Cost Accting Book Quiz 1-4

Carrie Corporation makes three products: a standard model, a deluxe model, and a luxury model. The financial statements of the products are as follows: If the deluxe model product line was discontinued, all variable costs for that line could be avoided and $10,000 of the salaries associated with that model could be avoided. The other fixed costs are unavoidable. If the deluxe model product line is dropped, how will the company's operating profit be impacted?

$25,000 decrease

A retailer called Little Big Brother sells video games. The games sell for $40 each. The variable costs consist of the purchase price of $20 per video game. The store's annual fixed costs are $250,000 and the company's income tax rate is 40%. What is the volume of sales dollars required to earn an after-tax target profit of $120,000?

$900,000

Charleston Inc. manufactures 40,000 components per year. The manufacturing cost of the components total $190,000 and are comprised of direct materials, $90,000; direct labor, $50,000; variable manufacturing overhead, $20,000; and fixed manufacturing overhead, $30,000. If Charleston purchases the component from an outside supplier for $4.25 per unit, how will the company's operating profit be impacted?

10,000 decrease

Jordan Inc. manufactures water polo balls, which sell for $50. The company expects to incur the following costs during the coming year: variable manufacturing cost, $15 per unit; variable selling and administrative cost, $5 per unit; fixed manufacturing cost, $35,000; and fixed selling and administrative cost, $25,000. What is the break-even volume in sales dollars?

100,000

Summit Company manufactures and sells three products; X, Y, and Z. Last year sales of these products were 20,000 units of X, 30,000 units of Y and 50,000 units of Z. The unit contribution margins are $5 for X, $4 for Y, and $3 for Z. Assuming the product mix remains the same and that fixed costs are $222,000, how many units of X must Summit sell to break even?

12,000

Hale & Hearty Inc. currently sells 10,000 treadmills for $520 each. Variable costs relating to this product are $320 per unit and fixed costs total $1,200,000. What is the company's margin of safety?

4,000 units

Perennial Company, a manufacturer of decorative pots, expects sales of 500,000 pots at $10 each during the coming year. Variable manufacturing costs are $4 per unit and fixed manufacturing costs are $2.50 per unit. The company received a special order from an overseas customer to purchase 50,000 pots at $6 each. The company has sufficient plant capacity to manufacture this order. However, additional overtime labor costs of $1.00 per pot would be required to produce the pots. No other costs would be incurred as a result of accepting the order. If the special order is accepted, how will operating profit be impacted?

50,000 increase

Key West Inc. manufactures inflatable kayaks. Each kayak sells for $350. At a production level of 10,000 units, the total variable manufacturing cost is $1,200,000 and the fixed manufacturing cost in total is $420,000. At this level of activity, the company will incur variable selling and administrative costs of $900,000 and fixed selling and administrative costs of $770,000. How many units have to be sold to break even?

8500

Cuddly Toys makes a large teddy bear that currently sells for $62 per bear. At a production level of 20,000 bears per year, the bears have a total unit cost of $50 per bear. The total unit cost is comprised of variable costs of $45 per bear and fixed costs of $5 per bear (or total fixed costs of $100,000 ÷ 20,000 bears). The company has been approached by a new customer who wants to buy 5,000 large bears for $47 apiece. What is the effect on operating profit if the special order is accepted? A) $10,000 increase to operating profit B) $10,000 decrease to operating profit C) $15,000 increase to operating profit D) $15,000 decrease to operating profit E) None of the above.

A

Pascoe Company, a manufacturer of candy jars, expects sales of 500,000 jars at $10 each during the coming year. Variable manufacturing costs are $4 per unit and fixed manufacturing costs are $2.50 per unit. The company received a special order from a customer to purchase 50,000 jars at $6 each. The company has sufficient plant capacity to manufacture this order. However, additional overtime labor costs of $1.00 per jar would be required to produce the jars. No other costs would be incurred as a result of accepting the order. If the special order is accepted, how will operating profit be impacted? A) $50,000 increase B) $75,000 decrease C) $100,000 increase D) $175,000 decrease E) None of the above

A

Soapy's Suds makes and sells root beer. Its beginning work in process was $12,000 and the ending work in process was $10,000. During the year, Soapy used $45,000 of direct materials and incurred $30,000 of direct labor in production. Its cost of goods manufactured for the period was $97,000. How much manufacturing overhead did Soapy incur during the period? A) $20,000 B) $22,000 C) $24,000 D) $26,000 E) None of the above.

A

Which of the following is not an overarching ethical principle of the IMA Statement of Ethical Professional Practice? A) Discipline B) Fairness C) Honesty D) Objectivity E) All of the above are the overarching ethical principles.

A

Which of the following statements is not correct? A) Dumping is the practice of setting the selling price of a product at a low price with the intent of driving competitors out of the market or creating a barrier to entry for new competitors. B) Price discrimination is the practice of selling identical goods or services to different customers at different prices. C) Peak-load pricing is the practice of setting prices highest when the quantity demanded for the product approaches the physical capacity to produce it. D) Price fixing is a particular legal and ethical problem because it is not universally illegal. E) Throughput contribution equals sales dollars minus direct materials costs and other variable costs such as energy and piecework labor.

A

Which of the following statements regard life-cycle product costing and pricing is not correct? A) The product life cycle covers the time from initial research and development to the time at which the product is first sold to customers. B) Life-cycle costing tracks costs attributable to each product from start to finish. C) A product life-cycle budget highlights for managers the importance of setting prices that will cover costs in all value-chain categories. D) Life-cycle costing is becoming increasingly important in light of Take-Back Laws in Europe, which make the costs of recycling and disposal of products the responsibility of the manufacturer. E) Life-cycle costs provide important information for pricing.

A

Abbott Company incurred the following costs during the year: utilities (60% factory), $5,000; insurance (75% factory), $4,000; direct materials, $20,000; indirect materials, $3,000; direct labor, $30,000; and indirect labor, $5,000. What is the amount of conversion costs incurred during the year? A) $36,000 B) $44,000 C) $77,000 D) $94,000 E) None of the above.

B

Aspen Corporation has two divisions, East and West. Its corporate office is separate from these divisions and incurred $190,000 in administrative costs during the 2010. These costs are allocated to the divisions based on their individual revenues. During 2010, the East and West divisions had revenues of $1,800,000 and $2,200,000, respectively. How much of the administrative cost should be assigned to the East division based on the cost allocation rule described? A) $76,000 B) $85,500 C) $95,000 D) $104,000 E) None of the above.

B

Assume that you are a cost accountant who is a member of the Institute of Management Accountants (IMA). If you are faced with an ethical conflict, what should you do? A) Resign from the company. B) Follow the established policies that deal with them and, if the policies do not resolve the conflict, you should consider discussing the matter with superiors. C) Go directly to the audit committee with the information. D) All of the above. E) None of the above.

B

Bent Tree incurred the following unit costs during 2011: variable manufacturing cost, $27; fixed manufacturing cost, $10; variable marketing and administrative cost, $8; and fixed marketing and administrative cost, $6. During 2011, Bent Tree produced 30,000 units and sold 25,000 units of product. The selling price was $67 per unit. What was Bent Tree's total gross margin? A) $400,000 B) $750,000 C) $800,000 D) $1,000,000 E) None of the above.

B

Factory Fitness currently is selling 10,000 treadmills for $520 each. Variable costs on this product are $320 per unit and fixed costs are $1,200,000. What is the company's margin of safety? A) 2,000 units B) 4,000 units C) 6,000 units D) 8,000 units E) None of the above

B

Which of the following describes an important qualitative factor to consider regarding a special order? A) The variable costs associated with the special order B) The effect the sale of special-order units will have on the sale of regularly priced units C) The incremental revenue that will be generated by the special order D) The avoidable fixed costs associated with the special order E) The unavoidable fixed costs associated with the special order

B

Which of the following is an information technology that links the various processes of an enterprise into a single comprehensive system? A) Activity-based costing B) Enterprise resource planning C) Just-in-time D) Six Sigma E) None of the above.

B

Which of the following statements regard life-cycle product costing and pricing is not correct? A) The target price is the price based on customers' perceived value for the product and the price that competitors charge. B) Target cost equals the target price plus the desired profit margin. C) Target costing is the concept of "price-based costing" instead of "cost-based pricing." D) Target costing is widely used by companies in the automobile, electronics, and the personal computer industries. E) All of the above are correct statements.

B

Which of the following terms is used to describe a cost that changes in response to alternative courses of action? A) Relevant cost B) Differential cost C) Target cost D) Sunk cost E) None of the above.

B

Apex manufactures and sells three products; X, Y, and Z. Last year sales of these products were 20,000 units of X, 30,000 units of Y and 50,000 units of Z. The unit contribution margins are $5 for X, $4 for Y, and $3 for Z. Assuming the product mix remains the same and that fixed costs are $222,000, how many units of X must be sold for Apex to break-even? A) 10,000 B) 12,000 C) 22,200 D) 44,400 E) None of the above

B The three products sell in a fixed product mix ratio of 20,000:30,000:50,000 or 2:3:5. A package is defined two units of X + three units of Y and five 5 units of Z. The weighted-average unit contribution margin of a package = (unit contribution margin x the product mix ratio for product X) + (unit contribution margin x the product mix ratio for product Y) + (unit contribution margin x the product mix ratio for product Z) = ($5 x 2) + ($4 x 3) + ($3 x 5) = $37 per package. Break-even number of packages = fixed costs of $222,000 ÷ weighted-average unit contribution margin of $37 = 6,000 packages. Since there 2 units of X per package, 12,000 (or 6,000 x 2) units of X must be sold for Apex to break-even.

After-tax target profits are equal to the before-tax operating profits: A) plus income taxes. B) multiplied by (1 + tax rate). C) multiplied by (1 - tax rate). D) divided by (1 - tax rate). E) None of the above.

C

Bent Tree incurred the following unit costs during 2011: variable manufacturing cost, $27; fixed manufacturing cost, $10; variable marketing and administrative cost, $8; and fixed marketing and administrative cost, $6. During 2011, Bent Tree produced 30,000 units and sold 25,000 units of product. The selling price was $67 per unit. What was Bent Tree's total contribution margin? A) $400,000 B) $750,000 C) $800,000 D) $1,000,000 E) None of the above.

C

If a company decides to increase its selling price by $4 per unit because of an increase in its variable labor cost of $4 per unit, what impact will these two changes have on the break-even volume in units? A) It will decrease. B) It will increase. C) It will not be impacted. D) It will change, but the direction of the change cannot be determined using the information provided. E) None of the above.

C

If a company produces or purchases units just in time for use, keeping inventories at a minimum, which of the following methods is it using? A) Activity-based costing B) Enterprise resource planning C) Just-in-time D) Lean accounting E) None of the above.

C

JK Industries manufactures 40,000 components per year. The total manufacturing cost of the components total $210,000 and are comprised of direct materials, $90,000; direct labor, $50,000; variable manufacturing overhead, $20,000; and fixed manufacturing overhead, $30,000. If JK Industries purchases the component from an outside supplier for $4.25 per unit, how will the company's operating profit be impacted? A) $30,000 decrease B) $30,000 increase C) $10,000 decrease D) $10,000 increase E) None of the above.

C

James Company had the following costs at a production level of 30,000 units of product: direct materials, $45,000; direct labor, $60,000; variable manufacturing overhead, $15,000 and fixed manufacturing overhead, $30,000. If the same cost pattern persists, what would be the total cost of production at a level of 50,000 units? A) $170,000 B) $210,000 C) $230,000 D) $250,000 E) None of the above

C

Mosquito Mania manufactures an electric trap to kill mosquitoes. The trap sells for $350. At a production level of 10,000 units, the total variable manufacturing cost is $1,200,000 and the fixed manufacturing cost in total is $420,000. At this level of activity, the company will incur variable selling and administrative costs of $900,000 and fixed selling and administrative costs of $770,000. How many traps have to be sold to breakeven? A) 5,100 B) 6,700 C) 8,500 D) 10,000 E) None of the above

C

Toy Queen sells video games. The games have been selling for $40 each. The variable costs consist of a $20 purchase price per game. Toy Queen's annual fixed costs are $250,000 and the company's income tax rate is 40%. What is the volume of sales dollars required to earn an after-tax target profit of $120,000? A) $500,000 B) $740,000 C) $900,000 D) $1,100,000 E) None of the above

C

Which of the following describes the set of activities that transforms raw resources into the goods and services end users (households, for example) purchase and consume and also includes the treatment or disposal of any waste generated by the end users? A) Supply chain B) Cost driver C) Value chain D) Balanced scorecard E) None of the above.

C

Which of the following is an example of a nonvalue-added activity? A) Research and development (R&D) B) Purchasing C) Reworking defective units D) Distribution E) All of the above are examples of value-added activities.

C

Sipco, Inc., a wholesaler, purchased $175,000 of inventory during the year, incurred transportation-in costs of $21,000, and shipping costs of $14,000. The company had $10,000 of inventory on hand at the beginning of the year and $7,000 on hand at the end of the year. What is the cost of goods for the year? A) $178,000 B) $193,000 C) $199,000 D) $213,000 E) None of the above.

C-

A company sells a product for $50 and incurs the following costs: variable manufacturing cost, $15 per unit; variable selling and administrative cost, $5 per unit; fixed manufacturing cost, $35,000; and fixed selling and administrative cost, $25,000. What is the break-even volume in sales dollars? A) $50,000 B) $65,000 C) $75,000 D) $100,000 E) None of the above

D

Operating leverage refers to the extent to which an organization's cost structure is made up of: A) variable costs. B) manufacturing costs. C) operating costs. D) fixed costs. E) product costs.

D

Summit Manufacturing had $10,000 of direct materials on hand at the beginning of the year and $9,000 on hand at the end of the year. During the year, the company purchased $42,000 of direct materials, and incurred $22,000 of direct labor and $17,000 of manufacturing overhead. The company had $26,000 of inventory in work in process at the beginning of the year and $12,000 at the end of the year. What is the cost of goods manufactured for the year? A) $68,000 B) $82,000 C) $94,000 D) $96,000 E) None of the above.

D

The contribution margin per unit for is $10 for product X and $15 for product Y. It takes 2.5 hours to produce each unit of product X and 3 hours to produce each unit of product Y. Fargo has a maximum production capacity of 25,000 machine hours and the demand for products X and Y is a maximum of 5,000 units each. How many units of product X and units of product Y should be produced? A) 5,000 of product X and 5,000 of product Y B) 1,000 of product X and 5,000 of product Y C) 2,000 of product X and 5,000 of product Y D) 4,000 of product X and 5,000 of product Y E) None of the above

D

Which is of the following statements regarding cost accounting information is not correct? A) Cost accounting information is designed for managers. B) Cost accounting information is commonly used in financial accounting information. C) The primary purpose of cost accounting information is to provide information to management D) Cost accounting information is governed by generally accepted accounting principles (GAAP) in the United States and international financial reporting standards (IFRS) in many other countries. E) All of the above are correct statements.

D

Which of the following statements regard assumptions and limitations of CVP analysis is not correct? A) CVP analysis relies on certain assumptions and these assumptions might limit the applicability of the results for decision making. B) The limitations are due to the assumptions that the cost analyst makes; that is, they are not inherent limitations to the method of CVP analysis itself. C) The assumptions of constant unit variable cost and constant unit prices for all levels of volume as important limitations of CVP analysis. D) If unit prices change (for example, for if they are lower for higher volumes), CVP analysis cannot be used. E) CVP analysis is a tool that the manager can use to help with decisions.

D

Which of the following statements regarding costs and expenses is not correct? A) An expense is a cost charged against revenue in an accounting period. B) We incur costs whenever we give up (sacrifice) resources, regardless of whether we account for it as an asset or an expense. C) If the cost is recorded as an asset, it becomes an expense when the asset has been consumed. D) Accounting systems typically capture and record both outlay costs and opportunity costs. E) All of the above are correct statements.

D

Which of the following terms is used to describe a cost that has been incurred that cannot be changed by present or future decisions? A) Differential cost B) Opportunity cost C) Marginal cost D) Sunk cost E) None of the above.

D

What does the Sarbanes-Oxley Act of 2002 require the CEO and CFO to do? A) Take responsibility for signing financial statements. B) Stipulate that the financial statements do not omit material information. C) Disclose that they have evaluated the company's internal controls. D) Disclose that they have notified the company's auditors and the audit committee of the board of any fraud that involves management. E) All of the above are requirements of the Sarbanes-Oxley Act of 2002

E

Which of the following is a value-added activity? A) Product design B) Production C) Marketing D) Customer service E) All of the above are examples of value-added activities

E

Which of the following statements regard CVP analysis with spreadsheets is not correct? A) A spreadsheet program such as Microsoft Excel ® is ideally suited to doing CVP routinely. B) Once the data are entered, an analysis tool such as Goal Seek can be used to find the volume associated with a given desired profit level. C) A simple CVP spreadsheet that is extremely simple can easily be edited to analyze alternative scenarios. D) Statements b and c are not correct. E) All of the above are correct statements.

E

Which of the following statements regarding budgets is not correct? A) Budgets help managers decide whether their goals can be achieved and, if not, what modifications are necessary. B) As part of the planning and control process, managers prepare budgets containing expectations about revenues and costs for the coming period. C) Budgeting is very important to the financial success of individuals and organizations. D) A budget is the financial plan of the revenues and resources needed to carry out activities and meet financial goals. E) All of the above are correct statements.

E

Which of the following statements regarding target costing from target pricing is not correct? The target price is the price based on customers' perceived value for the product and the price that competitors charge. Target cost equals the target price plus the desired profit margin. Target costing is the concept of "price-based costing" instead of "cost-based pricing." Target costing is widely used by companies in the automobile, electronics, and the personal computer industries. All of the above are correct statements.

Target cost equals the target price plus the desired profit margin.