause-and-effect relationship between the cost driver and the amount of cost.

relevant range

A manufacturing plant produces two product lines: golf equipment and soccer equipment. An example of indirect cost for the soccer equipment line is the ________.

salary paid to plant supervisor

Cost tracing is ________.

the assignment of direct costs to the chosen cost object

Cost allocation is ________.

the assignment of indirect costs to the chosen cost object

Cost accumulation is ________.

the collection of cost data in some organized way by means of an accounting system

Which of the following factors affect the direct/indirect classification of a cost?

the design of the operation

Which of the following is a cost driver for a company's human resource costs? A) the number of employees in the company B) the number of job applications processed C) the number of units sold D) the square footage of the office space used by the human resource department

the number of job applications processed

In making product mix and pricing decisions, managers should focus on ________.

total costs

Within the relevant range, if there is a change in the level of the cost driver, then ________.

total fixed costs will remain the same and total variable costs will change

A cost driver is a variable, such as the level of activity or volume that causally affects costs over a given time span.

true

A cost may be direct for one cost object and indirect for another cost object.

true

A direct cost of one cost object can be an indirect cost of another cost object

true

A direct cost of one cost object can be an indirect cost of another cost object.

true

A fixed cost is fixed only in relation to a given wide range of total activity or volume and only for a given time span, usually a particular budget period.

true

A fixed cost remains unchanged in total for a given time period, despite wide changes in the related level of total activity or volume of output produced.

true

A unit cost is also called an average cost.

true

Although unit costs are regularly used in financial reports and for making product mix and pricing decisions, managers should think in terms of total costs rather than unit costs for making decisions.

true

An appropriate cost driver for shipping costs might be the number of units shipped.

true

Because of a cost-benefit tradeoff, some direct costs may be treated as indirect costs.

true

Fixed cost per unit reduces with an increase in production volume

true

Improvements in information-gathering technologies are making it possible to trace more costs as direct.

true

The broader the cost object definition, higher the proportion of direct costs are of total costs

true

The cost of electricity used in the production of multiple products would be classified as a indirect cost.

true

There is a cause-and-effect relationship between the cost driver and the amount of cost.

true

When making decisions for product mix or and pricing, the focus should be on total costs and not unit costs.

true

Wood used to manufacture chairs is considered a direct variable cost.

true

a cost is a resource sacrificed or forgone to achieve a specific objective

true

managers use cost accumulation data to make decisions and implement them

true

Which of the following is true if the volume of sales increases?

variable cost increases