ACT 650 Exam 1

Guaranteed Appliance Co. produces washers and dryers in an assembly-line process. Labor costs incurred during a recent period were: corporate executives, $500,000; assembly-line workers, $180,000; security guards, $45,000; and plant supervisor, $110,000. The total of Guaranteed's direct labor cost was:

180,000

Which of the following would not be part of a value chain for a fast food restaurant?

All of the choices are a part of the value chain.

Comparing a Sheraton Hotel's room rate structure, occupancy rate, and restaurant patronage with industry averages.

Assisting the organizations competitive position and working with other managers to ensure the organizations long-run competitiveness in its industry

What is Barnett's pool rate for the automated machinery activity?

Automated machinery activity costs ÷ Sum of machine hours for each category = $840,000 ÷ [(10,000 × 1) + (5,000 × 3) + (2,000 × 5)] = $24 per machine hour.

Which of the following statements represents a similarity between financial and managerial accounting?

Both draw upon data from an organization's accounting system.

When underapplied or overapplied manufacturing overhead is prorated, amounts can be assigned to which of the following accounts?

Cost of Goods Sold, Work-in-Process Inventory, and Finished-Goods Inventory.

Which of the following is not an ethical standard of managerial accounting?

Efficiency

Consider the following statements regarding traditional costing systems: I. Overhead costs are applied to products on the basis of volume-related measures. II. All manufacturing costs are easily traceable to the goods produced. III. Traditional costing systems tend to distort unit manufacturing costs when numerous goods are made that have widely varying production requirements. Which of the above statements is (are) true?

I and III

Which of the following perspectives is normally absent in a balanced scorecard? Financial. Customer. Internal operations. Learning and innovation/growth. None of these choices are correct.

None of these choices are correct.

What is Barnett's pool rate for the packaging activity?

Packaging activity costs ÷ sum of order numbers = $170,000 ÷ [(1,000) + (500) + (200)] = $100 per order shipped.

Skyline Florists uses an activity-based costing system to compute the cost of making floral bouquets and delivering the bouquets to its commercial customers. Company personnel who earn $180,000 typically perform both tasks; other firm-wide overhead is expected to total $70,000. These costs are allocated as follows: Skyline anticipates making 20,000 bouquets and 4,000 deliveries in the upcoming year. The cost of wages and salaries and other overhead that would be charged to each bouquet made is:

Percentage of each type of labor that goes to bouquet production ÷ Number of Bouquets= [($180,000 × 60%) + ($70,000 × 50%)] ÷ 20,000 = $7.15

Which of the following acts strives to improve corporate governance and the quality of corporate accounting/reporting?

Sarbanes-Oxley.

Which of the following is not an element of competency?

To refrain from engaging in an activity that would discredit the accounting profession.

The journal entry needed to record $5,000 of advertising for Oxner Manufacturing would include:

a debit to Advertising Expense.

Costs that can be easily traced to a specific department are called:

direct costs.

Managerial accounting:

focuses primarily on the needs of personnel within the organization.

Which of the following is not an action performed in combination with information to pursue the goals of managerial accounting?

invent

Which type of production process is ideal for a low production volume and one-of-a-kind products?

job shop

Throughput time includes the time required for all of these except:

the time a salesman spends with a customer.

The upper limit on the production of goods and services if everything works perfectly is known as:

theoretical capacity.

In an activity-based costing system, direct materials used would typically be classified as a:

unit-level cost.

The accounting records of Dixon Company revealed the following costs: direct materials used, $250,000; direct labor, $425,000; manufacturing overhead, $375,000; and selling and administrative expenses, $220,000. Dixon's product costs total:

$1,050,000. Product costs = Direct materials used + Direct labor + Manufacturing overhead = $250,000 + $425,000 + $375,000 = $1,050,000

Given the following information, what is the total cost of unused capacity? Cost of material supplied is $3,200; Cost of material used is $3,000; Cost of material used per cake is $3; Cost of material supplied per cake is $3.20.

$200

Comparing the actual and planned cost of a consulting engagement completed by an engineering firm such as Allied Engineering.

Assisting managers in directing and controlling operational activities measuring the performance of activities, subunits, managers and other employees within the organization

Which of the following choices correctly depicts a cost that arises from a batch-level activity and one that arises from a facility-level activity?

Batch-Level Activity Facility-Level Activity Inspection Property taxes

Terrence Industries charges manufacturing overhead to products by using a predetermined application rate, computed on the basis of labor hours. The following data pertain to the current year: Which of the following choices is the correct status of manufacturing overhead at year-end?

Budgeted cost ÷ budgeted hours = Predetermined rate = $1,800,000 ÷ 60,000 = $30; Actual hours × predetermined rate = Amount applied = 61,500 × $30 = $1,845,000; Applied OH − actual OH = Overapplied overhead = $1,845,000 − $1,810,000 = $35,000 overapplied.

The chief managerial and financial accountant of an organization is the:

CFO

Which of the following employees at Clear Flights would not be considered as holding a line position?

CFO

The accounting records of Upton Company revealed the following information: Upton's cost of goods sold is:

Cost of Goods Sold = Cost of goods manufactured − change in Finished Goods = $754,000 − ($158,000 − $125,000) = $721,000.

Dorsett Technologies had finished goods inventory on January 1, 20X8 of $29,300 and finished goods inventory on December 31, 20X8 of $24,100. If the cost of goods manufactured for the year was $385,000, what was the cost of goods sold for the year?

Cost of Goods sold = Cost of Goods manufactured + Change in Finished goods balances = $385,000 + ($29,300 − $24,100) = $390,200.

The accounting records of Falcon Company revealed the following information: Falcon's cost of goods manufactured is:

Cost of goods manufactured = [Raw materials + Direct labor + Manufacturing Overhead] − Change in WIP = [$60,000 + $125,000 + $360,000] − ($76,000 − $50,000) = $519,000

Harrison Industries began July with a finished-goods inventory of $48,000. The finished-goods inventory at the end of July was $56,000 and the cost of goods sold during the month was $125,000. The cost of goods manufactured during July was:

Cost of goods manufactured in July = (Ending finished goods − Beginning finished goods) + Cost of goods sold ($56,000 − 48,000) + $125,000 = $133,000.

Dorsett Technologies had finished goods inventory on January 1, 20X8 of $29,300 and finished goods inventory on December 31, 20X8 of $24,100. If the cost of goods sold for the year was $427,500, what was the cost of goods manufactured for the year?

Cost of goods manufactured − Change in Finished Goods Balances = $427,500 − ($29,300 − $24,100) = $422,300.

Which of the following manufacturers would most likely use job-order costing?

Custom-furniture manufacturers.

Hsu Company incurred $90,000 of depreciation for the year. Eighty percent relates to the firm's production facilities, and 20% relates to sales and administrative offices. If all items are handled in the proper manner, a review of the company's accounting records should reveal a:

Depreciation for production = $90,000 × 80% = $72,000; the journal entry should include a debit to Manufacturing Overhead for $72,000.

Play Time is a nursery school for pre-kindergarten children. The school has determined that the following biweekly revenues and costs occur at different levels of enrollment: The marginal cost when the twenty-first student enrolls in the school is:

Difference between costs for 21 and 20 students: $3,255 − $3,200 = $55.

Metalica Company applies overhead based on machine hours. At the beginning of 20x1, the company estimated that manufacturing overhead would be $500,000, and machine hours would total 20,000. By 20x1 year-end, actual overhead totaled $525,000, and actual machine hours were 25,000. On the basis of this information, the 20x1 predetermined overhead rate was:

Estimated overhead ÷ Estimated machine hours = $500,000 ÷ 20,000 = $25 per machine hour.

What is Barnett's pool rate for the finishing activity?

Finishing activity costs ÷ Sum of labor hours for each category = $170,000 ÷ [(10,000 × 2) + (5,000 × 2) + (2,000 × 2)] = $5 per labor hour.

The fixed costs per unit are $10 when a company produces 10,000 units of product. What are the fixed costs per unit when 8,000 units are produced?

Fixed costs per unit = Total fixed costs based on 10,000 units ÷ new level of 8,000 units = ($10 × 10,000) ÷ 8,000 = $12.50 per unit.

Which of the following is the proper sequence of events in an activity-based costing system?

Identification of cost pools, identification of cost drivers, calculation of pool rates, assignment of cost to products.

Barnett Products manufactures three types of remote-control devices: Economy, Standard, and Deluxe. The company, which uses activity-based costing, has identified five activities (and related cost drivers). Each activity, its budgeted cost, and related cost driver is identified below. The following information pertains to the three product lines for next year: What is Barnett's pool rate for the material-handling activity?

Material handling activity costs ÷ sum parts for each category = $225,000 ÷ [(10,000 × 10) + (5,000 × 15) + (2,000 × 25)] = $1 per part

Under Barnett's activity-based costing system, what is the per-unit overhead cost of Economy?

Material handling activity costs ÷ sum parts for each category = $225,000 ÷ [(10,000 × 10) + (5,000 × 15) + (2,000 × 25)] = $1 per partMaterial insertion activity costs ÷ sum parts for each category = $2,475,000 ÷ [(10,000 × 10) + (5,000 × 15) + (2,000 × 25)] = $11 per partAutomated machinery activity costs ÷ Sum of machine hours for each category = $840,000 ÷ [(10,000 × 1) + (5,000 × 3) + (2,000 × 5)] = $24 per machine hour.Finishing activity costs ÷ Sum of labor hours for each category = $170,000 ÷ [(10,000 × 2) + (5,000 × 2) + (2,000 × 2)] = $5 per labor hour.Packaging activity costs ÷ sum of order numbers = $170,000 ÷ [(1,000) + (500) + (200)] = $100 per order shipped ÷ 10 = $10 per unitEconomy Model: Per unit costs for all five activities × Driver numbers = [($1 × 10) + ($11 × 10) + ($24 × 1) + ($5 × 2) + ($100 ÷ 10)] = $164

What is Barnett's pool rate for the material-insertion activity?

Material insertion activity costs ÷ sum parts for each category = $2,475,000 ÷ [(10,000 × 10) + (5,000 × 15) + (2,000 × 25)] = $11 per part

Which of the following statements about material requisitions is false?

Material requisitions authorize the transfer of materials from the production floor to the raw materials warehouse.

Carlin and Marley, an accounting firm, provides consulting and tax planning services. For many years, the firm's total administrative cost (currently $270,000) has been allocated to services on this basis of billable hours to clients. A recent analysis found that 55% of the firm's billable hours to clients resulted from tax planning services, while 45% resulted from consulting services. The firm, contemplating a change to activity-based costing, has identified three components of administrative cost, as follows: Staff Support$200,000 In-house computing charges 50,000 Miscellaneous office costs 20,000 Total$270,000 A recent analysis of staff support found a strong correlation with the number of clients served. In contrast, in-house computing and miscellaneous office cost varied directly with the number of computer hours logged and number of client transactions, respectively. Consulting clients served totaled 35% of the total client base, consumed 30% of the firm's computer hours, and accounted for 20% of the total client transactions. If Carlin and Marley switched from its current accounting method to an activity-based costing system, the amount of administrative cost chargeable to consulting services would:

Original: $270,000 × 45% = $121,500; New amount under ABC: [($200,000 × 35%) + ($50,000 × 30%) + ($20,000 × 20%)] = $70,000 + $15,000 + $4,000 = $89,000; $121,500 − $89,000 = $32,500 decrease.

Blakely charges manufacturing overhead to products by using a predetermined application rate, computed on the basis of machine hours. The following data pertain to the current year: Budgeted manufacturing overhead: $480,000 Actual manufacturing overhead: $440,000 Budgeted machine hours: 20,000 Actual machine hours: 16,000 Overhead applied to production totaled:

Overhead applied = (Budgeted overhead ÷ Budgeted machine hours) × Actual machine hours = ($480,000 ÷ 20,000) × 16,000 = $384,000

The accounting records of Younkin Corporation revealed the following selected costs: Sales commissions, $65,000; plant supervision, $190,000; and administrative expenses, $185,000. Younkin's period costs total:

Period costs = Sales commissions + Administrative expenses = $65,000 + $185,000 = $250,000.

Which of the following is not a function of the treasurer?

Preparing financial statements.

Determining the cost of manufacturing a tennis racket at Wilson Sporting Goods.

Providing information for decision making and planning

Rainier Industries has Raw materials inventory on January 1, 20x8 of $32,500 and Raw materials inventory on December 31, 20x8 of $26,700. If purchases of raw materials were $135,000 during the year, what was the amount of raw materials used during the year?

Raw materials used during the year = Purchased raw materials + (change in Raw material balances) = $135,000 + ($32,500 − $26,700) = $140,800.

Which of the following choices correctly depicts activities that would be included in a manufacturer's value chain?

Research and Development Marketing Distribution Yes Yes Yes

Overton Enterprises is converting to an activity-based costing system. It wishes to depict the various activities in its manufacturing process along with the activities' relationships. Which of the following is a tool that the company can use to accomplish this task?

Storyboards.

Bridges and Lloyd, an accounting firm, provides consulting and tax planning services. For many years, the firm's total administrative cost (currently $250,000) has been allocated to services on the basis of billable hours to clients. A recent analysis found that 65% of the firm's billable hours to clients resulted from tax planning services, while 35% resulted from consulting services. The firm, contemplating a change to activity-based costing, has identified three components of administrative cost, as follows: A recent analysis of staff support found a strong correlation between the number of staff personnel and the number of clients served (consulting, 20; tax planning, 60). In contrast, in-house computing and miscellaneous office cost varied directly with the number of computer hours logged and number of client transactions, respectively. Consulting consumed 30% of the firm's computer hours and had 20% of the total client transactions. Assuming the use of activity-based costing, the proper percentage to use in allocating staff support costs to tax planning services is:

Tax client to total clients Ratio = 60 ÷ (60 + 20) = 75%.

Job no. C12 was completed in November at a cost of $28,500, subdivided as follows: direct material, $13,500; direct labor, $6,000; and manufacturing overhead, $9,000. The journal entry to record the completion of the job is:

The journal entry debits Finished-Goods for 28,500 and credits Work-in-Process.

Travers Manufacturing incurred $106,000 of direct labor and $11,000 of indirect labor. The proper journal entry to record these events would include a debit to Work in Process for:

The journal entry would include a debit to Work in Process for $106,000.

Armour, Inc., an advertising agency, applies overhead to jobs on the basis of direct professional labor hours. Overhead was estimated to be $150,000, direct professional labor hours were estimated to be 15,000, and direct professional labor cost was projected to be $225,000. During the year, Armour incurred actual overhead costs of $146,000, actual direct professional labor hours of 14,500, and actual direct labor cost of $222,000. By year-end, the firm's overhead was:

The predetermined overhead rate is computed as: $150,000 / 15,000 = $10 per hour; Applied overhead = $10 × 14,500 = $145,000; Actual overhead = $146,000; Overhead $145,000 (applied overhead) − $146,000 (actual overhead) = $(1,000) underapplied overhead.

Rogers Manufacturing's overhead at year-end was underapplied by $5,800, a small amount given the firm's size. The year-end journal entry to record this amount would include:

The year-end journal entry would include a debit to Cost of Goods Sold.

St. Vincent's, Inc., currently uses traditional costing procedures, applying $800,000 of overhead to products Beta and Zeta on the basis of direct labor hours. The company is considering a shift to activity-based costing and the creation of individual cost pools that will use direct labor hours (DLH), production setups (SU), and number of parts components (PC) as cost drivers. Data on the cost pools and respective driver volumes follow. The overhead cost allocated to Beta by using traditional costing procedures would be:

Total Pool Cost = Sum of No. 1, 2, and 3 = $160,000 + $280,000 + $360,000 = $800,000; Overhead allocated to Beta = (Beta DLH ÷ Total DLH) × Total Pool Cost = (1,200 ÷ 4,000) × $800,000 = $240,000.

St. Vincent's, Inc., currently uses traditional costing procedures, applying $800,000 of overhead to products Beta and Zeta on the basis of direct labor hours. The company is considering a shift to activity-based costing and the creation of individual cost pools that will use direct labor hours (DLH), production setups (SU), and number of parts components (PC) as cost drivers. Data on the cost pools and respective driver volumes follow. The overhead cost allocated to Zeta by using traditional costing procedures would be:

Total Pool Cost = Sum of No. 1, 2, and 3 = $160,000 + $280,000 + $360,000 = $800,000; Overhead allocated to Zeta = (Zeta DLH ÷ Total DLH) × Total Pool Cost = (2,800 ÷ 4,000) × $800,000 = $560,000.

Boxer Industries worked on four jobs during its first year of operation: nos. 401, 402, 403, and 404. A review of job no. 403's cost record revealed direct material charges of $40,000 and total manufacturing costs of $50,000. If Boxer applies overhead at 150% of direct labor cost, the overhead applied to job no. 403 must have been:

Total manufacturing costs for Job 403 − total direct material costs for Job 403 = Total Direct labor and overhead costs for Job 403; Total Direct labor and overhead costs for Job 403 ÷ (100% for direct labor + 150% of direct labor for overhead) = Direct labor cost for Job 403; Direct labor cost for Job 403 × 150% overhead rate = Overhead costs for Job 403; $50,000 − $40,000 = $10,000; $10,000 ÷ 2.5 = $4,000 direct labor; $4,000 × 150% = $6,000 overhead.

Templeton Corporation recently used $75,000 of direct materials and $9,000 of indirect materials in production activities. The journal entries reflecting these transactions would include:

a debit to Manufacturing Overhead for $9,000.

Under- or overapplied manufacturing overhead at year-end is most commonly:

charged or credited to Cost of Goods Sold.

Wembley Company has set various goals, and management is now taking appropriate action to ensure that the firm achieves these goals. One such action is to reduce outlays for overhead, which have exceeded budgeted amounts. Which of the following functions best describes this process?

controlling

The day-to-day work of management teams will typically comprise all of the following activities except:

cost minimizing

If the total cost of alternative A is $50,000 and the total cost of alternative B is $34,000, then $16,000 is termed the:

differential cost.

When using normal costing, the total production cost of a job is composed of:

direct material, direct labor, and applied manufacturing overhead.

Work-in-process inventory is composed of:

direct material, direct labor, and manufacturing overhead.

Which of the following costs is not a component of manufacturing overhead?

factory equipment

Assume that a managerial accountant regularly communicates with business associates to avoid conflicts of interest and advises relevant parties of potential conflicts. In so doing, the accountant will have applied the ethical standard of:

integrity

Which type of production process is likely used for custom yachts built by Hargrave?

job shop

A manufacturing firm produces goods in accordance with customer specifications, commencing production upon receipt of a purchase order. To accumulate the cost of each order, the company would use a:

job-cost record.

A custom-home builder would likely utilize:

job-order costing.

Depreciation of factory equipment would be classified as:

manufacturing overhead

Which of the following would likely be considered an internal user of accounting information rather than an external user?

middle-level managers

Developing a bonus reward system for the managers of the various offices of the AAA (American Automobile Association) Travel Agency.

motivating managers and other employees toward the organizations goals

Successful adoptions of activity-based costing typically occur when companies rely heavily on:

multidisciplinary project teams.

Activity-based costing systems:

often reveal products that were under- or over-costed by traditional costing systems.

Managerial accountants:

often work on cross-functional teams and are located throughout an organization.

Costs that are expensed when incurred are called:

period costs

The term "normal costing" refers to the use of:

predetermined overhead rates.

Rosen, Inc., an appliance manufacturer, is developing a new line of ovens that uses controlled-laser technology. The research and testing costs associated with the new ovens is said to arise from a:

product-sustaining activity.

Estimating the annual operating cost of a newly proposed Wells Fargo branch bank.

providing information for decision making and planning

Measuring the cost of the inventory of digital cameras on hand in a Best Buy store.

providing information for decision making and planning assisting managers in directing and controlling operational activities measuring the performance of activities, subunits, mangers and other employees within the organization

Measuring the following costs incurred during one month in a Hyatt Regency hotel: (a) Wages of table-service personnel. (b) Property taxes.

providing information for decision making and planning assisting managers in directing and controlling operational activities motivating managers and other employees toward the organizations goals measuring the performance of activities, subunits, mangers and other employees within the organization Assisting the organizations competitive position and working with other managers to ensure the organizations long-run competitiveness in its industry

Generally speaking, companies prefer doing business with customers who:

request normal delivery times.

The process of managing the various activities in the value chain, along with the associated costs, is commonly known as:

strategic cost management.

The fixed cost per unit:

will increase as activity decreases and will decrease as activity increases.