Business 202 midterm practice

Shemp's budget for the coming year includes $5,000,000 for manufacturing overhead, 50,000 hours of direct labor, and 200,000 hours of machine time. 45. Refer to the above data. If Shemp applies overhead using a predetermined rate based on machine-hours, what amount of overhead will be assigned to a unit of output which requires 0.5 machine hours and 0.25 labor hours to complete? A. $12.50 B. $16.50. C. $20.00. D. Some other amount.

A. $12.50 $5,000,000/200,000 = $25 ´ ½ = $12.50

30. Sal Minella has monthly fixed costs of $200,000 and expects to earn monthly operating income of $27,500 by selling 6,500 units per month. What is Sal's expected unit contribution margin? A. $35 per unit. B. $31 per unit. C. $27 per unit. D. The information given is insufficient to determine unit contribution margin.

A. $35 per unit. $200,000 + $27,500 = 6,500x; x = $35

32. Refer to the information above. What is the monthly sales volume in dollars necessary to break-even? A. $80,000. B. $66,500. C. $97,059. D. $77,500

A. $80,000. $16,000/.20 = $80,000

Sal Minella Associates sells only one product, with a current selling price of $60 per unit. Variable costs are 30% of this selling price, and fixed costs are $12,000 per month. Management has decided to reduce the selling price to $55 per unit in an effort to increase sales. Assume that the cost of the product and fixed operating expenses are not changed by this reduction in selling price. 35. Refer to the information above. At the current selling price of $60 per unit, the contribution margin ratio is: A. 70%. B. 50%. C. 77%. D. 130%.

A. 70%. ($60 - $18)/$60 = 70%

21. Earl explained to Bubba that two half completed units are equal to one equivalent units and that equivalent units of production are: A. A measure representing the percentage of a unit's cost that has been completed. B. Not computed separately for each input added during production. C. Not assigned to beginning work-in-process or ending work-in-process. D. The total units completed during the period.

A. A measure representing the percentage of a unit's cost that has been completed.

36. Bubba asked Earl what was so important about the contribution margin. Ear replied that in the area of cost-volume-profit analysis, the contribution margin ratio shows how much each dollar of sales contributes to: A. Cover the fixed costs of the business and providing operating income. B. Fixed expenses and variable expenses. C. Variable expenses and interest charges. D. Variable expenses when production is at normal capacity.

A. Cover the fixed costs of the business and providing operating income.

Larry currently manufactures and sells 20,000 beer coolers per month, although it has the capacity to produce 35,000 units per month. At the 20,000-unit-per-month level of production, the per-unit cost is $65, consisting of $40 in variable costs and $25 in fixed costs. Larry sells his coolers to retail stores for $80 each. Moe has offered to purchase 6,000 beer coolers per month at a reduced price. Larry can manufacture these additional units with no change in its present level of fixed manufacturing costs. 40. Refer to the information above. Assume that Moe offers to purchase the additional 5,000 coolers at a price of $48 per unit. If Larry accepts this price, his' monthly gross profit on sales of power saws will: A. Increase by $48,000. B. Increase by $185,000. C. Decrease by $40,000. D. Decrease by $240,000.

A. Increase by $48,000. Hint: Revenue from Larry minus current contribution margin ($80 revenue - $40 variable cost) (6,000 ´ $48) - (6,000 ´ $40) = $48,000

49. Manufacturing cycle time is the time between starting production on a customer order and shipping the order. Cycle time includes: A. Processing time, storage and waiting time, movement time, and inspection time. B. Processing time, inspection time, and inventory time. C. Processing time, storage and waiting time, finishing time, and selling time. D. Processing time, storage and waiting time, movement time, and finishing time.

A. Processing time, storage and waiting time, movement time, and inspection time

50. The manufacturing efficiency ratio is calculated by dividing value-added time by cycle time. During cycle time, value is added only during: A. Processing time. B. Storage and waiting time. C. Movement time. D. Inspection time.

A. Processing time.

22. Which of the following is a value-added activity by Bubba's Beer Brewing Company? A. The addition of malt and hops into the brewing mix. B. Hiring production workers. C. Storing the beer until itis distributed to stores. D. Managing the cost of electricity by the production department.

A. The addition of malt and hops into the brewing mix.

25. Sal Minella asked his management accountant to calculate his manufacturing efficiency ratio. The manufacturing efficiency ratio equals: A. Value-added time divided by cycle time. B. Value-added time multiplied by cycle time. C. Cycle time divided by value-added time. D. (Cycle time divided by value-added time) divided by 2.

A. Value-added time divided by cycle time.

The following information is available regarding the total manufacturing overhead of Curley Company for a recent four-month period. Machine Mfg Hours Overheard April 90,000 170,000 May 72,000 143,000 June 110,000 198,000 July 95,000 181,000 38. Refer to the information above. Using the high-low method, compute the variable element of manufacturing overhead cost per machine hour. A. $0.82 per machine hour. B. $1.45 per machine hour. C. $1.35 per machine hour. D. $2.05 per machine hour.

B. $1.45 per machine hour. ($198,000 - $143,000)/(110,000 - 72,000) = $1.45

Sal Minella uses a job order cost system and has established a predetermined overhead application rate for the current year of 150% of direct labor cost, based on budgeted overhead of $900,000 and budgeted direct labor cost of $600,000. Job no. 1 was charged with direct materials of $46,000 and with overhead of $36,000. What is the total cost of job no. 1? A. $89,000. B. $106,000. C. $116,000. D. Cannot be determined without additional information.

B. $106,000. without additional information. ($36,000/150%) + $46,000 + $36,000 = $106,000

16. What are the factory foremen salaries allocated to Product A during the current month? A. $11,607. B. $30,375. C. $36,607. D. $75,000.

B. $30,375. $85,000 factory foremen salaries/21,000 machine hours ´ 7,500 attributed to Car Seats = $30.,375 rounded

Bubba's Bait and Beer incurred the following quality costs for the year ending December 31, 2015: inspections - $32,000 training - $15,000 quality planning - $7,000 maintaince - $12,500 rework - $3,000 warranty - $7,500 testing of equiptment $6,300 scrap - $8,000 lost sales - $22,250 downtime - $8,700 repairs - $5,500 27. Refer to the information above. What are the total prevention costs for the Bubba's Bait and Beer? A. $38,300. B. $34,500. C. $19,700. D. $35,250.

B. $34,500. $15,000 + $7,000 + $12,500 = $34,500

44. Homer's Auto Body uses a job order cost system. Overhead is applied to jobs on the basis of direct labor hours. During the current period, Job No. 337 was charged $425 in direct materials, $450 in direct labor, and $150 in overhead. If direct labor costs an average of $15 per hour, the company's overhead application rate is: A. $6.40 per direct labor hour. B. $5.00 per direct labor hour. C. $17.50 per direct labor hour. D. $40 per direct labor hour.

B. $5.00 per direct labor hour. $450/$150 = $3.00; $15/$3.00 = $5.00

Waleska Manufacturing, Inc. is interested in producing and selling an improved widget. Market research indicates that customers would be willing to pay $80 for such a widget and that 50,000 units could be sold each year at this price. The current cost to produce the widget is estimated to be $55.24. Refer to the information above. If Waleska Manufacturing requires a 25% return on sales to undertake production, what is the target cost for the new widget? A. $55.00. B. $60.00. C. $57.50. D. Some other amount.

B. $60.00. $80 - ($80 ´ 0.25) = $60.00

Product X contribution margin ratio - 40% and relative sales mix - 40% product y - contribution ammrgin ratio - 30% and relative sales mix - 60% 37. Canton Chemical Corporation manufactures two products; data are shown below: If Canton's monthly fixed costs average $212,500, what is its break-even point expressed in sales dollars? A. $660,000. B. $625,000. C. $700,000. D. $445,000.

B. $625,000. Average contribution margin = (40% ´ 40%) + (30% ´ $60%) = 34% $212,500/34% = $625,000

Maxium capacity with present facilities - 4,500 units total fixed cost (per period) - $986,337 variable cost per unit - $120.29 sales per unit - $200.48 34. Refer to the information above. The contribution margin per unit for product No. RX450 is: A. $26. B. $80.19. C. $117. D. $63.

B. $80.19. $200.48 - $120.29 = $80.19

33. Refer to the information above. How many units must be sold each month to earn a monthly operating income of $8,000? (Round your final answer to the next whole number.) A. 486 units. B. 706 units. C. 61,250 units. D. 177 units.

B. 706 units. ($16,000 + $8,000)/$34 = 706

28. When Waleska Whiskeys' volume increases, the fixed cost per unit: A. Increases. B. Decreases. C. Stays the same. D. Increases or decreases, depending upon the situation.

B. Decreases.

17. Waleska Whiskey uses product costing. All of the following are characteristics of Waleska Whiskey's business except: A. High volume. B. Different amounts of direct materials. C. Identical amounts of direct labor. D. Repetitive operations.

B. Different amounts of direct materials.

26. Earl told Bubba that the four categories of costs associated with product quality are: A. External failure, internal failure, prevention, and carrying. B. External failure, internal failure, prevention, and appraisal. C. External failure, internal failure, training, and appraisal. D. Warranty, product liability, prevention, and training.

B. External failure, internal failure, prevention, and appraisal.

Ben Dover Inc. manufactures three products. Ben's manufacturing costs are budgeted as follows: Factory utilities $105,000 Factory foremen salaries $85,000 Machinery setup costs $30,000 Total manufacturing overhead $210,000 The company uses activity-based costing to allocate its manufacturing overhead costs to products based on the following schedule: Overhead Cost Allocation Base Est Activity Factory utilities Direct labor hrs. 14,258 Factory foreman salary Machine hours 21,000 Set up Cost Production runs 85 During the current month, the following levels of activities were incurred: Product A Product B Product C Total Direct Labor Cost $55,425 $84,423 $31,258 $171,106 Direct Labor Hours 4,619 7,035 2,604 14,258 Machine Hours 7,500 10,250 3,250 21,000 Production Runs 25 42 18 85 Units Produced 1,500 2,500 750 4,750 15. What are the setup costs allocated to Product B during the current month? A. $9,036. B. $6,502. C. $14,823. D. Cannot be determined.

C. $14,823. $30,000 setup costs/85 total production runs ´ 42 production runs attributed to Product B = $14,823 rounded

46. Homer has monthly revenue of $140,000, variable costs of $60,000, and fixed costs of $40,000. His contribution margin is: A. $90,000. B. $70,000. C. $80,000. D. $30,000.

C. $80,000. $140,000 - $60,000 = $80,000

Canton Construction applies overhead to its projects at a rate of $55 per direct labor hour. Laborers are paid an average rate of $30 per hour. The Reinhardt University Apartments project was charged a total of $1,200,000 in direct materials and $480,000 in direct labor costs. 14. Refer to the information above. Overhead applied to the Reinhardt Apartments project amounted to: A. $425,000. B. $650,000. C. $880,000. D. Some other amount.

C. $880,000. $480,000/30 = 16,000 hours ´ $55 = $880,000

Moe manufactures and sells 900 ATV's each month. The primary component in each ATV is the motor. Moe has the monthly capacity to produce 1,300 motors. The variable costs associated with manufacturing each motor are shown below: Direct materials - $24 Direct labor - $16 Variable manufactoring overhead - $29 Fixed manufacturing overhead per month (for up to 1,300 units of production) averages $18,000. Curley has offered to purchase 200 motors from Moe per month to be used in its own ATV. 41. Refer to the information above. If Curley's order is rejected, what will be Moe's average unit cost of manufacturing each motor? A. $61 per unit. B. $63 per unit. C. $89 per unit. D. Some other amount.

C. $89 per unit. $24 + $16 + $29 + ($18,000/900) = $89

48. Examples of value-added activities include all of the following except: A. Product design. B. Assembly activities. C. Machinery set-up activities. D. Establishing efficient distribution channels.

C. Machinery set-up activities.

23. The management accountant at Canton Chemical Company decided to use target costing because target costing is directed toward: A. Increasing the activity costs associated with existing products. B. Identifying the amount by which the costs of existing products must be reduced to achieve a target profit margin. C. The creation and design of products that will provide adequate profits. D. The improvement of existing production processes by eliminating non-value adding activities.

C. The creation and design of products that will provide adequate profits.

The following information is avaible about the August transactions of the waleska whisky company 1) invoices for product costs paid in august - $593,000 2) product costs charged to WIP - $873,000 3) cost of goods sold - $893,000 4) cost of finished goods manufactured - $818,000 The product costs to be deducted from revenue in August amount to: A) $593,000 B) $837,000 C) $818,000 D)$893,000

D) Cost of goods sold is the amount ot be deducted from revnue in August

Homer installs the seats and tires in Bubba's Bicycle shop. Homer's cost is considered. A) manufactoring overhead B) Indirect labor C) direct material D) direct labor

D) Direct Labor

47. If the unit sales price is $8 and variable costs are $4, how many units have to be sold to earn a profit of $3,600 if fixed costs equal $5,000? A. 900 units. B. 1,250 units. C. 1,500 units. D. 2,150 units.

D. 2,150 units. $5,000 + $3,600/($8 - $4) = 2,150 units

20. If Bubba's beginning inventory in Work in Process is zero and 3,000 units are started during the period, assuming that 300 units remain in ending inventory, how many equivalent units were completed and transferred out? A. 3,000 units. B. 1,285 units. C. 1,300 units. D. 2,700 units.

D. 2,700 units. 0 beginning inventory + 3,000 units started - 300 in ending inventory = 2,700 completed and transferred out

Waleska Industries manufactures a single product. The selling price is $170 per unit, and variable costs amount to $136 per unit. The fixed costs are $16,000 per month. 31. Refer to the information above. What is the contribution margin ratio of Waleska Industries product? A. 65%. B. 80%. C. 72%. D. 20%.

D. 20%. ($170 - $136)/170 = 20%

29. Earl told Bubba that last year the firm had a 45% contribution margin ratio This means that: A. The company should contribute 45% of its operating income to qualified charities for maximum tax benefits. B. 55% of the company's revenue is consumed by fixed and variable costs. C. The company's revenue has increased by 45% during the current accounting period. D. 45% of the company's revenue is available to cover fixed costs and to contribute toward operating income.

D. 45% of the company's revenue is available to cover fixed costs and to contribute toward operating income.

18. Which company would most likely not use a process costing system? A. Crayola Crayon Company. B. Cambell Soup Company. C. Canton Candy Company D. Canton Custom Home Builders.

D. Canton Custom Home Builders.

19. Waleska Whiskey's process costing system differs from Waleska Manufacturing Company's job order costing system in that: A. There is no need for overhead application rates in process costing systems. B. Process costing systems are used primarily in service industries, whereas job order costing systems are used in manufacturing operations. C. Per-unit costs are not computed in process costing systems. D. Process costing systems are used when production involves large volumes of standardized products, whereas job order costing systems are used when each job or batch of products is uniquely different.

D. Process costing systems are used when production involves large volumes of standardized products, whereas job order costing systems are used when each job or batch of products is uniquely different.

42. Opportunity costs are those represent the value of the best alternative foregone and therefore are irrelevant in decision making. TRUE FALSE

False

waleska whisky would most likely use a job order costing system true or false

False

earl uses a predetermined overhead rate when distributing overhead costs to various jobs. the predetermined overhead application rate: a) expresses an expected relationship between overhead costs and activity base b) can be determined by dividing budgeted direct labor costs by the budget direct labor costs by the budgeted fatctory overhead costs c) is computer at the end of the period once atual overhead costs are known d) applies to the amount of voerhead to each product or service

a) expresses an expected relationship between overhead costs and activity base

All maufactoring costs except direct material and labor is known as: a) manufactoring overhead b) period costs c) indirect materials and indirect labor d) all operating expenses other than selling expenses and general and adminstrative expenses

a) manufactoring overhead

39. When Bubba wanted to include the cost of previously spent funds in his decision making, Earl told him to forget about it because funds spent in the past that cannot be recovered are not relevant in making financial decisions and are referred to as: A. Sunk costs. B. Opportunity costs. C. Incremental costs. D. Out-of-pocket costs.

a) sunk costs

When bubba's account Earl wants to record the placing of direct materials into the prodution process he will post an entry crediting a) materials expense b) raw materials inventory c) work in process inventory d) finished goods inventory

b) raw materials inventory

After taking bus 202, Earl knows that manufactoring costs do not include: a) direct labor applicable to production within the period b) the salaries of sales persons c) direct materials used during the period d) manufactoring overhead charged to work in process during the period

b) the saleries of the sales persons

Bicycles still in production at Bubbas's biycle company would be which account a) raw materials inventory b) work in process inventory c) finished goods inventory d) cost of goods sold

b) work in process inventory

Determine the amount of manufacotring overhead given the following information: Depreciation of factory building - $2,700 telephone expense in factory office - $1,050 telephone expense in sales showroom -$950 factory foremen's salary -$5,300 wages of factory janitor -$1,100 maintenance cost for sales show room-$980 a) $8,750 b) $10.430 c)$10,150 d)$10,080

c) $10,150 $2,700 + $1,050 + $5,300 + $1,100 = $10,150

purchae of direct material - $70,000 direct materials used - $45,000 direct laor cost to production $25,000 manufactoring OH incurred - $35,000 balances in inventory materials - (august 31 - ??) (august 1 - $35,000) WIP - (august 31 - $65,000) (august 1 - $47,000) finihsed goods - (august $60,000) (august 1 - $43,000) the total amount of inventory to be included in bens august 31st balance sheet amounts to a) $135,000 b) $210,000 c) $185,000 d) some other

c) $185,000 ($35,000 + $70,000 - $45,000) + $65,000 + $60,000 = $185,000

Which of the following is not one of the three types of inventories of a manufactoring company? a) raw materials inventory b) work in process inventory c) cost of goods sold inventory d) finished goods inventory

c) cost of goods sold inventory

Bubba's product costs include all of the following except: a) depreciation on a warehouse where raw materials are stored b) an employee working directly on assembling a bicycle c) bicycle seats and wheels d) maintenance on his Waleska showroom

d) maintenance on his Waleska showroom

43. In determining whether to scrap or to rebuild defective units of product, the cost already incurred in producing the defective units is not relevant. FALSE TRUE

true